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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NO. 0-19153

VIMRX PHARMACEUTICALS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 06-1192468
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2751 CENTERVILLE ROAD, WILMINGTON, DELAWARE 19808
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code:

(302) 998-1734

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

NONE

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

COMMON STOCK, $.001 PAR VALUE

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

The aggregate market value of the voting stock (Common Stock, $.001 par
value) held by non-affiliates of the Registrant was approximately $87,037,694
on March 24, 1998 based on the closing sale price of the Common Stock on such
date.

The aggregate number of outstanding shares of Common Stock, $.001 par
value, of Registrant was 66,498,676 on March 24, 1998.
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Documents incorporated by reference: None

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995

This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 which are not historical facts, and involve
risks and uncertainties that could cause actual results to differ materially
from those expected and projected. Such risks and uncertainties include the
following: general economic conditions and conditions specific to the
biotechnology industry, regulatory changes and conditions, competitive factors,
and the risk factors listed from time to time in the Company's Securities and
Exchange Commission filings. Accordingly, there can be no assurance that the
actual results will conform to the forward looking statements in the Annual
Report.

PART I

ITEM 1. BUSINESS.

General

VIMRX Pharmaceuticals Inc. ("VIMRX" or the "Company") is a biotechnology
company that focuses on innovative technologies to improve human health. The
Company has three majority owned subsidiaries and has three compounds under
development, and continues to seek emerging innovative technologies to diversify
its portfolio of potential products. VIMRX has an approximately 80% interest in
Nexell Therapeutics Inc. ("Nexell"), the former Immunotherapy Division of Baxter
Healthcare Corporation, which it acquired in December, 1997. Nexell is
developing and selling products utilizing cell separation technology in cell
therapy for cancer and other life-threatening diseases. The Company also owns
approximately 70% of the capital stock of Innovir Laboratories, Inc. (Nasdaq:
INVR) ("Innovir") which, together with its subsidiaries, is engaged in the
research and development of oligozymes, a new class of biopharmaceutical agents
for use in identifying, characterizing, and validating pharmaceutical drug
discovery targets (target validation). VIMRX's third majority owned subsidiary,
VIMRX Genomics, Inc. ("VGI"), is a research collaboration in the area of novel
gene discovery (genomics) with Columbia University. The three compounds in
development consist of: VIMRxyn(R), chemically synthesized hypericin, which is
in clinical trials for brain cancer and as a topical agent for skin diseases;
VM201, a Factor IXa inhibitor for selective inhibition of blood clotting without
the bleeding risk associated with anti-coagulation; and VM301, a Phase I novel
wound healing agent.

Nexell

General

Nexell (formerly BIT Acquisition Corp.) is engaged in the development,
manufacture, marketing and distribution of specialized instruments used in ex
vivo cell research and therapies. Nexell's cell processing instruments are used
in combination with biological reagents and other instruments to provide
integrated systems for manipulation of cells extracted from patients. These
cell-processing instruments are used in the treatment of various diseases,
including various forms of cancer.

Nexell currently markets the Isolex(R) Cell Separator, an automated,
sterile path instrument for the positive clinical separation of specific cell
populations from blood and bone marrow (positive cell selection). In positive
cell selection, a targeted cell population is captured and retained for
reinfusion or for further biological manipulation. Nexell offers three versions
of the Isolex(R) Cell Separator instrument: the smaller scale Isolex(R) 50 Cell
Separator for research use; the clinical scale semi-automated Isolex(R) 300SA
Cell Separator; and the fully automated Isolex(R) 300i Cell Separator. All
three versions are currently marketed for therapeutic and/or research purposes
in Europe. As Nexell has not yet received regulatory approval of these
instruments for therapeutic purposes, sales in the United States and Japan are
limited to research laboratories and institutions on a cost recovery basis.

In addition to the positive selection Isolex(R) Cell Separator, Nexell
markets the MaxSep(R) System. The semi-automated MaxSep(R) System is a negative
selection system in which undesired cells are removed from a diverse population
of cells. The MaxSep(R) System is currently marketed for therapeutic purposes
in Europe.

Nexell also markets various ancillary products that are utilized in the
cell manufacturing cycle. These products include the following: Cryocyte(TM)
containers used in the freezing of blood components; Lifecell(R) tissue
culture flasks which provide a closed system environment for culturing cells;
CFU stem cell kits used to measure stem cell colony formation in samples of bone
marrow, peripheral blood, cord blood, or selected CD3 cells; and Harvester(TM),
a cell collection device used primarily to reduce large cell volumes.

Acquisition of Nexell

VIMRX acquired the intellectual property and intangible assets, other than
trademarks, of the Immunology Division (the "Division") of the Biotech Business
Group of Baxter Healthcare Corporation ("Baxter"), in December 1997, for
11,000,000 shares of the Company's Common Stock and 66,304 shares of the
Company's Class A Preferred Stock, and immediately transferred such intangible
assets to Nexell in exchange for 80.5% of Nexell's common stock. Concurrently,
Nexell acquired the tangible assets, business, trademarks and certain
obligations of the Division in exchange for the issuance to Baxter of 19.5% of
Nexell's common stock and a warrant entitling Baxter to purchase an additional
6% of Nexell's common stock for $6,000,000. In addition, the Company purchased
$10,000,000 principal amount of Nexell's 6.5% convertible subordinated

debentures for $10,000,000, to be repaid out of available cash on hand, and
Baxter purchased $30,000,000 principal amount of such debentures for
$30,000,000.

Prior to the acquisition, the Division was global in nature with
headquarters in Irvine, California, a research facility in Round Lake, Illinois,
and customer training, service and limited manufacturing and research
capabilities in Munich, Germany. Nexell did not acquire the Division's
facilities in Round Lake, Illinois and Munich, Germany and, following the
closing, operations were consolidated at the Irvine, California facility.

Relationship with Baxter

Baxter and Nexell have entered into a series of agreements which provide
that:

(i) Nexell will pay up to $21,000,000 to Baxter as and when certain
product development and regulatory milestones are acheived.

(ii) Baxter will manufacture certain of Nexell's products, and will
complete the manufacture and assembly of certain other products and
disposable sets;

(iii) Baxter will manufacture certain antibodies, reagents and reagent
kits used as components of or in conjunction with certain of
Nexell's products;

(iv) Baxter will supply certain products and components used as part of
and in conjunction with Nexell's products, including products made
from certain proprietary Baxter plastics (such as collection,
culture and storage bags) and the so-called "Spinning Membrane"
component of certain of Nexell's products;

(v) Baxter will have the exclusive worldwide marketing, sales and
distribution rights for certain of Nexell's products and reagent
kits used in the selection of cells with one or more of the CD34, B
Cell, T Cell or breast cancer antibodies or CD34+ cells for the
treatment, mitigation, prophylaxis or selection of cancer,
excluding, however, the genetic manipulation of such cells (the
"Field of Distribution"), and has a right of first offer to acquire
distribution rights outside the Field of Distribution; and

(vi) Baxter will provide certain transitional services for Nexell and,
for a transitional period expected to be at least five years, Baxter
will perform engineering and product development services for
Nexell.

The Manufacturing services described above are to be provided at Baxter's
cost with respect to products previously manufactured by Baxter, and the
marketing services described above are to be provided at a certain margin.

The Company, Nexell and Baxter also entered into a Non-Competition and
Confidentiality Agreement restricting Baxter's ability to compete with Nexell in
the area of ex vivo cell selection. The agreement also restricts the Company's
ability to compete with Nexell and Nexell's ability to engage in the production,
manufacture, marketing, sale or distribution of any product which

competes with any product that is supplied by Baxter pursuant to the terms of
the supply agreement (discussed above) in areas other than ex vivo cell
processing. The agreement also restricts the Company's and Nexell's ability to
compete with Baxter in the area of "on-line" cell separation, i.e., the
----
separation of human blood into its constituents while a live donor or patient is
connected to the separation device, and further provides for Baxter, the Company
and Nexell to maintain the confidentiality of all confidential information
received from each other for a period of fifteen years.

VGI

General

The Columbia Genome Center (the "Center") is devoted to mapping,
sequencing, gene discovery and technology development on the genomes of human
and selected model organisms. VIMRX Genomics, Inc., a subsidiary owned 90% by
the Company and 10% by Columbia University ("Columbia"), is intended to be the
vehicle to commercialize any discoveries made by the Center to which VIMRX
obtains rights as a result of its research agreement with Columbia.

The Columbia Genome Center

The Center evolved from the work of a group at Columbia under the joint
direction of Drs. I.S. Edelman and A. Efstratiadis over the last five years.
This group has advanced the technology used in fine mapping of human
chromosomes, generated a detailed cosmid-based map of human chromosome 13,
fabricated highly representative normalized human CDNA libraries and contributed
significantly to gene discovery, e.g., the Cu-transport protein of Wilson's
Disease. Integrated genomic mapping and sequencing is used to facilitate gene
discovery and gene therapy strategies in collaboration with laboratories
throughout the University.

Research Agreement with Columbia University

In March 1997, VIMRX entered into a research agreement relating to the
discovery, mapping, sequencing and validation of disease-related genes with
Columbia University ("Columbia"). The agreement provides for VIMRX, through
VGI, to provide $30 million in funding to the Center over a 5-year period and
for VGI to receive an exclusive license to develop, manufacture, use, sell or
market products resulting from any invention, research information and
biological materials developed by the Center and funded under the agreement.
The agreement is terminable by either Columbia or VGI during the initial five-
year term upon six months' notice, but in no event earlier than September 7,
1999. Under the agreement, VIMRX issued 200,000 shares of Common Stock to
Columbia, which shares have subsequently been registered under the Securities
Act of 1933, as amended. VGI paid Columbia $4.7 million in funding in quarterly
installments in respect of its obligations for 1997 under the Agreement.

VGI has sought technology collaborations with pharmaceutical and/or
diagnostic companies and has solicited equity investments in VGI from potential
technology partners and other investors, but has been unable to consummate any
such transactions on reasonable terms.

As a result, VGI is engaged in discussions with Columbia with a view to
restructuring its relationship with Columbia. The Company anticipates that this
restructuring will involve a termination of the Research Agreement with
Columbia, and the transfer to VGI, to be renamed "Ventiv Biogroup Inc."
(hereinafter, "Ventiv"), of the Hypericin, VM201 and VM301 programs. Ventiv is
expected to retain rights to the BCL-6 and MUM-1 genes, discussed below. Under
such a restructuring, the current obligation to provide $30,000,000 in funding
over 5 years would be terminated and replaced with a commitment to provide
approximately $5,500,000 in funding over the next 4 years.

BCL-6; MUM-1

In 1997, VGI obtained from Columbia rights to two genes, known as BCL-6 and
MUM-1, which regulate the formation of Non-Hodgkin's lymphoma and multiple
myeloma, respectively. These two cancers are poorly managed by current
strategies, and novel drug therapies are necessary to treat the approximately
70,000 (per NIH estimates) patients per year who are diagnosed with these two
cancers in the USA. VGI is currently working with the discoverer of these
genes, Dr. Riccardo Dalla-Favera, to identify molecules that interfere with
these genes, and thereby alter the growth patterns of the cancer cells. Such
molecules could be suitable candidate molecules for drug development.

VGI is also seeking potential collaborators in the pharmaceutical industry
as investors and/or co-developers of BCL-6 and MUM-1.

Eric A. Rose, M.D. and Michael Weiner, M.D., directors of the Company, have
affiliations with Columbia. See "Item 13 - Certain Relationships and Related
Transactions."

Innovir

General

As a result of the 1996 acquisition of 68% of Innovir, and the acquisition
of additional shares in 1997, the Company now has an approximate 70% ownership
interest in Innovir, a biotechnology company engaged in the research and
development of a new class of biopharmaceutical therapeutic agents, collectively
termed "Oligozymes" by Innovir, for the treatment of a wide array of human
diseases. An oligozyme is a chemically modified oligomer, not composed of RNA,
that participates in an essential manner in the sequence-specific, catalytic
cleavage of a targeted RNA molecule. The management of the Company and Innovir
believe that therapeutic agents based upon Innovir's proprietary core
technologies have the potential to be cost effective and highly specific
therapeutics for designated disease targets and that these technologies can also
be used to fill a growing need in the pharmaceutical industry for better methods
to identify and validate targets for drug discovery.

Drug Discovery Target Identification and Validation

A central problem in pharmaceutical drug discovery is identifying the
specific molecular target (enzyme or receptor) responsible for a given disease
state and then validating that identification. This problem has been
intensified with the discovery of many new genes sharing homologies with each
other or with known genes, but with no demonstrated linkage to a given
physiology. What is needed is a simple way of testing the linkage between a
given DNA sequence and an assay for a biological activity of interest without
knowing anything a priori about the

function of the DNA sequence. Oligozymes represent just such a test capability.
Oligozymes can be designed on the basis of DNA sequence information alone and
can be readily synthesized and purified in small quantities or can be produced
in vivo from genes designed to code for them. Oligozymes are highly selective
for the targeted sequence. Oligozymes will inactivate a targeted mRNA without
inactivating mRNA's for closely related functions and are generally much more
specific than prototype drugs in this respect.

Innovir is investigating the use of its oligozyme technologies to identify
drug discovery targets and to validate their disease linkage to specific states.
Oligozymes can be used in drug target identification and validation as
substitutes for the difficult-to-find selective inhibitors which otherwise are
required in the drug target identification and validation process. Such
substitution is possible because oligozymes can mimic the pharmacological effect
of selective inhibitors of enzymes or receptors, but do so at an earlier stage
of the disease-causing process than do conventional drugs. While conventional
drugs inhibit the action of disease-causing proteins, oligozymes inhibit the
production of the messenger RNA molecules that produce such disease-causing
proteins and, in both cases, the pharmacological effect is the same.

Innovir has recently discovered technology which identifies accessible
cleavage sites within a gene and selects specific Oligozymes which cut the gene.
This cleavage blocks the translation of potentially disease-causing protein
messages. The selection of these sites has been a difficult challenge. The
limited success with which this challenge has been met has impeded progress in
the antisense and ribozyme research areas for several years. The new technology,
called FRS (functional ribozyme selection), identifies cleavage sites within a
gene in the environment of living cells. A patent application covering this
invention has been filed. The Company believes this technology will
significantly enhance its ability to develop corporate collaborations in the
drug target validation and therapeutic research areas.

Capital

Management of the Company and Innovir do not anticipate that any of
Innovir's proposed products will be available for commercial sale for several
years, if at all. Innovir's current capital is insufficient to enable Innovir
to complete the development of any of its products.

On December 31, 1997, in order to provide additional working capital to
Innovir, VIMRX and Innovir entered into an agreement pursuant to which VIMRX
purchased 5,080,436 shares of the Common Stock, par value $.013, of Innovir, at
an aggregate purchase price of $2,000,000, or $.39 per share, the then-current
market price. That agreement also provided for VIMRX to purchase additional
shares of Innovir common stock from time to time, prior to December 31, 1999, at
the request of Innovir, the price per share to be based on prevailing market
conditions at the time of the request, but no higher than $1.30. Pursuant to
that agreement, VIMRX will not be required to pay more than $5,000,000 to
purchase additional shares of Innovir, and VIMRX will have no further obligation
to purchase Innovir common stock in the event it ceases to own a majority of the
outstanding shares of Innovir Common Stock.

HYPERICIN

General

VIMRxyn(R) is the Company's chemically synthesized hypericin product.
Hypericin is an aromatic polycyclic dione found in the stem and petals of the
common Saint John's wort, a plant which has been used as a folk remedy since the
Middle Ages. Plant extracts containing hypericin continue to be used as lay
treatments for various disorders. The Company is investigating using VIMRxyn(R)
as a treatment for glioblastoma multiforme, a serious form of brain cancer, and
as a treatment for various hyperproliferative disorders of the skin including
psoriasis, warts, and cutaneous T-cell lymphoma ("CTCL"). The Company has a
worldwide exclusive license to commercialize and exploit synthetic hypericin
compounds for enumerated purposes acquired from New York University and Yeda
Research and Development Co., Ltd., an Israeli corporation engaged in the
commercial exploitation of scientific developments by scientists at the Weizmann
Institute of Science in Israel (New York University and YEDA, collectively, the
"Hypericin Licensors").

Glioblastoma (Brain Tumors)

Pre-clinical studies by Dr. William Couldwell and his colleagues suggested
that hypericin selectively inhibited the growth of human glioblastoma cells in
culture. In October 1996, the Company initiated a Phase I/II clinical study
under the direction of Dr. Couldwell to evaluate the efficacy and tolerability
of VIMRxyn(R) for treatment of glioblastoma multiforme, an invasive and deadly
form of brain tumor. This study is now on-going at five medical centers in the
United States and Canada, with initial results expected in mid-1998.

Topical Phototherapy for Hyperproliferative Skin Disorders

It has been known for some time that hypericin sensitizes many types of
cells to light exposure. Work in the laboratories of Drs. Alain Rook and Floyd
Fox of the Department of Dermatology at the University of Pennsylvania Medical
School indicated that hypericin was able to kill cancerous cells from a patient
with cutaneous T-cell lymphoma ("CTCL") selectively relative to normal cells
when the hypericin-treated cells were exposed to fluorescent light. Based on
this work, the Company has now initiated and completed an initial Phase I safety
study in normal volunteers for topical administration of hypericin, followed by
exposure to controlled doses of fluorescent light. A safe dose that resulted in
a consistent biological response was established in this study. In early 1998,
the Company initiated pilot Phase I/II studies under Dr. Rook's supervision to
evaluate the efficacy of topically applied, light-activated hypericin in
patients suffering from three hyperproliferative skin disorders: CTCL,
psoriasis, and warts. Initial results from these studies are anticipated in the
third quarter of 1998.

HIV/AIDS Research

The Company has investigated the efficacy of VIMRxyn(R) in human clinical
trials for the treatment of HIV infection and AIDS. In 1994, the Company
completed data analysis of Phase I human clinical trials sponsored by the
National Institute of Health to determine the maximum tolerated dose and any
side effects of VIMRxyn(R) as a treatment for HIV infection and AIDS. The
results indicated no major organ or hematological toxicity. Skin
photosensitivity was the primary dose-limiting side effect. All of the patients
enrolled in the trials experienced varying degrees of skin photosensitivity and
several experienced non-life threatening acute skin photosensitivity which
required medical treatment.

Between January and September 1996, human clinical trials were conducted in
Thailand by a Dutch company retained by the Company under a protocol submitted
to the U.S. Food and Drug Administration (the "FDA") under the Company's
existing investigational new drug application in an attempt to identify an
efficacious lower dose of VIMRxyn(R), that caused minimal skin photosensitivity
as a treatment for individuals infected with HIV. A maximum tolerated dose was
defined that produced some evidence of anti HIV activity. The Company
subsequently evaluated in laboratory experiments in HIV-infected cell cultures
whether drug combinations consisting of hypericin and representatives of FDA-
approved classes of anti-HIV drugs had synergistic inhibitory effects on HIV.
No such synergism was seen.

Consequently, based on both the pre-clinical and the clinical data
summarized above, the Company had decided to terminate development of VIMRxyn(R)
as an anti-HIV drug.

Inactivation of HIV in Blood for Transfusion

Studies were conducted for VIMRX in the laboratories of Alfred M. Prince,
M.D., of the New York Blood Center to determine whether VIMRxyn(R) could be used
to inactivate certain viruses, including HIV, hepatitis B, and hepatitis C in
blood collected for transfusion. Initial studies conducted by Dr. Prince
indicated that certain concentrations of VIMRxyn(R) in packed red blood cells
could, when illuminated under appropriate conditions with fluorescent light,
inactivate high concentrations of HIV. However, subsequent studies in Dr.
Prince's laboratories determined that the conditions required for such
inactivation substantially damaged the red blood cells, rendering them
unsuitable for transfusion. Based on these results, the Company has decided to
terminate development of VIMRxyn(R) for inactivation of contaminating virus in
blood collected for transfusion.

Chronic Hepatitis C Virus Infection

Based on preclinical experiments indicating that VIMRxyn(R) could
inactivate a virus closely related to human hepatitis C virus (for which no
laboratory model of infectivity is available), the Company decided to evaluate
the ability of VIMRxyn(R) to treat chronic hepatitis C infection in humans in a
Phase I/II clinical trial conducted at the Bronx Veterans Administration
Hospital under the direction of Dr. Jeffrey Jacobson, Associate Professor of
Infectious Diseases at

Mt. Sinai School of Medicine. Two groups of patients were treated with
VIMRxyn(R) at two doses for two months, and the amount of hepatitis C virus in
their blood was measured at intervals throughout the treatment. No effect of
VIMRxyn(R) treatment was seen on virus levels at either dose. Multiple patients
in both groups experienced hypericin-associated side effects, including skin
sensitivity and photosensitivity, indicating that the doses were at or near the
maximum tolerated dose. Based on the results from this clinical trial, the
Company has decided to terminate development of VIMRxyn(R) for the treatment of
chronic hepatitis C infection.

VM201; BLOOD CLOTTING FACTOR

On March 13, 1997, VIMRX acquired the exclusive, worldwide license to a
novel cardiovascular compound from Columbia University. The protein, known as
Factor IXa inhibitor (or Factor IXai), has been designated as VM201 by the
Company and has demonstrated in pre-clinical studies its ability to selectively
prevent blood clots that can lead to stroke during surgery.

The novel selective anticoagulant activity of the Factor IXai protein was
discovered in the laboratories of Dr. David Stern, Professor of Physiology and
Cellular Biophysics at the College of Physicians and Surgeons of Columbia
University. VIMRX is currently assessing how best to exploit the novel selective
anticoagulant mechanism of action illuminated by Factor IXai.

VM 301; AGENT FOR WOUND HEALING

On May 16, 1997, VIMRX acquired the exclusive, worldwide rights to develop
OAS1000, a drug candidate which was being evaluated by OsteoArthritis Sciences,
Inc. for topical anti-inflammatory and wound healing indications. The agent,
designated VM301 by VIMRX, has shown promising wound healing activity in
preclinical studies when applied topically. VIMRX expects to initiate a Phase I
clinical trial with topically applied VM301 in the second quarter of 1998, under
the direction of Dr. Matthew Stiller of Columbia Presbyterian Medical Center.

PATENTS AND LICENSES

Nexell

Nexell's intellectual property estate is arranged into four general patent
families:

1. Selection systems;
2. Bioreactor and culture systems;
3. Reagents for use in selection; and
4. Culturing cell compositions.

The selection system encompasses the Isolex(R) Cell Separator and similar
instruments. This patent family includes patents and patent applications
directed to the basic selection device having two magnets for capturing the
paramagnetic beads and patents and applications directed to the specific device
configuration. The disposable set for the Isolex(R) 300i Cell Separator
incorporates a patented spinning membrane technology used for cell washing.

At the time of the acquisition of Nexell, Baxter granted to Nexell
sublicenses of substantially all of Baxter's rights under four license
agreements, and Nexell assumed substantially all of Baxter's obligations as
licensee thereunder, including payment of all royalties, annual maintenance fees
and other required payments. Two of the sublicenses are under licenses to
Baxter from Becton Dickenson and relate, respectively, to (i) CD34+ technology
for use in applications other than diagnostic applications and (ii) certain
antibodies which attach to CD20+ and CD10+ B cells. A third sublicense is under
a non-exclusive license from Cetus Oncology Corporation, d/b/a Chiron
Therapeutics, and relates to the manufacture, use and sale of specific
antibodies and cell lines for the ex vivo therapeutic treatment of human cancer.
The fourth sublicense is under a non-exclusive license from Professor Bernd
Dorken and relates to certain cell lines for the production of antibodies to be
used in the extracorporeal therapeutic treatment or diagnosis of Non-Hodgkins
lymphoma and other specified malignancies.

Columbia University Licenses

The Company obtained an exclusive license from Columbia University to a
novel cardiovascular compound known as Factor IXa inhibitor (or Factor IXai),
which is designated by the Company as VM 201.

The Company also obtained exclusive licenses under Columbia's patents and patent
applications respecting the MUM-1 gene and the BCL-6 gene for drug development
in the areas of multiple myeloma and Non-Hodgkin's lymphoma, respectively. There
are two patents pending relevant to these projects.

Innovir

Innovir has an exclusive license from Yale University for the worldwide
rights to 22 U.S. patents and patent applications for therapeutic uses of
oligozymes, oligonucleotide delivery, and diagnostic applications of ribozymes.
Corresponding foreign applications are pending or issued. Innovir also has 31 US
patents and patent applications as well as corresponding foreign rights
concerning oligozyme-based technology in addition to patents exclusively
licensed from Yale University. Additionally, VIMRX Holdings, Ltd., an Innovir
subsidiary, has a worldwide exclusive license for rights to commercialize and
exploit synthetic catalytic oligonucleotide compounds for pharmaceutical and
diagnostic products.

Hypericin

Pursuant to an agreement dated June 1, 1988, as amended, between the
Company and the Hypericin Licensors, the Hypericin Licensors granted the Company
a worldwide exclusive license to commercialize and exploit natural hypericin and
synthetic hypericin compounds to inactivate viruses and retroviruses, as a
therapeutic or preventative for viral or retroviral diseases, and for anti-
glioma (brain tumor) indications. The agreement provides for the payment of
royalties based on net sales and certain other revenues related to hypericin,
and provides for a $100,000 minimum annual royalty.

VM301

The patent rights to VM301 are owned by the Company.

MANUFACTURING

Nexell has no manufacturing capability and has contracted with Baxter to
manufacture and package its Isolex(R) and MaxSep(R) products as well as supplies
used by those products. See "Business Nexell Therapeutics Inc. Relationship
with Baxter."

Innovir manufactures EGS Oligozymes and RILON(TM) Oligozymes for use in its
test tube, cell culture, animal testing and target validation programs, and is
exploring other sources of supply.

VIMRX and VGI have no manufacturing capability. VIMRX has contracted with
outside suppliers to develop, produce, and package therapeutic formulations of a
synthesized form of hypericin for the human clinical trials. VIMRX and VGI
intend to contract with outside suppliers to develop, produce and package any
needed quantities of VM201, VM301, BCL-6, MUM-1 and any other substances that
may be needed.

Innovir manufactures Oligozymes for use in its test tube, cell culture,
animal testing and target validation programs, and is exploring other sources of
supply.

GOVERNMENT REGULATION

The Company has acquired technologies or developed technologies which are
intended to lead to drugs and medical devices. With the exception of Innovir's
drug target validation products, the Company's products are currently
undergoing, or will be required to undergo, the difficult and costly approval
process for testing, manufacturing and sale established by the FDA, and may be
subject as well to state and foreign regulation.

In order for drug products to obtain pre-market approval from the FDA, the
Company must conduct pre-clinical and animal studies to generate preliminary
information on the product's safety and efficacy. An investigational new drug
application must then be filed and approved in order to proceed with human
clinical trials. These clinical trials, which are done in three phases,
normally take two to five years to complete. If the clinical trials are
successful, the Company will file a new drug application to receive approval to
market the product. This process requires substantial expense, time and effort
and there is no guarantee that approval will be granted.

Medical devices follow a similar process for approval although the length
and difficulty of the process varies with the controls which the FDA determines
are necessary to insure their safety and effectiveness. Based on these
controls, the devices are put into three classes, i.e., Class I, Class II, Class
----
III. Two types of approval are granted on devices. A 501(K) clearance is given
if the device is deemed to be "substantially" equivalent to a legally marketed
Class I or Class II device, or a Class III device that was not required to
obtain a PMA application. The most regulated devices are in Class III and they
cannot be marketed until they have an approved Premarket Approval Application
(PMA). An approved PMA application is somewhat like a "private license" granted
the applicant to market a particular medical device. A PMA application requires
valid scientific evidence to demonstrate the safety and effectiveness of the

device and usually requires tests similar to a filing for a drug product
including clinical trials. A 501(K) clearance generally requires 3 months to a
year to obtain, while the PMA can take 6 months to three years and possibly
longer.

The Company presently has two devices (Isolex(R) and MaxSep(R)) undergoing
PMA review with the FDA and two drug products (VIMRxyn and VM301) are in
clinical trials or are about to start clinical trials, and one drug product
(VM201) is in pre-clinical testing.

COMPETITION

The biomedical industry is highly competitive. Competition in each of the
fields in which the Company is engaged is intense and expected to increase as
knowledge and interest in the technology and products being developed by the
Company increase. The Company faces competition from biotechnology companies,
large pharmaceutical companies, academic institutions, government agencies and
public and private research organizations, many of which have extensive
resources and experience in research and development, clinical testing,
manufacturing, regulatory affairs, distribution and marketing. Some of these
entities have significant research and development activities in areas upon
which the Company's programs focus. Many of the Company's competitors possess
substantially greater research and development, financial, technical, marketing
and human resources than the Company and may be in a better position to develop,
manufacture and market products. Forms of hypericin extracted from plants are
being used as lay treatments for a variety of disorders. The Company is
similarly subject to substantial competition from pharmaceutical, chemical and
biotechnology firms seeking to develop treatments for hepatitis C and
therapeutics for brain cancer (glioma).

Innovir is likewise subject to substantial competition in the development
and marketing of its Oligozyme technologies.

In general, Nexell may face competition from cell processing device
companies. Like Nexell, there are several product-focused companies attempting
to develop turn-key devices for cell processing. CellPro, Inc. is one of the
most direct competitors; however, management believes that the greater
automation of the Division's instruments provide it with a competitive
advantage. In addition, the Division's proprietary peptide release system may
provide additional purity by selectively releasing only targeted cells to leave
behind non-specifically bound contaminating cells.

VGI has competition in the areas of Non-Hodgkin's lymphoma and multiple
myeloma. There are drugs currently on the market for both of these cancers,
however, long term survival is generally poor using any current drug strategy.

EMPLOYEES

At March 1, 1998, the Company had eleven full-time employees in the United
States consisting of its six executive officers, one financial analyst and four
administrative assistants. The Company believes that its relations with its
employees is satisfactory.

Innovir has 20 full-time U.S. employees and 24 full-time non-U.S.
employees.

Nexell has 86 full-time U.S. employees.

CONSULTANTS

The Company is dependent on third parties for significant aspects of its
research and development operations. In certain cases, consultants are used to
perform or supervise such activities. Consultants have also been retained to
assist in supervising the FDA regulatory process, monitoring the human clinical
trials and establishing the toxicology tests for hypericin. The Company has
retained a number of consultants affiliated with Columbia to perform certain
preclinical research in connection with the VM201, BCL-6 and MUM-1 programs, and
to conduct human clinical trials in connection with the VM301 program. The
Company also retains financial consultants.

The Company's consultants generally are employed by and/or have consulting
agreements with entities other than the Company, some of which may conflict or
compete with the Company, and generally devote only a portion of their time to
the affairs of the Company.

Regulations or policies now in effect or adopted in the future by their
respective employers may limit the ability of such persons to consult with the
Company. The loss of the services of certain of such persons may adversely
affect the Company.

ITEM 2. PROPERTIES.

The Company occupies 5,581 square feet of office space at 2751 Centerville
Road, Suite 210, Wilmington, Delaware under a lease at a monthly rent of
$10,095. The lease expires on August 31, 1999, with an option to renew for five
years.

Innovir sublets approximately 8,500 square feet of space in New York City
for its laboratory and executive offices at a current monthly rental of $26,416,
approximately 5,000 square feet of space in Cambridge, England at a current
monthly rental of $8,250 and approximately 4,000 square feet of space in
Rosdorf, Germany at a current monthly rental of $5,000.

Nexell occupies a building consisting of approximately 59,600 square feet,
under a lease which provides for current monthly rental of $40,500 plus real
estate taxes and operating costs, expires November, 30, 2004 and contains two
five-year renewal options.

ITEM 3. LEGAL PROCEEDINGS.

The Company has brought an action against a former employee who is alleged
by the Company to have misappropriated funds. The former employee has
counterclaimed for damages. Management believes these counterclaims are totally
without merit and will vigorously defend against them.

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

A special meeting of stockholders of the Registrant was held on December
16, 1997 to consider and vote on the acquisition of the assets of the
Immunotherapy Division of Baxter (See "Item 1. - Business - Nexell Therapeutics
Inc. - Acquisition of Nexell") and to consider and vote on an amendment to the
Registrant's Certificate of Incorporation to authorize the Registrant to issue
up to 150,000 shares of Class A Preferred Stock, of which 66,304 shares were
issued to Baxter at the closing.

Proxies representing 28,906,567 shares (52% of the outstanding shares of
record entitled to vote) were present at the meeting.

On the proposal to authorize the purchase of the Division, 28,057,027
shares voted in favor, 496,365 shares voted against, and 353,175 shares
abstained.

On the proposal to authorize the amendment to the Certificate of
Incorporation, 27,888,069 shares voted in favor, 617,969 shares voted against,
and 400,529 shares abstained.

PART II

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

The Company's Common Stock is traded on The Nasdaq National Market System
under the symbol VMRX. The following table sets forth for the Company's Common
Stock the high and low closing sales prices for each calendar quarter from
January 1, 1995 through December 31, 1997. Prior to December 31, 1996, the
Company's Common Stock traded on The Nasdaq Small-Cap Market.

HIGH LOW
---- ---
1995

First Quarter $ .78 $ .38
Second Quarter .59 .41
Third Quarter 1.31 .44
Fourth Quarter 1.19 .78

1996
First Quarter 3.03 1.13
Second Quarter 6.25 2.78
Third Quarter 4.94 3.00
Fourth Quarter 3.81 2.28

1997
First Quarter 3.50 2.47
Second Quarter 3.63 1.88
Third Quarter 3.63 2.56
Fourth Quarter 2.88 1.75

On March 26, 1998, there were approximately 18,000 shareholders of the
Company's Common Stock, including beneficial owners of shares registered in
nominee or street name.

The Company has not paid a cash dividend and does not anticipate the
payment of cash dividends in the foreseeable future.

Recent Sales of Unregistered Securities

Dr. Herbert Stadler exercised warrants to purchase 121,667 shares of the
Company's Common Stock in 1997. Dr. Stadler was issued warrants to purchase
365,000 shares of the Company's Common Stock, at an exercise price of $.01 per
share, as part of the consideration paid by VPI Holdings, Ltd. (then a
subsidiary of the Company but subsequently sold to Innovir) to Dr. Stadler for
acquiring all of the issued and outstanding capital stock of Ribonetics GmbH.

On March 7, 1997, in partial consideration of its entering into the
Research Agreement with VGI (See "Business Drug Discovery; Columbia University
Collaboration; Affiliation with VIMRX Genomics, Inc. Research Agreement with
Columbia University"), the Company issued 200,000 shares of Common Stock to
Columbia University. Such shares were subsequently registered pursuant to a
Registration Statement on Form S-3 filed on April 18, 1997.

On December 17, 1997, in connection with the acquisition of Nexell, the
Company issued 11,000,000 shares of Common Stock and 66,304 shares of the
Company's Class A Preferred Stock to Baxter. Each share of Preferred Stock will
be convertible, at the option of the holder, without the payment of any
additional consideration, at any time after June 17, 1999, into a number of
shares of Common Stock equal to $1,000 divided by an amount, no less than $5.50
and no greater than $7.50, to be determined based on the highest average market
price for Common Stock for a sixty-day period falling during the eighteen-month
period following December 17, 1997. See "Business Nexell Therapeutics Inc.
Acquisition of Nexell."

All of such shares were taken for investment by the recipients, the stock
certificates were legended to reflect their restricted status, and the issuance
of such shares was exempt from registration under the Securities Act of 1933,
as amended, under Section 4(2) thereof.

ITEM 6. SELECTED FINANCIAL DATA.

The following selected financial data have been derived from the Company's
audited financial statements. The Statements of Operations Data relating to the
fiscal years 1993 through 1997 and the Balance Sheets Data at December 31, 1996
and 1997 should be read in conjunction with the Company's audited financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," included elsewhere in this Annual Report on Form 10-K.

Statements of Operations Data:

Year Ended December 31,
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- -------------- ------------- ------------- -------------

Revenue.................................. $ 5,002,000 $ -- $ -- $ -- $ --
Cost of goods sold....................... 4,630,000 -- -- -- --
-------------- -------------- ------------- ------------- -------------
Gross profit............................ 372,000 -- -- -- --
Operating expenses:
Research and development................ 14,507,000 2,950,000 2,840,000 1,463,000 1,528,000
Purchased research and
Development............................ 39,862,000 14,484,000 -- -- --
Sales, general, amortization and
administrative........................ 7,688,000 4,300,000 2,272,000 1,646,000 1,128,000
-------------- -------------- ------------- ------------- -------------

Total operating expense............... 62,057,000 21,734,000 5,112,000 3,109,000 2,656,000
-------------- -------------- ------------- ------------- -------------
Operating (loss)...................... (61,685,000) (21,734,000) (5,112,000) (3,109,000) (2,656,000)

Other (income) expense:
Royalty expense......................... 150,000 100,000 100,000 100,000 --
Interest (income)....................... (2,216,000) (1,792,000) (160,000) (189,000) (134,000)
Interest expense........................ 121,000 329,000 2,000 -- 1,000
Minority interest in net loss of
consolidated Subsidiary................ (3,474,000) (116,000) -- -- --
Other net............................... (67,000) (395,000) 186,000 589,000 1,000
-------------- -------------- ------------- ------------- -------------
Total Other (income)expenses............. (5,486,000) (1,874,000) 128,000 500,000 (132,000)
-------------- -------------- ------------- ------------- -------------

Net (loss)............................... (56,199,000) $ (19,860,000) $ (5,240,000) $ (3,609,000) $ (2,524,000)
-------------- -------------- ------------- ------------- -------------
Preferred stock dividend................. (166,000) -- -- -- --
Net loss applicable to Common
Stock................................... $(56,365,000) $ (19,860,000) $ (5,240,000) $ (3,609,000) $ (2,524,000)
============== ============== ============= ============= =============

Basic and Diluted (loss) per share....... $(1.01) $(0.50) $(0.27) $(0.19) $(0.18)
============== ============== ============= ============= =============
Weighted average number of
shares of Common Stock
outstanding............................. 55,457,000 39,399,000 19,748,000 19,067,000 14,089,000
============== ============== ============= ============= =============

Balance Sheets Data:

December 31,
----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------

Working capital....................... $ 61,354,000 $ 44,848,000 $ 391,000 $ 4,742,000 $ 2,089,000
Total assets.......................... 121,947,000 51,692,000 2,958,000 5,249,000 2,504,000
Total liabilities..................... 34,239,000 3,101,000 2,698,000 116,000 222,000
Minority interest in
Subsidiary.......................... 4,161,000 2,381,000 -- -- --
Retained deficit...................... (98,570,000) (42,371,000) (13,662,000) (22,511,000) (17,271,000)
Shareholders' equity.................. 83,547,000 46,210,000 260,000 5,134,000 2,282,000

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

Years Ended December 31, 1997 and 1996

Total operating expenses increased by $40,323,000 or 186% due principally
to a $25,378,000 or 175% increase in purchased research and development. The
$39,862,000 purchased research and development charge recorded in 1997 was
principally due to the acquisition of the Immunotherapy Division of the Biotech
Business Group of Baxter Healthcare Corporation (Nexell). In addition, research
and development increased $11,557, 000 or 392% and general and administration
expense increased $2,915,000 or 68%.

The increase in research and development expense from $2,950,000 in 1996 to
$14,507,000 in 1997 was principally due, to costs incurred by VGI in its
collaboration with Columbia ($5,904,000) expenses incurred at Innovir, which was
purchased in December, 1996, (therefore, the first full year of expenses was
1997) ($4,137,000) and increased spending on VIMRX's research programs
($1,382,000)).

The increase in general and administrative expense from $4,300,000 in 1996
to $7,215,000 in 1997 was due principally to a full year of costs related to
Innovir which increased $2,869,000 over the $506,000 incurred in 1996.

Minority interest in net loss of consolidated subsidiary increased
$3,358,000 due to the losses incurred by Innovir and VGI.

Revenue and cost of goods sold resulting in a gross profit of $372,000 in
1997 are a result of the operations of Nexell which acquired the assets and
operations of Baxter's Immunotherapy Division in December 1997.

The foregoing resulted in an increase in the net loss of $36,339,000.

Years Ended December 31, 1996 and 1995

Total operating expenses increased by 325% ($16,622,000) due principally
to a $14,484,000 purchased research and development charge, an 89% ($2,028,000)

general and administrative expenses and a 4% ($110,000) increase in research
and development expenses.

The $14,484,000 purchased research and development charge principally
consists of $3,500,000 from the acquisition of Ribonetics GmbH in May 1996 and
$10,900,000 net of a gain of $2,889,000 on the sale of VIMRX Holdings, Ltd.
("VHL") from the acquisition of an approximate 68% interest in Innovir in
December 1996, in connection with the acquisition of a controlling interest in
Innovir. These charges to the statement of operations reflect the value placed
on the on-going research and development of the Oligozyme technologies.
Approximately $13.5 million of this expense is non-cash incurred through the
issuance of 3,000,000 shares of Common Stock and warrants to purchase 365,000
shares of Common Stock.

General and administrative expenses increased 89% ($2,028,000) principally
due to approximately $1 million non-recurring costs principally related to
employees, recruiting, and bridge loan finance costs and approximately $1
million increases in recurring expenses for public and stockholder relations,
consulting fees and costs related to VHL's European operations and Innovir.

Research and development expenses increased 4% ($110,000) principally due
to an increase in salaries and expenses related to VHL's European operations and
a $350,000 write-down on Epoch Investment, offset by a $464,000 termination of
agreement credit which resulted from the termination of the Company's research
and development agreement with Ribonetics in 1996.

Interest income increased $1.6 million in 1996 as compared to 1995 due to
an increase in funds available for investments (see Liquidity and Capital
Resources) and a higher effective interest rate. Interest expense of $329,000
related principally to the December 1995 bridge loan which was repaid in June
1996.

Other income increased $581,000 principally due to capital gains on
short-term investments.

The foregoing resulted in a 279% ($14,620,000) increase in the net loss for
the year ending December 31, 1996.

LIQUIDITY AND CAPITAL RESOURCES

Before fiscal 1997 the Company had not realized any operating revenues and
has financed its operations through the sale of its securities

The Company had $57,830,000 in cash and cash equivalents as of December 31,
1997 as compared to $46,911,000 in cash, cash equivalents and marketable
securities held for sale as of December 31, 1996 and working capital of
$61,354,000 at December 31, 1997 as compared to $44,848,000 at December 31,
1996. Most of the increase in cash and working capital positions resulted from
the sale of $30,000,000 in convertible securities to Baxter in connection with
the acquisition by Nexell of the assets of Baxter's Immunotherapy Division. This
increase was offset by cash used in the operations of the Company of
$17,059,000.

Cash used in operating activities increased $11,892,000 or 230% over the
cash used in operating activities in the year ended December 31, 1996 due
principally to the Innovir and VGI operations in 1997 and increased
spending on VIMRX's research programs.

The Company expects to incur substantial expenditures in the foreseeable
future for the research and development and commercialization of its proposed
products. Based on current projections, which are subject to change, the
Company's management believes that the present balance of cash and cash
equivalents is sufficient to fund its operations for approximately two years,
assuming no capital infusions are received. Thereafter, the Company will
require additional funds, which it may seek to raise through public or private
equity or debt financings, collaborative or other arrangements with corporate
sources, or through other sources of financing.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See Index to Financial Statements on page F-1.

No financial statement schedules are required because they are not
applicable or the information is disclosed in the financial statements or
related notes.

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

Changes in Registrant's Certifying Accountant

Until the most recent fiscal year the independent auditors of the Company
have been Richard A. Eisner & Company, LLP, who have been replaced upon
recommendation of the Audit Committee effective May 15, 1997. At no time did any
report on the financial statements of the Company by Richard A. Eisner &
Company, LLP contain an adverse opinion or a disclaimer of opinion, or a
qualification or modification as to uncertainty, audit scope or accounting
principles. The decision to change accountants was occasioned by the
developments of the past year, and not by any disagreement or advice given on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. In particular, in light of the
acquisition by the Company of a controlling interest in Innovir, the Audit
Committee concluded that it would be most efficient and in the best interests of
both Innovir and the Company for the same auditors to audit both companies. The
Company solicited proposals from four auditing firms, including Richard A.
Eisner & Company, LLP. KPMG Peat Marwick LLP was chosen as a result of this
process, and was engaged by the Company as its principal auditors on May 15,
1997.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The directors and executive officers of VIMRX are as follows:

Name Age Position
---- --- --------

Richard L. Dunning 52 President and Chief Executive Officer
Francis M. O'Connell 52 Vice President, Finance and Controller
David A. Jackson, Ph.D. 56 Executive Vice President and Chief
Scientific Officer
L. William McIntosh 52 Senior Vice President, Business
Development and Finance, Chief Financial
Officer
Alfonso J. Tobia, Ph.D. 55 Vice President, Research and Development
Richard E. Kouri, Ph.D. 54 President and Chief Executive Officer,
VIMRX Genomics, Inc.
Donald G. Drapkin 50 Director/(1)/
Laurence D. Fink 48 Director/(2)/
Jerome Groopman, M.D. 46 Director
Linda G. Robinson 45 Director/(2)/
Eric A. Rose, M.D. 47 Director/(1)/
Lindsay A. Rosenwald, M.D. 42 Director/(1)/
Michael Weiner, M.D. 51 Director/(2)/
Victor W. Schmitt 49 Director/(3)/

___________________________
/(1)/ Member of Compensation Committee.
/(2)/ Member of Audit Committee.
/(3)/ Mr. Schmitt was elected to the Board of Directors pursuant to a provision
of the Asset Purchase Agreement, dated December 17, 1997, with Baxter,
pursuant to which the Company agreed to nominate and recommend to the
stockholders of the Company until such time as Baxter shall cease to own
at least 3% of the issued and outstanding capital stock of VIMRX, the
election to the Board of a designee of Baxter in future Stockholder
meetings at which directors are elected.

RICHARD L. DUNNING has been President and Chief Executive Officer of the
Company since April 1996. Prior to joining the Company, Mr. Dunning served as
Executive Vice President and Chief Financial Officer of the DuPont Merck
Pharmaceutical Company since 1991. Mr. Dunning serves as a director of the
following corporations which file reports pursuant

to the Securities Exchange Act of 1934: Innovir Laboratories, Inc. (a subsidiary
of VIMRX); Epoch Pharmaceuticals, Inc.; Endorex Corp.

FRANCIS M. O'CONNELL, CPA, has served as Chief Financial Officer of the
Company from February 1995, to May, 1997; he has served as Controller of the
Company since May, 1997 and as the Chief Financial Officer of Innovir since
February, 1997. Prior to joining the Company, Mr. O'Connell was Director of
Litigation Support in the New York office of J.H. Cohn & Company, a C.P.A. firm,
from June 1994 to February 1995, and was Vice-President of Hickok Associates
Inc., a financial consulting company, from March 1992 to June 1994, and for 17
years prior thereto, was a partner with KPMG Peat Marwick LLP (formerly KMG Main
Hurdman). Mr. O'Connell serves as a director of the following corporation which
files reports pursuant to the Securities Exchange Act of 1934: Innovir
Laboratories, Inc.

DAVID A. JACKSON, Ph.D., has served as Executive Vice President and Chief
Scientific Officer of VIMRX Pharmaceuticals Inc. since September 1996. Prior to
joining VIMRX, Dr. Jackson was with The DuPont Merck Pharmaceutical Company
since 1991, most recently serving as Senior Director, Cancer, Virology and
Molecular Biology Research. Dr. Jackson serves as a director of the following
corporations which files reports pursuant to the Securities Exchange Act of
1934: Innovir Laboratories, Inc.

L. WILLIAM MCINTOSH, has served since March 1, 1998 as President and Chief
Executive Officer of Nexell. From May, 1997 through February, 1998, he served
as Senior Vice President, Business Development and Finance and Chief Financial
Officer of the Company. Prior to joining VIMRX, Mr. McIntosh served as Senior
Vice President Business Development, Commercial Operations for Zynaxis, a
biotechnology company with both drug delivery and diagnostic technologies and
was an independent industry consultant who, for some time, worked exclusively
for SmithKline Beecham.

ALFONSO J. TOBIA, Ph.D. was elected an executive officer of the Company in
March 1995, having joined the Company as Vice President, Research and
Development in June 1994. Prior to joining VIMRX, Dr. Tobia served as Vice
President of Scientific Affairs at Great Valley Pharmaceuticals, a
biopharmaceutical company, from April 1993 to June 1994. From 1990 to 1991, Dr.
Tobia served as Senior Director of R.W. Johnson Pharmaceutical Research
Institute; from 1985 to 1990, as Director of Pharmacology at Johnson & Johnson's
Ortho Pharmaceutical Corporation; and from 1974 to 1977 as Senior Scientist at
SmithKline Laboratories.

RICHARD E. KOURI, Ph.D. was named President and Chief Executive Officer of
VIMRX Genomics, Inc. in May 1997. Dr. Kouri gained extensive scientific,
management and capital fund raising experience as Director of Research for
Microbiological Associates, Director of Research for International
Biotechnologies, Inc., and Founder and Director for GenMap Inc. He recently
helped found VIVEX Therapies, Inc., a biotechnology company focused on new
methods for clinical management of organ transplant patients and founded BIOS
Laboratories Inc. in 1986, and served as that company's President and CEO until
1994.

DONALD G. DRAPKIN was elected a director of the Company on November 17,
1995. Since March 1987, Mr. Drapkin has served as Vice Chairman and a director
of MacAndrews & Forbes Holdings Inc., and was a partner in the law firm of
Skadden, Arps, Slate, Meagher &

Flom in New York City for more than five years prior thereto. Mr. Drapkin also
serves as a director of the following corporations which file reports pursuant
to the Securities Exchange Act of 1934: Algos Pharmaceutical Corporation, Black
Rock Asset Investors, Cardio Technologies, Inc. The Coleman Company, Inc.,
Coleman Worldwide Corporation, Genta., Inc, Revlon, Inc., Revlon Consumer
Products Corporation, Playboy Enterprises, Inc., and Weider Nutrition
International, Inc.

LAURENCE D. FINK was elected a director of the Company in June 1996. Mr.
Fink has been Chairman and Chief Executive Officer and Director of BlackRock
Financial Management (investment advisor) since 1988. Mr. Fink is a director of
Innovir Laboratories, Inc. and of the closed end funds for which BlackRock
serves as investment advisor.

JEROME GROOPMAN, M.D. was elected a director of the Company in June 1996.
Dr. Groopman has been a professor of Medicine at Harvard Medical School since
1993. Dr. Groopman is an attending physician of Beth Israel New England
Deaconess Medical Center since 1989. Dr. Groopman is director of the following
corporations which file reports pursuant to the Exchange Act: Advance Tissues
Sciences.

LINDA G. ROBINSON was elected a director of the Company in June 1996. Ms.
Robinson has been Chairman, and Chief Executive Officer of Robinson, Lerer &
Montgomery, LLC, a strategic communications consulting firm that serves major
corporations in the United States and abroad, since May 1996. For more than
five years prior to that she was Chairman and Chief Executive Officer of
Robinson Lerer Sawyer Miller Group, or its predecessors. Ms. Robinson is a
director of the following corporation which files reports pursuant to the
Exchange Act: Revlon, Inc.

ERIC A. ROSE, M.D. was elected a director of the Company in November 1995.
Dr. Rose is Surgeon-In-Chief at Columbia Presbyterian Medical Center in New
York, a position he has held since August 1994, has served as Chairman of the
Department of Surgery at the College of Physicians and Surgeons of Columbia
University since 1994 and as Director of the Division of Cardiothoracic Surgery
of the Department since 1990. Dr. Rose is a past president of the International
Society for Heart and Lung Transplantation.

LINDSAY A. ROSENWALD, M.D. was elected a director of the Company in June
1996. Dr. Rosenwald has been the Chairman and Chief Executive Officer of
Paramount Capital, Incorporated (investment bank) since 1992. Dr. Rosenwald is
also chairman of Paramount Capital Investments, LLC, Paramount Capital Asset
Mgt., and The Castle Group. Dr. Rosenwald serves as a director of the following
corporations which file reports pursuant to the Exchange Act: Ansan, Inc.,
Avigen, Inc., Atlantic Pharmaceuticals, Inc., BioCryst Pharmaceuticals, Inc.,
Interneuron Pharmaceuticals, Inc., Neose Technologies, Inc., Sparta
Pharmaceuticals, Inc., Titan Pharmaceuticals, Inc. and Xenometrix, Inc.

VICTOR W. SCHMITT was elected a director of the Company in January 1998.
Mr. Schmitt has been President, Venture Management, Baxter Healthcare
Corporation since 1994. Prior to this position, he held the operating position
of President, Baxter Biotech Europe. Mr. Schmitt joined Baxter after a 16- year
career with the American Red Cross Blood Services where he held positions in
marketing and operations.
24

He serves on the Board of Directors of a number of development-stage biotech
companies.

MICHAEL WEINER, M.D. was elected a director of the Company in June 1996.
Dr. Weiner has been the Hellinger Professor of Clinical Pediatrics at Columbia
University College of Physicians and Surgeons since January 1996 and has been an
attending pediatrician at Columbia Presbyterian Medical Center since January
1996. Dr. Weiner has served as Associate Director of Pediatrics
Hematology/Oncology and Associate Attending Physician of Hackensack Medical
Center and an Associate Attending Pediatrician UMDNJ Division of Pediatric
Hematology/Oncology, since 1987.

____________________________

All directors hold office until the next annual meeting of shareholders and
until their successors are elected and qualified. Officers are elected annually
and serve at the pleasure of the Board of Directors, subject to rights, if any,
under contracts of employment.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16 of the Securities Exchange Act of 1934, as amended, requires
that officers, directors and holders of more than 10% of the Common Stock
(collectively, "Reporting Persons") file reports of their trading in Company
equity securities with the Securities and Exchange Commission. Based on a
review of Section 16 forms filed by the Reporting Persons during the last fiscal
year, the Company believes that the Reporting Persons timely complied with all
applicable Section 16 filing requirements.

ITEM 11. EXECUTIVE COMPENSATION.

Summary Compensation

The following table sets forth a summary of the compensation for the year
ended December 31, 1997 earned by the Company's Principal Executive Officer and
each other executive officer whose compensation exceeded $100,000 during 1997:

SUMMARY COMPENSATION TABLE

Annual Compensation Long-Term Compensation Awards
------------------- -----------------------------
Name and Principal Position Year Salary Bonus Options Compensation
- --------------------------- ---- ---------- ------- -------------- ---------------

Richard L. Dunning 1997 $ 200,000 $95,000 -- $ 6,000 (2)
President and Chief Executive Officer 1996 $ 133,833 $40,000 800,000 (1) $ 4,500 (2)
1995 -- -- -- --

Francis M. O'Connell 1997 $ 139,000 $45,000 -- --
Vice President, Finance and 1996 $ 123,800 $35,000 -- --
Controller 1995 $ 96,125 -- 100,000 (3) --

David A. Jackson, Ph.D. 1997 $ 175,000 $70,000 -- --
Vice President, Research & 1996 $ 48,000 $40,000 500,000 (4) --
Development, Chief Scientific Officer 1995 -- -- -- --

Alfonso J. Tobia, Ph.D. 1997 $ 150,000 $55,000 -- --
Senior Vice President 1996 $ 147,272 $50,000 -- --
1995 $ 130,000 $12,500 -- --
1994 $ 59,696 -- 150,000 (5) $25,000 (6)

L. William McIntosh 1997 $ 99,487 $40,000 400,000 (7) --
Senior Vice President, Business 1996 -- -- -- --
Development and Finance, Chief 1995 -- -- -- --
Financial Officer

(1) Number of shares of Common Stock purchasable. See Option Grant Table below
for exercise price and vesting terms.

(2) Reimbursement of personal medical and health care insurance.

(3) Number of shares of Common Stock purchasable at $.44 per share. In 1997,
75,000 Innovir options were granted at $ 1.30 per share.

(4) Number of shares of Common Stock purchasable at $3.31 per share.

(5) Number of shares of Common Stock purchasable at $.69 per share.

(6) Consists of a one-time relocation fee.

(7) 34,900 shares of Common Stock purchasable at $1.91 per share; 162,000
shares of Common Stock purchasable at $2.47 per share; and 203,100 shares
of Common Stock purchasable at $1.91 per share.

Option Grant Table

The following table sets forth certain information concerning options
granted in 1997 to the individuals named in the Summary Compensation Table:

INDIVIDUAL GRANTS

% of Total
Number of Securities Options Granted to Exercise
Underlying Options Employees in Fiscal Price Per Expiration
Name Granted Year Share Date
---- ------- ---- ----- ----

L. William McIntosh 34,900 .06% 1.9063 5/02/02
162,000 26% 2.469 5/19/02
203,100 33% 1.9060 5/19/02

Option Exercises and Value Table

The following table sets forth certain information concerning options
exercised during 1997, and the number of unexercised options as at December 31,
1997, held by the individuals named in the Summary Compensation Table.

OPTION EXERCISE AND VALUES AT DECEMBER 31, 1997

Number of Options at
SHARES December 31, 1997 VALUE OF
ACQUIRED ON VALUE EXERCISABLE (E)/ In-the-Money Options at
NAME EXERCISE REALIZED Unexercisable (U) December 31, 1997(1)
---- -------- -------- ----------------- --------------------

Richard L. Dunning -- -- 600,000 (U) --
200,000 (E) --

David A. Jackson -- -- 90,564 (U) --
30,188 (E) --
284,436 (U) --
94,812 (E) --
--
L. William McIntosh -- -- 34,900 (U) $ 1,047
162,000 (U) --
203,100 (U) $ 6,093

Francis M. O'Connell -- -- 50,000 (U) $ 75,000
50,000 (E) $ 75,000

Alfonso J. Tobia, Ph.D. -- -- 37,500 (U) $ 46,875
112,500 (E) $140,625

(1) Based upon the $1.938 closing sale price of the Common Stock on The Nasdaq
Stock Market on December 31, 1997.

Employment Arrangements

In October 1996, the Company entered into a restated employment agreement
with Richard L. Dunning, effective March 27, 1996, pursuant to which Mr. Dunning
serves as President and Chief Executive Officer of the Company. The agreement
provides for a base annual salary of $200,000, which may be increased at the
discretion of the Board of Directors or the Compensation Committee, and an
annual cash bonus based on performance criteria, with an initial cash bonus
targeted to be at least 33% of Mr. Dunning's base compensation. Mr. Dunning is
entitled to four weeks' vacation and to participate in the Company's medical,
dental, life and long-term disability

insurance and other benefit programs. Pursuant to the agreement, Mr. Dunning was
granted stock options to purchase an aggregate of 800,000 shares of Common Stock
at an exercise price of $2.56 per share, exercisable cumulatively at the rate of
25% per annum commencing March 28, 1997 (one year from the date of grant). Mr.
Dunning's employment may be terminated by the Company for cause, or without
cause upon 60 days' notice by either the Company or Mr. Dunning. In the event
Mr. Dunning's employment is terminated by the Company without cause, or in the
event Mr. Dunning terminates his employment following certain actions by the
Company (including a material reduction in Mr. Dunning's duties or a relocation
of the Company's principal executive offices), Mr. Dunning is entitled to a
severance payment equal to six months' of his base salary, payable in monthly
installments. The agreement contains certain non-competition and confidentiality
provisions, and provides that the Company may obtain "key man" life insurance on
the life of Mr. Dunning for the Company's benefit. Mr. Dunning received a
$40,000 signing bonus upon execution of the agreement.

In August 1996, the Company entered into an employment agreement with David
A. Jackson, Ph.D., pursuant to which Dr. Jackson serves as Vice President -
Research and Development and Chief Scientific Officer of the Company. The
agreement provides for a base annual salary of $175,000, which may be increased
at the discretion of the Board of Directors or the Compensation Committee, and
an annual cash bonus based on performance criteria, with an initial cash bonus
targeted to be at least 33% of Dr. Jackson's base compensation. Dr. Jackson is
entitled to four weeks' vacation and to participate in the Company's medical,
dental, life and long-term disability insurance and other benefit programs.
Pursuant to the agreement, Dr. Jackson was granted stock options to purchase an
aggregate of 500,000 shares of Common Stock at an exercise price of $3.3125 per
share, exercisable cumulatively at the rate of 25% per annum commencing August
26, 1997 (one year from the date of grant). Dr. Jackson's employment may be
terminated by the Company for cause, or without cause upon 60 days' notice by
either the Company or Dr. Jackson. In the event Dr. Jackson's employment is
terminated by the Company without cause, or in the event Dr. Jackson terminates
his employment following certain actions by the Company (including a material
reduction in Dr. Jackson's duties or a relocation of the Company's principal
executive offices), Dr. Jackson is entitled to a severance payment equal to
twelve months' of his base salary, payable in monthly installments. The
agreement contains certain non-competition and confidentiality provisions, and
provides that the Company may obtain "key man" life insurance on the life of Dr.
Jackson for the Company's benefit. Dr. Jackson received a $40,000 signing bonus
upon execution of the agreement.

In June 1994, the Company entered into an employment agreement with Alfonso
J. Tobia, Senior Vice President of the Company, effective July 1, 1994,
providing for a base annual salary of $125,000, to be increased to $150,000 upon
the redemption by the Company of its outstanding Class A Warrants (which
occurred in 1996), and eligibility for a discretionary bonus up to $25,000. The
agreement provides that Dr. Tobia is eligible to receive options to purchase
150,000 shares of Common Stock (which were granted on August 24, 1994), and is
eligible to participate in the Company's benefit programs, which currently
include a medical program, dental/vision insurance and group life insurance.

In May, 1997, the Company entered into an employment agreement with Richard
E. Kouri, Ph.D., pursuant to which Dr. Kouri serves as President and Chief
Executive Officer of VIMRX Genomics, Inc. The agreement provides for a base
annual salary of $160,000 which may be increased at the discretion of the Board
of Directors or the Compensation Committee, and an annual cash bonus based on
performance criteria, with an initial cash bonus targeted to be at least 33% of
Dr. Kouri's base compensation. Dr. Kouri is entitled to four weeks vacation and
to participate in the Company's medical, dental, life and long-term disability
insurance and other benefit programs. Pursuant to the agreement, Dr. Kuri was
granted stock options to purchases an aggregate of 75,000 shares of Common Stock
at an exercise price of $2.125 per share, exercisable in three equal increments
of 25,000 shares each on the first, second and third anniversaries, of the date
of his employment contract. Dr. Kouri's employment contract may be terminated by
the Company for cause, or without cause upon 60 days notice by either the
Company or Dr. Kouri. In the event Dr. Kouri's employment is terminated by the
Company without cause, or in the event Dr. Jackson terminates his employment
following certain actions by the Company (including a material reduction in Dr.
Kouri's duties), Dr. Kouri is entitled to a severance payment equal to twelve
months' of his base salary, payable in monthly installments. The agreement
contains certain non-competition and confidentiality provisions, and provides
that the Company may obtain "key man" life insurance on the life of Dr. Kouri
for the Company's benefit. Dr. Kouri Jackson received a $30,000 signing bonus
upon execution of the agreement.

In May, 1997, the Company entered into an employment agreement with L.
William McIntosh pursuant to which Mr. McIntosh serves as Senior Vice President,
Business Development and Finance and Chief Financial Officer. The agreement
provides for a base annual salary of $160,000 which may be increased at the
discretion of the Board of Directors or the Compensation Committee, and an
annual cash bonus based on performance criteria, with an initial cash bonus
targeted to be at least 33% of Mr. McIntosh's base compensation (with a minimum
bonus of $42,000 the first year). Mr. McIntosh is entitled to four weeks
vacation and to participate in the Company's medical, dental, life and long-term
disability insurance and other benefit programs. Pursuant to the agreement, Mr.
McIntosh was granted stock options to purchase an aggregate of 238,000 shares of
Common Stock at an exercise price of $1.906 per share and 162,000 sales
exercisable at $2.469, exercisable in four equal increments of 100,000 shares
each on the first, second and third and fourth anniversaries, of the date of his
employment contract. Mr. McIntosh's employment contract may be terminated by the
Company for cause, or without cause upon 60 days notice by either the Company or
Mr. McIntosh. In the event Mr. McIntosh employment is terminated by the Company
without cause, or in the event Dr. Jackson terminates his employment following
certain actions by the Company (including a material reduction in Mr. McIntosh's
duties), Mr. McIntosh is entitled to a severance payment equal to twelve months
of his base salary, payable in monthly installments. The agreement contains
certain non-competition and confidentiality provisions, and provides that the
Company may obtain "key man" life insurance on the life of Mr. McIntosh for the
Company's benefit. Mr. McIntosh received a $40,000 signing bonus upon execution
of the agreement.

(1) ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth as of February 8, 1998 information with
respect to the beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to own beneficially more than five percent of such
Common Stock, (ii) each director of the Company, (iii) each executive officer
named in the Summary Compensation Table in "Item 11. Executive Compensation,"
and (iv) all directors and executive officers as a group, together with their
respective percentage ownership of such shares:

Shares Percent
Name Beneficially Owned Outstanding
- ---- ------------------ -----------

Richard L. Dunning...................................... 471,901 (1) *
Francis M. O'Connell.................................... 50,000 (2) *
Alfonso, J. Tobia, Ph.D................................. 112,500 (2) *
David A. Jackson. Ph.D.................................. 106,038 (2) *
L. William McIntosh..................................... 110,000 (3) *
Donald G. Drapkin....................................... 725,000 (4) (5) 1.1%
Laurence D. Fink . ................................... 550,000 (4) (6) *
Jerome Groopman, M.D.................................... 50,000 (4) *
Linda G. Robinson ...................................... 250,000 (4)(7) *
Eric A. Rose, M.D. .................................... 797,400 (8) 1.2%
Lindsay A. Rosenwald, M.D............................... 6,014,999 (3) (7) 8.8%
Victor W. Schmitt....................................... --- ---
Michael Weiner, M.D..................................... 62,410 (4) *
Paramount Capital Asset
Management, Inc....................................... 4,049,999 (9) 6.1%
787 Seventh Avenue
New York, New York 10019
Baxter Healthcare Corporation........................... 11,000,000 16.4%
One Baxter Parkway
Deerfield, Illinois 60015
All directors and executive
Officers as a group (11) persons) .................... 9,300,248(10) 13.1%

____________________
* Less than one percent.

(1) Consists of currently exercisable options to purchase 468,306 shares owned
by Mr. Dunning, 2,095 shares owned by a daughter of Mr. Dunning, and 500
shares owned by each of Mr. Dunning's spouse, son and another daughter,
respectively. Mr. Dunning disclaims beneficial ownership of the shares
held by his spouse, son and daughters.

(2) Consists of currently exercisable options.

(3) Includes currently exercisable options to purchase 100,000 shares.

(4) Includes 100,000 shares for Mr. Drapkin and 50,000 shares for each of Mr.
Fink, Dr. Groopman, Ms. Robinson, Dr. Rosenwald and Dr. Weiner of
restricted stock which vests at the rate of 25% per year commencing June
20, 1997, provided the respective individual continues to serve as a
director of the Company, and subject to a non-lapsing right of first
refusal by the Company.

(5) Includes currently exercisable options to purchase 525,000 shares.

(6) Includes warrants to purchase 133,333 shares owned directly by Mr. Fink and
66,666 shares and warrants to purchase 33,333 shares owned by a family
trust for the benefit of Mr. Fink's children. Mr. Fink disclaims
beneficial ownership of the shares and warrants held by the family trust.

(7) Includes warrants to purchase 66,666 shares.

(8) Includes currently exercisable options to purchase 425,000 shares.

(9) Includes currently exercisable options to purchase 1,915,000 shares owned
by Dr. Rosenwald, and the 4,049,999 shares beneficially owned by Paramount
Capital Asset Management, Inc. ("PCAM") (see note (10) below). Dr.
Rosenwald serves as President and is sole shareholder of PCAM. Dr.
Rosenwald disclaims beneficial ownership of the shares beneficially owned
by PCAM except to the extent of his pecuniary interest, if any.

(10) Information is from a Schedule 13D dated December 23, 1996 filed by PCAM
which is the investment manager of The Aries Fund, a Cayman Islands Trust,
(the "Aries Trust") and the general partner of Aries Domestic Fund, L.P.
(the "Aries Limited Partnership"), and reports shared voting and
dispositive power of 5,964,999 shares and 2,750,000 shares, respectively,
by the Aries Trust and the Aries Limited Partnership.

(11) See notes (1) - (10).

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

In August 1995, the Company entered into a consulting agreement with
Lindsay A. Rosenwald, M.D., who was elected a director of the Company in June
1996, pursuant to which

Dr. Rosenwald has agreed to act as a financial consultant to the Company
pursuant to the terms thereof and the Company granted Dr. Rosenwald an option to
purchase 2,000,000 shares of Common Stock at $.53125 per share (the closing bid
price of the Common Stock on The Nasdaq Stock Market on the date preceding the
date of grant), exercisable through August 6, 1998. In June 1996, Dr. Rosenwald
transferred 85,000 of the underlying option shares to other persons.

In November 1995, the Company entered into an arrangement with Donald G.
Drapkin, a director of the Company, pursuant to which Mr. Drapkin agreed to make
available to the Company his business and financial acumen for a five-year
period, and the Company granted Mr. Drapkin an option to purchase 650,000 shares
at $.9375 per share (the closing bid price of the Common Stock on The Nasdaq
Small Cap Market on the date preceding the date of grant), exercisable at the
rate of 25% of the aggregate number of underlying shares per annum commencing
one year from the date of grant. Concurrently, the Company entered into a five-
year consulting arrangement with Eric A. Rose, M.D., a director of the Company,
pursuant to which Dr. Rose agreed to provide scientific consulting services to
the Company, and the Company granted Dr. Rose an option to purchase 650,000
shares at $.9375 per share, exercisable at the rate of 25% of the aggregate
number of underlying shares per annum commencing one year from the date of
grant.

On June 21, 1996, the Company completed a private placement pursuant to a
subscription agreement dated March 21, 1996 to a group of investors (see "Item
5. - Market for Registrant's Securities and Related Stockholder Matters - Recent
Sales of Unregistered Securities"), including the following directors or persons
or entities affiliated with such directors: (i) Laurence D. Fink, a director of
the Company, purchased 266,667 shares of Common Stock and 133,333 Common Stock
Purchase Warrants for $400,000, and a family trust of Mr. Fink purchased 66,666
shares of Common Stock and 33,333 Common Stock Purchase Warrants for $100,000;
(ii) Linda G. Robinson, a director of the Company, purchased 133,333 shares of
Common Stock and 66,666 Common Stock Subscription Warrants for $200,000; and
(iii) The Aries Trust Fund, a Cayman Island trust (the "Aries Trust"), and The
Aries Domestic Fund, L.P., a Delaware limited partnership ("The Aries Limited
Partnership" and, together with the Aries Trust, the "Aries Funds"), , in the
manner described below, purchased an aggregate of 666,666 shares of Common Stock
and 333,333 Common Stock Subscription Warrants for an aggregate of $1,000,000.
Lindsay A. Rosenwald, M.D., a director of the Company, serves as President and
is the sole shareholder of the investment manager of the Aries Trust, and serves
as President and is the sole shareholder of the general partner of the Aries
Limited Partnership. Jerome Groopman, M.D., a director of the Company, is a
member of the Scientific Advisory Board of the Aries Funds.

In March 1997, VIMRX entered into a research agreement relating to the
discovery, mapping, sequencing and validation of disease-related genes with
Columbia University. The agreement provides for VGI, to provide $30 million in
funding to the Center over a 5-year period and for VGI to receive an exclusive
license to develop, manufacture, use, sell or market products resulting from any
invention research information and biological materials developed by the Center
and funded under the agreement. The agreement is terminable by either Columbia
or VGI during the initial five-year term upon six months' notice, but in no
event earlier than September 7, 1999. Under the agreement, VIMRX issued 200,000
shares of Common Stock to

Columbia, which shares have subsequently been registered under the Securities
Act of 1933, as amended, pursuant to registration rights granted to Columbia.
VGI has paid Columbia $4.7 million in funding in quarterly installments in
respect of its obligations for 1997 under the Agreement. VGI has sought
technology collaborations with pharmaceutical and/or diagnostic companies and
has solicited equity investments in VGI from potential technology partners and
other investors, but has been unable to consummate any such transactions on
reasonable terms. As a result, VGI is engaged in discussions with Columbia with
a view to restructuring its relationship with Columbia. See "Item 1 - Business -
Drug Discovery; Columbia University Collaboration; Affiliation with VIMRX
Genomics, Inc. - Research Agreement with Columbia University." Eric A. Rose,
M.D., a director of the Company, is a Surgeon-In-Chief at Columbia Presbyterian
Medical Center in New York, an affiliate of Columbia, and has served as Chairman
of the Department of Surgery at the College of Physicians and Surgeons of
Columbia since 1994 and as a Director of the Division of Cardiothoracic Surgery
of the Department since 1990. Michael Weiner, M.D., a director of the Company,
is the Hellinger Professor of Clinical Pediatrics at Columbia's College of
Physicians and Surgeons, Director of Pediatric Oncology, and is an attending
physician at Columbia Presbyterian Medical Center.

In connection with the acquisition, Nexell entered into several agreements
with Baxter; pursuant to one of such agreements, Nexell may pay up to
$21,000,000 to Baxter as and when certain product development and regulatory
milestones are achieved. See "Item 1 Business- Nexell". As a result of the
transaction, Baxter owns in excess of 5% of the Common Stock of the Company.
Victor W. Schmitt, a director of the Company, is an employee of Baxter.

The Company believes that the research agreement with Columbia and the
acquisition agreement and related agreements with Baxter were negotiated on an
arm's length basis.

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) Lists.

1. See Index to Financial Statements on page F-1.

2. See Item 8 regarding financial statement schedules.

3. Exhibits.

Exhibit
Number Description
------ -----------

2.4 Copy of Asset Purchase Agreement dated October 10, 1997 by and
among Baxter Healthcare Corporation ("Baxter"), the Company and
Nexell (1)

3.1(a). Copy of the Company's Amended and Restated Certificate of
Incorporation dated July 10, 1990.

3.1(b). Copy of the Certificate of Amendment of Amended and Restated
Certificate of Incorporation of the Company dated June 12, 1993.

3.1(c). Copy of the Certificate of Amendment of Amended and Restated
Certificate of Incorporation of the Company dated June 20, 1996

3.1(d). Copy of the Certificate of Change of Registered Agent and
Registered office of the Company dated March 10, 1997.

3.1(e). Copy of the Certificate of Amendment of the Certificate of
Incorporation of the Company dated December 16, 1997. (2)

3.2 Copy of the Company's By-Laws, dated March 27, 1995

4.4 Copy of Warrant Agreement dated June 17, 1996 between the Company
and American Stock Transfer & Trust Company. (3)

4.5 Copy of the Certificate of Amendment of the Certificate of
Incorporation of the Company dated December 16, 1997 creating the
Class A Preferred Stock (described in Exhibit 3.1(e) above)

10.3 Copy of the Company's Amended and Restated 1990 Incentive and
Non-Incentive Stock Option Plan, as amended through February 27,
1997. (3)

10.9 Copy of Employment letter agreement dated June 21, 1994 between
the Company and Alfonso J. Tobia.* (4)

Exhibit
Number Description
- ------ -----------

10.11 Copy of the Company's 1995 Outside Directors Stock Option Plan.* (5)

10.12 Copy of letter agreement dated August 7, 1995 between the Company and
Lindsay A. Rosenwald, M.D. (5)

10.13 Copy of Stock Option Agreement dated August 7, 1995 between Registrant
and Lindsay A. Rosenwald, M.D. (5)

10.14 Copy of Consulting and Stock Option Agreement dated November 17, 1995
between the Company and Eric A. Rose, M.D. (5)

10.15 Copy of Stock Option Agreement dated November 17, 1995 between the
Company and Donald G. Drapkin. (5)

10.16 Copy of the Company's 1996 Non-Employee Director Restricted Stock
Award Plan.* (5)

10.18 Copy of Research Agreement dated as of March 7, 1997 among the
Company, The Trustees of Columbia University in the City of New York
and VIMRX Genomics, Inc. (6)

10.19 Copy of the Company's 1997 Incentive and Non-Incentive Stock Option
Plan, together with forms of stock option agreements.*(3)

10.20 Copy of Employment Agreement dated October 30, 1996 between the
Registrant and Richard L. Dunning. (3)

10.21 Copy of Employment Agreement dated August 26, 1996 between the
Registrant and David A. Jackson, Ph.D. (3)

10.22 Copy of Factor IX Research Agreement dated March 28, 1997 between
Registrant and the Trustees of Columbia University in the City of New
York. (7)

10.23 Copy of Employment Agreement dated May 5, 1997 between Registrant and
Richard E. Kouri, Ph.D. (7)

10.24 Copy of Employment Agreement dated May 19, 1997 between Registrant and
L. William McIntosh (8)

10.25 Hardware and Disposables Manufacturing Agreement between Nexell
Baxter, dated as of December 17, 1997. (9)

10.26 Antibody Manufacturing and Storage Agreement between Nexell and
Baxter, dated as of December 17, 1997. (10)

10.27 Hardware and Disposables Supply Agreement between Nexell and Baxter,
dated as of December 17, 1997. (11)

10.28 Marketing, Sale and Distribution Agreement between Nexell and Baxter,
dated as of December 17, 1997. (12)

Exhibit
Number Description
------ -----------

10.29 Non-Competition and Confidentiality Agreement between the Company
and Baxter, dated as of December 17, 1997. (13)

10.30 Sublicense (Chiron) between Nexell and Baxter, dated as of
December 17, 1997. (14)

10.31 Sublicense (Dorken) between Nexell and Baxter, dated as of
December 17, 1997. (15)

10.32 Sublicense (First Becton-Dickinson) between Nexell and Baxter,
dated as of December 17, 1997. (16)

10.33 Sublicense (Second Becton-Dickinson) between Nexell and
Baxter,dated as of December 17, 1997. (17)

10.34 Warrant, dated December 31, 1997, issued by Innovir to VIMRX

10.35 Agreement, dated December 31, 1997, between VIMRX and Innovir
relating to future equity purchases.

16 Letter of Richard A. Eisner & Co., LLP (18)

21 List of Subsidiaries.

23(a). Consent of Richard A. Eisner & Company, LLP.

23(b). Consent of KPMG Peat Marwick LLP
______________

* Denotes management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Annual Report on Form 10-K.

(1) Filed as the same numbered Exhibit to the Company's Current Report on Form
8-K (Commission File No. 0-19153) filed January 2, 1998 and incorporated
herein by reference thereto.

(2) Filed as Exhibit 3.1 to the Company's Current Report on Form 8-K
(Commission File No. 0-19153) filed January 2, 1998 and incorporated herein
by reference thereto.

(3) Filed as the same numbered Exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1996 (Commission File No. 0-19153) and
incorporated herein by reference thereto.

(4) Filed as the same numbered Exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1994 (Commission File No. 0-19153) and
incorporated herein by reference.

(5) Filed as the same numbered Exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 (Commission File No. 0-19153) and
incorporated herein by reference.

(6) Filed as the same numbered Exhibit to the Company's Current Report on Form
8-K (Commission File No. 0-19153) filed March 21, 1997 and incorporated
herein by reference thereto.

(7) Filed as the same numbered Exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997 (Commission File No. 0-
19153) and incorporated herein by reference.

(8) Filed as the same numbered Exhibit to the Company's Quarterly Report on
Form 10-Q (Commission File No. 0-19153) filed November 14, 1997 and
incorporated herein by reference thereto.

(9) Filed as Exhibit number 10.1 to the Company's Current Report on Form 8-K
(Commission File No. 0-19153) filed January 2, 1998 and incorporated herein
by reference thereto.

(10) Filed as Exhibit number 10.2 to the Company's Current Report on Form 8-K
(Commission File No. 0-19153) filed January 2, 1998 and incorporated herein
by reference thereto.

(11) Filed as Exhibit number 10.3 to the Company's Current Report on Form 8-K
(Commission File No. 0-19153) filed January 2, 1998 and incorporated herein
by reference thereto.

(12) Filed as Exhibit number 10.4 to the Company's Current Report on Form 8-K
(Commission File No. 0-19153) filed January 2, 1998 and incorporated herein
by reference thereto.

(13) Filed as Exhibit number 10.5 to the Company's Current Report on Form 8-K
(Commission File No. 0-19153) filed January 2, 1998 and incorporated herein
by reference thereto.

(14) Filed as Exhibit number 10.6 to the Company's Current Report on Form 8-K
(Commission File No. 0-19153) filed January 2, 1998 and incorporated herein
by reference thereto.

(15) Filed as Exhibit number 10.7 to the Company's Current Report on Form 8-K
(Commission File No. 0-19153) filed January 2, 1998 and incorporated herein
by reference thereto.

(16) Filed as Exhibit number 10.8 to the Company's Current Report on Form 8-K
(Commission File No. 0-19153) filed January 2, 1998 and incorporated herein
by reference thereto.

(17) Filed as Exhibit number 10.9 to the Company's Current Report on Form 8-K
(Commission File No. 0-19153) filed January 2, 1998 and incorporated herein
by reference thereto.

(18) Filed as the same number Exhibit to the Company's Current Report on Form 8-
K (Commission File No. 0-19153) filed May 21, 1997 and incorporated herein
by reference thereto.

(b) Reports on Form 8-K.

On January 3, 1997, the Company filed a current report on Form 8-K
announcing the acquisition of 68% of the issued and outstanding stock of
Innovir.

On March 21, 1997, the Company filed a current report on Form 8-K
announcing the entry into the Research Agreement with Columbia.

On May 21, 1997, the Company filed a current report on Form 8-K announcing
the appointment of KPMG Peat Marwick LLP as its Certifying Accountant.

On January 3, 1998, the Company filed a current report on Form 8-K
announcing the acquisition of the assets of the Immunology Division of the
Biotech Business Group of Baxter Healthcare Corporation.

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES

Consolidated Financial Statements

Independent Auditors' Report F-2

Independent Auditors' Report F-3

Consolidated Balance Sheets at December 31, 1997 and 1996 F-4

Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 F-5

Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1997, 1996 and 1995 F-6

Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 F-7

Notes to Consolidated Financial Statements F-8 to F-30

F-1

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
VIMRX Pharmaceuticals Inc:

We have audited the accompanying consolidated balance sheet of VIMRX
Pharmaceuticals Inc. and subsidiaries ("VIMRX") as of December 31, 1997, and the
related statements of operations, shareholders' equity and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit. The accompanying
financial statements of VIMRX as of December 31, 1996 and for the two years then
ended, were audited by other auditors whose report thereon dated March 14, 1997,
expressed an unqualified opinion on those statements.

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

In our opinion, the 1997 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of VIMRX as of
December 31, 1997, and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Wilmington, Delaware
March 23, 1998

F-2

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
VIMRx Pharmaceuticals Inc.
Wilmington, Delaware

We have audited the accompanying consolidated balance sheet of VIMRx
Pharmaceuticals Inc. and subsidiaries as of December 31, 1996 and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the years in the two-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of VIMRx Pharmaceuticals
Inc. and subsidiaries as of December 31, 1996, and the consolidated results of
their operations and their consolidated cash flows for each of the years in the
two-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.

Richard A. Eisner & Company, LLP
New York, New York
March 14, 1997

F-3

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

DECEMBER 31,
---------------------------------------------------------------
ASSETS 1997 1996
------------------------- ----------------------------

Current assets:
Cash and cash equivalents $ 57,830,000 $ 8,611,000
Short-term investments -- 38,300,000
Receivables from related party 4,235,000 --
Inventory 2,227,000 --
Other current assets 922,000 348,000
------------------------- ----------------------------
Total current assets 65,214,000 47,259,000

Fixed assets, net 15,464,000 2,650,000
Intangible assets, net 40,773,000 1,236,000
Other assets 496,000 547,000
------------------------- ----------------------------
TOTAL ASSETS $121,947,000 $ 51,692,000
========================= ============================

LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 3,380,000 $ 1,903,000
Long-term debt current portion 130,000 36,000
Capital leases current portion 350,000 472,000
------------------------- ----------------------------
Total current liabilities 3,860,000 2,411,000

Long-term debt 30,171,000 227,000
Capital leases 208,000 463,000
------------------------- ----------------------------
Total liabilities 34,239,000 3,101,000
------------------------- ----------------------------

Minority interest in subsidiaries 4,161,000 2,381,000

Contingencies, commitments and other matters (Note 12)

SHAREHOLDERS' EQUITY
Class A Convertible Preferred Stock; $.001, Par value 100 --
150,000 shares authorized shares; 66,304 issued and
outstanding at December 31, 1997
(liquidation value $66,304,000)
Common stock; $.001 Par value, 120,000,000 shares 67,000 54,000
authorized, 66,498,000 and 54,430,000 shares issued
and outstanding at December 31,1997 and
December 31,1996, respectively
Additional paid-in-capital 182,538,900 89,478,000
Unearned compensation (449,000) (800,000)
Unrealized (loss) on investment -- (143,000)
Cumulative translation adjustment (40,000) (8,000)
Accumulated deficit (98,570,000) (42,371,000)
------------------------- ----------------------------
Total shareholders' equity 83,547,000 46,210,000
------------------------- ----------------------------
Total liabilities and shareholders' equity $121,947,000 $ 51,692,000
========================= ============================

The accompanying notes are an integral part of the financial statements.

F-4

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31,
------------------------------------------------------------
1997 1996 1995
--------------- ---------------- ----------------

Revenue............................................ $ 5,002,000 $ -- $ --
Cost of goods sold................................. 4,630,000 -- --
--------------- ---------------- -----------------
Gross profit.................................. 372,000 -- --
--------------- ---------------- ----------------

Operating expenses:
Research and development........................ 14,507,000 2,950,000 2,840,000
Purchased research and development (net of gain
on sale of subsidiary of $2,889,000 in 1996).. 39,862,000 14,484,000 --
General and administrative...................... 7,215,000 4,300,000 2,272,000
Goodwill amortization .......................... 412,000 -- --
Selling and marketing........................... 61,000 -- --
--------------- ---------------- ----------------
Total operating expenses...................... 62,057,000 21,734,000 5,112,000

Operating loss .................................... (61,685,000) (21,734,000) (5,112,000)
--------------- ---------------- ----------------

Other (income) expenses:
Royalty expense ................................ 150,000 100,000 100,000
Minority interest in net loss of
consolidated subsidiaries..................... (3,474,000) (116,000) --
Interest Income ................................ (2,216,000) (1,792,000) (160,000)
Interest expense................................ 121,000 329,000 2,000
Other, net ..................................... (67,000) (395,000) 186,000
--------------- ---------------- ----------------
Total other (income) expenses................. (5,486,000) (1,874,000) 128,000
--------------- ---------------- ----------------

Net (loss) ........................................ (56,199,000) (19,860,000) (5,240,000)

Preferred Stock dividends.......................... (166,000) -- --
--------------- ---------------- ----------------

Net (loss) applicable to Common Stock.............. (56,365,000) (19,860,000) (5,240,000)
=============== ================ ================

Basic loss per share............................... $ (1.02) $ (0.50) $ (0.27)
=============== ================ ================
Weighted average number of shares of
common stock outstanding ...................... 55,457,000 39,399,000 19,748,000
=============== ================ ================

Diluted loss per share............................. $ (1.02) $ (0.50) $ (0.27)
=============== ================ ================
Weighted average number of shares of
common stock and dilutive equivalent
shares outstanding ............................. 55,457,000 39,399,000 19,748,000
=============== ================ ================

The accompanying notes are an integral part of the financial statements.

F-5

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

Years Ended December 31, 1997, 1996 and 1995

Additional
Preferred Stock Common Stock Paid-in
--------------------------------- ------------------------------
Shares Amount Shares Amount Capital
----------------- -------------- ------------ --------------- --------------

Balance January 1, 1995 - 0 - $ - 0 - 19,742,576 $20,000 $ 22,384,000

Exercise of warrants - net ($1.50 per share) 2,000 3,000
Exercise of options ($0.4375 per share) 150,000 65,000
Value of options issued to consultants 591,000
Value assigned to warrants issued in private
placement of debt securities 200,000
Net (loss) for year
----------------- -------------- ------------ --------------- --------------
Balance - December 31, 1995 - 0 - - 0 - 19,894,576 $20,000 $ 23,243,000

Exercise of warrants ($1.50 per share)
(net of $712,000 expense) 13,907,015 14,000 20,135,000
Exercise of warrants ($2.25 per share)
(net of $1,275,000 expense) 14,210,315 14,000 30,684,000
Issuance of common stock in private
placement ($1.50 per unit)
(net of $142,000 expense) 2,799,991 3,000 4,055,000
Issuance of warrants in connection with
acquisition of Ribonetics 1,562,000
Exercise of options ($.50 - $1.16 per share) 217,990 195,000
Issuance of restricted stock to nonemployee
directors 400,000 400,000
Issuance of shares in connection with
acquisition of Innovir ($3 per share) 3,000,000 3,000 8,997,000
Compensatory stock options 207,000
Translation adjustment
Unrealized (loss) on investments
Net (loss) for year
----------------- ------------- ------------ --------------- --------------
Balance - December 31, 1996 (carried forward) - 0 - - 0 - 54,429,887 $54,000 $ 89,478,000

Unrealized Cumulative
Unearned (Loss) on Translation Retained
Compensation Investments Adjustment Deficit
------------ ----------- ---------- -----------

Balance January 1, 1995 $ - 0 - $ - 0 - $ - 0 - $(17,271,000)

Exercise of warrants - net ($1.50 per share)
Exercise of options ($0.4375 per share)
Value of options issued to consultants $ (493,000)
Value assigned to warrants issued in private
placement of debt securities
Net (loss) for year $(5,240,000)
----------- ----------- ---------- ------------
Balance - December 31, 1995 $ (493,000) $ - 0 - $ - 0 - $(22,511,000)

Exercise of warrants ($1.50 per share)
(net of $712,000 expense)
Exercise of warrants ($2.25 per share)
(net of $1,275,000 expense)
Issuance of common stock in private
placement ($1.50 per unit)
(net of $142,000 expense)
Issuance of warrants in connection with
acquisition of Ribonetics
Exercise of options ($.50 - $1.16 per share)
Issuance of restricted stock to nonemployee
directors (347,000)
Issuance of shares in connection with
acquisition of Innovir ($3 per share)
Compensatory stock options 40,000
Translation adjustment $ (8,000)
Unrealized (loss) on investments
Net (loss) for year $ (143,000) (19,860,000)
----------- ----------- ---------- -------------
Balance - December 31, 1996 (carried forwar $ (800,000) $ (143,000) $ (8,000) $(42,371,000)

The accompanying notes are an integral part of the financial statements.

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (continued)

Years Ended December 31, 1997, 1996 and 1995

Additional
Preferred Stock Common Stock Paid-in
-------------------------------- ----------------------------
Shares Amount Shares Amount Capital
--------------- -------------- ------------ ------------- ------------

Balance - December 31, 1996 (bought forward) - 0 - - 0 - 54,429,887 54,000 89,478,000

Exercise of Directors' options
($.75 - $.94 per share) 520,000 1,000 417,000
Issuance of Common Stock to
Columbia University 200,000 700,000
Exercise of warrants ($1.50 per share) 200,000 299,000
Exercise of Directors' options 12,500 17,000
Issuance of shares in connection with
Acquisition of Ribonetics 121,239 --
Exercise of consultant options 15,000 8,000
Issuance of shares in connection with
Acquisition of Immunotherapy 66,304 100 11,400,000 12,000 91,619,900
Amortization of options
Translation Adjustment
Unrealized (loss) on Investments
Net (loss) for year
--------------- -------------- ------------- ------------- ------------
Balance December 31, 1997 66,304 $ 100 66,898,626 $67,000 $182,538,900
--------------- -------------- ------------- ------------- ------------

Unrealized Cumulative
Unearned (Loss) on Translation Retained
Compensation Investments Adjustment Deficit
------------------ ----------------- ---------------- --------------

Balance - December 31, 1996 (bought forward) (800,000) (143,000) (8,000) (42,371,000)

Exercise of Directors' options
($.75 - $.94 per share)
Issuance of Common Stock to
Columbia University
Exercise of warrants ($1.50 per share)
Exercise of Directors' options
Issuance of shares in connection with
Acquisition of Ribonetics
Exercise of consultant options
Issuance of shares in connection with
Acquisition of Immunotherapy
Amortization of options 351,000
Translation Adjustment (32,000)
Unrealized (loss) on Investments 143,000
Net (loss) for year (56,199,000)
------------------ ----------------- --------------- --------------

Balance December 31, 1997 $(449,000) $ - 0 - $(40,000) $ (98,570,000)
================== ================= =============== ==============

The accompanying notes are an integral part of the financial statements.

F-6

VIMRX PHARMACEUTICALS. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995
------------------- ---------------- ----------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(56,199,000) $(19,860,000) $(5,240,000)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation and amortization...................... 1,232,000 155,000 24,000
Amortization of debt discount...................... -- 198,000 2,000
Research and development expenses to be settled
through the issuance of stock.................... -- (464,000) 464,000
Investment in and advances to research and
development entities charged to expense.......... -- 185,000
(Gain) on sale of subsidiaries...................... -- (2,889,000)
Noncash compensation................................ 430,000 481,000 98,000
Purchased in process research and development....... 39,862,000 17,374,000 --
Loss from disposal of equipment..................... -- 12,000 --
Deferred financing cost............................. -- 310,000 --
Minority interest in net loss....................... (3,474,000) (116,000) --
Changes in operating assets and liabilities:
Decrease in prepayments under research contracts -- -- 47,000
(Increase) decrease in other current assets and
other assets.................................. (100,000) (103,000) 69,000
Increase (decrease) in accounts payable and
accrued expenses.............................. 1,190,000 (265,000) 266,000
---------------- --------------- ------------
Net cash (used in) operating activities (17,059,000) (5,167,000) (4,085,000)
---------------- --------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (purchases) sales of short-term investment...... 38,300,000 (38,279,000) 2,590,000
Payment for acquisition, net of cash acquired....... -- (2,011,000) --
Purchase of marketable securities................... 214,000 (450,000) --
Purchases of equipment.............................. (683,000) (802,000) (50,000)
Proceeds from sale of equipment..................... -- 12,000 --
Cash acquired in acquisition........................ 28,138,000 -- --
Investment in and loan to CambES, Ltd............... -- -- (100,000)
---------------- --------------- ------------
Net cash provided by (used in) investing activities 65,969,000 (41,530,000) 2,440,000
---------------- --------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of preferred and
common stock, net................................ -- 4,058,000 --
Proceeds from issuance of common stock in
connection with the exercise of warrants/options. 742,000 51,042,000 69,000
Proceeds from bridge loans.......................... -- -- 1,740,000
Repayment of capital leases......................... (503,000) -- --
Repayment of bridge loans........................... -- (2,000,000) --
---------------- --------------- ------------
Net cash provided by financing activities 239,000 53,100,000 1,809,000
---------------- --------------- ------------
Effect of exchange rate changes on cash............... 70,000 (11,000) --
---------------- --------------- ------------
Net increase in cash and cash equivalents............. 49,219,000 6,392,000 164,000
Cash and cash equivalents at beginning of period...... 8,611,000 2,219,000 2,055,000
---------------- --------------- ------------
Cash and cash equivalents at end of period............ $ 57,830,000 $ 8,611,000 $ 2,219,000
---------------- --------------- ------------

Cash paid for interest................................ $ 121,000 $ 124,000 $ --
---------------- --------------- ------------

The accompanying notes are an integral part of the financial statements.

F-7

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements

1 THE BUSINESS

(a) Operations

VIMRX Pharmaceuticals Inc. and subsidiaries ("The Company") is
biopharmaceutical company focused on identifying, evaluating, acquiring and
commercializing scientific technologies to be developed by the Company in
partnership with others. The Company has an 80.5% interest in Nexell
Therapeutics, Inc. ("Nexell"), the former Immunotherapy Division of the
Biotech Business Group of Baxter Healthcare Corporation ("Baxter"). Nexell
is developing and selling products to support cell therapy for cancer and
other serious diseases. The Company also owns approximately 70% of the
capital stock of Innovir Laboratories, Inc. (NASDAQ: INVR). ("Innovir")
together with its subsidiaries is engaged in the research and development
of oligozymes, a new class of biopharmaceutical agents for use in
identifying, characterizing, and validating pharmaceutical drug discovery
targets (target validation). Through its 90% interest in VIMRX Genomics,
Inc. ("VGI"), the Company funds research relating to the discovery,
mapping, sequencing and validation of disease-related genes with Columbia
University. The company is also engaged in developing therapeutic products
from synthetic hypericin, principally for the treatment of brain cancer and
certain hyproliferative skin diseases and in developing therapeutics to
prevent dangerous blood clotting and to enhance wound healing. Prior to
1997, the Company was considered to be a development stage enterprise.

(b) Ownership

The Company's shares are publicly traded on NASDAQ under the symbol "VMRX".

The Company is subject to those risks associated with any biopharmaceutical
company which has substantial expenditures for research and development.
There can be no assurance that the Company's research and development
projects will be successful, that products developed will obtain necessary
regulatory approval, or that any approved product will be commercially
viable. In addition, the Company operates in an environment of rapid
technological change, and is largely dependent on the services of its
employees and consultants.

F-8

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of presentation

The financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has sustained operating
losses and negative cash flows from operations since inception, however,
management believes that existing liquid assets will enable the Company to
continue to operate for the foreseeable future. Prior to 1997 the Company
was a development stage enterprise. As a result of the acquisition of
Nexell, described in note 3, the Company has products which have
appropriate regulatory approval, are manufactured and sold, and therefore
the Company is no longer considered a development stage enterprise.

(b) Consolidation

The accompanying consolidated financial statements include the accounts of
VIMRX, Innovir, Nexell and all subsidiaries which are wholly owned. All
significant intercompany balances and transactions have been eliminated.

Financial statements of foreign subsidiaries are translated into US dollars
using the year-end exchange rate for net assets and average exchange rates
for revenue and expense accounts. Adjustments resulting from these
translations are reflected directly in shareholders' equity.

(d) Cash and cash equivalents

Cash and cash equivalents of $57.8 million and $8.6 million at December 31,
1997 and 1996, respectively, consist of money market deposits, bank
deposits, commercial paper with maturity of less than three months, and a
mutual fund which invests in short duration bonds. For purposes of the
statements of cash flows, the Company considers all highly liquid debt
instruments which have maturities of three months or less when acquired to
be cash equivalents. The Company holds no collateral for these financial
instruments. Cash and cash equivalents subject the Company to
concentrations of credit risk.

(e) Investments

At December 31, 1996 the Company had certain investments which were
classified as "available-for-sale". These investments are reported at fair
market value in the balance sheet, and related unrealized holding gains and
losses are reported as separate component of shareholders' equity until
realized.

F-9

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements

(f) Inventories

Inventories, which consist only of finished goods, are stated at the lower
of cost or market. Cost is determined using the first-in, first-out
method.

(g) Fixed assets

Fixed assets consist of office and laboratory equipment and leasehold
improvements stated at cost, unless such assets are under a capital lease
in which case they are stated at the present value of the minimum lease
payments.

Equipment is depreciated on a straight-line basis over its estimated useful
lives which range from 4 to 15 years. Leasehold improvements are amortized
on a straight-line basis over the shorter of the lease term or estimated
useful life of the asset. The cost and related accumulated depreciation or
amortization of assets retired or sold are removed from the respective
accounts and any gain or loss is recognized in operations.

Expenditures for maintenance and repairs which do not materially extend the
useful lives of the assets are charged to operations as incurred.

(h) Intangible assets

Goodwill and other intangibles arising from the 1997 acquisition of the
assets of Nexell represents the excess of purchase price paid by the
Company over 80.5% of the fair value of net assets tangible assets acquired
(see Note 3). Such amounts are being amortized over 12.5 years, with the
exception of purchased research and development, which was immediately
charged to the statement of operations. 1997 Amortization expense related
to the Nexell goodwill was not material.

Goodwill arising from the 1996 acquisition of Innovir, represents the
excess of the purchase price paid by the Company over 68% of the fair value
of the net tangible assets acquired. Such amount is being amortized on
a straight-line basis over the period of expected benefit of three years,
with the exception of purchased research and development which was charged
to the statement of operations in 1996. Amortization of the Innovir
goodwill for the year ended December 31, 1997 was $412,000; amortization of
goodwill for the year ended December 31, 1996 was not material.

The carrying value of goodwill will be reviewed periodically based on the
advancement of the Company's technology and the continued employment of the
Company's workforce and consultants. Should this review indicate that
goodwill will not be realized, the Company's carrying value of the goodwill
will be reduced.

(i) Other assets

Other assets consist principally of security deposits and will be recovered
upon termination of the related leases.

F-10

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements

(j) Revenue recognition

Revenue and related cost of goods sold are recognized upon shipment of
products.

(k) Research and development

Research and development costs are charged to expense as incurred. In the
event of a business combination, purchased research and development is
valued and included in the allocation of the purchase price. If
technological feasibility of the acquired technology can not be established
at the date of acquisition and the technology has no future alternative
uses, the amount is immediately charged to expense.

(l) Income taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Deferred tax assets may be
reduced, if necessary, by a valuation allowance for any tax benefits which
are not expected to be realized. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.

(m) Stock-based compensation

Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board Opinion
No. 25 ("APB 25"), Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all stock-
based awards on the date of grant. Alternatively, SFAS 123 also allows
entities to continue to apply the provisions of APB 25 and provide pro
forma net income and pro forma earnings per share disclosures for employee
stock option grants made in 1995 and future years as if the fair-value-
based method defined in SFAS 123 had been applied. The Company has elected
to continue to apply the provisions of APB 25 and provide the pro forma
disclosure required by SFAS 123.

F-11

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements

(n) Net loss per share

Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding during the period. Diluted net loss per
share is computed using the weighted average number of shares of common and
diluted potentially dilutive outstanding during the period. Potentially
dilutive common shares consist of stock options and warrants using the
treasury stock method but are excluded if their effect is antidilutive.

Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 ("SFAS 128") Earnings Per Share "(EPS"). SFAS
128 establishes and simplifies the standards for computing earnings per
share previously found in Accounting principles Board Opinion No. 15,
Earnings Per Share ("APB 15") and makes them comparable to international
EPS standards. Pursuant to the adoption of the SFAS 128 and Securities and
Exchange Commission Staff Accounting Bulletin No. 98, the Company has
restated its net loss per share for all previously issued periods.
Accordingly, all net loss per share calculations reflect a historical
approach methodology rather than the methodology required by the superseded
guidance of APB 15 and Staff Accounting Bulletin No. 83 which amounts were
previously presented.

(o) Commitments and contingencies

Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties, and other sources are recorded when it is
probable that a liability has been incurred and the amount of the
assessment can be reasonably estimated.

(p) Impairment of long-lived assets

The Company reviews its long-lived assets for impairment when events or
changes in circumstances indicate that the carrying amount of a long-lived
asset may not be recoverable. Such asset is deemed impaired and written
down to its fair value if expected future cash flows are less that its
carrying amount.

(q) Fair value of financial instruments

Financial instruments include receivables, accounts and notes payable and
investments. The carrying amount of these instruments approximate fair
value due either to their short-term nature or because the Company believes
the instrument could be exchanged in a current transaction for that
carrying amount.

(r) Use of estimates

The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported assets and liabilities as well as the
disclosure of contingencies. Actual results could differ from those
estimates.

F-12

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements

(s) Reclassifications

Certain prior year amounts have been reclassified to conform with current
year presentation.

(t) New accounting pronouncements

In June 1997, the FASB issued Statement of Financial Standards No. 130,
("SFAS 130"). Reporting Comprehensive Income. SFAS 130 requires that all
items are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements.
SFAS 130 is effective for fiscal years beginning after December 15, 1997.
The Company plans to adopt this accounting standard as required. The
adoption of SFAS 130 will have no impact on the Company's earnings,
financial condition or liquidity, but will require the Company to classify
items of other comprehensive income in a financial statement and display
the accumulated balance of other comprehensive income separately in the
equity section of the balance sheet.

In June 1997, the FASB also issued Statement of Financial Standard No. 131,
("SFAS 131") Disclosures about Segments of an Enterprise and Related
Information. SFAS 131 supersedes Statement of Financial Standards No. 14,
Financial Reporting for Segments of a Business Enterprise, and establishes
new standards for reporting information about operating segments in interim
financial reports. SFAS 131 also establishes standards for related
disclosures about products and services, geographic areas and major
customers. SFAS 131 is effective for periods beginning after December 15,
1997. SFAS 131 affects reporting in financial statements only and will
have no impact on the Company's results of operations, financial condition
or liquidity.

3 ACQUISITIONS

(a) Acquisition of 80.5% of the Immunology Division of the Biotech Business
Group of Baxter Healthcare Corporation

On December 17, 1997, the Company completed it's acquisition of the
intellectual property and intangible assets, other than trademarks, of the
Immunotherapy Division (the "Division") of the Biotech Business Group of
Baxter Healthcare Corporation ("Baxter"), for 11,000,000 shares of the
Company's Common Stock and 66,304 shares of the Company's Class A Preferred
Stock; and the transfer of such intangible assets to a newly organized
subsidiary, Nexell Therapeutics, Inc. ("Nexell"), in exchange for 80.5% of
Nexell's common stock. Concurrently, Nexell acquired the tangible assets,
business, trademarks and certain obligations of the Division in exchange
for the payment to Baxter of 19.5% of Nexell's common stock and a warrant
entitling Baxter to purchase an additional 6% of Nexell's common stock for
$6,000,000. In addition, the Company purchased $10,000,000 principal amount
of the Subsidiary's 6.5% convertible subordinated debentures for
$10,000,000 and Baxter purchased $30,000,000 principal amount of such
debentures for $30,000,000. The Company's debentures eliminate on
consolidation.

F-13

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements

VIMRX's acquisition of 80.5% of Nexell has been accounted for as a purchase
and the operating results of the Company include those of Nexell for the
period from December 23, 1997 (date of acquisition) to December 31, 1997.
The purchase price of $93,000,000 was allocated as follows:

Tangible assets $13,952,000
Liabilities (1,389,000)
In-process research and development 37,712,000
Goodwill 28,861,000
Other intangible assets 11,086,000
-----------
$93,000,000
===========

The technological feasibility of the purchased in-process research and
development has not yet been established, therefore, the entire amount has
been expensed in the period ended December 31, 1997.

In addition, the Company entered into a series of agreements pursuant to
which Baxter will (i) perform manufacturing services; (ii) supply certain
products and components; (iii) have the exclusive rights to distribute
certain of the products and instruments which it sold to Nexell; (iv)
provide engineering and product development services and certain
transitional services for Nexell; (v) sublicense certain technology to
Nexell; and (vi) comply with a non-competition and confidentiality
agreement. In connection with the product development agreement, the
Company may pay up to $21,000,000 to Baxter as and when certain product
development and regulatory milestones are achieved. Baxter provides
manufacturing services to the Company on an ongoing basis with respect to
Nexell's products at no cost, and marketing services are provided at a
certain margin.

(b) Transactions to acquire majority interest in Innovir Laboratories, Inc.

The Company, Innovir and certain stockholders of Innovir (the "Aries
Funds") entered into a transaction (the "Transaction") whereby the Company
acquired 68% of Innovir and Innovir acquired 100% of the outstanding
capital stock of VIMRX Holdings Limited ("VHL"). In consideration of the
acquisition of VHL, Innovir, on December 23, 1996, issued 8,666,666 shares
of a newly designated series of preferred stock, Class D convertible
preferred stock and warrants to purchase two million shares of the
Innovir's common stock. The warrants expire after five years. The exercise
price for one million warrants is $1.00 per share; the remaining one
million warrants have an exercise price of $2.00 per share.

Simultaneously with Innovir's acquisition of VHL, the Company, in exchange
for $3 million and three million shares of its common stock, acquired 9.5
million shares of Innovir's common stock from the Aries Funds. In
addition, the Company and the Aries Funds entered into an agreement whereby
the Company obtained the right to vote 500,000 shares of Innovir's common
stock held by the Aries Funds, thereby effectively giving the Company
voting control of an aggregate of 18,666,666 shares of Innovir's stock.

F-14

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements

The Company's partial acquisition of Innovir and Innovir's acquisition of
VHL, have been accounted for as a purchase in accordance with APB Opinion
No. 16, Business Combinations ("APB 16") and Emerging Issues Task Force
Issue No. 90-13, Accounting for Simultaneous Common Control Mergers ("EITF
90-13"). The application of APB 16 and EITF 90-13 requires that the
Transaction be accounted for as a partial sale of VHL to the minority
shareholders of Innovir and a partial acquisition of Innovir. The
Company's purchase price of its 68% of Innovir totaled approximately $17
million. Of the total purchase price, approximately $3.7 million was
allocated to tangible assets, $1.8 million to liabilities, $13.8 million to
purchased in-process research and development and the balance to goodwill.
The purchased in-process research and development was immediately expensed.
In connection with the partial sale of VHL, the Company recorded a
gain of $2.8 million which has been included with purchased research and
development expense for the year ended December 31, 1996. The accompanying
statement of operations include the operations of Innovir for the year
ended December 31, 1997 and the period from December 23, 1996 to December
31, 1996.

During the year ended December 31, 1997, the Company exercised certain
warrants and purchased additional shares (at market price) which increased
its ownership interest to approximately 70%.

During 1996, VHL acquired 100% of the outstanding capital stock of
Ribonetics in consideration for approximately $1.6 million of cash and a
warrant to purchase 365,000 shares of the Company's common stock at an
exercise price of $.01 per share (the "Acquisition"). The Company valued
the warrants at approximately $1,562,000. The Acquisition has been
accounted for as a purchase and the operating results of the Company
include those of Ribonetics for the year ended December 31, 1997 and the
seven months ended December 31, 1996. The total purchase price aggregated
approximately $3.7 million and has been allocated to tangible assets,
liabilities and purchased in-process research and development of $475,000,
$289,000 and $3,528,000, respectively. The purchased research and
development was immediately expensed.

(d) Unaudited Pro forma results of operations

The unaudited pro forma results of operations for the year ended December
31, 1997, have been prepared as if the acquisition of 80.5% of the
Immunology Division discussed in (a) above, occurred on January 1, 1997.
The unaudited pro forma results of operations for the year ended December,
31, 1996 have been prepared as if the acquisitions discussed in (b) and (c)
above had occurred on January 1, 1996.

F-15

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
Noted to the Consolidated Financial Statements

UNAUDITED
Year ended December 31,
1997 1996
----------- -----------

Revenue $20,829,000 6,420,000
Other income 7,361,000 $ 9,267,000

Expenses $62,501,000 $61,199,000
Cost of Sales 17,079,000 8,948,000
----------- -----------

Net loss $51,390,000 $54,460,000
=========== ===========

Basic loss per share $ 0.93 $ 1.07
Diluted loss per share $ 0.93 $ 1.07

The pro forma results of operations above include adjustments for the
amortization of intangibles and exclude nonrecurring charges related to
purchased in-process research and development arising from the
acquisitions.

The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisitions above been
consummated at the beginning of the respective periods, nor are they
necessarily indicative of future operating results.

4 RESEARCH CONTRACTS AND OTHER AGREEMENTS

In the normal course of business the Company is party to various research
contracts, collaborative agreements, employment agreements, and other
commitments. Significant contracts and agreements are described below.

(a) Research agreements with Columbia University

In March 1997, the Company entered into an agreement (the "Agreement") with
Columbia University ("Columbia") whereby the Company, through its newly
established subsidiary VGI will provide $30 million in funding to Columbia
over the next five years in exchange for the right to exclusively license
technology developed under the Agreement at Columbia. Columbia has
received a 10% interest in VGI (valued at $500,000), and has received
200,000 shares of the Company (valued at $700,000) which collectively have
been allocated to purchased research and development which was immediately
expensed. The Agreement is terminable by either Columbia or VGI during
the initial five-year term upon six months' notice, but in no event earlier
than September 7, 1999. Through December 31, 1997, VGI has paid Columbia
$4.7 million in funding under the terms of the Agreement.

F-16

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
Noted to the Consolidated Financial Statements

In March, 1997 the Company also entered into a research agreement with
Columbia whereby the Company will provide $2.7 million in funding over
three years to research and develop Blood Factor IXai ("VM201"). In
connection with this agreement, the Company acquired the exclusive,
worldwide license to VM201 for $100,000.

(b) Agreements with Baxter

As described in Note 3(a), the Company is party to numerous contracts with
Baxter.

Pursuant to an agreement with New York University ("NYU") and Yeda Research
and Development Co., Ltd. ("Yeda"), located in Israel, (NYU and Yeda,
collectively, the "Licensers"), the Licensers granted the Company a
worldwide exclusive license to commercialize and exploit natural hypericin
and synthetic hypericin compounds to inactivate viruses and retro-viruses
as a therapeutic or preventive treatment for viral or retroviral diseases,
and for anti-glioma (brain tumor) indications. The agreement requires the
Company to protect the Licensers and their related parties (consultants and
scientists) from damages arising out of the conduct of the research project
and the use or practice of the research technology, products or processes
by the Company or its related parties. The Company must also maintain
employer's liability insurance for all its employees engaged in work
involving the research project.

In addition, the Company is required to make royalty and related payments
to licensers under the agreement consisting of: (1) royalties of 7% on net
sales of products licensed; (2) royalties of 4.4% on net sales of products
sublicensed; (3) 40% of payments from third parties to Fund research and
development and (4) 12% of consideration received from an entity selling
licensed products.

Commencing June 1, 1993, minimum annual royalty payments of $100,000 are
due until the later of the expiration of the Licensers' patents or 15 years
from the first commercial sale of products under the agreement.

5 INVESTMENTS

At December 31, 1997, substantially all of the Company's investments were
in a mutual fund which, for financial statement purposes, is considered to
be a cash equivalent. Securities available for sale at December 31, 1996
are summarized as follows:

F-17

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
Noted to the Consolidated Financial Statements

Estimated Unrealized
Cost Fair Value Gain (Loss)
------------------- ------------------- --------------------

US Treasury and agencies $ 4,867,000 $ 4,845,000 $(22,000)
Mortgage-backed securities 17,548,000 17,583,000 35,000
Asset-backed securities 11,181,000 11,182,000 1,000
Corporate debt securities 4,683,000 4,690,000 7,000
----------- ----------- --------
$38,279,000 $38,300,000 $ 21,000
=========== =========== ========

During the year ended December 31, 1996 the Company realized a gain of
approximately $272,000 on the sale of available-for-sale investments, which
is included in other income.

The cost and estimated fair value of available for sale securities by
contractual maturity at December 31, 1996 is as follows:

Estimated
Cost Fair Value
----------------- -----------------

Due after one year through five years $14,098,000 $14,083,000
Due after five years through ten years 5,721,000 5,719,000
Due after ten years 912,000 915,000
Mortgage-backed securities 17,548,000 17,583,000
----------------- -----------------

$38,279,000 $38,300,000
----------------- -----------------

Expected maturities may differ from contractual maturities because the
issuers of the securities may have the right to repay obligations without
repayment penalties. In 1997, all investments which were held at December
31, 1996 were liquidated, and the proceeds were reinvested in a mutual fund
which is considered to be a cash equivalent.

During 1996, the Company purchased for $800,000 an aggregate of 457,143
shares of the common stock of Epoch Pharmaceuticals, Inc. ("Epoch"),
warrants to purchase 450,000 shares of Epoch's common stock at $2.00 per
share and warrants to purchase an additional 450,000 common shares at $3.00
per share, which warrants expire on October 1, 1997 and October 1, 1998,
respectively. In connection therewith, Epoch released the Company and its
affiliates from any claims Epoch might have with respect to the Innovir's
subsidiary, Ribonetics. During 1996, the Company recorded a charge to
operations of $350,000 representing the excess over the fair value of
securities at the date of purchase. During 1997, the investment was
written down to its market value of $214,000, and is included in other
assets. Such write-down resulted in a charge of $236,000 to the 1997
statement of operations.

F-18

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

6 SUPPLEMENTAL BALANCE SHEET INFORMATION

Fixed assets consists of the following:

December 31,
------------------------------------------
1997 1996
------------------- ------------------

Office and laboratory equipment $14,199,000 $2,042,000
Computers 358,000 114,000
Leasehold improvements 1,858,000 689,000
------------------- ------------------
16,415,000 2,845,000
Less accumulated depreciation 951,000 195,000
------------------- ------------------

Fixed assets, net $15,464,000 $2,650,000
=================== ==================

Accounts payable and accrued expenses consist of the following:

December 31,
------------------------------------------
1997 1996
------------------- ------------------

Accounts payable $ 853,000 $ 859,000
Accrued expenses 1,459,000 435,000
Professional fees 382,000 567,000
Accrued payroll and related costs 686,000 42,000
------------------- ------------------

$3,380,000 $1,903,000
=================== ==================

Intangible assets are comprised of the following:

December 31,
------------------------------------------
1997 1996
------------------- ------------------

Goodwill $30,099,000 $1,236,000
Patents 7,230,000 -
Workforce 3,490,000 -
Other 366,000 -
------------------- ------------------
41,185,000 1,236,000
Less accumulated amortization 412,000 -
------------------- ------------------

Intangible assets, net $40,773,000 $1,236,000
=================== ==================

Receivables from related party are due from Baxter, and arise upon sale of
inventory to Baxter.

F-19

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

7 LEASES

The Company leases certain equipment under various noncancelable capital
lease agreements. Lease terms range from two to four years, after which the
Company has the option to purchase the equipment at amounts defined by the
respective lease agreements. In lieu of purchasing the equipment, certain
leases may be extended for specified periods, at defined monthly payments.
Upon expiration of the extended lease terms, the Company may purchase the
equipment for one dollar or must return the equipment to the lessor.

Leased equipment included as a component of fixed assets was approximately
$1,513,000 and $1,387,000 at December 31, 1997 and 1996, and; related
accumulated amortization was approximately $842,000 and $405,000 at
December 31, 1997 and 1996, respectively.

The Company also has noncancelable operating leases, primarily office
space, that expire at various times over the next six years. These leases
generally contain renewal options and require the Company to pay all
executory costs such as maintenance and insurance. Rental expense totaled
approximately $632,000, $250,000, and $107,000 for the years ended December
31, 1997, 1996 and 1995, respectively.

Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of December 31, 1997 are:

Capital Operating
Leases Leases
-------- ----------

Year ending December 31,
1998 $287,000 $1,329,000
1999 232,000 1,032,000
2000 80,000 658,000
2001 51,000 620,000
2002 - 571,000
thereafter - 1,073,000
-------- ----------

Total minimum lease payments 650,000 $5,283,000
==========
Less amount representing interest 92,000
--------

Present value of net minimum capital lease payments 558,000
Less current installments of obligations under capital leases 350,000
--------

Obligations under capital leases,
excluding current installments $208,000
========

F-20

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

8 LONG-TERM DEBT

Long-term debt consists of the following:

December 31,
----------------------------------------------
1997 1996
--------------------- --------------------

Convertible debt payable to related party $30,075,000 $ -
Note payable to warrantholder 226,000 263,000
--------------------- --------------------
Total long-term debt 30,301,000 263,000
Less current installments 130,000 36,000
--------------------- --------------------
Long-term debt, excluding current installments $30,171,000 $227,000
===================== ====================

Convertible debt payable to related party

In connection with the Company's purchase of 80.5% of Nexell, Baxter
purchased $30,000,000 of Nexell's subordinated debentures which are due in
November, 2004. The debentures bear interest at a rate of 6.5% which is
initially payable in November, 2002. At December 31, 1997, accrued interest
amounted to $75,000 and has been included in Long-term debt. In the event
of a public offering by, or the merger or sale of Nexell, the debentures
are convertible into Nexell common stock at a per share price equal to 95%
of the public offering, merger, or sale price.

Term note payable to warrantholder

The term note provides for interest, payable quarterly, at a rate of 8% per
annum. The noteholder holds a lien on all the assets of Innovir. In
connection with the issuance of the term note, the Company issued a warrant
which provides the holder the right to acquire an aggregate of 40,000
shares of the Innovir's common stock at $6.25 per share. Any accrued but
unpaid interest related to the term note may also be used to acquire
additional shares of common stock at a price of $6.25 per share. The
warrant expired on February 10, 1998.

In November 1996, the note was amended ("Amended Note"), and related
accrued and unpaid interest as of that date was deferred. In consideration
for the amendment, Innovir issued a second warrant, which entitles the
holder to purchase 20,000 shares of the Innovir's common stock at a price
of $1.50 per share. This warrant expires in November, 2001. The fair value
of the warrant is not material.

The aggregate maturities of long term debt for each of the five years
subsequent to December 31, 1997 are as follows:

Year Ending December 31,

1998 $ 130,000
1999 97,000
2000 -
2001 -
2002 -
thereafter 30,000,000

F-21

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 1997, 1996 and 1995, interest expense was
$121,000, $329,000, and $2,000, respectively.

9 SHAREHOLDERS' EQUITY

The Company is authorized to issue up to 120,000,000 shares of common stock
with a par value of $.001. Additionally, the Company's Board, at its sole
discretion, can issue series of preferred stock with each series having its
own rights, privileges, and qualifications determined by the Board. As of
December 31, 1997, the Company is authorized to issue up to 150,000 shares
of $0.001 par Class A Preferred Shares, of which 66,304 are outstanding.
Class A Preferred Shares ("A Shares") rights are as follows:

Holders of A Shares have no voting rights and are entitled
to receive dividends at the rate of 6% of the Liquidation
Preference ($1,000 per share) per share per annum, as and
when declared by the Board of Directors, before any dividend
or distribution is declared, set apart or paid upon the
Common Stock. The A Shares conversion feature provides for
each share to be converted into that number of common shares
as is determined by dividing the "Conversion Price" in
effect at the time of conversion. The Conversion Price is
initially the highest average closing price for any sixty
day trading period during the first 18 months of issue, but
in no event shall be greater than $7.50 per share, or less
than $5.50 per share. After 7 years from the original issue
date, or immediately prior to merger or sale of the Company,
the A Shares automatically convert into shares of Common
Stock at the then effective Conversion Price. The A Shares
are not subject to any mandatory redemption or sinking fund
provisions.

At December 31, 1997, A Share dividends amounting to $166,000 were declared
and are payable.

F-22

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10 STOCK OPTION PLANS

(a) Employees stock option plans

The Company has two employee stock option plans (the "1990 Plan" and the
"1997 Plan"). On June 20, 1996, the 1990 Plan was amended increasing the
number of shares of common stock issuable upon exercise of options granted
under the Plan from 1,200,000 to 2,400,000 shares and on June 24, 1997, the
1990 Plan was amended to conform the 1990 Plan to certain statutory and
regulatory development and to provide the Board of Directors and the
Compensation Committee with greater flexibility in determining the terms
and conditions of employee options. The shares of common stock are reserved
for issuance upon exercise of either incentive or nonincentive options,
which may be granted from time to time by a committee of the Board of
Directors to employees and others. The terms of the options may be up to 10
years and are exercisable as determined by the committee provided that the
option does not become exercisable before six months from the date of
grant. At December 31, 1997, there were no additional options available for
grant under the 1990 Plan. Generally, options vest 25% per annum on the
anniversary date of grant.

Under the terms of the 1997 Plan, up to 1,000,000 shares of common stock
are issuable upon exercise of options granted. The shares of common stock
are reserved for issuance upon exercise of either incentive or nonincentive
options, which may be granted from time to time by a committee of the Board
of Directors to employees and others. The terms of the options may be up to
10 years and are exercisable as determined by the committee provided that
the option does not become exercisable before six months from the date of
grant. The grant prices must be no less than 50% and 100% of the fair
market value for nonincentive and incentive options, respectively. The
grant prices must be no less than 50% and 100% of the fair market value for
nonincentive and incentive options, respectively. Generally, options vest
25% per annum on the anniversary date of grant.

F-23

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Stock options outstanding under these plans are as follows:

1990 Plan 1997 Plan
-------------- -------------

Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
-------------- ---------------- ------------- ----------------

Outstanding at December 31, 1994 310,000 - - -
Granted 250,000 0.44 - -
Expired (135,500) 1.59 - -
Exercised (150,000) 0.44 - -
-------------------------------------------------------------------

Outstanding at December 31, 1995 274,500 - - -
Granted 1,475,000 2.71 - -
Exercised (12,000) 1.16 - -
-------------------------------------------------------------------

Outstanding at December 31, 1996 1,737,500 $2.34 - -
Granted 411,900 2.40 203,100 $1.91
Expired (131,250) 1.66 - -
Exercised (12,500) 1.38 - -
-------------------------------------------------------------------

Outstanding at December 31, 1997 2,005,650 $2.45 203,100 $1.91
===================================================================

The following table summarizes information about stock options outstanding at
December 31, 1997 under the 1990 Plan and the 1997 Plan:

Options Outstanding Options Exercisable
----------------------- -----------------------
1990 PLAN Weighted-
- -------------------------------------
Average
Remaining Weighted- Weighted-
Contractual Average Average
Number Life Exercise Number Exercise
Range of Exercise Price Outstanding (in Years) Price Exercisable Price
------------- -------------- ------------- --------------- ------------

.44 - .69 250,000 2.88 $0.59 162,500 $0.63
1.66 - 1.91 113,650 3.90 1.81 43,750 1.66
2.56 - 3.31 1,642,000 3.59 2.78 325,000 2.85
- ---------------------------------------------------------------------------------------------------------------------
Total 1990 Plan 2,005,650 3.40 $2.45 531,250 $2.07
=====================================================================================================================

F-24

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1997 Plan Weighted-
-------------------------------------
Average
Remaining Weighted- Weighted-
Contractual Average Average
Number Life Exercise Number Exercise
Range of Exercise Price Outstanding (in Years) Price Exercisable Price
--------------- -------------- ------------- --------------- ------------

1.91 203,100 4.38 $1.91 - -
---------------------------------------------------------------------------------------------------------------------

Total 1997 Plan 203,100 4.38 $1.91 - -
=====================================================================================================================

(b) Directors Stock Option Plan

In August 1995, the Company adopted a Directors Stock Option Plan (the
"Directors Plan") authorizing the issuance of five year options to purchase
an aggregate of 920,000 shares at an exercise price equal to the fair
market value of the common stock at date of grant. All the options were
granted under the Directors Plan and no further options are available for
grant.

Additional information with respect to the Directors Plan option activity
is summarized as follows:

Weighted-
Average
Exercise
Shares Price
--------------- --------------

Granted 920,000 $0.86
---------------------------------
Outstanding at December 31, 1995 920,000 0.86

Exercised (200,000) 0.89
---------------------------------
Outstanding at December 31, 1996 720,000 0.85

Exercised (520,000) 1.14
---------------------------------
Outstanding at December 31, 1997 200,000 0.94
=================================

At December 31, 1997, all the options under the Directors Plan are
exercisable, and the weighted average remaining contractual life is 2.88
years.

F-25

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 1997, there were 796,900 additional shares available for
grant under the Plans. The per share weighted-average fair value of the
options granted during 1997 and 1996 are estimated at $2.40 per share and
$2.20 per share, respectively, on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions

1997 1996 1995
---------- ---------- ----------

Expected dividend yield 0% 0% 0%
Expected volatility 110% 110% 110%
Risk free interest rate 6.2% 6.1% 6.4%
Expected life 5 years 5 years 5 years
---------- ---------- ----------

The Company applies APB 25 in accounting for its stock option plans and,
accordingly, recognizes compensation expense for the difference between the
fair value of the underlying common stock and the grant price of the option
at the date of grant. In the event that the fair value of the underlying
common stock is equal to or below the grant price of the option at the date
of grant, no compensation expense is recognized in the financial
statements. Had the Company determined compensation cost based on the fair
value at the date of grant for its stock options under SFAS 123, the
Company's net loss would have been increased to the pro forma amounts
indicated below:

1997 1996 1995
-------- -------- --------

Net loss As
reported $56,199,000 $19,860,000 $5,240,000
Pro forma $57,533,000 20,745,000 5,423,000

Loss per share:
As reported $ 1.01 $ 0.50 $ 0.27
Pro forma $ 1.04 0.53 0.27

On June 21, 1996, the Company adopted the 1996 nonemployee Director
Restricted Stock Award Plan (the "Award Plan") under which an aggregate of
900,000 shares of common stock are reserved for issuance as restricted
shares of common stock to nonemployee directors. Restricted shares shall
be forfeited by the nonemployee director in the event the director ceases
to serve as director of the Company, except that such forfeiture provision
will lapse at a rate of 25% of the number of restricted shares per annum
commencing one year from the date of issuance.

F-26

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company has the right of first refusal to purchase any vested
restricted shares proposed to be transferred by a nonemployee director for
a period of 30 days after receipt of written notice at a per share price
equal to the difference between the fair market value at the date of
proposed transfer minus the difference between the fair market value at the
date of grant less $1.00. During the year ended December 31, 1996, the
Company granted 400,000 restricted shares under the Award Plan, 25% of
which have vested at December 31, 1997. The Company valued these shares at
$400,000, which is being amortized over the vesting period. No restricted
shares were granted in the year ended December 31, 1997.

(d) Warrants to acquire common stock

As of December 31, 1996, the Company had warrants to purchase 2,400,000
shares of common stock at an exercise price of $1.50 per share, exercisable
through June 20, 2006.

In addition, at December 31, 1996 the Company has issued warrants to
purchase 365,000 shares of common stock at an exercise price of $.01 per
share, exercisable through May 21, 2006 [see Note 3(c)]. 121,667 Warrants
were exercised in the year ended December 31, 1997.

As of December 31, 1997 there were 2,400,000 warrants exercisable at a
weighted-average exercise price of $1.50.

(e) Other options

In connection with its public offerings, the Company sold to an
underwriter, at a nominal amount, the following options for the purchase of
units:

Exercise Number of
Number Price Shares
of Units Per Unit Reserved Expiration Date
------------ ------------- -------------- -------------------

1994 offering 135 $7,000 1,407,374 January 20, 1999

The units are subject to adjustment for dilution (as defined). Each
warrant entitles the holder to purchase a unit consisting of one share of
common stock and one redeemable Class B detachable warrant. Each Class B
warrant entitles the holder to purchase one share of common stock.

F-27

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company has granted stock options to certain consultants, who are also
directors, of the Company as follows:

Number of Exercise
Shares Price Term Expiration Date Note
----------- ----------- ----------- ------------------

1,300,000 $0.94 5 years November, 2000 (x)
2,000,000 0.53 3 years August, 1998 (x)
100,000 1.47 10 years March 11, 2006 (y)
100,000 1.47 10 years March 11, 2006 (y)

(x) In 1995, the aggregate value of these options was determined to be
$591,000 and is being amortized over the vesting period.
(y) Options granted in connection with a March, 1996 agreement whereby
certain directors agreed to provide operating funds if needed through
September, 1996.

11 INCOME TAXES

There is no provision (benefit) for federal, state or local income taxes
for all periods presented, since the Company has incurred operating losses
since inception and has established a valuation allowance equal to the
total deferred tax asset.

The federal tax effect of net operating loss carryforwards, temporary
differences and research and development tax credit carryforwards is as
follows:

December 31,
-----------------------------------
1997 1996
------------- -------------

Deferred tax assets:
Net operating loss carryforwards $ 20,771,000 $ 15,947,000
Research and experimental tax credit carryforwards 1,404,000 570,000
Other 50,000 325,000
--------------------------------------
Total deferred tax assets 22,225,000 16,842,000

Valuation allowance $(22,225,000) $(16,842,000)
--------------------------------------
Net deferred taxes - -
======================================

As of December 31, 1997, the Company has available for tax purposes the
following net operating loss carryforwards:

United States (expires through 2012) (including
approximately $36,178,000 relating to Innovir) $56,857,000
United Kingdom (no expiration date) 1,786,000
Germany (no expiration date) 2,300,000

F-28

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company's research and development tax credit carryforward of
approximately $1,404,000 expires in various years from 2005 through 2012
and is subject to limitation due to a change in ownership pursuant to
Section 382 of the Internal Revenue Code.

The Company's ability to utilize $36,178,000 of its $60,943,000 net
operating loss carryforwards is subject to a cumulating, annual limitation
of approximately $1,200,000 pursuant to Section 382 of the Internal Revenue
Code. The $24,765,000 balance would become subject to limitation (the
amount of which would be based on the then value of the Company's
outstanding shares) if and when an "ownership change" (as defined in
Section 382 of the Internal Revenue Code) were to occur.

12 CONTINGENCIES

The Company is aware of patents in the United States and Europe held by an
unaffiliated third party relating to certain technology which may be
infringed by certain of Innovir's oligozymes, in which event a license from
such third party would be required. The Company is currently evaluating
its patent position.

The Company may be considered to be in violation of the terms a sublease by
not obtaining the required approval from the owner of the property prior to
the consummation of the acquisition of a majority interest in Innovir, as
described in Note 3(b). In addition, the owner of the property has alleged,
and the Company's sublandlord disputes, that the sublandlord may also be in
breach of its lease with the owner of the property. If the sublandlord is
evicted, the Company would lose its right to occupy its current space.
While the Company believes that these matters will be resolved without a
material adverse effect on the Company's business or financial position,
the ultimate outcome can not be predicted.

Certain capital leases contain various covenants including a requirement
that the Company must maintain a minimum cash balance (as defined in the
lease agreement) during the term of the lease. This covenant indirectly
restricts the Company's ability to pay dividends.

The Company is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position, results of
operations, or liquidity.

13 EMPLOYEE BENEFIT PLANS

Innovir, a subsidiary of the Company, adopted the provisions of two defined
contribution retirement plans (the "Plans"). The terms of the Plans, among
other things, allow certain eligible employees who have met certain age and
service requirements to participate in the Plans. Innovir has agreed to
contribute defined amounts to the Plans. In addition, Innovir may also
make discretionary contributions. Contributions to date have been
immaterial.

F-29

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

14 GEOGRAPHIC INFORMATION

Geographic information on the Company's operations is set forth below:

1997 1996 1995
-------- -------- -------

Net loss:
United States $ 53,444,000 $18,325,000 $3,214,000
Europe 2,755,000 1,535,000 2,026,000
---------------------------------------------------
Total net loss $ 56,199,000 $19,860,000 $5,240,000
===================================================
Identifiable assets:
United States $120,496,000 $50,639,000 $2,617,000
Europe 1,451,000 1,053,000 341,000
---------------------------------------------------
Total identifiable assets $121,947,000 $51,692,000 $2,958,000
===================================================

F-30

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Wilmington, State of Delaware, on the 30th day of March, 1998.

VIMRx PHARMACEUTICALS INC.

By: /s/ Richard L. Dunning
----------------------
Richard L. Dunning
President and Chief
Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

/s/ Richard L. Dunning President and Chief Executive Officer and March 30, 1998
- ------------------------- Director (Principal Executive Officer)
Richard L. Dunning

/s/ Donald G. Drapkin Chairman of the Board and Director March 30, 1998
- -------------------------
Donald G. Drapkin

/s/ Francis M. O'Connell Vice President, Finance and Controller March 30, 1998
- ------------------------- (Principal Financial and Accounting
Francis M. O'Connell Officer)

/s/ Laurence D. Fink Director March 30, 1998
- -------------------------
Laurence D. Fink

/s/ Jerome Groopman Director March 30, 1998
- -------------------------
Jerome Groopman, M.D.

/s/ Linda G. Robinson Director March 30, 1998
- -------------------------
Linda G. Robinson

/s/ Lindsay A. Rosenwald Director March 30, 1998
- -------------------------
Lindsay A. Rosenwald, M.D.

/s/ Eric A. Rose Director March 30, 1998
- -------------------------
Eric A. Rose, M.D.

/s/ Michael Weiner Director March 30, 1998
- -------------------------
Michael Weiner, M.D.

/s/ Victor W. Schmitt Director March 30, 1998
- -------------------------
Victor W. Schmitt