10-K

                                  UNITED STATES
                       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, 1999 or

/ /   Transition report pursuant to Section 13 or 15(d) of the Securities
- ---   Exchange Act of 1934.

For the transition period from __________ to __________.

Commission file number:  0-18006

                         THE IMMUNE RESPONSE CORPORATION
             (Exact name of registrant as specified in its charter)

              DELAWARE                                    33-0255679
   (State or other jurisdiction of           (IRS Employer Identification No.)
   incorporation or organization)

                      5935 DARWIN COURT, CARLSBAD, CA 92008
                     Address of principal executive offices

                                 (760) 431-7080
                Registrant's telephone number including area code

Securities registered pursuant to Section 12(b) of the Act:   None

Securities registered pursuant to Section 12(g)
of the Act:                                      Common Stock, Par Value $.0025
                                                 Preferred Stock Purchase Rights
                                                         (Title of Class)

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

Yes    X                            No
      ---                              ---

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

The aggregate market value of the Common Stock held by non-affiliates of the
registrant, based upon the last sale price of the Common Stock reported on the
National Association of Securities Dealers Automated Quotation National Market
System on March 10, 2000 was $341,346,000.

The number of shares of Common Stock outstanding as of March 10, 2000 was
27,209,345.





                       DOCUMENTS INCORPORATED BY REFERENCE

                        (To the Extent Indicated Herein)

Registrant's Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the solicitation of proxies for the Registrant's
2000 Annual Meeting of Stockholders to be held on May 25, 2000 is incorporated
by reference in Part III, Items 10 (as to directors), 11, 12 and 13 of this Form
10-K.



                                       2



ITEM 1.    BUSINESS

GENERAL
The Immune Response Corporation ("Immune Response" or the "Company") is a
biopharmaceutical company developing immune-based therapies to induce specific
immune responses for the treatment of HIV, autoimmune diseases and cancer. In
addition, the Company is developing a targeted non-viral delivery technology for
gene therapy, which is designed to enable the delivery of genes directly to the
liver via intravenous injection. The Company's gene therapy program is focused
on diseases of the liver.




                          PRODUCTS UNDER DEVELOPMENT(1)

                                    PRECLINICAL            PHASE 1            PHASE 2              PHASE 3
                                    -----------            -------            -------              -------
                                                                                       
       IMMUNE-BASED THERAPIES

                          HIV       [GRAPH] -----------------------------------------------------------


         Rheumatoid Arthritis       [GRAPH] ---------------------------------------------
                    Psoriasis       [GRAPH] -------------------------------------
           Multiple Sclerosis       [GRAPH] ----------------------------


                 Colon Cancer       [GRAPH] ----------------------------
                 Brain Cancer       [GRAPH] ---------------
              Melanoma Cancer       [GRAPH]
              Prostate Cancer       [GRAPH]



                 GENE THERAPY
                 Hemophilia A       [GRAPH]
                    Hepatitis       [GRAPH]




(1)      The table describes the status of the current product candidates and is
         not intended to depict the relative lengths of time of any of the
         stages of drug discovery and preclinical and clinical development. The
         amount of time spent in any phase of development will vary
         substantially from product to product and there can be no assurance
         that any of the products will proceed beyond the phase depicted or will
         receive regulatory approval. See "Government Regulation."


THE IMMUNE SYSTEM
The immune system is the body's natural defense mechanism to prevent and combat
disease. When a competent immune system recognizes a foreign material or
biological invader it normally induces a response. There are two major arms of
the immune system: T cell-based and B cell or antibody-based.

T cells are specialized white blood cells that are normally produced by the body
to kill infected cells. A T cell-based immune response begins when these
specialized T cells, immune cells, recognize foreign "invaders" such as viruses
or bacteria within the body. However, significant evidence suggests that
infections trigger a T cell-based immune response during the initial course of
their progression but this response is not always sufficient to eradicate the
disease. In fact, some diseases are able to produce substances that suppress the
immune response, thus making it important to provide assistance to the immune
system.

The Company believes that its technology will regulate the body's immune system
to recognize and combat diseases such as HIV, autoimmune disease and cancer.
Ways that this can be accomplished are by boosting the killer T cell responses
against HIV and cancer and boosting the regulatory T cell response against the
disease inducing T cells in autoimmune diseases such as rheumatoid arthritis,
psoriasis and multiple sclerosis.

OUR IMMUNE BASED THERAPIES

IMMUNE BASED THERAPIES FOR HIV
BACKGROUND. AIDS, which is caused by a virus known as HIV, is a condition that
slowly destroys the body's immune system making the body vulnerable to
opportunistic infections. The spread of HIV is a result of the virus invading
the host cell where it uses the host cell's protein synthesis capability to
replicate. The immune system responds by



                                       3



producing antibody and cellular immune responses capable of attacking HIV. While
these and other responses are usually sufficient to temporarily arrest progress
of the infection and reduce levels of virus in the blood, the virus continues to
replicate and slowly destroys the immune system by infecting and killing
critical T cells, known as CD4 cells. The CD4 cells are needed to maintain the
immune system. As the infection progresses, the immune system's control of HIV
levels weakens, the level of virus in the blood rises and the level of critical
T cells declines to a fraction of normal level. Currently available antiviral
products have been shown to be effective at reducing the levels of virus in the
blood, however, certain limitations in the therapy have prevented the antiviral
products from being as effective as originally predicted. This is due primarily
to viral resistance and the inability to stimulate the infected individual's own
immune system to kill the virus.

The World Health Organization ("WHO") estimates there are approximately 33
million individuals around the world infected with HIV. WHO also stated that
during 1998, 5.8 million individuals (including 590,000 children) became
infected with HIV. This represents approximately 16,000 new infections per day.
In the United States, the number of HIV-infected individuals is estimated at 1
million. The HIV epidemic represents a significant societal threat to both
developed and developing nations since most of the HIV-infected individuals are
expected to ultimately develop AIDS, creating a significant burden on healthcare
systems and economies around the world.

REMUNE. REMUNE is designed to stimulate an HIV-infected individual's immune
system to attack HIV. The Company believes results from its previous clinical
trials demonstrated that REMUNE significantly boosts HIV-specific immune
responses in HIV-infected individuals. Furthermore, the Company believes REMUNE
stimulates the production of specific antiviral substances, such as chemokines,
which naturally protect T cells from HIV infection. By utilizing an immune-based
therapy such as REMUNE, the Company believes it may be possible to boost the HIV
infected individual's immune system against the virus and further optimize the
effects of antiviral drug therapy.

HIV opinion leaders have begun to recognize that in order to effectively stop or
slow the progression of HIV to AIDS, therapies must stimulate HIV cell mediated
immune response in infected individuals (HIV-specific T cell proliferation) in
addition to reducing viral load through the use of antiviral drugs. Furthermore,
and most importantly, antiviral drugs do not enhance HIV specific immune
function which is now thought by numerous researchers to be important in
controlling HIV replication. The use of REMUNE to reconstitute HIV specific
immunity may provide a unique niche for REMUNE to be utilized in combination
with drug therapy to provide long-term management of HIV.

CLINICAL TRIALS. In 1999, the Company discontinued a 2,526 patient Phase 3
clinical endpoint trial. The trial was discontinued because differences in
clinical endpoints were not observed between treatment groups and extending
the trial would have been unlikely to provide sufficient additional clinical
endpoints to permit statistically significant differences between the
treatment groups to be observed in the near term. The primary efficacy
endpoint for the trial was disease progression to an AIDS defining condition,
or death. At the time the study began this was the only accepted endpoint for
approval by the FDA for vaccines. However, since the discontinuation of the
2,526 patient Phase 3 trial, the FDA has agreed to accept virologic endpoint
trials for the basis of approval for REMUNE. This allows the Company to use
virologic failure as the primary endpoint, which was accepted, for most of
the antiretroviral products that have been approved under the drug division
of the FDA. Under the revised requirements, Agouron Pharmaceuticals, Inc.
("Agouron"), a wholly owned subsidiary of Warner-Lambert Company, and Immune
Response have initiated a Phase 3 pivotal trial in 550 patients to evaluate
whether REMUNE plus highly active antiviral therapy (HAART) delays the time
to virologic failure. This trial will assess whether REMUNE plus HAART is
capable of delaying the time that the HIV virus increases in a patient's
blood. If the trial is successfully enrolled and completed, results can be
expected by the second half of 2001.

The Thailand clinical trial in 297 infected Thai patients, conducted by Trinity
Medical, was completed in 1999. The primary endpoint was increase in CD4 cells.
The primary endpoint was met in this 40-week clinical trial. Although patients
received no antiviral drug therapy, REMUNE augmented CD4 cells and enhanced HIV
specific immunity. Further follow-up has shown stable or decreased viral load in
a majority of the patients that have been examined.

A REMUNE study is also being conducted in Spain. The ongoing 243 patient trial
combines REMUNE with antiviral drug therapy and is assessing the effect of
REMUNE on virologic failure. The data safety monitoring board for this trial,
which was designed to evaluate immunologic and virologic endpoints, met in the
fourth quarter of 1999 and concluded that the trial could continue to completion
which is scheduled for April 2001.

The results of a Phase 1, 10 patient pediatric trial conducted by the National
Institutes of Health were published in the Journal of Infectious Disease showing
that REMUNE was well tolerated in children on antiviral drug therapy


                                       4



and induced HIV specific immune responses. Furthermore, the results showed that
children receiving the adult dose of REMUNE had a significant sustained decrease
in viral load compared to children who received a lower dose.

Previous Phase 1 and 2 studies in approximately 350 subjects indicated that
REMUNE was well tolerated with the most common side effect being injection site
reactions. These trials indicated that REMUNE is safe, that it may induce HIV-
specific immune responses and showed positive trends on the virologic and
immunologic markers.

TECHNOLOGY. Remune is composed of inactivated HIV, depleted of its envelope, and
emulsified in Incomplete Freund's Adjuvant ("IFA"), an agent which elicits a
more potent immune response by more effectively presenting the inactivated virus
to the immune system. Remune is manufactured by first culturing HIV-infected
human T cells. The virus is then purified from this cell culture and inactivated
with betapropiolactone, a chemical agent commonly used for viral inactivation,
and then physically inactivated with irradiation. Each of these procedures alone
is capable of inactivating HIV. During processing and purification, the outer
envelope protein of the virus, known as gp120, is depleted from the inactivated
HIV. The final envelope-depleted HIV is emulsified in IFA and is filled in
syringes. When introduced into HIV-infected individuals, Remune appears to
stimulate an HIV-specific immune system response, which the Company believes may
provide a safe, effective and long-lasting benefit to these individuals.

REMUNE is based on the core proteins of the virus, which are consistent across
multiple strains of HIV. Earlier approaches to HIV immune-based therapies were
based on the viral envelope, proteins located on the outside of the virus, and
may not have been effective due to mutations in the viral envelope. The Company
believes REMUNE has shown to be well tolerated after repeated use in over 2,000
individuals. The Company believes REMUNE may be an appropriate treatment for
HIV-infected individuals to take alone or in combination with other treatments.
REMUNE is administered by intramuscular injection, by a healthcare professional,
once every three months.

Currently, the HIV-1 virus continues to evolve and mutate and as a result
different strains or clades of HIV-1 have emerged worldwide. This creates a
moving target for single protein immunogens that are being developed that are
clade specific. The Company believes that, because REMUNE is a whole virus and
contains the core proteins that are more genetically conserved, individuals
treated with REMUNE may be able to elicit broad immune responses to multiple
subtypes of HIV-1 found throughout the world. This type of broad cross
reactivity may have future implications for both therapeutic and preventive
vaccines.

EXISTING THERAPIES FOR HIV. Currently available antiviral products have been
shown to be effective at reducing the levels of virus in the blood, however,
certain limitations in the therapy have prevented the antiviral products from
being as effective as originally predicted. The antiviral products may be
associated with significant toxicity and eventual induction of viral resistance.
In addition, non-compliance with the strict dosage regimen may also reduce the
effectiveness and can accelerate emergence of resistance.

REMUNE BENEFITS. It is currently estimated that only 30% to 40% of HIV-infected
individuals in the United States use cocktail therapies (various combinations of
reverse transcriptase and protease inhibitors). Of these individuals, up to 50%
discontinue treatment due to resistance, toxicity, lack of compliance or because
the cocktail therapy was not effective in reducing the viral load. REMUNE,
unlike drugs, can induce an HIV specific response, is well tolerated and is easy
to administer. REMUNE has been administered to over 2,000 patients and has an
excellent safety profile.

Most importantly, antiviral drugs do not enhance HIV-specific immune
function, which is now thought by numerous researchers to be important in
controlling HIV replication. The fact that REMUNE reconstitutes HIV-specific
immunity provides a unique niche for REMUNE to be utilized in combination
with drug therapy to provide long-term management of disease.

One goal of the combination REMUNE-drug approach is to prolong the impact of
antiviral drug therapies on viral load by increasing the immune response to
HIV-infected cells. If successful, a delay in drug resistance and a prolonged
duration of low levels of virus in the blood coupled with an increase in the
immune response to HIV could translate into clinical benefit.

MANUFACTURING. The Company subleases a 52,500 square foot facility in King of
Prussia, Pennsylvania dedicated to the manufacture of REMUNE for clinical trials
and, if the FDA approves the product, initial commercial production. In February
1996, the Company received clearance from the FDA to release the product for use
in clinical trials. The Company believes the facility, which is a full-scale,
GMP commercial process facility, is capable of supplying


                                       5



clinical trial quantities and initial commercial quantities. The Company relies
on a third party for the final inactivation step of the manufacturing process.
If the existing manufacturing operations prove inadequate, there can be no
assurance that any arrangement with a third party can be established on a timely
basis, or that the Company can establish other manufacturing capacity on a
timely basis. The Company believes that the raw materials necessary to produce
REMUNE are readily available from various sources.

COMMERCIALIZATION STRATEGY. During June 1998, the Company and Agouron entered
into an agreement under which the Company exclusively licensed to Agouron the
marketing rights to REMUNE in North America, Europe, Japan and certain other
countries, if regulatory approvals are received. The Company and Agouron have
conducted physician and patient focus group sessions to begin preparations for a
commercial marketing launch of REMUNE, subject to the successful conclusion of
the clinical trials and final approval of the product by the FDA. If REMUNE is
successfully developed and approved for marketing, third party reimbursement
will need to be sought for the costs of related treatments from government
health administration authorities, private health coverage insurers, managed
care organizations and other organizations. The two companies will share all
profits from the commercialization of REMUNE on a 50/50 basis, if REMUNE is
successfully developed and receives the necessary regulatory approvals. The
Company also has partners for Thailand and South and Central America.


IMMUNE-BASED THERAPIES FOR AUTOIMMUNE DISEASES
BACKGROUND. Autoimmune disease results from the body's immune system
manufacturing T cells and or antibodies that are directed against the body's own
cells or organs as if they were foreign. Several autoimmune disorders, including
rheumatoid arthritis, psoriasis and multiple sclerosis, result from the
proliferation of misdirected T cells that incorrectly identify and destroy the
individual's own tissue.

TECHNOLOGY. The Company's proprietary autoimmune immune-based therapies under
development are designed to inhibit or downregulate the T cells that the Company
believes cause the tissue damage in certain autoimmune diseases. These therapies
are designed to induce specific immune responses by inhibiting the
disease-causing T cells. The Company's immune-based approach for the treatment
of these autoimmune diseases is based on the immune system's ability to down
regulate disease causing T cells. The Company is pursuing this approach for the
treatment of rheumatoid arthritis, psoriasis and multiple sclerosis. The
Company's products under development are T cell receptor peptide vaccines based
on a combination of synthetic peptides from T cell receptors emulsified in IFA.

BENEFITS OF OUR APPROACH. The Company believes that its approach to the
treatment of autoimmune diseases may provide several advantages over existing
therapies and competing approaches based on immune system regulation. In
clinical studies, the Company's immune-based therapies using T cell receptor
peptides have demonstrated a lack of toxicity and a specific impact on the
disease-causing cells. These results, combined with the ease of administration
through infrequent intramuscular injections (one to three month intervals) and
the potential for a long-lasting immunity, may provide an important addition or
alternative to existing therapies, which treat only the symptoms of the disease.

While autoimmune diseases may involve any organ system, common targets include
the lining of the joints in rheumatoid arthritis, the skin in psoriasis and the
white matter of the brain and spinal cord in multiple sclerosis. Current
treatments for these diseases address only the symptoms and are ineffective in
halting the progressive tissue destruction caused by the autoreactive T cells.
This progression often results in severe debilitation or death.

RHEUMATOID ARTHRITIS
BACKGROUND. Rheumatoid arthritis is a chronic inflammatory disease characterized
by persistent inflammation of the lining of the joints accompanied by stiffness
and pain or tenderness on motion. It is estimated that approximately 2.1 million
individuals in the United States, and 1-2% of the worldwide population, suffer
from rheumatoid arthritis, and up to $5.6 billion is spent annually worldwide on
medications designed to treat only the symptoms of this debilitating disease.

EXISTING THERAPIES. There is currently no cure for rheumatoid arthritis.
Currently, management of rheumatoid arthritis requires early diagnosis and
aggressive treatment before functional impairment and irreversible joint damage
has occurred. Available therapies generally have adverse side effects and
address only the symptoms of the disease. By contrast, the Company's rheumatoid
arthritis therapy is intended to target and inhibit the specific T cells thought
to be involved in initiating the disease process. The Company believes this
inhibition may reduce the inflammatory events that occur as the disease
progresses.


                                       6



PRODUCT UNDER DEVELOPMENT. The treatment being developed is designed to
stimulate the immune system of a rheumatoid arthritis patient to control the T
cells that are initiating the disease. The Company believes that eliminating or
inhibiting these T cells may prevent further damage to the tissue of joints.

HUMAN CLINICAL TRIALS. Based on results observed in an earlier Phase 2
clinical trial, a Phase 2b clinical trial was conducted. The Phase 2b
clinical trial, intended to confirm and expand upon the clinical results from
an earlier completed Phase 2 clinical trial, included 340 individuals with
rheumatoid arthritis who received treatment over 24-weeks at 26 clinical
sites. The Company believes that the results from this Phase 2b trial suggest
a favorable treatment effect according to the American College of
Rheumatology (ACR) 20 improvement criteria with significance at one time
point after the third injection. These findings were consistent with and
expanded upon the results shown in the previous Phase 2 trial. The ACR 20
criteria require an improvement in tender and swollen joint counts of at
least 20% from baseline, along with improvement in three of five other
disease-related criteria. The results from this study also confirmed that the
treatments were safe and well tolerated. The results of the Phase 2b clinical
trial were presented at the American College of Rheumatology 1999 Annual
Meeting.

PSORIASIS
BACKGROUND. Psoriasis is a chronic and recurrent proliferative disease of the
skin characterized by irritating and sometimes painful, defined red patches
covered with silvery-white scales. According to the National Psoriasis
Foundation, psoriasis affects over 6 million Americans. Annual outpatient costs
for treatment are currently estimated at up to $3 billion per year. A
distinguishing feature of the disease is the rapid sloughing of skin layers.
While normal skin cells mature in 28 to 30 days, skin cells of psoriasis
patients move to the surface of the skin in approximately three to seven days.

EXISTING THERAPIES. Current treatments, which range from topical ointments to
phototherapy, address the symptoms of psoriasis rather than the cause of the
disease. Not all treatments work for every individual. These treatments often
require individuals to experiment and/or combine therapies in order to discover
the regimen that is most effective. Treatment success requires faithful
compliance to the regimen and provides varying degrees of relief from the
disease. Patients usually have to cycle in and out of these therapies to achieve
any therapeutic benefit. By contrast, the Company's psoriasis therapy is
intended to target and inhibit the immune system cells that may be involved in
the initiation of the disease process.

PRODUCT UNDER DEVELOPMENT. The treatment being developed by the Company is
designed to stimulate the immune system of a psoriasis patient to regulate the
disease causing T cells. The Company believes that eliminating or inhibiting
these T cells may alleviate the effects of this disease.

HUMAN CLINICAL TRIALS. Based on results observed in an earlier Phase 2 clinical
trial, a second Phase 2 clinical trial was conducted. This Phase 2 clinical
trial involved 84 individuals with moderate to severe psoriasis and was designed
to evaluate the safety and optimal dose of the therapy. The Company believes the
results from this trial suggest that the groups that received intramuscular
injections of T cell receptor peptides along with IFA showed clinical
improvement according to the psoriasis and severity index (PASI) scores when
compared to all other treatment groups.

MULTIPLE SCLEROSIS
BACKGROUND. Multiple sclerosis is a chronic disease of the central nervous
system that effects the white matter of the brain and spinal cord. It is one of
the most common causes of chronic neurologic disability in young adults.
Multiple sclerosis afflicts approximately 350,000 individuals in the United
States and more than 1 million individuals worldwide.

EXISTING THERAPIES. The mechanism of action for currently approved therapies is
not clearly understood. These therapies provide modest benefit for the disease
and have many side effects.

PRODUCT UNDER DEVELOPMENT. The Company's proprietary immune-based therapy under
development for multiple sclerosis contains T cell receptor peptides specific
for multiple sclerosis which were found in the cerebrospinal fluid of
individuals afflicted with multiple sclerosis or because of the reactivity to
myelin basic protein.

HUMAN CLINICAL TRIALS. Based on results from an earlier Phase 1 clinical trial,
a second Phase 1 open label trial was conducted in patients whose T cells were
found to be present at significant levels in spinal fluid cultures of T cells.
Ten patients received injections of the Company's therapeutic peptide vaccine
over 48 weeks. The results suggest that the TCR therapeutic peptide vaccine was
again safe and well tolerated, and it generated strong immune


                                       7



responses in 8 out of 10 (80%) patients immunized. The patients remained
clinically stable as measured by expanded disability status scores (EDSS) during
the 48-week study.


IMMUNE-BASED THERAPIES FOR CANCER
BACKGROUND. Cancer is characterized by the uncontrolled growth of abnormal cells
that can spread from the anatomic site of origin. This growth is due to
alterations or mutations in a cell's DNA that leads to production of tumor
associated antigens that are not adequately recognized by the immune system.
Cancer vaccines are intended to optimize the patient's immune system's ability
to recognize the antigens so that the immune system intensifies the attack on
the cancer. Many cancers can be cured if they are detected early and treated
promptly; others can be controlled for many years with a variety of treatment
approaches.

EXISTING THERAPIES. There are currently several ways to treat cancer, all of
which have significant and often severe side effects. Surgery, radiation,
chemotherapy, hormones and more recently, immunotherapy are most often used to
treat cancer. Unfortunately, certain tumors are drug resistant from the
beginning while others develop resistance with repeated treatments. The problem
of drug resistance is particularly serious in chemotherapy where tumors develop
resistance to multiple drugs after only one drug has been administered.

TECHNOLOGY. Immune Response is focused on developing vaccines that will
present tumor cells more effectively to the immune system. The Company's
technology combines two different kinds of cell lines to make up the vaccine.
One is a source of tumor antigens (tumor cell lines) and the other is a
source of cytokine (genetically engineered skin or fibroblast cell line). The
tumor cell lines are grown in the lab and not derived from individual
patients - avoiding the need for patient-specific vaccines. The
cytokine-producing fibroblast cell line allows production of a precise and
consistent amount of cytokine - a molecule that can intensify the immune
response. The combination of these two cell types in the vaccine appears to
be essential for inducing the immunity needed to enable the immune system to
attack and eradicate the cancer. The Company's technology allows for a
controlled reproducible vaccine that is not patient specific.

To further enhance the immune system to destroy the cancer, the Company is also
developing complementary technology to provide cytokines, specifically GM-CSF,
by constructing tumor cell lines that express the cytokine on the surface. The
Company's goal is to combine these two platform technologies to develop cancer
vaccines to treat colon, brain, melanoma, and prostate cancers.

COLON CANCER
BACKGROUND. Colon cancer is the second most frequently diagnosed cancer in the
U.S. with nearly 100,000 new cases and 47,000 deaths expected yearly. Well over
half of the patients are identified early enough for surgical intervention with
the intent to cure. However, recurrence of the cancer following surgery is a
major problem for about 40% of these patients. In addition, more effective
treatments are needed for patients with advanced disease at time of
presentation.

HUMAN CLINICAL TRIALS. Based on promising initial clinical findings from an
earlier Phase 1 study, a second Phase I trial was designed to test a tumor cell
line vaccine in patients with late-stage metastatic colon cancer. Three
established colon tumor cell lines were combined with a fibroblast cell line
genetically engineered to express the IL-2 cytokine. Patients received three
administrations intradermally (under the skin) over a twelve-week period. The
study is designed to measure levels of Cytotoxic T Lymphocytes (CTL's) which
specifically recognize and kill both the vaccinating tumor cells and/or the
patient's own tumor cells. This twelve patient trial will be completed during
2000.

BRAIN CANCER
BACKGROUND. Each year, about 18,000 cases of high-grade gliomas are diagnosed in
the United States, with the numbers increasing yearly in both adults and
children. Prognosis for these patients is very poor. Surgical resections
followed by either radiation or chemotherapy have done little to alter the
fatality of this cancer. The mean life expectancy of patients with glioblastoma
multiforme is only one year after its initial diagnosis and only several months
following recurrence. The Company believes that novel immune-based treatments
could fill a need in treating these cancers.

HUMAN CLINICAL TRIALS. The Company is conducting a Phase 1 trial of a potential
new tumor vaccine designed to induce the patient's immune system to recognize
and destroy tumor cells, thereby preventing or delaying the recurrence of
malignant brain tumors (glioblastoma multiforme and anaplastic astrocytoma). The
study will enroll


                                       8



12 patients who have just completed surgical resection and radiation treatment,
currently the standard of care for newly diagnosed glioma patients. The trial
will investigate the Company's platform vaccine technology that utilizes a
fibroblast cell line genetically modified to secrete the GM-CSF cytokine mixed
with irradiated brain tumor (glioma) cell lines. The three goals of the study
are to evaluate the safety of multiple injections of this cell-line based
vaccine, monitor the level of cellular and humoral (antibody) immune responses
induced by the vaccine against the tumor and examine the effects of
immunizations on clinical progression of the disease.

MELANOMA (SKIN) CANCER
BACKGROUND. According to the American Cancer Society, approximately 44,000
individuals in the United States were diagnosed with melanoma in 1999 and an
estimated 7,300 deaths resulted from this disease. The major cause of melanoma
is excessive exposure to the sun's ultraviolet rays. Despite good therapeutic
effects by surgical intervention when detected early, there is no effective
treatment for metastatic melanoma, and its 5 year survival rate is only 5%.
Characterization of many established melanoma cell lines has been completed, and
those lines intended for clinical testing have been selected.

PROSTATE CANCER
Prostate cancer will be newly diagnosed in 334,500 Americans this year, making
it the most common cancer among men. Prostate cancer is the second leading cause
of cancer deaths and the sixth leading cause of death overall among American
men. This program is in the preclinical stages of development within the
company.


GENE THERAPY
TECHNOLOGY. The Company is developing a targeted non-viral delivery technology
for gene therapy. The Company maintains a strong proprietary position in
non-viral technology for IN VIVO delivery of therapeutic genes to appropriate
cells. Once inside the cell, the delivered plasmid DNA, or gene, is capable of
performing its normal function, which is to encode for the production of a
specific protein needed to alleviate a disease condition. Virtually any
recombinant protein therapy currently being used could be transformed into a
gene therapy. The Company believes non-viral delivery may have several
advantages over current therapies including safety over viral delivery systems,
versatility to treat different diseases with the same technology, dosing
schedule, manufacturability, and cost. Most other competitive gene therapy
delivery systems use disabled viruses to carry the gene to the cell nucleus, and
are inherently immunogenic.

HEMOPHILIA
BACKGROUND. Hemophilia A, a hereditary blood clotting disorder, results from the
dysfunction or absence of the Factor VIII protein. Approximately one of every
5,000 live male births worldwide results in a child afflicted with hemophilia A.
Current treatments for hemophilia A are expensive.

In preclinical mouse models, the Company's GeneDrug technology system has
produced therapeutic concentrations of Factor VIII by delivering the gene
that produces this protein. After delivery to cells that normally produce
this protein, the liver cells, the Factor VIII protein was expressed and
secreted into the bloodstream at therapeutic levels on a continuous basis for
several weeks. If successfully developed, this product could potentially
eliminate the need for daily injections of Factor VIII protein to control the
regular bleeding episodes associated with hemophilia by allowing the patient
to receive periodic injections of the Company's GeneDrug in order to maintain
therapeutic levels of Factor VIII. In addition to gene delivery, the Company
is focused on gene potency. Gene potency is the ability of the gene to
generate high levels of its corresponding protein once inside the cell.
Recently, Company scientists completed the synthesis of a new human Factor
VIII gene that has increased potency and which contains organ-specific
elements that only allow its expression in liver cells.

HEPATITIS
BACKGROUND. Hepatitis B is a viral infection of the liver. As many as 1.25
million Americans are chronically infected with hepatitis B virus ("HBV") and
there are up to 320,000 new cases of HBV infection each year. Hepatitis C virus
("HCV") was recently identified as the major cause of non-A/non-B hepatitis. As
many as 3.9 million Americans are chronically infected with this virus and there
are up to 180,000 new cases of HCV infection each year. Recombinant
interferon-alpha (IFN-(alpha)) is currently approved for treatment of both HBV
and HCV. Many patients treated with recombinant IFN-(alpha) do not respond and
whether there is a long-term benefit among those who have responses is
uncertain.

The Company's GeneDrug system is designed to be an improvement over current
interferon therapy by achieving continuous, low-level expression and secretion
of the protein specifically in liver cells. In preclinical mouse models,


                                       9



the GeneDrug system has successfully achieved expression of interferon
protein at therapeutic levels that persist for several months. If
successfully developed, this could eliminate the need for numerous frequent
injections of recombinant interferon protein by allowing patients to receive
periodic injections of GeneDrug. The Company entered into a research
collaboration in July 1998 with Schering Corporation to deliver their genes
for IFN-(alpha) using the Company's gene delivery technology for the
treatment of hepatitis. Schering Corporation's obligation to fund under the
collaboration had expired as of December 31, 1999.

NEW GENE DISCOVERY
BACKGROUND. The Company recently completed a series of biochip studies as part
of a gene discovery effort in the gene therapy program. Gene expression
monitoring using microarrays (biochips) was conducted in several biological
models of central and peripheral nervous system growth, differentiation and
trauma including spinal cord injury. Over 3,000 significant gene changes were
categorized to a gene expression database being assembled for new drug targets
and functional gene discovery. Gene expression, especially knowing what genes
are upregulated or downregulated, is crucial to the understanding of gene
function. Since genes are involved in biological processes, knowing gene
function could lead to new drug discovery. New gene discovery compliments the
existing efforts in non-viral gene delivery by potentially supplying genes or
gene products that may be proprietary to the Company for gene therapy.


MANUFACTURING
The Company has established a pilot manufacturing facility at its headquarters
in Carlsbad, California for the production of the immune-based therapies. This
facility is expected to be adequate to supply limited clinical trial quantities
for these therapies. Additional manufacturing capacity for autoimmune disease
and cancer will be needed for commercial scale production, if these therapies
are approved for commercial sale. For the manufacture of the autoimmune disease
therapies under development, the Company obtains synthetic peptides from third
party manufacturers. The Company believes that the synthetic peptides and other
materials necessary to produce the autoimmune disease therapies are readily
available from various sources, and several suppliers are capable of supplying
the autoimmune disease peptides in both clinical and commercial quantities.

PATENTS
REMUNE - HIV THERAPY. In 1993, the Company received a United States patent
relating to REMUNE. In 1998 and 1999, additional patents were issued relating to
certain products and methods. The Company has also received similar patents in
Australia, certain European countries, Japan and Russia. The Company has
additional patent applications relating to REMUNE on file in the United States,
as well as in other countries. The patent applications cover, in part, certain
products and methods of their use for the immunotherapeutic treatment of
HIV-infected patients and/or preventive treatment of uninfected individuals.
There can be no assurance that any additional HIV-related patents will be issued
to the Company. Further, there can be no assurance that the issued patents, or
any patent that may be issued in the future, will survive opposition or provide
meaningful proprietary protection.

AUTOIMMUNE DISEASES. During January 1994, the European Patent Office granted
the Company a patent covering processes for vaccinating against diseases
resulting from pathogenic responses by specific T cell populations. In March
1997, the Company was issued a patent covering this technology in the United
States. In May 1994, the Australian Industrial Property Organisation accepted
a similar application of the Company. In November 1998 and January 1999, the
Company was issued two additional United States patents directed to this
technology. These patents include composition and method claims for the
prevention or treatment of certain autoimmune diseases, such as rheumatoid
arthritis and proliferative T cell diseases. In December 1999, the Company
obtained exclusive rights to the T cell receptor intelllectual property of
Connetics Corporation and XOMA, (US) LLC, creating a broader platform for the
potential development of products to treat chronic connective tissue and
autoimmune diseases such as rheumatoid arthritis, psoriasis and multiple
sclerosis. The Company also has patents and patent applications relating to
its autoimmune technology on file in the United States and other countries,
including members of the European Patent Convention and Japan. These patent
applications cover certain compositions and methods relating to the use of T
cell receptor peptide sequences to vaccinate against autoreactive T cells
involved in autoimmune disease. There can be no assurance that any further
autoimmune disease patents will be issued to the Company or that any issued
patents, or any patent that may be issued in the future, will survive
opposition or provide meaningful proprietary protection. We are aware that
AstraZeneca PLC has acquired the rights to a patent, which has been issued in
Europe and other countries, that may interfere with our ability to develop
some of our technologies related to autoimmune disease if the patent is
upheld after current opposition proceedings. The Company is in discussions
with AstraZeneca PLC to resolve any conflict between the Company's and
AstraZeneca's patent. However, there can be no assurance that a cross license
or other resolutions satisfactory to the Company will result.

                                       10



A failure to resolve this dispute in a manner favorable to the Company could
have a material adverse effect on the Company. In March 1998, the Company
successfully defended its European patent with respect to its immune-based
therapies for autoimmune disease technology that was under opposition; although
this decision can be appealed, the patent is presently enforceable.

CANCER PROGRAM. Technologies for genetically modifying fibroblasts with cytokine
genes or for modifying tumor cells with genes to inhibit TGF-(beta) production
has been exclusively licensed to the Company from Sidney Kimmel Cancer Center
(SKCC). SKCC has issued patents and has applied for patent protection in the
United States and Europe related to the technologies licensed exclusively to the
Company. There can be no assurance that the issued patents, or any patent that
may be issued in the future, will survive opposition or provide meaningful
proprietary protection. In April 1999 the Company received a patent for
Membrane-Bound Cytokine Compositions Comprising GM-CSF (granulocyte-macrophage
colony stimulating factor) and Methods of Modulating an Immune Response Using
Same. The Company has licensed exclusive rights to the technologies for
inhibiting TGF-(beta) via expressed antisense for lung cancer and licensed
exclusive rights to the IL3 radiosensitization in several cancers, including
prostate cancer but excluding colon cancer. There can be no assurance that the
issued patents, or any patent that may be issued in the future, will survive
opposition or provide meaningful proprietary protection.

GENE THERAPY. In November 1992, the Company obtained an exclusive license to a
United States patent, received by the University of Connecticut, covering the
Company's core gene delivery system technology, including methods and
compositions for delivering DNA to the liver via receptors on the surface of
liver cells. In addition, during 1997 and 1999, two related United States
patents issued, extending the Company's gene delivery protection to include the
delivery of any polynucleotide to any mammalian cell via any internalizing cell
surface receptor. Thus, the Company's patent protection in the United States is
no longer limited to the delivery of genes to the liver. In 1999 a similar
patent issued in Europe. In 1998, a corresponding Japanese patent application
also issued, covering the delivery of any polynucleotide to mammalian cells via
non-protein (e.g., synthetic) liver-specific ligands.

The Company also licenses and owns a number of issued United States and foreign
patents covering the delivery of specific genes and polynucleotides to cells
using their proprietary technology, as well as formulations tailored for such
delivery. For example, the Company owns a United States patent covering the
targeted delivery of antisense polynucleotides to cells to treat Hepatitis B
infection. The Company also licensed an allowed European patent application
covering the targeted delivery to cells of genes encoding secretory proteins,
including blood coagulation factors, to treat hemophilia. The Company continues
to file patent applications covering novel genes and other aspects of its
proprietary gene delivery technology, which the Company develops.

The Company is presently seeking to obtain licenses for certain genes from
several different third parties. There can be no assurance that the Company will
be able to obtain such licenses on commercially favorable terms, if at all, and
if these licenses are not obtained, the Company might be prevented from using
certain of its technologies. The Company's failure to obtain a license required
to continue practicing its own technologies would have a material adverse effect
on the Company.

There can be no assurance that any additional gene therapy patents will be
issued to the Company. Further, there can no assurance that the issued patents,
or any patent that may be issued in the future, will survive opposition or
provide meaningful proprietary protection.

COMPETITION
HIV. The Company is engaged in segments of the biopharmaceutical industry,
including the treatment of HIV, that are intensely competitive and rapidly
changing. If successfully developed and approved the product candidates and
compounds that the Company is currently developing will compete with numerous
existing therapies. For example, there are at least 11 drugs currently approved
for the treatment of HIV. In addition, a number of companies are pursuing the
development of novel pharmaceutical products that target the same diseases that
the Company is targeting, and some companies, including several multinational
pharmaceutical companies, are simultaneously marketing several different drugs
and may therefore be able to market their own combination drug therapies. The
Company believes that a significant number of drugs are currently under
development and will become available in the future for the treatment of HIV.

Although the Company believes that there is a significant future market for
therapeutics to treat HIV and other viral diseases, the Company anticipates that
even if it successfully develops REMUNE and REMUNE is approved for marketing, it
will face intense and increasing competition in the future as new products enter
the market and advanced technologies become available. There can be no assurance
that existing products or new products for the


                                       11



treatment of HIV developed by the Company's competitors, including Glaxo
Wellcome, plc, Merck & Co. and Abbott Laboratories, will not be more effective,
or more effectively marketed and sold, than REMUNE, should it be successfully
developed and receive regulatory approval, or any other therapeutic for HIV that
may be developed by the Company. Competitive products or the development by
others of a cure or new treatment methods may render the Company's technologies
and products and compounds obsolete, noncompetitive or uneconomical prior to the
Company's recovery of development or commercialization expenses incurred with
respect to any such technologies or products or compounds. Many of the Company's
competitors have significantly greater financial, technical and human resources
than the Company and may be better equipped to develop, manufacture, sell,
market and distribute products. In addition, many of these companies have
extensive experience in preclinical testing and clinical trials, obtaining FDA
and other regulatory approvals and manufacturing and marketing pharmaceutical
products. For use individually or in combination therapy, many of these
competitors also have products that have been approved or are in late-stage
development and operate large, well-funded research and development programs.
Smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large pharmaceutical and biotechnology
companies. Furthermore, academic institutions, governmental agencies and other
public and private research organizations are becoming increasingly aware of the
commercial value of their inventions and are more actively seeking to
commercialize the technology they have developed.

New developments in areas in which the Company is conducting its research and
development are expected to continue at a rapid pace in both industry and
academia. If the Company's product candidates and compounds are successfully
developed and approved, the Company will face competition based on the safety
and effectiveness of its products and compounds, the timing and scope of
regulatory approvals, availability of manufacturing, sales, marketing and
distribution capabilities, reimbursement coverage, price and patent position.
There can be no assurance that the Company's competitors will not develop more
effective or more affordable technology or products, or achieve earlier patent
protection, product development or product commercialization than the Company.
Accordingly, the Company's competitors may succeed in commercializing products
more rapidly or effectively than the Company, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.

TREATMENTS FOR AUTOIMMUNE DISEASE. Several emerging technologies related to
immune system regulation, if successfully developed, could compete with the
Company's autoimmune disease treatments under development. The Company believes
that its principal competition in the autoimmune disease area will come from
companies conducting research in the areas of T cell receptors, interaction
between T cells and the target antigen and tissue, specific targeting of
activated T cell populations, and mechanisms of tolerance including oral
tolerance approaches. Scientific reports on T cell receptor research have also
discussed approaches similar to that of the Company.

TREATMENTS FOR CANCER. New cancer therapies are being developed by a number of
individual investigators and companies. Some of these approaches involve
modification of tumor cells with a variety of cytokines, which approaches may
prove competitive with the technologies being developed by the Company. Many of
the Company's competitors have substantially greater experience, financial and
technical resources and production, marketing and development capabilities than
the Company. There can be no assurance that competitors have not or will not
succeed in developing technologies and products more quickly or that are more
effective than any which have been or are being developed by the Company or
which would render the Company's technology and products obsolete and
noncompetitive.

GENE THERAPY. The Company believes that competition in the treatment of the
diseases targeted by its gene therapy program will be of two types: chronic
treatment with pharmaceutical products; and other gene therapy systems under
development for insertion of the correct gene. There currently exist a number of
approved therapies for treatment of hemophilia, and hepatitis B and C. Both
purified and recombinant forms of Factor VIII have been approved by the FDA for
treatment of hemophilia and are effective in stopping bleeding episodes.
Interferon alpha-2b is currently approved for treatment of chronic hepatitis B
and C. Other interferons are being tested for the treatment of viral hepatitis.
In addition to interferons, a variety of nucleoside analogs have been tested for
treatment of chronic hepatitis B, including 3TC.

Several major pharmaceutical companies are investigating gene therapy treatments
for the delivery of proteins to treat these diseases. If these prove effective,
they may compete with the Company's gene delivery therapies. Many of the
Company's competitors have substantially greater experience, financial and
technical resources and production, marketing and development capabilities than
the Company. There can be no assurance that competitors have not or will not
succeed in developing technologies and products more quickly or that are more
effective than


                                       12



any which have been or are being developed by the Company or which would render
the Company's technology and products obsolete and noncompetitive.

GOVERNMENT REGULATION
Clinical testing, manufacture, promotion and sale of the Company's drug products
are subject to extensive regulation by numerous governmental authorities in the
United States, principally the FDA, and corresponding state and foreign
regulatory agencies. The Company believes that REMUNE and most of its other
potential immune-based therapies will be regulated by the FDA as biological drug
products under current regulations of the FDA. Biological products must be shown
to be safe, pure and potent (i.e., effective) and are subject to the same
regulatory requirements as nonbiological products under the Food and Drug
Administration Act ("FDA Act"), as amended by the Food and Drug Administration
Modernization Act of 1997 ("FDA Modernization Act"), except that a biological
product licensed under the PHS Act ("PHS Act") is not required to have an
approved New Drug Application ("NDA") under the Federal Food, Drug and Cosmetic
Act ("FDC Act"). The FDA Modernization Act directed the FDA to take measures to
minimize the differences in the review and approval of marketing applications
for biological and nonbiological products. The FDA Modernization Act also made
significant revisions to the statutory requirements with regard to the approval
of new biologics and nonbiological products. Among other things, the FDA
Modernization Act established a new statutory program for the approval of fast
track drugs, streamlined clinical research, and revised the content of product
approval applications and the FDA review process. The FDA is required to issue
regulations and guidelines in order to implement certain of these new
requirements. Until the FDA implements these regulations and guidelines, it is
impossible to predict the impact of the FDA Modernization Act on the review and
approval of any marketing applications that the Company may submit to the FDA in
the future. The FDC Act, the PHS Act and other federal and state statutes and
regulations govern or influence the testing, manufacture, safety, effectiveness,
labeling, storage, recordkeeping, approval, advertising, distribution and
promotion of biological prescription drug products. Noncompliance with
applicable requirements can result in, among other things, fines, injunctions,
seizure of products, total or partial suspension of product marketing, failure
of the government to grant premarket approval, withdrawal of marketing approvals
and criminal prosecution.

The steps required before a biological drug product may be marketed in the
United States generally include preclinical studies and the filing of an IND
application with the FDA, which must become effective pursuant to FDA
regulations before human clinical trials may commence. Reports of results of
preclinical studies and clinical trials for biological drug products are
submitted to the FDA in the form of a Biologics License Application (the "BLA")
for approval for marketing and commercial shipment. Submission of a BLA does not
assure FDA approval for marketing. The BLA review process may take a number of
years to complete, although reviews of applications for treatments of AIDS,
cancer and other life-threatening diseases may be accelerated or expedited.
Failure of the Company to receive FDA marketing approval for REMUNE or any of
its other products under development on a timely basis could have a material
adverse effect on the Company's business, financial condition and results of
operations.

In the past, in addition to obtaining approval for each biological drug product,
an Establishment License Application (the "ELA") usually was required to be
filed and approved by the FDA. However, the FDA Modernization Act repealed the
statutory requirement for an ELA for a biological product. Now only a single BLA
covering both the biological product and the facility in which the product is
manufactured is required. The FDA also has been directed by the FDA
Modernization Act to take measures to minimize the differences in the review and
approval of biological drugs required to have approved BLAs under the PHS Act
and nonbiological drugs required to have approved NDAs under the FDC Act.

Among the other requirements for BLA approval is the requirement that
prospective manufacturers conform to the Good Manufacturing Practices (the
"GMP") regulations specifically for biological drugs, as well as for other
drugs. In complying with the GMP regulations, manufacturers must continue to
expend time, money and effort in production, recordkeeping and quality control
to assure that the product meets applicable specifications and other
requirements. The FDA periodically inspects biological drug product
manufacturing facilities in order to assure compliance with applicable GMP
requirements. Failure to comply with the GMP regulations subjects the
manufacturer to possible FDA regulatory action, such as the suspension of
manufacturing, product recall or seizure, injunction and criminal prosecution.
There can be no assurance that the Company or its contract manufacturers, if
any, will be able to maintain compliance with the GMP regulations on a
continuing basis. Failure to maintain such compliance could have a material
adverse effect on the Company's business, financial condition and results of
operations.


                                       13



The Company believes its proprietary GeneDrug and cancer treatment therapies
also will likely be regulated as biological products. This is because the
Company's gene products are subject to the FDA's industry guidance for Human
Somatic Cell Therapy and Gene Therapy, which was issued by the FDA in March 1998
(the "1998 Guidance"), as well as earlier FDA notices on this subject. The 1998
Guidance confirms that gene therapy products will be regulated by the FDA as
biological products subject to biological product licensure requirements. In
addition, the 1998 Guidance describes FDA concerns regarding production, quality
control testing, and the administration of recombinant vectors for gene therapy.
No assurance exists that the Company or its suppliers can successfully address
all of the concerns of the 1998 Guidance with respect to gene therapy products.
In addition, since issuance of the 1998 Guidance there have been developments
relating to adverse patient reactions in gene therapy trials that have led to
increased FDA scrutiny of all gene therapy research. No assurance exists that
the Company can successfully respond to the more rigorous requirements prompted
by that scrutiny. As with the Company's other potential products, the gene
therapy products will be subject to extensive FDA regulation throughout the
product development process, and there can be no assurance that any of these
products will be successful at securing the requisite FDA marketing approval on
a timely basis, if at all.

The preclinical and clinical testing process to obtain FDA approval of a
biological drug is expensive and time consuming. Preclinical studies are
conducted in animals usually to evaluate the potential safety of a product. The
results of preclinical studies are submitted to the FDA as part of the IND
application, which must become effective pursuant to FDA regulations before
human clinical trials may begin. Human clinical trials typically are conducted
in three phases and are subject to detailed protocols. Each protocol indicating
how the clinical trial will be conducted must usually be submitted for review to
the FDA as part of the IND application. The FDA's review of a trial protocol
does not necessarily mean that, if the trial is completed, it will constitute
proof of safety or efficacy (including potency). Further, each clinical trial
must be conducted under the auspices of an independent Institutional Review
Board ("IRB") established pursuant to FDA regulations. The IRB considers, among
other things, ethical concerns, informed consent requirements and the possible
liability of the institution conducting the trials. The FDA or IRB may require
changes in a protocol both prior to and after the commencement of a clinical
trial. There is no assurance that the IRB or FDA will permit a trial to go
forward or, once started, to be completed.

The three phases of clinical trials are generally conducted sequentially, but
they may overlap. In Phase 1, the initial introduction of the drug into humans,
the drug is tested for safety, side effects, dosage tolerance, metabolism and
clinical pharmacology. Phase 1 testing for an indication typically takes at
least one year to complete. Phase 2 involves controlled tests in a large but
still limited patient population to determine the preliminary effectiveness of
the drug for specific indications, to determine optimal dosage and to identify
possible side effects and safety risks. Phase 2 trials typically take at least
from one and one-half to two and one-half years to complete. If preliminary
evidence suggesting effectiveness has been obtained during Phase 2 evaluations,
expanded Phase 3 trials are undertaken to gather the additional information
about safety and effectiveness that is needed to evaluate the overall
benefit-risk relationship of the product and to provide an adequate basis for
physician labeling. Phase 3 trials for an indication generally take from two and
one-half to five years to complete. There can be no assurance that Phase 1,
Phase 2 or Phase 3 testing will be completed successfully within any specified
time period, if at all, with respect to any of the Company's products that have
not completed any such testing. Nor can there be any assurance that completion
of clinical testing will result in FDA approval. Furthermore, the FDA may
suspend clinical trials at any time if the patients are believed to be exposed
to a significant health risk.

The FDA Modernization Act amended the FDC Act to streamline clinical research on
biological and nonbiological drugs. Under the new law, a clinical investigation
may begin 30 days after the FDA receives an IND application containing
information about the drug and clinical investigation that includes:

1.    Information about the design of the investigation and adequate reports of
      basic information, certified by the applicant, necessary to assess the
      drug's safety in a clinical trial

2.    Adequate information on the chemistry and manufacturing of the drug,
      controls available for the drug and primary data tabulations from animal
      or human studies.

The FDA is authorized to halt a clinical study at any time by issuing a clinical
hold, confirmed in writing, prohibiting the sponsor from conducting the
investigation. The clinical hold may be issued based on the FDA's determination
that the drug presents an unreasonable risk to the safety of the research
subjects, taking into account the qualifications of the investigators,
information about the drug, the design of the clinical investigation, the
conditions for which the drug is to be investigated, and the health status of
the subjects. Clinical holds also may be imposed by the FDA for other reasons,
as established by regulations. The new law, however, largely codifies current
regulations


                                       14



albeit with several significant changes. First, it potentially reduces the
amount of data required to be submitted as part of an IND (most importantly by
sanctioning the use of "primary data tabulations from animal and human studies"
rather than full reports from such studies). Second, it codifies the procedural
safeguards for issuance of clinical holds and strengthens certain rights of the
manufacturer, including the right to obtain a written decision from the FDA
regarding the removal of a clinical hold within 30 days of a written request
from the IND sponsor.

Under the FDA's current IND regulations, a number of procedures are available to
expedite approval or to allow expanded access to investigational drugs. Certain
investigational drugs, including products for the treatment of AIDS, can be
distributed outside of traditional IND requirements on a "treatment" basis.
Generally, the FDA may permit an investigational drug, including an
investigational biological drug, to be used for "treatment" of patients outside
of controlled clinical trials, if: (1) the drug is intended to treat a serious
or immediately life-threatening disease; (2) there is no comparable or
satisfactory alternative drug or other therapy available to treat that stage of
the disease in the intended patient population; (3) the drug is under
investigation in a controlled clinical trial, or all clinical trials have been
completed; and (4) the sponsor of the controlled clinical trial is actively
pursuing marketing approval of the investigational drug with due diligence.
Although the FDA has granted expanded access to REMUNE for those patients who
are ineligible to enroll in the Phase 3 clinical endpoint trial, the FDA has to
date not designated expanded access protocols for REMUNE as "treatment"
protocols. Either expanded access or a treatment protocol designation might
permit third party reimbursement of some of the costs associated with making
REMUNE available to patients in such an expanded access context. There can be no
assurance that the FDA will determine that REMUNE meets all of the FDA's
criteria for use of an investigational drug for treatment use or that, even if
the product is allowed for treatment use, that third party payers will provide
reimbursement for any of the costs of REMUNE treatment. The FDA Modernization
Act also amended the FDC Act to permit expanded access to individuals and larger
groups to unapproved new therapeutic and diagnostic products. Although it
largely codified existing FDA regulations in this area, it expands access to all
investigational therapies. First, it allows the FDA to authorize the emergency
shipment of investigational new drugs for the diagnosis, monitoring, or
treatment of a serious disease or condition. Second, it permits any person,
through a licensed physician, to request and obtain from a manufacturer or
distributor an investigational drug for the diagnosis, monitoring, or treatment
of a serious disease or condition if the following conditions are met:

1. A comparable or satisfactory alternative therapy is not available.
2. There is sufficient evidence of the drug's safety and effectiveness to permit
   such use.
3. The use will not interfere with the conduct of clinical investigations to
   support marketing approval.
4. A clinical protocol is submitted to the FDA describing the use of the
   investigational drug in a single patient or small group of
   patients.

The law also authorizes expanded patient access to investigational drugs under a
treatment IND application.

The FDA also has issued regulations to accelerate the approval of or to expedite
the review of new biological drug products for serious or life-threatening
illnesses that provide meaningful therapeutic benefit to patients over existing
treatments (e.g., the ability to treat patients unresponsive to, or intolerant
of, available therapy, or improved patient response over available therapy).
Under the accelerated approval program, the FDA may grant marketing approval for
a biological or nonbiological drug product earlier than would normally be the
case, based on an effect on a surrogate endpoint or a clinical endpoint other
than survival. Under the program, the sponsor must agree to conduct
postmarketing studies to verify and describe the clinical benefits of the
product. In addition to the accelerated approval process, the FDA has
established procedures designed to expedite the development, evaluation and
marketing of new therapies intended to treat persons with life-threatening and
severely debilitating illnesses, especially when no satisfactory alternative
therapy exists. The term "life-threatening" is defined by the FDA to mean: (1)
disease or conditions where the likelihood of death is high unless the course of
the disease is interrupted and (2) diseases or conditions with potentially fatal
outcomes, where the endpoint of clinical trial analysis is survival. "Severely
debilitating" is defined by the FDA to mean diseases or conditions that cause
major irreversible morbidity. As a condition of approval, the FDA may require
the sponsor to conduct certain postmarketing studies to delineate additional
information about the drug's risks, benefits and optimal use. The FDA
Modernization Act established a new statutory program for the approval of fast
track drugs, including biological products. Fast track drugs are defined as new
drugs or biological products intended for the treatment of serious or
life-threatening conditions and that demonstrate the potential to address unmet
medical needs for such conditions. Under the fast track program, a request for
designation may be submitted concurrently with, or any time after, submission of
an IND application. If a product meets the statutory criteria, the FDA is
required to designate the product as a fast track drug within 60 days of the
request for designation. A BLA or NDA for a fast track drug may be approved by
the FDA upon a determination that the drug has an effect on a clinical endpoint
or a surrogate endpoint that is reasonably likely to


                                       15



predict clinical benefits. The FDA can condition approval of a fast track drug
upon a requirement to conduct post-approval studies and submit copies of
promotional materials to the FDA prior to dissemination. The law also provides
procedures for the expedited withdrawal of marketing approval of a fast track.
There can be no assurance that the FDA will consider REMUNE, or any other of the
Company's products under development, to be an appropriate candidate for
accelerated approval, expedited review or fast track designation.

Since 1992, non-biological and biological drugs have been subject to the
Prescription Drug User Fee Act of 1992 ("PDUFA"). PDUFA requires that companies
submitting marketing applications for such products pay fees in connection with
review of the applications. In return, the FDA has committed to reviewing a
certain percentage of the applications within certain timeframes. For example,
in its Fiscal Year 1999 Report to Congress on PDUFA, the FDA reported that 98%
of all original premarketing applications for biological and nonbiological drugs
received in Fiscal Year 1999 were reviewed within 12 months of the application
submission date. The FDA's PDUFA performance goal in Fiscal Year 1999 was to
complete 90% of such applications within 12 months of the submission date.
Although PDUFA was scheduled to expire on September 30, 1997, the Food and Drug
Administration Modernization Act of 1997 reauthorized PDUFA for five years
(i.e., until September 30, 2002). The FDA has committed for Fiscal Year 2000 to
reaching approval, disapproval or additional-data-required decisions on 90% of
standard original NDAs and to act on 50% of those submissions within 10 months.
The FDA has also agreed to act on 90% of BLAs filed during fiscal year 2000
within 12 months of receipt of the marketing application and to review and act
on 90% of priority original NDAs and BLAs (i.e., applications offering
significant advances over existing treatments) within six months of receipt.
There can be no assurance, however, that any BLA the Company submits to the FDA
for any of its biological products will be reviewed and acted upon within the
timeframes set out above. The Company also is subject to regulation under the
Occupational Safety and Health Act, the Environmental Protection Act, the Toxic
Substances Control Act, the Resource Conservation and Recovery Act and other
present and potential future federal, state or local regulations. Regulations
concerning biotechnology may affect the Company's research and development
programs. Furthermore, existing or additional government regulations may be
applied that could prevent or delay regulatory approval of the Company's
products, or affect the pricing or distribution of such products.

The Company also is subject to foreign regulatory requirements governing human
clinical trials and pharmaceutical sales that vary widely from country to
country. Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities of foreign countries must be obtained prior to
marketing the product in those countries. The approval process may be more or
less rigorous from country to country and the time required may be longer or
shorter than that required in the United States. The Company may seek to use
foreign marketing partners to assist in obtaining foreign regulatory approval
for REMUNE and other products.

EMPLOYEES
As of December 31, 1999, the Company and its subsidiary had a combined 103
full-time employees, of whom 17 hold Ph.D. or other advanced degrees. Of these
employees, 78 are engaged in, or directly support, research and development. A
significant number of the Company's management and professional employees have
had prior experience with pharmaceutical and biotechnology companies. None of
the Company's employees are covered by a collective bargaining agreement.

RISK FACTORS
THE FAILURE TO SUCCESSFULLY DEVELOP AND COMMERCIALIZE PRODUCTS MAY CAUSE US TO
CEASE OPERATIONS.
We have not completed the development of any products. A failure to successfully
develop and commercialize products may cause us to cease operations. Our
potential therapies under development will require significant additional
research and development efforts and regulatory approvals prior to potential
commercialization.

The discontinuation of the Phase 3 trial of REMUNE due to lack of efficacy has
had a material adverse effect on us. If Agouron Pharmaceuticals, Inc. fails to
initiate or successfully complete additional pivotal trials with REMUNE we may
have to abandon REMUNE or seek additional funding.

Our other therapies and technologies are at earlier stages of development than
REMUNE. Some of our technologies have not yet been tested in humans. Human
testing of potential products based on these technologies may not be permitted
by regulatory authorities. Even if human testing is permitted, the products
based on these technologies may not be successfully developed or be shown to be
safe and efficacious. Potential immune-based therapies based on some of our
technologies are at an early stage of clinical testing and may not be shown to
be safe or efficacious or ever receive regulatory approval.


                                       16



The results of our preclinical studies and clinical trials may not be indicative
of future clinical trial results. A commitment of substantial resources to
conduct time-consuming research, preclinical studies and clinical trials will be
required if we are to develop any products. Delays in planned patient enrollment
in our clinical trials may result in increased costs, program delays or both.
None of our potential products may prove to be safe and effective in clinical
trials. FDA or other regulatory approvals may not be obtained and even if
successfully developed and approved, our products may not achieve market
acceptance. Any products resulting from our programs are not expected to be
successfully developed or commercially available for a number of years, if at
all.

Unacceptable toxicities or side effects may occur at any time in the course of
human clinical trials or, if any products are successfully developed and
approved for marketing, during commercial use of our products. The appearance of
any unacceptable toxicities or side effects could interrupt, limit, delay or
abort the development of any of our products or, if previously approved,
necessitate their withdrawal from the market.

OUR ADDITIONAL FINANCING REQUIREMENTS AND LIMITED ACCESS TO FINANCING MAY
ADVERSELY AFFECT OUR ABILITY TO DEVELOP PRODUCTS
We will need to raise additional funds to conduct research and development,
preclinical studies and clinical trials necessary to bring our potential
products to market and establish manufacturing and marketing capabilities. A
failure to raise additional funds would require us to scale back or eliminate
some or all of our research and development programs or license to third parties
products or technologies that we would otherwise seek to develop ourselves. We
believe that our existing resources will enable us to maintain our current and
planned operations only into the first half of 2001.

Although we anticipate that the REMUNE development will continue to represent a
significant portion of our overall expenditures, we also anticipate that costs
related to the development of REMUNE will decrease in 2000. Other anticipated
costs with respect to REMUNE will depend on many factors, in particular the
continuation of our collaboration with Agouron.

Our future capital requirements will depend on many factors, including:

         -        continued scientific progress in our research and development
                  programs,

         -        the scope and results of preclinical studies and clinical
                  trials, the time and costs involved in obtaining regulatory
                  approvals,

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

         -        competing technological and market developments,

         -        the cost of manufacturing scale-up,

         -        effective commercialization activities and arrangements, and

         -        other factors not within our control.

We intend to seek additional funding through public or private financings,
arrangements with corporate collaborators or other sources. If funds are
acquired through additional collaborations, we will likely be required to
relinquish some or all of the rights to products that we may have otherwise
developed ourselves. If adequate funds are not available when needed or on terms
acceptable to us, we may be required to scale back some or all of our research
and development programs or license to third parties products or technologies
that we would otherwise seek to develop ourselves.

IF AGOURON PHARMACEUTICALS, INC. TERMINATES ITS COLLABORATION WITH US WE MAY
HAVE TO ABANDON REMUNE
Our binding Letter of Intent with Agouron is the primary collaborative
agreement that provides us with contract revenue. The termination of our
agreement with Agouron might require us to abandon REMUNE. Agouron has been
acquired by Warner-Lambert Company. We do not know which Agouron research
products Warner-Lambert Company will continue to fund in the future.

WE MAY NOT BE ABLE TO ENTER INTO ADDITIONAL COLLABORATIONS OR MAINTAIN EXISTING
ONES
We intend to seek additional collaborative arrangements to develop and
commercialize our products. We may not be able to negotiate collaborative
arrangements on favorable terms, or at all, in the future and our current or
future collaborative arrangements may not be successful or continue. Under the
Schering Corporation collaboration, Schering


                                       17



Corporation's obligation to fund had expired on December 31, 1999. Without
funding arrangements, it may cause us to abandon some of our products under
development.

OUR PATENTS AND PROPRIETARY TECHNOLOGY MAY NOT PROVIDE US WITH ANY BENEFIT AND
THE PATENTS AND PROPRIETARY TECHNOLOGY OF OTHERS MAY PREVENT US FROM
COMMERCIALIZING PRODUCTS
A failure to obtain meaningful patent protection for our potential products and
processes would greatly diminish the value of our potential products and
processes.

In addition, whether or not our patents are issued, or issued with limited
coverage, others may receive patents which contain claims applicable to our
products. We are aware that AstraZeneca PLC has acquired the rights to a patent,
which has been issued in Europe and other countries, that may interfere with our
ability to develop some of our technologies related to autoimmune disease if the
patent is upheld after current opposition proceedings. This patent, and others
that we are not aware of, may adversely affect our ability to develop and
commercialize products.

The patent positions of biotechnology and pharmaceutical companies can be highly
uncertain, and involve complex legal and factual questions. Therefore, the
breadth of claims allowed in biotechnology and pharmaceutical patents cannot be
predicted. We also rely upon unpatented trade secrets and know how, and others
may independently develop substantially equivalent trade secrets or know how.

We also rely on protecting our proprietary technology in part through
confidentiality agreements with our corporate collaborators, employees,
consultants and certain contractors. These agreements may be breached and we may
not have adequate remedies for any breach. In addition, our trade secrets may
otherwise become known or independently discovered by our competitors.

Our products and processes may infringe, or be found to infringe, patents not
owned or controlled by us, such as the patent owned by AstraZeneca PLC. If
relevant claims of third-party patents are upheld as valid and enforceable, we
could be prevented from practicing the subject matter claimed in the patents, or
would be required to obtain licenses to redesign our products or processes to
avoid infringement. Licenses may not be available at all or on terms
commercially reasonable to us and we may not be able to redesign our products or
processes to avoid infringement.

Litigation may be necessary to defend against claims of infringement, to enforce
patents issued to us or to protect trade secrets. Litigation could result in
substantial costs and diversion of management efforts regardless of the results
of the litigation. An adverse result in litigation could subject us to
significant liabilities to third parties, require disputed rights to be licensed
or require us to cease using some technology.

OUR HISTORY OF OPERATING LOSSES AND OUR EXPECTATIONS OF CONTINUING LOSSES MAY
HURT OUR ABILITY TO CONTINUE OPERATIONS
As of December 31, 1999 we had a consolidated accumulated deficit of $186.5
million. We have not generated revenues from the commercialization of any
product. We expect to incur substantial net operating losses over the next
several years which may imperil our ability to continue operations. We may not
be able to generate sufficient product revenue to become profitable at all or on
a sustained basis.

THE LENGTHY APPROVAL PROCESS AND UNCERTAINTY OF GOVERNMENT REGULATORY
REQUIREMENTS MAY DELAY OR PREVENT US FROM COMMERCIALIZING PRODUCTS
Clinical testing, manufacture, promotion and sale of our products are subject to
extensive regulation by numerous governmental authorities in the United States,
principally the FDA, and corresponding state and foreign regulatory agencies.
This regulation may delay or prevent us from commercializing products.
Noncompliance with applicable requirements can result in, among other things,
fines, injunctions, seizure of products, total or partial suspension of product
marketing, failure of the government to grant premarket approval, withdrawal of
marketing approvals and criminal prosecution.

The regulatory process for new therapeutic drug products, including the required
preclinical studies and clinical testing, is lengthy and expensive. We may not
receive necessary FDA clearances for any of our potential products in a timely
manner, or at all. The length of the clinical trial process and the number of
patients the FDA will require to be enrolled in the clinical trials in order to
establish the safety and efficacy of our products is uncertain.

Even if additional pivotal surrogate marker trials of REMUNE are successfully
completed, the FDA may not approve REMUNE for commercial sale. We may encounter
significant delays or excessive costs in our efforts to secure necessary
approvals. Regulatory requirements are evolving and uncertain. Future United
States or foreign legislative or


                                       18



administrative acts could also prevent or delay regulatory approval of our
products. We may not be able to obtain the necessary approvals for clinical
trials, manufacturing or marketing of any of our products under development.
Even if commercial regulatory approvals are obtained, they may include
significant limitations on the indicated uses for which a product may be
marketed.

In addition, a marketed product is subject to continual FDA review. Later
discovery of previously unknown problems or failure to comply with the
applicable regulatory requirements may result in restrictions on the marketing
of a product or withdrawal of the product from the market, as well as possible
civil or criminal sanctions.

Among the other requirements for regulatory approval is the requirement that
prospective manufacturers conform to the FDA's Good Manufacturing Practices,
GMP, requirements specifically for biological drugs, as well as for other drugs.
In complying with the FDA's GMP requirements, manufacturers must continue to
expend time, money and effort in production, recordkeeping and quality control
to assure that the product meets applicable specifications and other
requirements. Failure to comply with the FDA's GMP requirements subjects the
manufacturer to possible FDA regulatory action. We or our contract
manufacturers, if any, may not be able to maintain compliance with the FDA's GMP
requirements on a continuing basis. Failure to maintain compliance could have a
material adverse effect on us.

The FDA has not designated expanded access protocols for REMUNE as "treatment"
protocols. The FDA may not determine that REMUNE meets all of the FDA's criteria
for use of an investigational drug for treatment use. Even if REMUNE is allowed
for treatment use, third party payers may not provide reimbursement for the
costs of treatment with REMUNE.

The FDA may not consider REMUNE or any other of the Company's products under
development to be an appropriate candidate for accelerated approval, expedited
review or fast track designation.

To market any drug products outside of the United States, we are also subject to
numerous and varying foreign regulatory requirements, implemented by foreign
health authorities, governing the design and conduct of human clinical trials
and marketing approval. The approval procedure varies among countries and can
involve additional testing, and the time required to obtain approval may differ
from that required to obtain FDA approval. The foreign regulatory approval
process includes all of the risks associated with obtaining FDA approval set
forth above, and approval by the FDA does not ensure approval by the health
authorities of any other country.

TECHNOLOGICAL CHANGE AND COMPETITION MAY RENDER OUR POTENTIAL PRODUCTS OBSOLETE
The biotechnology industry continues to undergo rapid change and competition is
intense and is expected to increase. Competitors may succeed in developing
technologies and products that are more effective or affordable than any which
are being developed by us or which would render our technology and products
obsolete and noncompetitive. Many of our competitors have substantially greater
experience, financial and technical resources and production, marketing and
development capabilities than us. Accordingly, some of our competitors may
succeed in obtaining regulatory approval for products more rapidly or
effectively than us.

OUR LACK OF COMMERCIAL MANUFACTURING AND MARKETING EXPERIENCE MAY PREVENT US
FROM SUCCESSFULLY COMMERCIALIZING PRODUCTS
We have not manufactured our product candidates in commercial quantities. We may
not successfully make the transition from manufacturing clinical trial
quantities to commercial production quantities or be able to arrange for
contract manufacturing and this could prevent us from commercializing products.
Even if REMUNE is successfully developed and receives FDA approval, we have not
demonstrated the capability to manufacture REMUNE in commercial quantities.
Except for REMUNE, we have not demonstrated the ability to manufacture our
treatments in large-scale clinical or commercial quantities.

We have no experience in the sales, marketing and distribution of pharmaceutical
products. Thus, our products may not be successfully commercialized even if they
are developed and approved for commercialization.

The manufacture process of our products involves a number of steps and requires
compliance with stringent quality control specifications imposed by us and by
the FDA. Moreover, our products can only be manufactured in a facility that has
undergone a satisfactory inspection by the FDA. For these reasons, we would not
be able quickly to replace our manufacturing capacity if we were unable to use
our manufacturing facilities as a result of a fire, natural disaster (including
an earthquake), equipment failure or other difficulty, or if such facilities are
deemed not in compliance with the FDA's GMP requirements and the non-compliance
could not be rapidly rectified. Our inability or reduced capacity to manufacture
our products would prevent us from successfully commercializing products.


                                       19



We may enter into arrangements with contract manufacturing companies to expand
our own production capacity in order to meet requirements for our products, or
to attempt to improve manufacturing efficiency. If we choose to contract for
manufacturing services and encounter delays or difficulties in establishing
relationships with manufacturers to produce, package and distribute our finished
products, clinical trials, market introduction and subsequent sales of the
products would be delayed. Further, contract manufacturers must also operate in
compliance with the FDA's GMP requirements; failure to do so could result in,
among other things, the disruption of product supplies. Our potential dependence
upon third parties for the manufacture of our products may adversely affect our
profit margins and our ability to develop and deliver products on a timely and
competitive basis.

ADVERSE DETERMINATIONS CONCERNING PRODUCT PRICING, REIMBURSEMENT AND RELATED
MATTERS COULD PREVENT US FROM SUCCESSFULLY COMMERCIALIZING PRODUCTS
Our ability to earn sufficient returns on our products will depend in part on
the extent to which reimbursement for the costs of the products and related
treatments will be available from government health administration authorities,
private health coverage insurers, managed care organizations and other
organizations. Failure to obtain appropriate reimbursement could prevent us from
successfully commercializing products. Third party payors are increasingly
challenging the price of medical products and services. If purchasers or users
of our products are not able to obtain adequate reimbursement for the cost of
using the products, they may forego or reduce their use. Significant uncertainty
exists as to the reimbursement status of newly approved health care products,
and whether adequate third party coverage will be available.

PRODUCT LIABILITY EXPOSURE MAY EXPOSE US TO SIGNIFICANT LIABILITY
We face an inherent business risk of exposure to product liability and other
claims in the event that the development or use of our technology or prospective
products is alleged to have resulted in adverse effects. We may not avoid
significant liability exposure. We may not have sufficient insurance coverage
and we may not be able to obtain sufficient coverage, at a reasonable cost. An
inability to obtain product liability insurance at acceptable cost or to
otherwise protect against potential product liability claims could prevent or
inhibit the commercialization of products developed by us. A product liability
claim could hurt our financial performance.

HAZARDOUS MATERIALS/ENVIRONMENTAL MATTERS COULD EXPOSE US TO SIGNIFICANT COSTS
Although we do not currently manufacture commercial quantities of our product
candidates, we produce limited quantities of these products for our clinical
trials. We may be required to incur significant costs to comply with current or
future environmental laws and regulations. Our research and development
processes involve the controlled storage, use and disposal of hazardous
materials, biological hazardous materials and radioactive compounds. We are
subject to federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of these materials and some waste
products. Although we believe that our safety procedures for handling and
disposing of these materials comply with the standards prescribed by these laws
and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of an accident, we could
be held liable for any damages that result, and any liability could exceed our
resources. Our operations, business or assets may be materially and adversely
affected by current or future environmental laws or regulations.

SUBORDINATION OF COMMON STOCK TO PREFERRED STOCK COULD HURT COMMON STOCKHOLDERS
Our common stock is expressly subordinate to our Series F Convertible Preferred
Stock in the event of our liquidation, dissolution or winding up. If we were to
cease operations and liquidate our assets, there may not be any remaining value
available for distribution to the holders of common stock after providing for
the Series F Convertible Preferred Stock liquidation preference.

VOLATILITY OF STOCK PRICE AND ABSENCE OF DIVIDENDS MAY HURT COMMON STOCKHOLDERS
The market price of our common stock, like that of the common stock of many
other biopharmaceutical companies, has been and is likely to be highly volatile.
Factors such as:

         -        the results of preclinical studies and clinical trials by us,
                  our collaborators or our competitors,

         -        other evidence of the safety or efficacy of our products or
                  our competitors,

         -        announcements of technological innovations or new products by
                  us or our competitors,

         -        governmental regulatory actions,


                                       20



         -        changes or announcements in reimbursement policies,

         -        developments with our collaborators,

         -        developments concerning patent or other proprietary rights of
                  ours or our competitors (including litigation),

         -        concern as to the safety of our products,

         -        period-to-period fluctuations in our operating results,

         -        changes in estimates of our performance by securities
                  analysts,

         -        market conditions for biopharmaceutical stocks in general, and

         -        other factors not within our control

could have a significant adverse impact on the market price of our common stock.
We have never paid cash dividends on our common stock and do not anticipate
paying any cash dividends in the foreseeable future.


EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS. The Company's Certificate of
Incorporation and Bylaws include provisions that could discourage potential
takeover attempts and make attempts by stockholders to change management more
difficult. The approval of 66 2/3 percent of the Company's voting stock is
required to approve certain transactions and to take certain stockholder
actions, including the calling of special meetings of stockholders and the
amendment of any of the anti-takeover provisions contained in the Company's
Certificate of Incorporation. Further, pursuant to the terms of its stockholder
rights plan, the Company has distributed a dividend of one right for each
outstanding share of common stock. These rights will cause substantial dilution
to the ownership of a person or group that attempts to acquire the Company on
terms not approved by the Board of Directors and may have the effect of
deterring hostile takeover attempts.


EXECUTIVE OFFICERS
The executive officers of the Company are as follows:

DENNIS J. CARLO, PH.D., age 56, a co-founder of the Company, has been President
and Chief Executive Officer since September 1994, and Chief Scientific Officer
since September 1998. Dr. Carlo was Chief Operating Officer from April 1987 to
September 1994 and Executive Vice President from October 1987 to September 1994.
Dr. Carlo has been Assistant Corporate Secretary and a Director since 1987. From
January 1982 to May 1987, Dr. Carlo was Vice President of Research and
Development and Vice President of Therapeutic Manufacturing at Hybritech
Incorporated, a biotechnology company that was acquired by Eli Lilly & Company
("Eli Lilly"), a pharmaceutical company, in 1986. From 1971 to 1981, Dr. Carlo
held various positions at Merck & Co., Inc., including Director of Development
and Basic Cellular Immunology and Director of Bacterial Vaccines and Immunology.
Dr. Carlo is also a director of AVANIR Pharmaceuticals and Vyrex Corporation.
Dr. Carlo has authored or co-authored over 100 articles and abstracts in the
field of immunology. Dr. Carlo received his Ph.D., M.S. and B.S. from Ohio State
University.

Howard Sampson, age 49, has been Vice President, Finance, Chief Financial
Officer and Treasurer of the Company since May 1999, Mr. Sampson was
Controller from April 1999 to May 1999. From 1996 to 1999 Mr. Sampson
provided executive level financial consulting services for various biomedical
companies. From 1991 to 1996 Mr. Sampson was Chief Financial Officer of Genta
Inc. Mr. Sampson received his B.S. from San Diego State University and is a
C.P.A. in the state of California.

ITEM 2.    PROPERTIES
The Company leases a 50,400 square foot laboratory and headquarters facility
located in Carlsbad, California. Under the terms of the lease, which expires on
December 31, 2000, and has two five-year options to extend, current monthly
rental on the facility is approximately $69,600.


                                       21



The Company also leases a 31,200 square foot facility located adjacent to its
headquarters facility in Carlsbad, California. The Company expects this
facility to be used for additional laboratory and office space. Under the
terms of the lease, which expires in March 2008, monthly rental on the
facility is approximately $19,000. The Company has also delivered to the
lessor a Letter of Credit for $600,000 as an additional security deposit.

The Company leases a 52,500 square foot manufacturing facility located in King
of Prussia, Pennsylvania. Under the terms of the lease, which expires on October
31, 2011, and has two five-year options to extend, current monthly rental on the
facility is approximately $38,300.


ITEM 3.    LEGAL PROCEEDINGS
Not applicable


ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable


                                       22



                                     PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq National Market ("NNM") under
the symbol "IMNR." The following table sets forth the range of high and low
sales prices for the Common stock on the NNM for the periods indicated since
January 1, 1998.




         1998                                                           HIGH                     LOW
         ------                                                         ----                     ---
                                                                                          
         January 1    -    March 31, 1998                            $ 11.44                    $ 8.81
         April 1      -    June 30, 1998                               19.69                      9.50
         July 1       -    September 30, 1998                          15.00                      7.38
         October 1    -    December 31, 1998                           14.69                     10.13

         1999                                                          HIGH                       LOW
         ----                                                          ----                       ---
         January 1    -    March 31, 1999                            $ 11.38                    $ 7.56
         April 1      -    June 30, 1999                               13.25                      4.63
         July 1       -    September 30, 1999                           7.13                      4.81
         October 1    -    December 31, 1999                            5.75                      2.56



As of March 10, 2000, the Company's Common Stock was held by 908 stockholders of
record. The Company has never paid cash dividends and does not anticipate paying
any cash dividends in the foreseeable future.

In October 1999, the Company sold 334,589 shares of newly issued Immune Response
common stock to Agouron, priced at a premium to market, for $2 million. In
October and November 1999, the Company sold 787,087 shares of newly issued
Immune Response common stock to Strong River Investments, Inc., priced at a
discount to the market for $3.2 million. In December 1999, the Company issued
250,000 shares of newly issued Immune Response common stock to Connetics
Corporation and XOMA, (US) LLC, priced at market for $836,000 in exchange for an
exclusive license to intellectual property.

The sales and issuances of securities in the transactions described above were
deemed to be exempt from registration under the Securities Act of 1933, as
amended, by virtue of Section 4(2).

The recipients represented their intention to acquire the securities for
investment purposes only and not with a view to the distribution thereof.
Appropriate legends are affixed to the stock certificates issued in such
transactions. All recipients either received adequate information about the
Company or had access, through employment or other relationships.

ITEM 6.    SELECTED FINANCIAL DATA




                                                                        YEAR ENDED DECEMBER 31,
                                               --------------------------------------------------------------------
                                                 1999             1998           1997          1996         1995
                                               --------------------------------------------------------------------
                                                                (In thousands, except per share data)
                                                                                          
STATEMENT OF OPERATIONS DATA:
Contract research revenue                     $14,226          $ 5,488        $ 2,000       $ 1,000      $ 1,561

Licensed research revenue                       6,529           12,185            ---         6,000          ---

Research and development expenses              31,246           33,240         34,090        27,211       19,489

Net loss                                      (14,968)         (18,062)       (33,557)      (21,026)     (19,936)

Net loss per share - Basic and diluted           (.64)           *(.81)         (1.53)        (1.19)       (1.19)

Shares used in computing net loss
   per share                                   24,851           23,148         21,883        17,658       16,750




*See Note 14 to the Consolidated Financial Statements.


                                       23






                                                                            DECEMBER 31,
                                               --------------------------------------------------------------------
                                                 1999             1998           1997          1996         1995
                                               --------------------------------------------------------------------
                                                                           (in thousands)
                                                                                          
BALANCE SHEET DATA:
Cash, cash equivalents, marketable
   securities and short-term investments      $23,087          $25,232        $30,439       $47,787      $44,610
Working capital                                14,686           22,892         28,939        45,684       43,586
Total assets                                   39,997           35,626         37,375        54,086       50,429

Stockholders' equity                           20,546           22,060         35,102        51,304       48,441



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

OVERVIEW
The Immune Response Corporation is a biopharmaceutical company developing
immune-based therapies to induce specific immune responses for the treatment of
HIV, autoimmune diseases and cancer. In addition, the Company is developing a
targeted non-viral delivery technology for gene therapy, which is designed to
enable the delivery of genes directly to the liver via intravenous injection.
The Company's gene therapy program is focused on diseases of the liver.

This discussion contains forward-looking statements concerning the Company's
operating results and timing of anticipated expenditures. Such statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those projected. Factors that could cause or contribute to such
differences include those discussed under "Risk Factors," as well as those
discussed elsewhere in this Form 10-K. The following should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this Form 10-K. These forward-looking statements speak
only as of the date hereof. The Company undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements that may
be made to reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events.

In May 1999, the Company announced the discontinuation of the Phase 3 clinical
endpoint trial for the immune-based therapy, REMUNE, based on the recommendation
of an independent Data Safety Monitoring Board. As a result of this, in June
1999, the Company implemented a restructuring plan primarily aimed at reducing
expenses while focusing the majority of the Company's resources on its
late-stage programs of immune-based therapeutics for HIV (REMUNE) and rheumatoid
arthritis. The restructuring plan included a reduction in the workforce, in June
and again in October, of approximately 30%. The Company took a one-time
restructuring charge against earnings of $650,000.

During 1999, the Company received from Agouron, under the agreement entered into
in 1998, four quarterly payments of $5 million each and a $5 million milestone
payment received in February. The quarterly payments represent $12 million to
support research and development and $8 million for the purchase of 965,928
shares of the Company's common stock priced at a premium to the market. Under
the agreement, the Company agreed to exclusively license REMUNE, its
immune-based therapy under development for the treatment of HIV infection, to
Agouron. Under the terms of the agreement, the Company will manufacture
commercial supplies of REMUNE and Agouron will have exclusive rights to market
REMUNE in North America, Europe and certain other countries. The two companies
will share profits from the commercialization on a 50/50 basis, if regulatory
approvals are received. Agouron will make additional payments upon achievement
of certain milestones.

In September 1999 and October 1999, the Company received payments of $494,000
each from Schering Corporation under an amendment to extend the research
collaboration and option agreement entered into in July 1998 through the
remainder of 1999. In March 1999, the Company received a payment of $988,000 to
fund research under this agreement. Under this research collaboration and option
agreement, the Company agreed to develop gene therapy products for the treatment
of hepatitis B and C; and as part of this agreement, Schering Corporation has
the option to license the Company's gene delivery system for additional
proprietary genes for other diseases for a royalty on future product sales, if
any. Through December 1999, the Company had received approximately $4.0 million
in payments


                                       24



from Schering Corporation. Schering Corporation's obligation to fund under the
research collaboration had expired on December 31, 1999.

In September 1999, the Company entered into a $3.0 million equipment line of
credit, of which $1.6 million was utilized to fund capital
improvements related to increasing the capacity of its manufacturing facility.

In November 1999, the Company completed the sale of $3.2 million of its common
stock to an institutional investor at a price of $4.00 per share.

In December 1999, the Company acquired exclusive technology rights from
Connetics Corporation and XOMA, (US) LLC for $4.9 million payable in a
combination of cash, notes due through October 31, 2000 and common stock.

In January 2000, the Company received a $5.0 million payment from Agouron
consisting of a $3.0 million payment for research and development and a $2.0
million payment for the purchase of 266,667 shares of unregistered common stock
priced at a premium to the market. This was the final payment in a series of six
quarterly payments that the Company expected Agouron to make to fund research
and development and to purchase unregistered common stock under the June 1998
agreement.

In March 2000, the Company sold 4.65 acres of undeveloped property adjacent to
its headquarters facility in Carlsbad, California for approximately $2.0
million.

Also in March 2000, the Company sold for cash approximately $2.3 million of
equity securities held for sale and will recognize a gain on this transaction in
the first quarter 2000.

The Company has not been profitable since inception and had an accumulated
deficit of $186.5 million as of December 31, 1999. To date, the Company has not
recorded any revenues from the sale of products. Revenues recorded through
December 31, 1999 were earned in connection with contract research, licensing of
technology, milestone achievement payments and investment income. The Company
expects its operating losses to continue, as well as to have quarter-to-quarter
fluctuations, some of which could be significant, due to research, development
and clinical trial activities. There can be no assurance that the Company will
be able to generate sufficient product revenue to become profitable at all or on
a sustained basis.

In December 1999, the Securities and Exchange Commission issued a Staff
Accounting Bulletin regarding revenue recognition in financial statements for
non-refundable technology access fees in the biotechnology industry, which could
impact the Company's financial statement. See Footnote 1 to the Consolidated
Financial Statements.

RESULTS OF OPERATIONS
The Company recorded revenues of $20.8 million in 1999 as compared to $17.7
million in 1998 and $2.0 million in 1997. Revenues for 1999 consist primarily of
$15.8 million derived from research and development under collaborative
agreements along with a $5.0 million milestone payment under one of the
collaborative agreements. Of the $20.8 million of revenues received in 1999,
$18.5 million were from Agouron. Revenues for 1998 include $7.7 million derived
from research and development under collaborative agreements along with $10.0
million from a license fee under one of the collaborative agreements. Of the
$17.7 million of revenues received in 1998, $14.2 million were from Agouron.
Revenues for 1997 include $2.0 million derived from research and development
under collaborative agreements. None of the revenue received was from the
commercial sale of products and the Company does not expect to derive revenue
from the sale of products for the foreseeable future.

The Company's research and development cost totaled $31.2 million for 1999 as
compared to $33.2 million for 1998 and $34.1 million for 1997. The decrease in
costs from 1998 to 1999 was due primarily to reduced clinical and regulatory
costs associated with the discontinuation of a 2,500 patient Phase 3 clinical
trial of REMUNE and costs associated with the autoimmune, gene therapy and
cancer programs that was the result of the Company's workforce reduction in June
1999. The decrease in these costs was offset by an increase in cost associated
with scale-up of the manufacturing process for REMUNE. The decrease in costs
from 1997 to 1998 was due primarily to the initial costs of the 2,500 patient
Phase 3 clinical trial of REMUNE being front loaded in 1997, which was due to
the aggressive startup of the trial that was started in 1996. Future spending
associated with the HIV clinical trials is expected to decrease substantially as
future pivotal studies will be conducted by Agouron under the 1998 collaboration
agreement. However, spending associated with the Company's scale-up of the
manufacturing process for REMUNE


                                       25



and the cost of producing clinical supplies for ongoing and future REMUNE
studies could continue to increase in the foreseeable future. Overall future
research and development expenditures are expected to decline in the coming year
unless additional collaborations are completed. There can be no assurance that
any collaborations will be completed, that existing collaborations will not end,
or that the Company will be able to obtain other financing needed to continue
its research and development efforts.

General and administrative expenses totaled $5.2 million for 1999 as compared to
$4.2 million for 1998 and $3.9 million for 1997. The increase in spending in
1999 over 1998 was attributable to higher support costs associated with its
research and development, increase in public company activities and changes
associated with the restructuring. The increase in spending for 1998 over 1997
was attributable to higher support costs associated with its research and
development. General and administrative expenses for 2000 are expected to remain
somewhat constant to 1999 levels.

Restructuring costs of $650,000 for the year ended December 1999 were associated
with the Company's restructuring plan implemented in June 1999 and completed in
October 1999, which reduced the work force by approximately 30%. Employee
severance, health benefits, placement services and other implementation costs
were included in the restructuring costs.

Other revenue and expense decreased to $1.3 million for 1999 from $1.7 million
for 1998 and $2.4 million for 1997. This decrease for 1998 and 1999 was the
result of lower investment income on lower average cash and short-term
investment balances. For 1999, interest expense associated with equipment
financing was netted against income.

LIQUIDITY AND CAPITAL RESOURCES
Since its inception through December 31, 1999, the Company has financed its
activities primarily from public and private sales of equity, funding from
collaborations with corporate partners and investment income. At December 31,
1999, the Company had working capital of $14.7 million, including $23.1 million
of cash, cash equivalents and marketable securities. This compares with working
capital as of December 31, 1998 of $22.9 million, including $25.2 million of
cash, cash equivalents and marketable securities. Working capital decreased as a
result of the cost of operations, in particular, the cost of the REMUNE HIV
clinical trials, clinical trial materials and manufacturing supplies, and the
capital improvements incurred to increase the capacity of the manufacturing
facility producing REMUNE. This decrease was despite the sale of $3.2 million of
common stock to an institutional investor and the financing of $1.6 million of
capital equipment. As of December 31, 1999, the Company had $1.4 million
remaining under a $3.0 million equipment line of credit that was put in place
during 1999.

The Company will need to raise additional funds to conduct research and
development, preclinical studies and clinical trials necessary to bring its
potential products to market and establish manufacturing and marketing
capabilities. The Company anticipates that in 2000, the REMUNE clinical trials
and manufacturing costs will continue to represent a significant portion of the
Company's overall expenditures. The Company also anticipates that costs related
to the clinical trials of REMUNE will decrease, as future pivotal studies will
be conducted by Agouron. However, spending associated with the Company's
scale-up of the manufacturing process for REMUNE and the cost of producing
clinical supplies for ongoing and future REMUNE studies could continue to
increase in the foreseeable future. Research and development expenses for gene
therapy are expected to level off while spending for the rheumatoid arthritis
and cancer programs will remain somewhat constant. Overall future research and
development expenditures are expected to decline from 1999 levels. Future
spending for research and development may increase if additional collaborations
are completed, but there can be no assurance that any will be completed. The
Company anticipates additional capital improvements of approximately $4.0
million for 2000 related to increasing the capacity of its manufacturing
facility, some of which the Company anticipates will be funded with debt
financing. Other anticipated costs with respect to REMUNE, including investment
in inventory, will depend on many factors, including the results of clinical
trials, the continuation of the Company's collaboration with Agouron and other
factors which will influence the Company's determination of the appropriate
continued investment of the Company's financial resources in this program.

The Company's future capital requirements will depend on many factors, including
continued scientific progress in its research and development programs, the
scope and results of preclinical studies and clinical trials, the time and costs
involved in obtaining regulatory approvals, the costs involved in filing,
prosecuting and enforcing patent claims, competing technological and market
developments, the cost of manufacturing scale-up and inventories, effective
commercialization activities and arrangements and other factors not within the
Company's control. The Company intends to seek additional funding through
additional research and development agreements with suitable corporate
collaborators, extensions of existing corporate collaborations, and through
public or private financings if


                                       26



available. However, there can be no assurances that such collaboration
arrangements or any public or private financings will be available on acceptable
terms, if at all. If funds are raised through equity arrangements, further
dilution to stockholders may result. If adequate funds are not available, the
Company may be required to delay, reduce the scope of, or eliminate one or more
of its research or development programs or take other measures to cut costs,
which could have a material adverse effect on the Company. The Company estimates
that its existing capital resources, along with funding under existing research
and development collaborations, available equipment financing and the commitment
for equity funding from an existing collaborative partner will be sufficient to
fund its current and planned operations into the first half of 2001. There can
be no assurances, however, that changes in the Company's research and
development plans or other changes affecting the Company's operating expenses
may result in the expenditure of such resources before such time. In any event,
the Company will need to raise substantial additional capital to fund its
operations in future periods.

YEAR 2000
The Company has performed a review of its computer applications and equipment
related to their continuing functionality for the year 2000 and beyond. The
Company does not believe that it has material exposure with respect to the year
2000 issue concerning its computer applications and equipment. The Company
communicated with third parties with whom it has a material relationship to
assess its risk with respect to year 2000 issues. The Company is not aware, at
this time, of any material year 2000 issues with respect to its dealings with
such third parties. Year 2000 issues have not disrupted the Company or its
operations. Since no significant issues have arisen, the Company does not have a
contingency plan to address any material year 2000 issues.


                                       27



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and supplementary data of the Company
required by this item are set forth at the pages indicated in Item 14(a)(1).


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

Not applicable


                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

The information required by this item (with respect to Directors) is
incorporated by reference from the information under the captions "Election
of Directors" and "Other Matters" contained in the Company's Proxy Statement
to be filed with the Securities and Exchange Commission.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference from the
information under the caption "Compensation of Executive Officers and Directors"
contained in the Proxy Statement.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference from the
information under the caption "Stock Ownership of Management and Certain
Beneficial Owners" contained in the Proxy Statement.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference from the
information under the caption "Certain Transactions" contained in the Proxy
Statement.


                                       28



                                     PART IV


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

(a)        (1) Financial Statements

The consolidated financial statements required by this item are submitted in a
separate section beginning on page F-1 of this report.




                      CONSOLIDATED FINANCIAL STATEMENTS OF THE IMMUNE RESPONSE CORPORATION
                                                                                              
                      Report of Independent Public Accountants                                   F-1
                      Consolidated Balance Sheets at
                          December 31, 1999 and 1998                                             F-2
                      Consolidated Statements of Operations for the
                          three years ended December 31, 1999                                    F-3
                      Consolidated Statements of Stockholders' Equity
                          for the three years ended December 31, 1999                            F-4
                      Consolidated Statements of Cash Flows for the
                          three years ended December 31, 1999                                    F-5
                      Notes to Consolidated Financial Statements                                 F-6



           (2) Financial Statement Schedules

Schedules have been omitted because of the absence of conditions under which
they are required or because the required information is included in the
financial statements or the notes thereto.


           (3) Exhibits with each management contract or compensatory plan or
               arrangement required to be filed identified. See paragraph (c)
               below.

(b)        Reports on Form 8-K

There were no reports on Form 8-K filed by the Company during the fourth quarter
of the fiscal year ended December 31, 1999.

(c)        Exhibits


     3(i)(12)     Restated Certificate of Incorporation of The Immune Response
                  Corporation, as amended. 3(ii)(6) Restated Bylaws of The
                  Immune Response Corporation.

    10.1(7)       Amended and Restated 1989 Stock Plan of The Immune Response
                  Corporation.

    10.13(1)      Assignment, dated May 27, 1988, by Jonas Salk and Dennis J.
                  Carlo, assignors, to the Company.

    10.14(1)      Assignment, dated May 27, 1988 by Jonas Salk to the Company.

    10.17(1)      Lease, dated as of May 22, 1989, between the Company and BDN
                  Carlsbad #1 Limited Partnership.

    10.28(5)*     Form of Indemnification Agreement entered into between the
                  Company and its officers and directors.

    10.36(2)      First Amendment, dated February 19, 1990, to Lease between BDN
                  Carlsbad #1 Limited Partnership and the Company.

    10.37*        Amended and Restated 1990 Directors' Stock Option Plan of The
                  Immune Response Corporation.

    10.42(3)      Second and Third Amendments to the Lease, dated as of May 22,
                  1989, between the Company and BDN Carlsbad #1 Limited
                  Partnership.


                                       29



    10.47(4)      Rights Agreement, dated February 26, 1992, between the Company
                  and First Interstate Bank, Ltd., as Rights Agent.

    10.53*        Form of The Immune Response Corporation Special Nonstatutory
                  Stock Option Agreement.

    10.59(10)     Unit Purchase Agreement, dated April 15, 1997, between The
                  Immune Response Corporation and Kevin B. Kimberlin, including
                  Common Stock Purchase Warrant, Promissory Note and Stock
                  Pledge Agreement.

    10.60(10)     Unit Purchase Agreement, dated April 15, 1997, between The
                  Immune Response Corporation and Dennis J. Carlo, Ph.D.,
                  including Common Stock Purchase Warrant, Promissory Note and
                  Stock Pledge Agreement.

    10.61(10)     Amendment No. 1 to Rights Agreement (Exhibit 10.47), dated
                  April 17, 1997, between The Immune Response Corporation and
                  Harris Trust Company of California

    10.62(11)     Common Stock Purchase Warrant, dated June 26, 1997, between
                  The Immune Response Corporation and Kevin B. Kimberlin.

    10.63(11)     Common Stock Purchase Warrant, dated June 26, 1997, between
                  The Immune Response Corporation and Dennis J. Carlo, Ph.D.

    10.65(15)     Letter of Intent dated June 11, 1998 between The Immune
                  Response Corporation and Agouron Pharmaceuticals, Inc.

    10.66(15)     Common Stock Purchase Agreement dated June 11, 1998 between
                  The Immune Response Corporation and Agouron Pharmaceuticals,
                  Inc.

    10.67(13)     Securities Purchase Agreement dated as of April 24, 1998 by
                  and among the Company and the Investors.

    10.68(14)     Registration Rights Agreement dated as of April 24, 1998 by
                  and among the Company and the Investors.

    10.69(16)     Master Loan and Security Agreement dated as of September 30,
                  1999 between The Immune Response Corporation, I.R.C. Inc. and
                  Transamerica Business Credit Corporation.

    10.70(17)     Assignment Agreement dated as of December 8, 1999 by and among
                  the Company and Connetics Corporation (10.1). +

    10.71(17)     Agreement dated as of December 8, 1999 by and among the
                  Company and XOMA, (US) LLC (10.2). +

    10.72         Agreement dated as of October 20, 1999 by and among the
                  Company and Strong River Investments, Inc.

    10.73         Lease dated November 1, 1999 by and among the Company and
                  Brandywine Operating Partnership, L.P.

    21.1          Subsidiaries of the Registrant.
    23.1          Consent of Independent Public Accountants.
    24.1          Power of Attorney (see page 32).
    27            Financial Data Schedule

     (1)  Incorporated by reference to the exhibits of the same number to the
          Company's Registration Statement on Form S-1, No. 33-31057.

     (2)  Incorporated by reference to the exhibits of the same number to the
          Company's Registration Statement on Form S-1, No. 33-34096.

     (3)  Incorporated by reference to the exhibits of the same number to the
          Company's Report on Form 10-K for the Fiscal Year ended December 31,
          1990 (Commission File No. 0-18006).

     (4)  Incorporated by reference to Exhibit 5.1 to the Company's Report on
          Form 8-K filed March 4, 1992 (Commission File No 0-18006).

     (5)  Incorporated by reference to the exhibits of the same number to the
          Company's Registration Statement on Form S-1, No. 33-31057.

     (6)  Incorporated by reference to Exhibit 4.2 to the Company's Registration
          Statement on Form S-8, No. 33-62940.

     (7)  Incorporated by reference to the exhibit of the same number to the
          Company's Registration Statement on Form S-8, No. 333-81945.


                                       30



     (10) Incorporated by reference to the Exhibits of the same number filed
          with the Company's March 31, 1997 Form 10-Q.

     (11) Incorporated by reference to the Exhibit of the same number filed with
          the Company's June 30, 1997 Form 10-Q.

     (12) Incorporated by reference to the Exhibit of the same number filed with
          the Company's June 30, 1999 Form 10-Q.

     (13) Incorporated by reference to Exhibit 10.1 filed with the Company's
          Form 8-K dated April 24, 1998.

     (14) Incorporated by reference to Exhibit 10.2 filed with the Company's
          Form 8-K dated April 24, 1998.

     (15) Incorporated by reference to the Exhibits of the same number filed
          with the Company's June 30, 1998 Form 10-Q.

     (16) Incorporated by reference to the Exhibit of the same number filed with
          the Company's September 30, 1999 Form 10-Q.

     (17) Incorporated by reference to Exhibits 10.1 and 10.2 to the Company's
          Form 8-K dated December 8, 1999.

     *    Indicates management contract or compensatory plan or arrangement.
     +    Confidential treatment for some portions of this exhibit has been
          requested.


                                       31



                                   SIGNATURES

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

                                      THE IMMUNE RESPONSE CORPORATION



                                      By:  /s/ Dennis J. Carlo
                                           -------------------------------------
                                           Dennis J. Carlo,
                                           President and Chief Executive Officer


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

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Dennis J. Carlo and Howard Sampson his
attorneys-in-fact, each with full power of substitution, for him in any and all
capacities, to sign any amendments to this Report and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.



/s/ James B. Glavin                Chairman of the                     3/30/00
- -------------------------          Board of Directors               ------------
James B. Glavin



/s/ Dennis J. Carlo                President,                          3/30/00
- -------------------------          Chief Executive Officer,         ------------
Dennis J. Carlo                    and Director


                                                                       3/30/00
/s/ Howard Sampson                 Vice President, Finance,         ------------
- -------------------------          Chief Financial Officer
Howard Sampson                     Secretary and Treasurer



/s/ Kevin B. Kimberlin             Director                            3/30/00
- -------------------------                                           ------------
Kevin B. Kimberlin



/s/ Melvin Perelman                Director                            3/30/00
- -------------------------                                           ------------
Melvin Perelman



/s/ William M. Sullivan            Director                            3/30/00
- -------------------------                                           ------------
William M. Sullivan



/s/ Philip M. Young                Director                            3/30/00
- -------------------------                                           ------------
Philip M. Young




                                       32



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


The Immune Response Corporation:

We have audited the accompanying consolidated balance sheets of The Immune
Response Corporation (a Delaware corporation) and subsidiaries as of December
31, 1999, and 1998, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 referred to above present fairly, in
all material respects, the financial position of The Immune Response Corporation
and subsidiaries at December 31, 1999, and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.

                                            ARTHUR ANDERSEN LLP

San Diego, California
March 3, 2000



                                                                            F1


                                             THE IMMUNE RESPONSE CORPORATION

                                               CONSOLIDATED BALANCE SHEETS
                                            (in thousands, except share data)




                                                                                             December 31,
                                                                             ----------------------------------------------
                                                                                    1999                      1998
                                                                             -------------------        -------------------
                                                                                                  
ASSETS
Current assets:
    Cash and cash equivalents                                                $            4,183         $            1,889
    Marketable securities - available-for-sale                                           18,904                     23,343
    Other current assets                                                                    202                      1,613
                                                                             -------------------        -------------------

            Total current assets                                                         23,289                     26,845

Property and equipment, net                                                              10,760                      7,825
Licensed technology                                                                       4,945                        ---
Deposits and other assets                                                                 1,003                        956
                                                                             -------------------        -------------------

                                                                             $           39,997         $           35,626
                                                                             ===================        ===================


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                                         $            1,536         $            2,755
    Accrued expenses                                                                      3,024                      1,198
    License contract payable                                                              3,609                        ---
    Current portion of equipment notes payable                                              287                        ---
    Deferred rent obligation                                                                147                        ---
                                                                             -------------------        -------------------

            Total current liabilities                                                     8,603                      3,953
                                                                             -------------------        -------------------

Equipment notes payable                                                                   1,221                        ---
                                                                             -------------------        -------------------
Deferred rent obligation                                                                    ---                        266
                                                                             -------------------        -------------------

Commitments (Note 3)

Redeemable convertible preferred stock                                                    9,627                      9,347
                                                                             -------------------        -------------------

Stockholders' equity:
    Preferred stock, 5,000,000 shares authorized; none issued                               ---                        ---
    Common stock, $.0025 par value, 65,000,000 shares authorized,
      26,370,135 and 23,795,292  shares issued and outstanding
      at December 31, 1999 and 1998, respectively                                            66                         59
    Warrants                                                                              2,144                      2,144
    Additional paid-in capital                                                          203,131                    191,317
    Accumulated other comprehensive income                                                1,735                        102
    Accumulated deficit                                                                (186,530)                  (171,562)
                                                                             -------------------        -------------------

            Total stockholders' equity                                                   20,546                     22,060
                                                                             -------------------        -------------------

                                                                             $           39,997         $           35,626
                                                                             ===================        ===================




See accompanying notes.

                                                                              F2





                         THE IMMUNE RESPONSE CORPORATION

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




                                                                                     Year ended December 31,
                                                              --------------------------------------------------------------------
                                                                      1999                     1998                     1997
                                                                                                       
Revenues:
    Contract research revenue                                 $           14,226       $            5,488       $            2,000
    Licensed research revenue                                              6,529                   12,185                      ---
                                                              ------------------       ------------------       ------------------
                                                                          20,755                   17,673                    2,000
                                                              ------------------       ------------------       ------------------
Expenses:
    Research and development                                              31,246                   33,240                   34,090
    General and administrative                                             5,154                    4,163                    3,904
    Restructuring costs                                                      650                      ---                      ---
                                                              ------------------       ------------------       ------------------
                                                                          37,050                   37,403                   37,994
                                                              ------------------       ------------------       ------------------
Other revenue and expense:
    Investment income                                                      1,327                    1,668                    2,437
                                                              ------------------       ------------------       ------------------
Net loss                                                                 (14,968)                 (18,062)                 (33,557)

Accretion of preferred stock                                                (280)                    (187)                     ---
Preferred dividends                                                         (750)                    (518)                     ---
                                                              ------------------       ------------------       ------------------
Net loss applicable to common stockholders                    $          (15,998)      $          (18,767)      $          (33,557)
                                                              ==================       ==================       ==================

Net loss per share - basic and diluted                        $            (0.64)      $            (0.81)      $            (1.53)
                                                              ==================       ==================       ==================

Weighted average number of shares
    outstanding                                                           24,851                   23,148                   21,883
                                                              ==================       ==================       ==================




See accompanying notes.

                                                                              F3




                         THE IMMUNE RESPONSE CORPORATION

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (in thousands)




                                                                    Common Stock                               Additional
                                                           ------------------------------                        Paid-in
                                                              Shares           Amount          Warrants          Capital
                                                           -------------    -------------   --------------  ---------------
                                                                                               
Balance at December 31, 1996                                     20,230      $        51     $      ---     $       171,056

Issuance of common stock and warrants in private
   transaction, net of issuance costs of $360,000                 2,051                5          2,144              13,491
Issuance of common stock from exercise of options                   534                1            ---               1,827
Change in unrealized gain (loss) on marketable
    securities                                                      ---              ---            ---                 ---
Net loss                                                            ---              ---            ---                 ---
                                                           -------------    -------------   ------------   ----------------

Balance at December 31, 1997                                     22,815               57          2,144             186,374


Issuance of common stock in private transaction                     245                1            ---               2,814
Issuance of common stock as dividend on convertible
    preferred stock                                                  22              ---            ---                 ---
Accrual for preferred stock dividend                                ---              ---            ---                (263)
Accretion of convertible preferred stock costs                      ---              ---            ---                (187)
Issuance of common stock from exercise of options                   713                1            ---               2,579
Change in unrealized gain (loss) on marketable
    securities                                                      ---              ---            ---                 ---
Net loss                                                            ---              ---            ---                 ---
                                                           -------------    -------------   ------------   ----------------

Balance at December 31, 1998                                     23,795               59          2,144             191,317


Issuance of common stock in private transactions, net             1,753                5            ---               9,572
    of issuance costs of $20,000
Issuance of common stock for licensed technology                    250                1            ---                 836
Issuance of common stock as dividend on convertible
    preferred stock                                                  85              ---            ---                 ---
Accrual for preferred stock dividend                                ---              ---            ---                (163)
Accretion of convertible preferred stock costs                      ---              ---            ---                (280)
Issuance of common stock from exercise of options                   487                1            ---               1,849
Change in unrealized gain (loss) on marketable
    securities                                                      ---              ---            ---                 ---
Net loss                                                            ---              ---            ---                 ---
                                                           -------------    -------------   ------------   ----------------

Balance at December 31, 1999                                     26,370     $         66    $     2,144    $        203,131
                                                           =============    =============   ============   ================







                                                         Accumulated
                                                            Other                           Total
                                                        Comprehensive    Accumulated     Stockholders'       Comprehensive
                                                        Income (Loss)      Deficit          Equity           Income (Loss)
                                                      ---------------- ---------------   -------------      ---------------
                                                                                                
Balance at December 31, 1996                          $       140      $   (119,943)     $      51,304

Issuance of common stock and warrants in private
   transaction, net of issuance costs of $360,000             ---               ---             15,640
Issuance of common stock from exercise of options             ---               ---              1,828
Change in unrealized gain (loss) on marketable
    securities                                               (113)              ---               (113)     $         (113)
Net loss                                                      ---           (33,557)           (33,557)            (33,557)
                                                     -------------    --------------    ---------------    ----------------

Balance at December 31, 1997                                   27          (153,500)            35,102      $      (33,670)
                                                                                                           ================

Issuance of common stock in private transaction               ---               ---              2,815
Issuance of common stock as dividend on convertible
    preferred stock                                           ---               ---                ---
Accrual for preferred stock dividend                          ---               ---               (263)
Accretion of convertible preferred stock costs                ---               ---               (187)
Issuance of common stock from exercise of options             ---               ---              2,580
Change in unrealized gain (loss) on marketable
    securities                                                 75               ---                 75      $           75
Net loss                                                      ---           (18,062)           (18,062)            (18,062)
                                                     -------------    --------------    ---------------    ----------------

Balance at December 31, 1998                                  102          (171,562)            22,060      $      (17,987)
                                                                                                           ================

Issuance of common stock in private transactions, net         ---               ---              9,577
    of issuance costs of $20,000
Issuance of common stock for licensed technology              ---               ---                837
Issuance of common stock as dividend on convertible
    preferred stock                                           ---               ---                ---
Accrual for preferred stock dividend                          ---               ---               (163)
Accretion of convertible preferred stock costs                ---               ---               (280)
Issuance of common stock from exercise of options             ---               ---              1,850
Change in unrealized gain (loss) on marketable
    securities                                              1,633               ---              1,633      $        1,633
Net loss                                                      ---           (14,968)           (14,968)            (14,968)
                                                     -------------    --------------    ---------------    ----------------

Balance at December 31, 1999                         $      1,735     $    (186,530)    $       20,546     $       (13,335)
                                                     =============    ==============    ===============    ================



See accompanying notes

                                                                              F4



                         THE IMMUNE RESPONSE CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)




                                                                                          Year ended December 31,
                                                                              -----------------------------------------------
                                                                                  1999              1998             1997
                                                                              ------------      ------------    -------------
                                                                                                       
Operating activities:
    Net loss                                                                  $    (14,968)     $   (18,062)    $     (33,557)
    Adjustments to reconcile net loss to net cash used by
       operating activities:
           Depreciation and amortization                                             1,508            1,486             1,266
           Deferred rent expense                                                      (119)             (89)              (59)
           Changes in operating assets and liabilities:
               Other current assets                                                  1,411             (840)              (93)
               Accounts payable                                                     (1,219)           1,399              (515)
               Accrued expenses                                                      1,663              374                64
                                                                              -------------     ------------    -------------

                    Net cash used in operating activities                          (11,724)         (15,732)          (32,894)
                                                                              -------------     ------------    -------------

Investing activities:
    Sale of marketable securities, net                                               6,072            2,299            18,322
    Purchase of property and equipment                                              (4,443)          (3,501)           (2,526)
    Sale of land                                                                       ---              ---             1,020
    Purchase of licensed technology                                                   (500)             ---               ---
    Other assets                                                                       (47)            (603)             (304)
                                                                              -------------     ------------    -------------

                    Net cash provided by (used in) investing activities              1,082           (1,805)           16,512
                                                                              -------------     ------------    -------------

Financing activities:
    Proceeds from equipment notes payable                                            1,621              ---               ---
    Principal payments under equipment notes payable                                  (112)             ---               ---
    Proceeds from other sales of common stock                                        9,577            2,815               ---
    Net proceeds from sale of common stock and warrants through
      private offering                                                                 ---              ---            15,640
    Net proceeds from the sale of convertible preferred stock                          ---            9,160               ---
    Net proceeds from exercise of stock options                                      1,850            2,579             1,829
                                                                              -------------     ------------    -------------

                    Net cash provided by financing activities                       12,936           14,554            17,469
                                                                              -------------     ------------    -------------

Net increase (decrease) in cash and cash equivalents                                 2,294           (2,983)            1,087
Cash and cash equivalents at beginning of year                                       1,889            4,872             3,785
                                                                              -------------     ------------    -------------

Cash and cash equivalents at end of year                                      $      4,183      $     1,889     $       4,872
                                                                              =============     ============    =============

Supplemental disclosure of cash flow information:
    Interest paid                                                             $         45      $       ---     $         ---
                                                                              =============     ============    =============

Supplemental disclosure of noncash investing and financing activities:
    Issuance of common stock and notes for licensed technology                $      4,445      $       ---     $         ---
                                                                              =============     ============    =============
    Accretion of convertible preferred stock                                  $        280      $       187     $         ---
                                                                              =============     ============    =============
    Payment of dividend on convertible preferred stock with common stock      $        776      $       329     $         ---
                                                                              =============     ============    =============
    Declared dividend on convertible preferred stock                          $        163      $       189     $         ---
                                                                              =============     ============    =============



See accompanying notes

                                                                              F5



                         THE IMMUNE RESPONSE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1999

1.       ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION
The Immune Response Corporation (the "Company"), a Delaware corporation, is a
biopharmaceutical company developing immune-based therapies to induce immune
responses for the treatment of HIV, autoimmune diseases and cancer. In
addition, the Company is developing a targeted non-viral delivery technology
for gene therapy, which is designed to enable the delivery of genes directly
to the liver via intravenous injection. The Company's gene therapy program is
focused on diseases of the liver.

The Company's products are in various stages of development. Prior to generating
product revenues, the Company must complete the development of its products,
including several years of human clinical testing, and receive regulatory
approvals prior to selling these products in the human health care market. The
Company's products may not be successfully developed, regulatory approvals may
not be granted, or patient and physician acceptance of any of these products may
not be achieved.

The Company faces additional risks associated with biopharmaceutical companies
whose products are in various stages of development. These risks include, among
others, the Company's need for additional financing to complete its research and
development programs and commercialize its technologies. Financing may not be
available to the Company when required or under favorable terms.

The Company believes that patents and other proprietary rights are important to
its business. The Company's policy is to file patent applications to protect
technology, inventions and improvements to its inventions that are considered
important to the development of its business. The patent positions of
pharmaceutical and biotechnology firms, including the Company, are uncertain and
involve complex legal and factual questions for which important legal principles
are largely unresolved.

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

SEGMENT REPORTING
The Company has determined that it operates in one business segment dedicated to
pharmaceutical research.

USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Certain prior year amounts have been
reclassified to conform with the current year presentation.

CONCENTRATION OF CREDIT RISK
The Company invests its excess cash in U.S. government securities and money
market accounts. The Company has established guidelines relative to
diversification and maturities that maintain safety and liquidity. These
guidelines are periodically reviewed and modified to take advantage of trends in
yields and interest rates.

CONCENTRATION OF RISK
Substantially all of the Company's revenues are derived from collaborative
arrangements with Agouron Pharmaceuticals, Inc., a Warner-Lambert Company
("Agouron") and Schering Corporation ("Schering"). As of December 31, 1999,
Schering's obligation to fund the research program under the collaboration had
expired. See Notes 9 and 10.

CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash, money market funds, time deposits and
treasury securities with original maturities at the date of acquisition of less
than three months.


                                                                              F6



                         THE IMMUNE RESPONSE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                DECEMBER 31, 1999



MARKETABLE SECURITIES - AVAILABLE-FOR-SALE
The Company classifies all of its marketable securities as available-for-sale
and reports them at fair market value. The unrealized gains or losses are
reported as a component of stockholders' equity - Accumulated other
comprehensive income. The amortized cost of debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. Realized gains and losses are also
included in interest income. The cost of securities sold is based on the
specific identification method.

PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated or amortized
over their estimated useful lives using the straight-line method. Leasehold
improvements are amortized over the shorter of their estimated useful lives or
the remaining term of the related lease. Other property and equipment have
useful lives ranging from three to seven years.

LICENSED TECHNOLOGY
Intangible assets are recorded at cost and amortized over their estimated useful
lives. In December 1999, the Company acquired licenses to certain patent
technology. These licenses will be amortized over seven years beginning in the
year 2000.

IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be fully recoverable. Impairment is measured at fair value. Fair value is
determined by an evaluation of available price information at which assets could
be bought or sold including quoted market prices, if available, or the present
value of the estimated future discounted cash flows based on reasonable
assumptions.

STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with Accounting
Principles Board ("APB") 25, "Accounting for Stock Issued to Employees". In
1996, the Company adopted the disclosure requirements of Statement of Financial
Accounting Standards ("FAS") FAS No. 123, "Accounting for Stock-Based
Compensation". Under APB 25, compensation expense relating to employee stock
options is determined based on the excess of the market price of the Company's
stock over the exercise price on the date of grant and does not require the
recognition of compensation expense for stock issued under plans defined as
noncompensatory. Adoption of FAS No. 123 requires recognition of compensation
expense for virtually all options based on their computed "fair value" on the
date of the grant.

COMPREHENSIVE INCOME
The Company accounts for comprehensive income in accordance with FAS No. 130,
"Reporting Comprehensive Income." The Company reports the accumulated balance of
other comprehensive income or loss separately in the equity section of the
consolidated balance sheets. Prior year financial statements have been
reclassified to conform to the revised presentation. The only component of
comprehensive income is unrealized gain or loss on marketable securities.

REVENUES UNDER COLLABORATIVE AGREEMENTS
The Company earns revenue from licensing its proprietary technology and
performing services under research and development contracts. Initial fees under
license and option agreements are recognized upon contract signing if the fees
are nonrefundable and there are no significant performance obligations
remaining. Revenues from milestones are recognized as the milestones are
achieved. Revenue under research and development contracts is recognized as the
services are performed. Advance payments received in excess of amounts earned
are classified as deferred revenue.

RESEARCH AND DEVELOPMENT COSTS
All research and development costs are charged to expense as incurred.


                                                                              F7



                         THE IMMUNE RESPONSE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                DECEMBER 31, 1999


INCOME TAXES
All income tax amounts have been computed in accordance with FAS No. 109,
"Accounting for Income Taxes." Under this statement, the liability method is
used to account for deferred income taxes. Under this method, deferred tax
assets and liabilities are determined based on temporary differences between the
financial reporting and tax base of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
reverse.

NET LOSS PER SHARE
Basic and diluted net loss per share is computed using the weighted average
number of common shares outstanding during the period. Potentially dilutive
securities are excluded from the diluted net loss per share calculation, as the
effect would be antidilutive.

RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101 - "Revenue Recognition in Financial Statements". The
bulletin draws on existing accounting rules and provides specific guidance on
how those accounting rules should be applied and specifically addresses revenue
recognition for non-refundable technology access fees in the biotechnology
industry. SAB No. 101 is effective for fiscal years beginning after December 15,
1999. The Company has not completed its evaluation of the impact of SAB No. 101
on its financial statements, however, the impact is expected to be in a pre-tax
range of approximately $10 million to $15 million charged to the Company's
results of operations in the first quarter of fiscal year 2000.

2.       MARKETABLE SECURITIES

Marketable securities consist of treasury securities with maturities of more
than three months and common stock acquired through former research
collaborations. The following table summarizes available-for-sale securities:




                                                             AVAILABLE-FOR-SALE SECURITIES
                                              -------------------------------------------------------------
                                                                GROSS           GROSS
    (IN THOUSANDS)                                           UNREALIZED      UNREALIZED       ESTIMATED
                                                  COST          GAINS           LOSSES        FAIR VALUE
                                              ------------- --------------- --------------- ---------------
                                                                                
    DECEMBER 31, 1999
    U.S. Government Securities                $     17,169  $          ---  $          118  $    17,051
    Equity Securities                                  ---           1,853             ---        1,853
                                              ------------  --------------  --------------  -----------
                                              $     17,169  $        1,853  $          118  $    18,904
                                              ============  ==============     ===========  ===========
    DECEMBER 31, 1998
    U.S. Government Securities                $     23,241  $          110  $            8  $    23,343
                                              ============  ==============     ===========  ===========



The net realized gains on sales of available-for-sale securities, which are
included in investment income in the accompanying Statement of Operations,
totaled $31,000, $38,000 and $16,000 for the years ended December 31, 1999, 1998
and 1997, respectively.

The amortized cost and estimated fair value of available-for-sale securities at
December 31, 1999, by contractual maturity, are shown below:




                                                                                      ESTIMATED
                                                                      COST           FAIR VALUE
                                                                  ------------      ------------
                                                                              
              Due in one year or less                             $     14,171      $     14,087
              Due after one year through two years                       2,998             2,964
                                                                  ------------      ------------

              Totals                                              $     17,169      $     17,051
                                                                  ============      ============



                                                                              F8



                         THE IMMUNE RESPONSE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                DECEMBER 31, 1999


3.       BALANCE SHEET INFORMATION

Property and equipment consists of the following:




                                                                              DECEMBER 31,
                                                                  ------------------ ---------------
                                                                       1999                1998
                                                                  ------------------ ---------------
              (IN THOUSANDS)
                                                                                
              Furniture and fixtures                               $     1,547        $     1,351
              Equipment                                                  2,816              1,486
              Leasehold improvements                                    13,254             10,337
              Land - held for sale                                       1,339              1,339
                                                                   -----------        -----------
                                                                        18,956             14,513
              Less accumulated depreciation and
                amortization                                            (8,196)            (6,688)
                                                                   -----------        -----------
                                                                   $    10,760        $     7,825
                                                                   ===========        ===========



4.       EQUIPMENT NOTES PAYABLE

In September 1999, the Company obtained an equipment financing line of $3.0
million, of which it drew down approximately $1.6 million by December 31, 1999.
The loan, which is secured by the equipment, bears interest at 11.1% and is to
be repaid monthly over a four-year term.

Principal payments due on equipment notes payable at December 31 are as follows:




     YEARS ENDED DECEMBER 31
     -----------------------
         (IN THOUSANDS)
                                                           
         2000                                                 $     287
         2001                                                       348
         2002                                                       389
         2003                                                       484
                                                              ---------
                                                                  1,508
         Less current portion                                      (287)
                                                              ---------
                                                              $   1,221
                                                              =========




The carrying value of the Company's obligations under equipment notes payable
approximates its fair value, and the implicit interest rate approximates the
Company's borrowing rate.

5.       LICENSED TECHNOLOGY

In December 1999, the Company entered into a technology licensing agreement with
Connetics Corporation ("Connetics") and XOMA, (US) LLC ("XOMA"). The agreement
assigns exclusive rights to T cell receptor ("TCR") intellectual property to the
Company in exchange for approximately $4.9 million in cash, common stock and
short-term license contract payable. The agreement also requires the Company to
make royalty payments on future sales of products, if any, related to the TCR
intellectual property to Connetics, XOMA and Dr. Arthur Vandenbark, one of the
inventors of the assigned technology. The Company owns additional TCR-related
intellectual property and intends to carry forward development of pharmaceutical
products for the treatment of rheumatoid arthritis and other autoimmune diseases
using the technology.

The Company capitalized the purchase cost to licensed technology. The license
contract payable requires four quarterly payments of $250,000 beginning in
January 2000.


                                                                              F9



                         THE IMMUNE RESPONSE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                DECEMBER 31, 1999


6.       COMMITMENTS

The Company leases its offices, research facilities, manufacturing facility, and
certain office and laboratory equipment under operating lease agreements. The
equipment lease agreements require monthly payments through June 2002. The
office and research facility lease agreement, which commenced in January 1991,
is for a term of ten years, with two five-year options to extend. In connection
with this lease, the Company received certain deferred payment terms and the
minimum annual rent is subject to certain annual increases. Rent is being
expensed on a straight-line basis over the term of the lease. Deferred rent
reflected in the accompanying balance sheet represents the difference between
rent expense accrued and amounts actually paid under the terms of the lease.

The Company leases a manufacturing facility in King of Prussia, Pennsylvania.
The lease, which was renegotiated in November 1999, is for a term of twelve
years, with two five-year options to extend. At December 31, 1999, future
minimum rental payments due under the Company's noncancelable operating leases
are as follows:




                      YEAR ENDING DECEMBER 31,
                      -------------------------------------
                          (IN THOUSANDS)
                                           
                      2000                    $       3,305
                      2001                            1,909
                      2002                              939
                      2003                              762
                      2004                              520
                      Thereafter                      4,000
                                              -------------
                                              $      11,435
                                              =============



Total rent expense for the years ended December 31, 1999, 1998, and 1997 was
$3.0 million, $2.4 million, and $2.4 million, respectively.

7.       RESTRUCTURING COSTS

In May 1999, the Company announced the discontinuation of the Phase III
clinical endpoint trial for the immune-based therapy, Remune, based on the
recommendation of an independent Data Safety Monitoring Board. As a result of
this, in June 1999, the Company implemented a restructuring plan primarily
aimed at reducing expenses while focusing the majority of the Company's
resources on its late-stage programs of immune-based therapies. The primary
cost savings were achieved by a reduction in force affecting approximately 47
employees of a total 158-person workforce begun in June 1999 and completed in
October 1999. All employees were notified of such termination and their
estimated severance benefits in advance of the Company recording the charge.

The cost of the restructuring resulted in an all-cash, one-time charge against
earnings of $650,000 primarily for severance costs for salaries, benefits
continuation, consultants and outplacement services. As of December 31, 1999
approximately $100,000 was still accrued.

8.       STOCKHOLDERS' EQUITY

STOCK TRANSACTIONS
During April 1998, the Company sold 200 shares of its Series F Convertible
Preferred Stock ("Series F Stock") in return for gross proceeds of $10 million.
In February 1999, the initial conversion price of the Series F stock of $14.07
per share of common stock was adjusted downward to $9.77 per share of common
stock. In August 1999, the conversion price was adjusted downward to $5.87 per
share of common stock. In November 1999, the conversion price was adjusted
downward to $4.17 per share of common stock. The conversion price may be further
adjusted downward at the end of each subsequent three-month period if the
Company's common stock does not trade at prices higher than the conversion price
over a period of time during the applicable three-month period. The Series


                                                                             F10



                         THE IMMUNE RESPONSE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                DECEMBER 31, 1999


F Stock bears a dividend of 7.5% per annum. In general, the dividend is payable
in shares of common stock or cash at the Company's option. For the years ended
December 31, 1999 and 1998, 84,668 and 22,234 shares of the Company's common
stock were issued as dividends to the Series F shareholders, respectively. The
Company has filed a registration statement with the Securities and Exchange
Commission covering the resale of the common stock issuable upon conversion of
the Series F Stock.

During 1997, the Company completed a $16.0 million private placement of units
consisting of common stock and warrants to purchase common stock of the Company.
These units were purchased at a price of $7.80 per unit by a director of the
Company and the Company's President and Chief Executive Officer. The units sold
in the private placement consisted of 2,051,281 shares of common stock plus
warrants exercisable for 2,051,281 shares of common stock. The warrants, with an
exercise price of $14.00 per share, are callable by the Company if the Company's
common stock trades at $28.00 per share or greater for 45 consecutive days. The
warrants expire on April 17, 2001. The shares and warrants are unregistered.

STOCK OPTIONS
The Company has established various stock option plans to grant options to
purchase common stock to employees and non-employee directors of the Company and
certain other individuals. The plans authorize the Company to issue or grant
qualified and non-qualified options to purchase up to 8,650,000 shares of its
common stock.

Under the terms of the 1989 Stock Plan, options may be granted at not less
than 100% and 85% of fair market value as of the date of grant for qualified
and non-qualified options, respectively. To date, all options have been
issued at 100% of fair market value. These options primarily become
exercisable over a four-year period from the date of grant.

The 1990 Directors' Stock Option Plan provides for the Company to issue or grant
non-qualified options to purchase up to 650,000 common shares to its
non-employee directors. Under the terms of the plan, options will be granted at
the fair market value as of the date of grant. These options become exercisable
in four equal annual installments on each of the first four anniversaries of the
date of grant. Additionally, the 1990 Directors' Stock Option Plan provides that
upon each date of the Company's Annual Meeting of the Stockholders, non-employee
directors are eligible to receive a grant of 6,250 shares at the fair market
value on date of grant with a one-year vesting schedule.

Activity with respect to the various stock plans is summarized as follows:




                                                                  STOCK           WEIGHTED
                                                                 OPTIONS           AVERAGE
           (IN THOUSANDS)                                      OUTSTANDING          PRICE
                                                              ---------------    ------------
                                                                           
           Balance at December 31, 1996                               4,050       $ 4.71
                Granted                                                 578         8.34
                Exercised                                             (534)         3.42
                Cancelled                                              (91)         6.75
                                                                 -----------
           Balance at December 31, 1997                               4,003         5.36
                Granted                                                 705        10.38
                Exercised                                             (713)         3.62
                Cancelled                                             (122)         8.94
                                                                 -----------
           Balance at December 31, 1998                               3,873         6.48
                Granted                                               1,749         6.88
                Exercised                                             (487)         3.80
                Cancelled                                             (620)         8.82
                                                                 ===========
           Balance at December 31, 1999                               4,515       $ 6.60
                                                                 ===========




                                                                             F11



                         THE IMMUNE RESPONSE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                DECEMBER 31, 1999


Following is a summary of the options outstanding as of December 31, 1999:




                                                                                                            WEIGHTED
(IN THOUSANDS)                                       WEIGHTED             WEIGHTED                          AVERAGE
                                                     AVERAGE              AVERAGE                        EXERCISE PRICE
         RANGE OF                OPTIONS            REMAINING             EXERCISE          OPTIONS        OF OPTIONS
      EXERCISE PRICES          OUTSTANDING        LIFE IN YEARS            PRICE          EXERCISABLE      EXERCISABLE
 -------------------------    -------------      ---------------         ----------     --------------  -----------------
                                                                                          
   $   2.88 -    $    3.25           1,249             3.37           $     3.23            1,234         $  3.23
   $   3.50 -    $    6.38           1,138             8.91                 4.90              277            5.06
   $   6.56 -    $    8.88           1,184             7.20                 7.82              870            7.59
   $   9.13 -    $   18.25             944             7.45                11.60              545           12.51
                               -----------                                               -----------
                                     4,515             6.63           $     6.60            2,926         $  6.43
                               ===========                                               ===========


At December 31, 1999, 10,905,000 shares of common stock were reserved for the
exercise of stock options and warrants, future dividends on the Series F Stock,
and future purchase of stock by Agouron. See Note 9.

The Company has adopted the disclosure-only provisions of FAS No. 123.
Accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date for awards in 1999, 1998
and 1997, consistent with the provisions of FAS No. 123, the Company's net loss
and loss per share would have been increased to the pro forma amounts indicated
below:




                                                                 1999             1998             1997
                                                                 ----             ----             ----
                (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                      
                Net loss - as reported                      $  14,968        $  18,062         $  33,557
                Net loss - pro forma                        $  19,645        $  22,397         $  36,886
                Net loss per share - as reported            $     .64        $     .81         $    1.53
                Net loss per share - pro forma              $     .83        $    1.00         $    1.69




The fair value of each option grant was estimated on the date of grant using the
Black Scholes option-pricing model with the following weighted average
assumptions used for grants in 1999, 1998 and 1997: risk-free interest rates of
6.621%, 4.733% and 5.72%, respectively; expected option lives of 5 years, 6
years and 5 years, respectively; a dividend rate of zero. The volatility factor
assumptions of the expected market price of the Company's common stock were 91%,
84% and 83% for 1999, 1998 and 1997, respectively.

Because FAS No. 123 has not been applied to options granted prior to January 1,
1995, the resulting pro forma compensation cost may not be representative of
that to be expected in future years. The weighted average fair value of options
granted during 1999, 1998 and 1997 was $6.88, $10.38 and $8.34, respectively.

STOCKHOLDER RIGHTS PLAN
The Company has a Stockholder Rights Plan that provides for the distribution of
a preferred stock purchase right (a "Right") as a dividend for each share of the
Company's common stock of record held at the close of business on March 12,
1992, as well as all future stock issuances. Under certain conditions involving
an acquisition by any person or group of 15% or more of the common stock, the
Rights permit the holders (other than the 15% holder) to purchase the Company's
common stock at a 50% discount upon payment of an exercise price of $150 per
Right. In addition, in the event of certain business combinations, the Rights
permit the purchase of the common stock of an acquiror at a 50% discount. Under
certain conditions, the Rights may be redeemed by the Board of Directors in


                                                                             F12



                         THE IMMUNE RESPONSE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                DECEMBER 31, 1999


whole, but not in part, at a price of $.01 per Right. The Rights have no voting
privileges and are attached to and automatically trade with the Company's common
stock. The Rights expire February 26, 2002.


9.       REMUNE-TM- COLLABORATION WITH AGOURON PHARMACEUTICALS, INC.

During June 1998, the Company and Agouron entered into a binding agreement under
which the Company agreed to exclusively license to Agouron, REMUNE-TM-, its
immune-based therapy under development for the treatment of HIV infection. Under
the terms of the agreement, the Company will manufacture commercial supplies of
REMUNE; and Agouron will have exclusive rights to market REMUNE in North
America, Europe, Japan and certain other countries, if regulatory approvals are
received. As a result of this agreement, the Company may receive as much as $77
million, including license and milestone payments of $45 million, payments to
support research and development of $18 million and $14 million for the purchase
of the Company's common stock, priced at a premium to the market, subject to
certain rights of termination by Agouron. In addition, the two companies will
share all profits from the commercialization of REMUNE on a 50/50 basis, if
REMUNE is successfully developed and receives the necessary regulatory
approvals.

As of December 31, 1999, the Company had received a total of $42 million from
Agouron under the agreement. Agouron will make additional payments upon
achievement of certain milestones. Amounts received in 1999 were comprised of
the four quarterly payments of $5 million each and a $5 million milestone
payment received in February. The quarterly payments represent $12 million to
support research and development and $8 million for the purchase of 965,928
shares of the Company's common stock priced at a premium to the market. Amounts
received in 1998 were comprised of the initial $10 million license fee, a $2
million stock purchase and the first quarterly payment for $5 million to support
research and development and to purchase stock. Agouron purchased 245,014 shares
of the Company's common stock priced at a premium to the market in 1998.
Subsequent to year-end, the Company received a $5 million payment from Agouron
consisting of a $3 million payment for research and development and a $2 million
payment for the purchase of 266,667 shares of unregistered common stock priced
at a premium to the market. This was the final payment in a series of six
quarterly payments that the Company expected Agouron to make to fund research
and development and to purchase unregistered common stock under the June 1998
agreement.

10.      GENE THERAPY LICENSE AGREEMENT

In July 1998, the Company entered into a research collaboration and option
agreement with Schering to develop gene therapy products for the treatment of
hepatitis B and C and other diseases. In September 1999 and October 1999, the
Company received payments for $494,000 each under an amendment to extend the
agreement through the remainder of 1999. In March 1999, the Company received a
payment of $988,000 to fund research under this agreement. During 1998, the
Company received approximately $2 million under the agreement. As part of the
agreement, Schering has the option to license the Company's gene delivery system
for additional proprietary Schering genes for other diseases for a royalty on
future product sales, if any. As of December 31, 1999, Schering's obligation to
fund the research program under the collaboration had expired.

11.      SECTION 401(k) PROFIT SHARING PLAN

The Company has a defined contribution plan, The Immune Response Corporation
401(k) Savings and Profit Sharing Plan, which covers substantially all employees
of the Company. This plan allows each eligible employee to voluntarily make
pre-tax deferred salary contributions. The Company may make matching
contributions in amounts as determined by the board of directors. The Company
made matching contributions of approximately $113,000, $103,000, and $101,000,
for the years ended December 31,1999, 1998, and 1997, respectively.


                                                                             F13



                         THE IMMUNE RESPONSE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                DECEMBER 31, 1999


12.        INCOME TAXES

At December 31, 1999, the Company had federal and California tax net operating
loss carryforwards of approximately $161.4 million and $3.5 million,
respectively. The difference between the federal and California tax loss
carryforwards is primarily attributable to capitalized research and development
expenses for California and the 50% limitation of California loss carryforwards.
The federal tax loss carryforwards will begin expiring in 2002, unless
previously utilized, while the California tax loss carryforwards began to expire
in 1995. The Company also has federal and California research and development
tax credit carryforwards of $8.6 million and $3.8 million, respectively. The
federal research and development credits begin expiring in 2002.

Pursuant to Internal Revenue Code Sections 382 and 383, annual use of the
Company's net operating loss and credit carryforwards will be limited because of
a cumulative change in ownership of more than 50% which occurred during 1992.
However, the Company does not believe such change will have a material impact
upon the utilization of these carryforwards. Included in the federal loss
carryforwards are approximately $4.4 million of acquired net operating loss
carryforwards that can only be used to the extent of the separate taxable income
of the acquired company.

The components of the Company's deferred tax assets as of December 31, 1999, and
1998 are as follows:




                                                           DECEMBER 31,
                                                 --------------------------------
(IN THOUSANDS)                                         1999              1998
                                                 --------------     -------------
                                                              
Net operating loss carryforwards                 $      55,078      $     50,388
Unused research and development credits                 12,387            11,900
Capitalized research and development                     7,298             6,321
Other                                                    1,837             1,591
                                                 --------------     -------------
                                                        76,600            70,200
Valuation allowance                                    (76,600)          (70,200)
                                                 --------------     -------------
                                                 $         ---      $        ---
                                                 ==============     =============



Approximately $7.2 million of the valuation allowance at December 31, 1999
relates to benefits of stock options which, when recognized, will be allocated
directly to stockholders' equity.

13.        SUBSEQUENT EVENTS

In January 2000, the Company received a $5 million payment from Agouron
consisting of a $3 million payment for research and development and a $2 million
payment for the purchase of 266,667 shares of unregistered common stock priced
at a premium to the market. This was the final payment in a series of six
quarterly payments that the Company expected Agouron to make to fund research
and development and to purchase unregistered common stock under the June 1998
agreement.

On March 3, 2000, the Company completed a sale of 4.65 acres of undeveloped
property adjacent to its facility in Carlsbad, California for approximately $2
million net proceeds.


                                                                             F14



                         THE IMMUNE RESPONSE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                DECEMBER 31, 1999


14.        QUARTERLY RESULTS (UNAUDITED)

The following unaudited quarterly financial information includes, in
management's opinion, all normal and recurring adjustments necessary to fairly
state the Company's consolidated results of operations and related information
for the periods presented. Net loss per share has been computed using the
weighted average shares outstanding during each quarter. Certain net loss per
share amounts have been revised from amounts previously reported to reflect the
exclusion of dividends and accretion on preferred stock.




                                                  1ST                2ND               3RD                4TH
                                                QUARTER            QUARTER           QUARTER            QUARTER
                                             ---------------    ---------------   ---------------   ----------------
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                        
1999
Contract research revenue                    $        3,744     $       $3,494    $        3,494    $         3,494
Licensed research revenue                             5,462                400               333                333
Operating expenses                                   10,913             10,289             8,980              6,248
                                             ---------------    ---------------   ---------------   ----------------
Loss from operations before restructuring
   costs                                             (1,707)            (6,395)           (5,153)            (2,421)
Restructuring costs                                       -                650                 -                  -
Other income                                            380                353               304                321
                                             ---------------    ---------------   ---------------   ----------------
Net loss                                             (1,327)            (6,692)           (4,849)            (2,100)
Preferred stock items                                  (258)              (257)             (258)              (257)
                                             ---------------    ---------------   ---------------   ----------------
Net loss applicable to common                $       (1,585)    $       (6,949)   $       (5,107)   $        (2,357)
                                             ===============    ===============   ===============   ================
Net loss per share                           $        (0.06)    $        (0.28)   $        (0.21)   $         (0.09)
                                             ===============    ===============   ===============   ================

1998
Contract research revenue                    $        1,000     $            -    $        1,488    $         3,000
Licensed research revenue                                 -             10,667             1,000                518
Operating expenses                                   (9,260)            (9,534)           (8,493)           (10,116)
                                             ---------------    ---------------   ---------------   ----------------
Loss from operations                                 (8,260)             1,133            (6,005)            (6,598)
Other income                                            311                402               524                431
                                             ---------------    ---------------   ---------------   ----------------
Net income (loss)                                    (7,949)             1,535            (5,481)            (6,167)
Preferred stock items                                     -               (190)             (258)              (257)
                                             ---------------    ---------------   ---------------   ----------------
Net income (loss) applicable to common       $       (7,949)    $        1,345    $       (5,739)   $        (6,424)
                                             ===============    ===============   ===============   ================
Net income (loss) per share                  $        (0.35)    $         0.06    $        (0.25)   $         (0.27)
                                             ===============    ===============   ===============   ================




                                                                             F15

EX-10.72

                                                                  Exhibit 10.72


                             INDICATION OF INTEREST


         THIS INDICATION OF INTEREST (this "INDICATION") is made as of October
20, 1999 between The Immune Response Corporation, a Delaware corporation (the
"COMPANY"), and the counter signatories hereto on the date of this Indication
(each such signatory is an "OFFEREE" and all such signatories are, collectively,
the "OFFEREES").

         WHEREAS, subject to the terms and conditions set forth in this
Indication, the Company desires to offer, from time to time, to the Offerees and
the Offerees would have an interest in receiving one or more offers from the
Company to purchase from the Company shares of the Company's common stock, par
value $.0025 per share (the "COMMON STOCK").

         IN CONSIDERATION of the mutual covenants contained in this Indication
and for other good and valuable consideration the receipt and adequacy are
hereby acknowledged, the Company and the Offerees agree as follows:

1.                DEFINITIONS. Unless otherwise defined herein, the following
terms shall have the meanings set forth in this Section 1.

(a) "AVERAGE PRICE" shall mean the daily volume weighted average price of the
Common Stock on the NASDAQ or a Subsequent Market as reported by Bloomberg
Financial Services, Inc. (or any successor to its function of reporting stock
prices) using the AQR function.

(b) "MATERIAL ADVERSE EFFECT" shall mean any adverse affect on the business,
results of operations, assets, prospects, or condition (financial or otherwise)
of the Company and its subsidiaries, taken as a whole.

(c) "NASDAQ" shall mean the Nasdaq National Market.

(d) "REGISTRATION STATEMENT" shall mean the Company's registration statement
(registration no. 333-83195) on Form S-3, as filed with the Securities and
Exchange Commission (the "Commission") on July 19, 1999, as amended on August
20, 1999 (and all exhibits thereto) and as may be further amended or
supplemented from time to time to reflect the offer of the Shares to the
Offerees pursuant to the terms hereunder and to reflect other changes required
to be included therein by applicable securities laws.

(e) "SETTLEMENT DATE" shall mean the twentieth Trading Day immediately
following a Closing Date (as defined in Section 2(b)).

(f) "SETTLEMENT DATE PRICE" shall mean the product of (i) .94 and (ii) the
average of the Average Prices for the twenty Trading Days during the period
between a Closing Date and the applicable Settlement Date, PROVIDED, that the
number of Trading Days used in the calculation of such average price shall not
include any Trading Days in which the Average Price is less than $4.00


                                      -1-



and a pro rata of the Trading Days in which the average price is less than $4
out of the twenty Trading Days will be deducted from the aggregate Purchase
Price.

(g) "SHARES" shall mean, collectively, the shares of Common Stock which may be
offered from time to time pursuant to the terms hereof.

(h) "SUBSEQUENT MARKET" shall mean either the New York Stock Exchange, the
American Stock Exchange or the Nasdaq SmallCap Market.

(i) "TRADING DAY" means (a) a day on which the Common Stock is traded on the
NASDAQ or on the Subsequent Market on which the Common Stock is then listed or
quoted, as the case may be, or (b) if the Common Stock s not listed on the
NASDAQ or on a Subsequent Market, a day on which the Common Stock is traded in
the over-the-counter market, as reported by the OTC Bulletin Board, or (c) if
the Common Stock is not quoted on the OTC Bulletin Board, a day on which the
Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); PROVIDED, that in the event that
the Common Stock is not listed or quoted as set forth in (a), (b) and (c)
hereof, then Trading Day shall mean any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.

2.                PRICING AND ADJUSTMENT.

(a) Subject to the terms and conditions set forth herein, for a period of twelve
(12) months from the date hereof, the Offerees, severally and not jointly, would
be interested in receiving one or more offers by the Company to acquire Shares
for an aggregate purchase price of up to Thirty Million Dollars ($30,000,000) at
a per Share purchase price equal to the Average Price on the applicable offer
date (the "PURCHASE PRICE").

(b) During the twelve (12) months from the date hereof, the Company may offer to
the Offerees from time to time Shares (the "OFFER(S)") by delivering to the
Offerees a written offer indicating the aggregate Purchase Price for Shares
offered pursuant to such Offer ("OFFER NOTICE"), PROVIDED, that, the Company may
not deliver more than one (1) Offer Notice during any thirty (30) day period.
The closing of each accepted Offer shall take place two (2) Trading Days
following the indication in writing of an Offeree of its acceptance to purchase
its pro-rata portion of the Shares subject to an Offer (the "CLOSING DATE").

(c) If the Average Price on the Trading Day immediately preceding the receipt by
the Offerees of the respective Offer Notice shall (i) be less than $5.50, then
the aggregate Purchase Price of the applicable Offer shall be Three Million
Dollars ($3,000,000), (ii) be between $5.50 and $6.00, then the aggregate
Purchase Price of the applicable Offer shall be Three Million Five Hundred
Thousand Dollars ($3,500,000) and (iii) exceed $6.00, then the aggregate
Purchase Price of the applicable Offer shall be Four Million Dollars
($4,000,000).

(d) The closing of each accepted Offer shall take place on the applicable
Closing Date at the offices of Pillsbury Madison & Sutro LLP, 235 Montgomery
Street, San Francisco, CA 94104. At each Closing Date, the Company will deliver
stock certificates registered in the name of each


                                      -2-



Offeree representing the Shares to be sold to such Offeree and each Offeree
shall deliver the Purchase Price for the Shares being purchased by it in United
States dollars in immediately available funds by wire transfer to an account
designated in writing by the Company for such purpose. An Offeree shall have the
option to require the Company to deliver the Shares purchased by it to The
Depositary Trust Company on such Offeree's behalf.

(e) If on any Settlement Date, (i) the Purchase Price shall exceed the
Settlement Date Price, then the Company shall issue to each Offeree, on a pro
rata basis, a number of Shares equal to the quotient obtained by dividing (A)
the number of Shares purchased at the Closing Date multiplied by the difference
between the Purchase Price and the Settlement Date Price by (B) the Average
Price on the Settlement Date and (ii) the Settlement Price shall exceed the
Purchase Price, then each Offeree shall pay to the Company a sum equal to the
product of (A) the number of Shares acquired by such Offeree at the applicable
Offer and (B) the difference between the Purchase Price and the Settlement Date
Price.

(f) On a Settlement Date, each Offeree shall have the right, on a pro rata
basis, to increase the amount of the applicable Offer by an aggregate of up to
$2,500,000 (the "ADDITIONAL AMOUNT"). In such event, the number of Shares
subject to the applicable Offer Notice shall be increased by a number equal to
the quotient obtained by dividing the Additional Amount by the Settlement Date
Price.

(g) All stock prices referred to herein are subject to equitable adjustment for
stock splits, recapitalizations and similar events.

3. FILING OF SUPPLEMENTS TO THE REGISTRATION STATEMENT. It shall be a condition
to the Offerees' acceptance of any Offer that, on or prior to each Closing Date,
the Company shall file with the Commission a supplement to the Registration
Statement or prospectus thereto in order to evidence the offer of the Shares to
the Offerees pursuant to the terms hereto. On each Settlement Date, the Company
shall file with the Commission a supplement to the Registration Statement or
prospectus thereto in order to evidence the offer, if any, of additional Shares
to the Offerees pursuant to Sections 2(e) and (f) hereunder.

4. CONDITIONS PRECEDENT. The Company understands that the Offerees will not
accept any Offer to purchase Shares pursuant to an Offer Notice unless each of
the following conditions is satisfied or waived by the appropriate Offeree:

(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company contained herein shall be true and
correct as of the applicable Closing Date as if first made on such date;

(b) REGISTRATION STATEMENT. The Registration Statement shall have remained
effective under the Securities Act of 1933, as amended (the "Securities Act") at
all times, not subject to any actual or threatened stop order or subject to any
actual or threatened suspension at any time prior to the applicable Closing
Date;


                                      -3-



(c) ADVERSE CHANGES . Since the date hereof, no event or series of events which
reasonably would have or result in a Material Adverse Effect shall have
occurred;

(d) NO SUSPENSIONS OF TRADING IN COMMON STOCK . Trading in the Common Stock
shall not have been suspended by the Commission, the NASDAQ or a Subsequent
Market at any time since the date hereof;

(e) LISTING OF COMMON STOCK . The Common Stock shall have been at all times
since the date hereof listed for trading on the NASDAQ or a Subsequent Market;

(f) SHAREHOLDER APPROVAL . No approval of the shareholders of the Company shall
be required under the rules of the Nasdaq Stock Market or a Subsequent Market on
which the Common Stock is then traded or listed for trading in order to issue
all of the Shares hereunder.

5. FEES. Concurrently with the execution of this Indication, the Company shall
reimburse the Offerees $25,000 of their out of pocket expenses incurred in
connection with the negotiation and preparation of this Indication. Other than
the amount contemplated in the immediately preceding sentence, each party shall
pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this
Indication.

6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. the Company
represents, warrants and covenants to each Offeree as follows:

(a) The Company has been duly incorporated and is validly existing and in good
standing under the laws of the State of Delaware, with full corporate power and
authority to own, lease and operate its properties and to conduct its business
as currently conducted, and is duly registered and qualified to conduct its
business and is in good standing in each jurisdiction or place where the nature
of its properties or the conduct of its business requires such registration or
qualification, except where the failure to register or qualify could not,
individually or in the aggregate, have a Material Adverse Effect;

(b) The Company is current in all of its reporting obligations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and has timely
made all filings required thereunder. The financial statements of the Company
included in the Registration Statement comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved,
except as may be otherwise specified in such financial statements or the notes
thereto, and fairly present in all material respects the financial position of
the Company and its consolidated subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments.

(c) The Company has furnished each Offeree with copies of the Registration
Statement. At the time of their respective filing and on the date hereof, the
Registration Statement did and do


                                      -4-



not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements contained therein, in
light of the circumstances under which they were made, not misleading;

(d) The Shares have been duly reserved for issuance for the Offerees, are duly
authorized and validly issued and when issued and delivered against payment
therefor, will be fully paid and nonassessable;

(e) The execution, delivery and performance of this Indication by the Company
and the consummation by the Company of the transactions contemplated hereby do
not and will not (i) conflict with or violate any provision of its certificate
of incorporation, bylaws or other charter documents, or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, loan, credit facility, indenture or instrument (with
respect to such indentures and instruments, evidencing a Company debt or
otherwise) to which the Company or any subsidiary thereof is a party or by which
any property or asset of the Company or any subsidiary thereof is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including Federal and state
securities laws and regulations), or by which any property or asset of the
Company is bound or affected, except in the case of each of clauses (ii) and
(iii), as could not, individually or in the aggregate, have or result in a
Material Adverse Effect.

(f) Except as disclosed herein, no authorization, approval, filing with or
consent of any governmental body is required for the issuance and sale of the
Shares;

(g) Since September 30, 1999, the Company has not incurred any material
liabilities or material obligations, direct or contingent, or entered into any
material transactions not in the ordinary course of business, and there has not
been any change in its capitalization or any Material Adverse Effect, except as
set forth on Schedule A hereto; and

(h) The Company has sufficient title and ownership of all trademarks, service
marks, trade names, copyrights, patents, trade secrets and other proprietary
rights necessary for its business as now conducted and as proposed to be
conducted as described in the Registration Statements without any conflict with
or infringement of the rights of others.

7. CERTAIN TRADING RESTRICTIONS. Each Offeree warrants and represents for itself
and for no other Offeree that it has no established short position in the Common
Stock on the date of this Indication and has not had any short position in the
securities of the Company at any time during the twelve months prior to the date
of this Indication. From and after first Closing Date and during the period in
which Company is permitted to offer Shares to the Offerees pursuant to the terms
hereof, each Offeree agrees for itself that it will not enter into any Short
Sales (as hereinafter defined). For purposes of this Section, a "Short Sale" by
an Offeree shall mean a sale of Common Stock by an Offeree that is marked as a
short sale and that is made at a time when there is no equivalent offsetting
long position in the Common Stock held by such Offeree. For purposes of
determining whether there is an equivalent offsetting long position in the
Common Stock held by an Offeree on any date of computation, shares of Common
Stock actually held by the Offeree and Shares of


                                      -5-



Common Stock that are issuable by operation of Section 2 hereof shall be
considered held long by such Offeree; however, shares of Common Stock that are
issuable pursuant to convertible or exchangeable share of preferred stock or
debt of the Company shall not be considered held long.

8. PUBLICITY. Neither the Company nor any Offeree shall issue any press release
or make any other public announcement relating to this Indication which has not
been mutually agreed to by the Company and each Offeree.

9. GOVERNING LAW. This Indication shall be governed by and interpreted in
accordance with the laws of the State of New York without giving effect to the
rules governing the conflicts of laws. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the city
of New York, borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein and hereby irrevocably waives and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Indication and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law.

10. NOTICES. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand delivery, express overnight courier,
registered first class mail, overnight courier, or facsimile, initially to the
address set forth below, and thereafter at such other address, notice of which
is given in accordance with the provisions of this Section.

                  if to the Company:

                  The Immune Response Corporation
                  5935 Darwin Court
                  Carlsbad, CA 92008
                  Attn:    Howard Sampson
                           Vice President, Finance, Chief
                           Financial Officer, Treasurer
                           And Secretary
                  Telephone:        (760) 431-7080
                  Facsimile:        (760) 431-9420

                  if to a Offeree: to the address indicated under such Offeree's
name on the signature pages hereto

         All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; three (3) business days
after being deposited in the mail, postage prepaid, if mailed; the next business
day after being deposited with an overnight courier, if deposited with a
nationally recognized, overnight courier service; when receipt is acknowledged,
if sent by facsimile.


                                      -6-



11. ENTIRE UNDERSTANDING. This Indication constitutes the entire understanding
of the parties with respect to the subject matter hereof and supersedes all
prior oral or written relating thereto.

12. COUNTERPARTS. This Indication may be executed by facsimile signature and in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.


                                      -7-



         IN WITNESS WHEREOF, this Indication of Interest was duly executed on
the date first written above.

                       THE IMMUNE RESPONSE CORPORATION



                       By:      /s/  Howard Sampson
                            ------------------------------------------
                            Name:    Howard Sampson
                            Title:   Vice President, Finance, Chief Financial
                                     Officer, Treasurer and Secretary

         [REMAINDER OF PAGE LEFT BLANK
                      SIGNATURE PAGES FOR OFFEREES FOLLOWS]



                                      -8-



                       STRONG RIVER INVESTMENTS, INC.


                       By:    /s/  Keith L. Hernandez
                          --------------------------------------------
                          Name:  Keith L. Hernandez
                          Title: Attorney-In-Fact


                       Address for Notice:

                       Strong River Investments, Inc.
                       c/o Cavallo Capital Corp.
                       505 Park Avenue
                       New York, NY 10022
                       Facsimile No.: (212) 651-9010
                       Attn: Avi Vigder

     With copies to:   Robinson Silverman Pearce Aronsohn &
                              Berman LLP
                       1290 Avenue of the Americas
                       New York, NY  10104
                       Facsimile No.:  (212) 541-4630 and (212) 541-1432
                       Attn: Kenneth L. Henderson, Esq.
                             Eric L. Cohen. Esq.

         [REMAINDER OF PAGE LEFT BLANK
                 SIGNATURE PAGE FOR ADDITIONAL OFFEREE FOLLOWS]



                                      -9-



                                   SCHEDULE A


                               DISCLOSURE SCHEDULE


         As part of a Securities Purchase Agreement, dated April 24, 1998
between the Company and Themis Partners, L.P., Heracles Fund, Brown Simpson
Strategic Growth Fund, Ltd. and Brown Simpson Strategic Growth Fund, L.P. and
any successors thereto, (the "Buyers") (the "Agreement") the Company has an
obligation to at all times have authorized, and reserved for the purpose of
issuance, no less than 150% of the number of shares of Common Stock needed to
cover the conversion of the Series F Convertible Preferred Stock issued under
the Agreement into shares of Common Stock. The Company has not yet registered
approximately 850,000 shares of Common Stock needed to remain in compliance with
that obligation. The Company is currently in discussions with the Buyers
regarding the registration of such additional shares and of the possibility of
obtaining a waiver to such obligation.





                                      -10-

EX-10.73

                                                                  EXHIBIT 10.73

                                                                   PENNSYLVANIA



                     BRANDYWINE OPERATING PARTNERSHIP, L.P.,

                                   LANDLORD

                                      AND

                        THE IMMUNE RESPONSE CORPORATION

                                    TENANT

                                      FOR

                    680 ALLENDALE ROAD, KING OF PRUSSIA, PA






                               TABLE OF CONTENTS

                                                                          PAGE
                                                                         
1.    SUMMARY OF DEFINED TERMS...............................................1

2.    PREMISES...............................................................3

3.    TERM...................................................................3

4.    CONSTRUCTION BY LANDLORD...............................................3

5.    FIXED RENT; SECURITY DEPOSIT...........................................4

6.    ADDITIONAL RENT........................................................5

7.    UTILITIES.............................................................11

8.    SIGNS; USE OF PREMISES AND COMMON AREAS...............................11

9.    ENVIRONMENTAL MATTERS.................................................13

10.   TENANT'S ALTERATIONS..................................................15

11.   CONSTRUCTION LIENS....................................................17

12.   ASSIGNMENT AND SUBLETTING.............................................18

13.   LANDLORD'S RIGHT OF ENTRY.............................................22

14.   REPAIRS AND MAINTENANCE...............................................23

15.   INSURANCE; SUBROGATION RIGHTS.........................................24

16.   INDEMNIFICATION.......................................................26

17.   QUIET ENJOYMENT.......................................................27

18.   FIRE DAMAGE...........................................................27

19.   SUBORDINATION; RIGHTS OF MORTGAGEE....................................28


                                     -ii-


20.   CONDEMNATION..........................................................29

21.   ESTOPPEL CERTIFICATE..................................................30

22.   DEFAULT...............................................................30

23.   CURING TENANT'S DEFAULTS..............................................35

24.   LANDLORD'S REPRESENTATIONS AND WARRANTIES.............................36

25.   SURRENDER.............................................................36

26.   RULES AND REGULATIONS.................................................28

27.   GOVERNMENTAL REGULATIONS..............................................37

28.   NOTICES...............................................................38

29.   BROKERS...............................................................38

30.   CHANGE OF BUILDING/PROJECT NAME.......................................38

31.   LANDLORD'S LIABILITY..................................................38

32.   AUTHORITY.............................................................38

33.   NO OFFER..............................................................39

34.   [RENEWAL..............................................................39

35.   ROOF RIGHTS...........................................................39

36.   MISCELLANEOUS PROVISIONS..............................................40

37.   WAIVER OF TRIAL BY JURY...............................................45

38.   CONSENT TO JURISDICTION...............................................45



                                     -iii-






EXHIBITS

             
EXHIBIT "A"  -  SPACE PLAN OF PREMISES
EXHIBIT "B"  -  RENTAL SCHEDULE
EXHIBIT "C"  -  PARKING AREA
EXHIBIT "D"  -  CONSTRUCTION DOCUMENTS
EXHIBIT "E"  -  LIST OF MATERIALS AND PERMITS
EXHIBIT "F"  -  FORM OF NON-DISTURBANCE AGREEMNET
EXHIBIT "G"  -  RULES AND REGULATIONS



                                     -iv-




                                    LEASE

     THIS LEASE ("Lease") entered into as of the 1st day of November, 1999,
between BRANDYWINE OPERATING PARTNERSHIP, L.P., a Delaware limited partnership
having its principal office at 16 Campus Boulevard, Suite 150, Newtown Square,
Pennsylvania 19073 ("Landlord"), and THE IMMUNE RESPONSE CORPORATION, a Delaware
corporation with its principal place of business at 5935 Darwin Court, Carlsbad,
California ("Tenant").

                                  WITNESSETH

          In consideration of the mutual covenants herein set forth, and
intending to be legally bound, the parties hereto covenant and agree as
follows:

     1.   SUMMARY OF DEFINED TERMS.

          The parties agree that the following defined terms, as used in this
Lease, shall have the meanings and shall be construed as set forth below:

          (a) "BUILDING": The Building owned by Landlord in fee and located at
680 Allendale Road, King of Prussia, Pennsylvania, and identified as Unit 680 in
the condominium complex known as Brandywine King of Prussia.

          (b) "PROJECT": The Building, the land, the portions of the Parking
Area (as hereinafter defined) which are for the exclusive use of Tenant and all
other improvements located at 680 Allendale Road, King of Prussia, Pennsylvania.

          (c) "PREMISES": Unit No. 680, which the parties hereto hereby
stipulate and agree is the entire 52,528 square feet of the Building shown on
the space plan attached hereto as Exhibit "A" and made a part hereof.

          (d) "TERM": From November 1, 1999 to October 31, 2011.

          (e) "FIXED RENT": Tenant shall pay to Landlord fixed rent as set forth
in the Rental Schedule attached hereto as Exhibit "B" and made a part hereof.

          (f) "SECURITY DEPOSIT": $35,000.00;

          (g) "EFFECTIVE DATE": As of November 1, 1999;

          (h) "TENANT'S ALLOCATED SHARE": 100%:

          (i) "RENTABLE AREA":       Premises 52,528 ft.
                                     Building 52,528 ft.


                                      -1-


          (j) "PERMITTED USES": Tenant's use of the Premises shall be limited to
     general bio-pharmaceutical research and development, product production and
     distribution, including, general office and industrial uses and storage
     incidental thereto, in accordance with all applicable laws and in keeping
     with existing governmental zoning and permitted uses.

          (k) "BROKER": CB Richard Ellis;

          (l) "NOTICE ADDRESS/CONTACT"

              Tenant:               The Immune Response Corporation
                                    5935 Darwin Court
                                    Carlsbad, CA 92008
                                    Attn:        Paula B. Atkins
                                                 Vice President - Administration


              With a copy to:       Eric A. Kremer, Esquire
                                    Pillsbury, Madison & Sutro LLP
                                    Carmel Valley Center One
                                    11975 El Camino Real
                                    Suite 200
                                    San Diego, CA 92130-2593

              Landlord:             BRANDYWINE OPERATING
                                    PARTNERSHIP, L.P.
                                    14 Campus Blvd., Suite 100
                                    Newtown Square, Pennsylvania 19073
                                    Attn:        Anthony A. Nichols, Jr.
                                                 Vice President of Operations

              With a copy to:       Brandywine Realty Trust
                                    14 Campus Blvd.
                                    Suite 100
                                    Newtown Square, Pennsylvania 19073
                                    Attn:        Brad A. Molotsky, Esquire
                                                 General Counsel


          (m) "TENANT'S STANDARD INDUSTRIAL CLASSIFICATION NUMBER": 2836.


                                      -2-




          (n) "ADDITIONAL RENT": All sums of money or charges required to be
paid by Tenant under this Lease other than Fixed Rent, whether or not such sums
or charges are designated as "Additional Rent".

          (o) "RENT": All Annual Fixed Rent, monthly installments of Annual
Fixed Rent, Fixed Rent and Additional Rent payable by Tenant to Landlord under
this Lease.

          (p) "PARKING AREA": The part of the Project which shall at all times
include not less than 100 parking spaces allocated for the exclusive use of
Tenant, as outlined in red on the site plan attached hereto as Exhibit C and
made a part hereof.

     2.   PREMISES. Landlord does hereby lease, demise and let unto Tenant and
Tenant does hereby hire and lease from Landlord the Premises for the Term, upon
the provisions, conditions and limitations set forth herein.

     3.   TERM. The Term of this Lease shall commence (the "Commencement Date")
on the Effective Date, which shall be as of November 1, 1999, and shall expire
on October 31, 2011.

     4.   CONSTRUCTION BY LANDLORD. Landlord hereby agrees to perform the
construction services set forth below at its sole cost and expense:

          (a) Landlord hereby agrees to replace the entranceway steps on the
walkway from the Building located on the Southeast corner of the Building
closest to 3rd Avenue and Allendale Road.

          (b) Landlord hereby agrees to install a screen around the equipment
located on the Southeast side of the Premises facing 660 Allendale Road.

          (c) Landlord hereby agrees to reconfigure and repair the Parking Area
in accordance with the site plan attached hereto as Exhibit C-1 and made a part
hereof and to re-stripe and re-coat the parking lot.

          (d) The work to be performed by Landlord in accordance with
subsections (a), (b) and (c) above shall be referred to collectively herein as
the "Landlord's Work."

          (e) Except as set forth in subsections (a) and (b) above, Landlord is
not obligated to do any construction. However, Landlord shall provide Tenant
with a construction allowance equal to $10.00 psf or $525,280.00 (five hundred
twenty five thousand two hundred eighty dollars). Such allowance shall be paid
by Landlord upon substantial completion of the Tenant's Work as described on the
enclosed construction documents as part of Exhibit "D" attached hereto and made
a part hereof. Landlord acknowledges that the Landlord has reviewed and approved
the Tenant's proposed construction drawings. Subject to the terms and
conditions


                                      -3-


of this Lease, Tenant will have the sole and exclusive right to construct its
own tenant improvements.

     5.   FIXED RENT; SECURITY DEPOSIT.

          (a)   Tenant shall pay to Landlord without notice or demand, and
without set-off, the annual Fixed Rent payable in the monthly installments of
Fixed Rent as set forth in Article 1(e), in advance on the first day of each
calendar month during the Term by wire transfer of immediately available
funds to the account at First Union National Bank, account no. 2030000359075;
such transfer to be confirmed to Brandywine Realty Services Corporation's
accounting department (610-325-5622 - fax) by written facsimile with ABA
routing number 031000503. Notwithstanding the immediately preceding sentence,
the first month's installment and the security deposit shall be paid upon the
execution of this Lease by Tenant by two separate checks. Otherwise, Fixed
Rent shall not commence nor be due and owing until the Commencement Date.

          (b)   In the event any Fixed Rent or Additional Rent, charge, fee
or other amount due from Tenant under the terms of this Lease are not paid to
Landlord within ten (10) days of the date due, Tenant shall also pay as
Additional Rent a service and handling charge equal to ten (10%) percent of
the total payment then due. This provision shall not prevent Landlord from
exercising any other remedy herein provided or otherwise available at law or
in equity in the event of any default by Tenant.

          (c)   Tenant shall be required to pay a security deposit of Thirty
Five Thousand Dollars ($35,000) under this Lease (the "Collateral"), as
security for the prompt, full and faithful performance by Tenant of each and
every provision of this Lease and of all obligations of Tenant hereunder.
Landlord hereby acknowledges that Tenant shall have a credit against the
security deposit in the amount of Twenty-Seven Thousand Five Hundred Sixteen
Dollars and Sixty-Seven Cents ($27,516.67), representing the existing
security deposit under the Lease currently in effect between Landlord and
Tenant (the "Current Lease"). No interest shall be paid to Tenant on the
Collateral. If Tenant fails to perform any of its obligations hereunder after
applicable cure periods have expired, if any, Landlord may use, apply or
retain the whole or any part of the Collateral for the payment of (i) any
rent or other sums of money which Tenant may not have paid when due, (ii) any
sum expended by Landlord on Tenant's behalf in accordance with the provisions
of this Lease, and/or (iii) any sum which Landlord may expend or be required
to expend by reason of Tenant's default, including any damage or deficiency
in or from the reletting of the Premises as provided in this Lease. The use,
application or retention of the Collateral, or any portion thereof, by
Landlord shall cure Tenant's default to the extent of Landlord's use or
application thereof, but shall not otherwise prevent Landlord from exercising
any other right or remedy provided by this Lease or by law (it being intended
that Landlord shall not first be required to proceed against the Collateral)
and shall not operate as a limitation on any recovery to which Landlord may
otherwise be entitled. If any portion of the Collateral is used, applied or
retained by Landlord for the purposes set forth above, Tenant agrees, within
ten (10) days after


                                      -4-


the written demand therefor is made by Landlord, to deposit cash with the
Landlord in an amount sufficient to restore the Collateral to its original
amount.

     If Tenant shall fully and faithfully comply with all of the provisions
of this Lease, the Collateral, or any balance thereof, shall be returned to
Tenant without interest within thirty (30) days after the expiration of the
Term or upon any later date after which Tenant has vacated the Premises. In
the absence of evidence satisfactory to Landlord of any permitted assignment
of the right to receive the Collateral, or of the remaining balance thereof,
Landlord may return the same to the original Tenant, regardless of one or
more assignments of Tenant's interest in this Lease or the Collateral. In
such event, upon the return of the Collateral, or the remaining balance
thereof to the original Tenant, Landlord shall be completely relieved of
liability under this Paragraph or otherwise with respect to the Collateral.

     In the event of a sale of the Project and Building of which the Premises
form a part, Landlord shall have the right to transfer the Collateral to the
vendee or lessee and Landlord shall thereupon be released by Tenant from all
liability for the return of such Collateral; and Tenant agrees to look solely
to the new landlord for the return of said Collateral, and the provisions
hereof apply to every transfer or assignment made of the Collateral to a new
landlord. Tenant further covenants that it will not assign or encumber or
attempt to assign or encumber the Collateral and that neither Landlord nor
its successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance.

     The Collateral shall not be mortgaged, assigned or encumbered in any
manner whatsoever by Tenant without the prior written consent of Landlord.

     6.   ADDITIONAL RENT.

          (a)    Commencing on the Commencement Date, and in each calendar
year thereafter during the Term (as same may be extended), Tenant shall pay
to Landlord, as Additional Rent, within thirty (30) days after Landlord
certifies to Tenant the amount thereof, the following charges ("Recognized
Expenses"), without deduction or set off, such charges to be based upon
Tenant's Allocated Share of such charges, as stated in Article 1(h) herein.

                 (1)    INSURANCE PREMIUMS. All premiums paid or payable by
Landlord for insurance with respect to the Project, which premiums shall be
reasonable in context of both the Project and customary commercial insurance
coverage in the marketplace, as follows: (a) fire and extended coverage
insurance (including demolition and debris removal); (b) insurance against
Landlord's rental loss or abatement (but not including business interruption
coverage on behalf of Tenant), from damage or destruction from fire or other
casualty; (c) Landlord's comprehensive liability insurance (including bodily
injury and property damage) and boiler insurance; and (d) such other
insurance as Landlord or any reputable mortgage lending institution holding a
mortgage on the Premises may require.

                                      -5-


If the coverage period of any of such insurance obtained by Landlord
commences before or extends beyond the Term, the premium therefore shall be
prorated to the Term. If any such insurance is provided by blanket coverage,
the part of the premium allocated to the Project shall be equitably
determined by Landlord but shall not exceed the amount of premium due if
insurance was provided by a policy only insuring the Project. Should Tenant's
occupancy or use of the Premises at any time change and thereby cause an
increase in such insurance premiums on the Premises, Building and/or Project,
Tenant shall pay to Landlord the reasonable amount of such increase.

                 (2)    OPERATING EXPENSES. The reasonable costs and expenses
related to the following activities with regard to the Project incurred and
paid by Landlord during the Term, including:

                        (a)   All costs and expenses relating to taxes,
removing snow, ice and debris and maintaining all landscape areas (including
the placing and replanting of flowers, shrubbery and trees, maintaining and
repairing all other exterior improvements on the Project, all repairs and
compliance costs necessitated by laws enacted or which become effective after
the commencement date hereof (including, without limitation, any additional
regulations or requirements enacted after the date hereof regarding the
Americans With Disabilities Act (as such applies to the Project or common
areas but not to any individual tenant's space), if applicable) required of
Landlord under applicable laws, rules and regulations. Landlord's obligation
to provide snow removal services shall be limited to the parking areas and
the sidewalk entrances.

                        (b)   All costs and expenses incurred by Landlord for
all replacement or repairs to the Parking Area, including, but not limited
to, re-striping and re-coating the Parking Area, once Landlord has completed
the reconfiguration and repair of the Parking Area and the re-striping and
re-coating of the parking lot in accordance with Section 4(c) hereof.

                        (c)   All costs and expenses incurred by Landlord for
ordinary compliance type environmental testing, sampling or monitoring
required by statute, regulation or order of governmental authority, necessary
except any costs or expenses incurred in conjunction with the spilling or
depositing of any hazardous substance for which any person or other tenant is
legally liable.

                        (d)   Capital expenditures to the extent considered
as an Operating Expense under this Article 6, shall be included as Operating
Expenses solely to the extent of the amortized costs of same over the useful
life of the improvement in accordance with generally accepted accounting
principles.

                 (3)    EXCLUSIONS. Notwithstanding the foregoing, the term
"Recognized Expenses" shall NOT include any of the following:

                                      -6-



                    (a)  Repairs or other work occasioned by fire, windstorm or
other insured casualty plus and "deductibles" or by the exercise of the right of
eminent domain;

                    (b)  Leasing commissions, accountants', consultants',
auditors' or attorney's fees, costs and disbursements and other expenses
incurred in connection with negotiations or disputes with other tenants or
prospective tenants or other occupants, or associated with the enforcement of
any other leases or the defense of Landlord's title to or interest in the real
property or any part thereof;

                    (c)  Costs incurred by Landlord in connection with
construction of the Building and related facilities, the correction of latent
defects in construction of the Building or the discharge of Landlord's Work;

                    (d)  Costs (including permit, licenses and inspection fees)
incurred in renovating or otherwise improving or decorating, painting, or
redecorating the Building or space for other tenants or other occupants or
vacant space;

                    (e)  Costs of any items or services sold or provided to
tenants (including Tenant) for which Landlord is reimbursed by such tenants;

                    (f)  Depreciation and amortization;

                    (g)  Costs incurred due to a breach by Landlord or any other
tenant of the terms and conditions of any lease;

                    (h)  Overhead and profit increment paid to subsidiaries
or affiliates of Landlord for management or other services on or to the
Building or for supplies, utilities or other materials, to the extent that
the costs of such services, supplies, utilities or materials exceed the
reasonable costs that would have been paid had the services, supplies or
materials been provided by unaffiliated parties on a reasonable basis without
taking into effect volume discounts or rebates offered to Landlord as a
portfolio purchaser;

                    (i)  Interest on debt or amortization payments on any
mortgage or deeds of trust or any other borrowings and any ground rent;

                    (j)  Ground rents or rentals payable by Landlord pursuant to
any over-lease;

                    (k)  Any compensation paid to clerks, attendants or other
persons in commercial concessions operated by Landlord;


                                      -7-


                    (l)  All items and services for which Tenant reimburses
Landlord or which Landlord provides selectively to one or more tenants or
occupants of the building (other than Tenant) without reimbursement;

                    (m)  Costs incurred in managing or operating any "pay for"
parking facilities within the Project;

                    (n)  Any fines or fees for Landlord's failure to comply with
governmental, quasi-governmental, or regulatory agencies' rules and regulations;
or

                    (o)  Legal, accounting and other expenses related to
Landlord's financing, re-financing, mortgaging or selling the Building or the
Project.

          (b)  Tenant shall be required to pay all Taxes imposed on the
Project.  Taxes shall be defined as all taxes, assessments and other
governmental charges ("Taxes"), including special assessments for public
improvements or traffic districts which are levied or assessed against the
Project during the Term (as may be extended) or, if levied or assessed prior
to the Term, which properly are allocable to the Term, and real estate tax
appeal expenditures incurred by Landlord to the extent of any reduction
resulting thereby.  In the event that the real estate tax bills for the
property of which the Project is apart are broken down to tax separately the
Building and the land surrounding the Building that is designated as the
parking area, then the Tenant's responsibility shall be to pay all of the
real estate taxes set forth in said real estate tax bills.  In the event that
there is not a separate real estate tax bill for the Building and the land
surrounding the Building, as noted aforesaid, then the Tenant shall be
required to pay its pro-rata portion of the real estate tax bills for the
property of which the Project is a part in two (2) components as follows: (i)
with regard to that portion of the real estate tax bills relating to all of
the buildings located on the property of which the Project is a part, the
Tenant shall pay its pro-rata share of said real estate taxes based upon the
square footage of the Premises to the total square footage of all buildings
located on the property of which the Project is a part, and (ii) with regard
to that portion of the real estate tax bills representing a tax assessment
for the land of the property of which the Project is a part, including the
Parking Area and the land under the above-described buildings, the Tenant
shall pay its equitable share of real estate taxes for said land on a
pro-rata basis.

               Nothing herein contained shall be construed to include as Taxes:
(A) any inheritance, estate, succession, transfer, gift, franchise, corporation,
net income or profit tax or capital levy that is or may be imposed upon Landlord
or (B) any Taxes resulting from a transfer of the Building or the
Project; provided, however, that if at any time during the Term the method of
taxation prevailing at the commencement of the Term shall be altered so that in
lieu of or as a substitute for the whole or any part of the taxes now levied,
assessed or imposed on real estate as such there shall be levied, assessed or
imposed (i) a tax on the rents received from such real estate, or (ii) a license
fee measured by the rents receivable by Landlord from the Premises or any


                                      -8-


portion thereof, or (iii) a tax or license fee imposed upon Premises or any
portion thereof, then the same shall be included in the computation of Taxes
hereunder.

          (c)  Beginning on the Commencement Date, with the payment for the
month of November, 1999 due on the date of the execution of this Lease,
Tenant shall pay, in monthly installments in advance, on account of Tenant's
Allocated Share of Recognized Expenses and Taxes, the estimated amount of
such Recognized Expenses and Taxes for such year as determined by Landlord in
its reasonable discretion and as set forth in a notice, such notice to
include the basis for such calculation, to be provided to Tenant prior to
such date.  Until the estimate is modified from time to time by Landlord via
written notice to Tenant at least thirty (30) days prior to any adjustment,
the monthly installments to be paid by Tenant on account of Tenant's
Allocated Share of Recognized Expenses and Taxes shall be based upon an
annual charge of Seventy-Five Thousand Dollars ($75,000.00), which equals
monthly payments in the amount of Six Thousand Two Hundred Fifty Dollars
($6,250.00) per month.  Prior to the end of that year and hereafter for each
successive calendar year (each, a "Lease Year"), or part thereof, Landlord
shall send to Tenant a statement of projected increases in Recognized
Expenses and Taxes and Landlord shall indicate what Tenant's projected share
of Recognized Expenses and Taxes shall be.  Said amount shall be paid in
equal monthly installments in advance by Tenant as Additional Rent commencing
January 1 of the applicable Lease Year.

               Tenant shall have the right, at its sole cost and expense, to
audit or have its appointed accountant audit Landlord's records relating to
Recognized Expenses and Taxes provided that any such audit may not occur more
frequently than once each calendar year nor apply to any year prior to the
then current calendar year.  In the event Tenant's audit discloses any
discrepancy in the amount of the Recognized Expenses or Taxes, Landlord and
Tenant shall use their best efforts to resolve the dispute and make an
appropriate adjustment, failing which they shall submit any such dispute to
arbitration pursuant to the rules and under the jurisdiction of the American
Arbitration Association in Delaware County, Pennsylvania.  The decision
rendered in such Arbitration shall be final, binding and non-appealable.  The
expenses of Arbitration, other than individual legal and accounting expenses
which shall be the respective parties' responsibility, shall be divided
equally between the parties.  In the event, by agreement or as a result of an
arbitration decision, it is determined that the actual recognized expenses
exceeded those claimed by the Landlord by more than five percent (5%), the
actual, reasonable hourly costs to Tenant of Tenant's audit (including legal
and accounting costs) shall be reimbursed by Landlord. Tenant agrees not to
utilize a contingent fee auditor.

               If during the course of any Lease Year, Landlord shall have
reason to believe that the Recognized Expenses and Taxes shall be different than
that upon which the aforesaid projections were originally based, then Landlord,
following sixty (60) days written notice to Tenant, shall be entitled to adjust
the amount by reallocating the remaining payments for such year, for the months
of the Lease Year which remain for the revised projections, and to advise Tenant
of an adjustment in future monthly amounts to the end result that the Recognized
Expenses and Taxes shall be collected on a reasonably current basis each Lease
Year.


                                      -9-


                  In calculating the Recognized Expenses as hereinbefore
described, if for thirty (30) or more days during the preceding Lease Year less
than ninety-five (95%) percent of the rentable area of the Building shall have
been occupied by tenants, then the Recognized Expenses attributable to the
Property shall be deemed for such Lease Year to be amounts equal to the
Recognized Expenses which would normally be expected to be incurred had such
occupancy of the Building been at least ninety-five (95%) percent throughout
such year, as reasonably determined by Landlord (i.e., taking into account that
certain expenses depend on occupancy and certain expenses do not (E.G.,
landscaping)). Furthermore, if Landlord shall not furnish any item or items of
Recognized Expenses to any portions of the Building because such portions are
not occupied or because such item is not required by the tenant of such portion
of the Building, for the purposes of computing Recognized Expenses, an equitable
adjustment shall be made so that the item of Operating Expense in question shall
be shared only by tenants actually receiving the benefits thereof.

                  Within four (4) months following the end of each Lease Year or
as soon thereafter as administratively available, Landlord shall send to Tenant
an itemized statement of actual expenses incurred for Recognized Expenses and
Taxes for the prior Lease Year showing the Allocated Share due from Tenant.
Landlord shall use its reasonable efforts to provide Tenant with the aforesaid
statements on or before April 30 of each Lease Year; provided, however, if
Landlord is unable to provide such statements by April 30, Landlord shall not
have been deemed to waive its right to collect any such amounts as Additional
Rent. If Landlord is unable to provide final statements on or before April 30 of
each Lease Year, Landlord shall provide Tenant with its unaudited internal
estimates of such costs by April 30, with the caveat that the final statements
may deviate from the estimate provided. In the event the amount prepaid by
Tenant exceeds the amount that was actually due then Landlord shall issue a
credit to Tenant in an amount equal to the over charge, which credit Tenant may
apply to future payments on account of Recognized Expenses and Taxes until
Tenant has been fully credited with the over charge. If the credit due to Tenant
is more than the aggregate total of future rental payments, Landlord shall pay
to Tenant the difference between the credit in such aggregate total. In the
event Landlord has undercharged Tenant then Landlord shall send Tenant an
invoice with the additional amount due, which amount shall be paid in full by
Tenant within thirty (30) days of receipt.

                  Each of the Recognized Expense and Amount of Taxes, whether
requiring lump sum payment or constituting projected monthly amounts added to
the Fixed Rent, shall for all purposes be treated and considered as Additional
Rent and the failure of Tenant to pay the same as and when due in advance and
without demand shall have the same effect as failure to pay any installment of
the Fixed Rent.

                  Landlord will provide Tenant with a copy of the real estate
tax bills for the Premises promptly after the Landlord's receipt of the same.
The failure of the Landlord to furnish copies of said real estate tax bills to
Tenant shall not be deemed to be a default under this Lease unless the Landlord
fails to furnish copies of said real estate tax bills within ten (10) days after
receipt of written notice from Tenant requesting said real estate tax bills.


                                      -10-


                  If this Lease terminates other than at the end of a calendar
year, Landlord's annual estimate of Recognized Expenses and Taxes shall be
accepted by the parties as the actual Recognized Expenses and Taxes for the year
the Lease ends unless and until Landlord provides Tenant with actual statements
in accordance with this subsection 6(c).

         7.       UTILITIES. From and after the Commencement Date, Tenant
shall make arrangements with each utility company and public body to provide,
in Tenant's name, gas, electricity, water, sewer, telephone, heat, and air
conditioning necessary for Tenant's use of the Premises, and Tenant shall
cause all such utilities to be separately metered, to the extent possible.
Tenant shall pay directly to the companies furnishing utility service the
cost of all service connection fees and the cost of all utilities consumed
throughout the Term. If the water service is not separately metered, Landlord
shall pay water bills for the Building, and Tenant shall pay to Landlord
prior to the time when each bill becomes due an amount determined by Landlord
based on the actual cost thereof attributable to Tenant's usage. In the event
that Tenant fails to pay in a timely manner any sum required under this
Section, Landlord shall have the right, but not the obligation, to pay any
such sum. Any sum so paid by Landlord shall be deemed to be owing by Tenant
to Landlord and due and payable as Additional Rent within five (5) business
days after written demand therefor.

                  Tenant's obligations for the payment of the costs incurred for
utilities that serve the Premises prior to the termination of this Lease shall
survive termination hereof.

                  Landlord shall provide 7 days per week, 24 hour per day
("Working Hours"), excluding legal holidays, the Premises with heat and
air-conditioning in the respective seasons for comfortable occupancy of the
subject premises, and provide the Premises with electricity for lighting and
usual office equipment.

         8.       MANAGEMENT FEE. Tenant shall be required to pay to Landlord an
annual management fee ("Management Fee") in the amount of four percent (4%) of
the annual fixed rent to be paid by Tenant to Landlord during the Term (as may
be extended) of this Lease. The Management Fee shall be paid on a monthly basis
commencing on the Commencement Date.

         9.       SIGNS; USE OF PREMISES AND COMMON AREAS.

                  (a) Tenant, at its sole cost and expense and option, will
provide Building and monument signage in a location and style of design
acceptable to Landlord. Landlord's approval shall not be unreasonably withheld
or delayed. The subject signage will be compatible with building design and
shall conform with all applicable local government codes, shall be fully visible
and free of any and all obstructions such as landscaping and such visibility
shall be maintained throughout the Term (as may be extended). Tenant shall be
required to obtain, at its sole cost and expense, all permits and approvals
necessary for said signage. Landlord will cooperate with Tenant in an effort to
obtain said approvals.


                                      -11-


                  (b) Tenant may use and occupy the Premises only for the
express and limited purposes stated in Article 1(j) above; and the Premises
shall not be used or occupied, in whole or in part, for any other purpose
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed, taking into consideration such factors as
environmental impact, the use of other leased premises on the property of
which the Premises is a part by other tenants, the effect on insurance rates
of said proposed use and other reasonable factors deemed by Landlord to be
relevant in its decision; provided that Tenant's right to so use and occupy
the Premises shall remain expressly subject to the provisions of
"Governmental Regulations", Article 30 herein. No machinery or equipment
shall be permitted that shall cause excessive vibration, noise or disturbance
beyond the Premises. Provided that the Tenant is not in breach of any of its
obligations under this Lease and continues to pay all of its rental and
additional payment obligations under this Lease, the Tenant shall have the
right to vacate the Premises no more than one (1) time during each eighteen
(18) month period during the Term or any renewal term of this Lease for a
period of up to six (6) months.  In the event that the Tenant vacates the
Premises for a period longer than 6months or vacates or otherwise abandons
the Premises more than one (1) time during each eighteen (18) month period
during the Term or any renewal term of this Lease, Tenant shall be in default
under this Lease. The term "vacate" , as used therein, shall be defined as
the Tenant failing to open for business or removing substantially all of its
client files or its furniture and equipment and personal property from the
Premises.

                  (c) Tenant shall not overload any floor or part thereof in
the Premises or the Building which exceeds the floor loading capacity of the
subject building, bringing in, placing, storing, installing or removing any
large or heavy articles, and Landlord may prohibit, or may direct and control
the location and size of, safes and all other heavy articles, and may
require, at Tenant's sole cost and expense, supplementary supports of such
material and dimensions as Landlord may deem necessary to properly distribute
the weight.

                  (d) Tenant shall not install in or for the Premises, without
Landlord's prior written approval with Landlord's said approval not to be
unreasonably withheld, conditioned or delayed, any equipment which requires more
electric current than Landlord is required to provide under this Lease, and
Tenant shall ascertain from Landlord the maximum amount of load or demand for or
use of electrical current which can safely be permitted in and for the Premises,
taking into account the capacity of electric wiring in the Building and the
Premises and the needs of Building common areas (interior and exterior) and the
requirements of other tenants of the Building, Tenant and shall not in any event
connect a greater load than such safe capacity.

                  (e) Tenant shall not commit or suffer any waste upon the
Premises, Building or Project or any nuisance, or any other act or thing which
may disturb the quiet enjoyment of any other tenant in the Building or Project.

                  (f) Tenant shall have the right to use the exterior paved
driveways and walkways of the Building for vehicular and pedestrian access to
the Building. Attached to the Lease as Exhibit C is the Parking Area. Landlord
has designated in red certain potential parking


                                      -12-



spaces comprising the Parking Area designated on Exhibit C. At all times,
Landlord shall designate for exclusive use by Tenant a minimum of 100 spaces
for the parking of automobiles of Tenant and its employees and business
visitors, incident to Tenant's permitted use of the Premises. Out of said 100
spaces, the 67 spaces that have been designated in orange will be permanent
parking spaces provided for Tenant's use and shall not be relocated at any
time by Landlord, except as otherwise provided for herein, without the prior
written consent of Tenant (the "Permanent Spaces"). With regard to the
remaining 33 spaces, said 33 spaces shall be selected by Landlord within the
circle drawn in yellow (the "Yellow Area") on Exhibit D (the "33 Spaces").
Upon not less than 10 business days prior written notice to Tenant, Landlord
may relocate the 33 Spaces within the Yellow Area. In connection with the
Landlord's construction activities affecting the Project, Landlord shall have
the right, upon not less than 10 business days prior written notice to Tenant
to relocate the Permanent Spaces and/or the 33 Spaces within the area drawn
in red on Exhibit D (the "Temporary Relocation Area"). In connection with the
relocation of the Permanent Spaces and the 33 spaces within the Temporary
Relocation Area, Landlord agrees that it: (i) shall use all reasonable
efforts to minimize the impact of its construction activities on the Tenant,
(ii) shall use all reasonable efforts to complete its construction activities
on an expedited basis, and (iii) shall use all reasonable efforts to keep the
Tenant informed, on a routine basis, in connection with the progress of its
construction activities. Landlord shall have the right to establish
reasonable regulations, applicable to all tenants, governing the use of or
access to any interior or exterior common areas; and such regulations, when
communicated by written notification from Landlord to Tenant, shall be deemed
incorporated by reference hereinafter and part of this Lease. Such regulation
shall not be interpreted, supplemented or modified in a manner which
materially and adversely affects Tenant's use or occupancy of the premises
under this Lease. The parking provided to Tenant under this subsection (f)
shall be at no cost to Tenant during the Term (and any extensions thereof)
and shall be exclusive to Tenant except in the event of emergency.

    10.  ENVIRONMENTAL MATTERS.

         (a)  HAZARDOUS SUBSTANCES.

              (i)  Tenant shall not, except as provided in subparagraph (ii)
below, bring or otherwise cause to be brought or permit any of its agents,
employees, contractors or invitees to bring in, on or about any part of the
Premises, Building or Project, any hazardous substance or hazardous waste in
violation of law, as such terms are or may be defined in (x) the
Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. 9601 ET SEQ., as the same may from time to time be amended, and the
regulations promulgated pursuant thereto ("CERCLA"); the United States
Department of Transportation Hazardous Materials Table (49 CFR 172.102); by
the Environmental Protection Agency as hazardous substances (40 CFR Part
302); the Clean Air Act; and the Clean Water Act, and all amendments,
modifications or supplements thereto; and/or (y) any other rule, regulation,
ordinance, statute or requirements of any governmental or administrative
agency regarding the environment (collectively, (x) and (y) shall be referred
to as an "Applicable Environmental Law").

                                      -13-



              (ii)  Tenant may bring to and use at the Premises, hazardous
substances, supplies or other items, incidental to its normal business
operations under the SIC Code referenced in paragraph 1(n) above in de
minimis quantities in accordance with Applicable Environmental Law. Tenant
shall store and handle such substances in strict accordance with applicable
Environmental Law. Notwithstanding the foregoing language contained in this
subsection (ii), Tenant shall have the right to store and handle those
materials listed in Exhibit E attached hereto (as the same may be updated as
provided below) and made a part hereof (collectively, the "Materials"), and
the storage and handling of said Materials in strict accordance with
Applicable Environmental Law shall not be deemed to be a breach of this
Lease. Also attached as Exhibit F is a copy of all permits obtained by Tenant
from the appropriate environmental authorities permitting Tenant to utilize
said Materials and Tenant hereby covenants to renew, update or obtain any and
all other permits necessary in order to comply with Applicable Environmental
Law. Tenant shall have the right to update the list of Materials on an annual
basis and to add materials thereto, provided that the addition of any
materials not set forth in Exhibit E shall be subject to at least ten (10)
days' prior written notice to, and the reasonable approval of, the Landlord;
provided, however, that Tenant shall be permitted to add additional
materials, and the Landlord shall be deemed to have given its reasonable
approval thereto provided that the Food & Drug Administration or other
governmental or regulatory authority has required Tenant to utilize said
additional material or materials, in which event the addition of said
material or materials shall be permitted, unless said materials, it not
utilized in accordance with all Applicable Environmental Law, would have a
potential material, adverse environmental impact on the Building, the
Project, the Premises or any operations thereon. Any added materials shall be
purchased, stored, handled, utilized and disposed of in strict accordance
with all Applicable Environmental Law. With regard to any Materials or
additional materials utilized by Tenant in connection with this Article 10,
Tenant shall be required, before receiving, storing, handling or using any
said materials, to obtain all federal, state and local licenses, permits and
approvals required by Applicable Environmental Law.

         (b)  SIC NUMBERS.

              (i) Tenant represents and warrants that Tenant's SIC (Standard
Industrial Classification) number as designated in the Standard
Classification Manual prepared by the Office of Management and Budget, and as
set forth in Article 1(m) hereof, is correct. Tenant represents that the
specific activities intended to be carried on in the Premises are in
accordance with Article 1(j).

              (ii) Except for the Materials permitted in accordance with
Section 10(a)(ii) hereof, Tenant shall not engage in operations at the
Premises which involve the generation, manufacture, refining, transportation,
treatment, storage, handling or disposal of "hazardous substances" or
"hazardous waste" as such terms are defined under any Applicable
Environmental Law. Tenant further covenants that it will not cause or permit
to exist any "discharge" (as such term is defined under Applicable
Environmental Laws on or about the Premises.

                                    -14-



              (iii) Tenant shall, at its expense, comply with all
requirements of Applicable Environmental Laws pertaining thereto.

              (iv) In addition, upon written request of Landlord, Tenant
shall cooperate with Landlord in obtaining Applicable Environmental Laws
approval of any transfer of the Building of which the Premises form a part.
Specifically in that regard, Tenant agrees that it shall (1) execute and
deliver all affidavits, reports, responses to questions, applications or
other filings reasonably required by Landlord and related to Tenant's
activities at the Premises, (2) allow inspections and testing of the Premises
subject to prior notice and compliance with Tenant's security requirements,
and (3) as respects the Premises occupied by Tenant, perform any requirement
reasonably requested by Landlord necessary for the receipt of Applicable
Environmental Laws approval, provided the foregoing shall not require
interruption or modification of Tenant's permitted use of the premises for
the uses permitted under the lease and shall be at no out-of-pocket cost or
expense to Tenant except for clean-up and remediation costs arising from
Tenant's activities at the Premises.

         (c)  ADDITIONAL TERMS.

              (i) In the event of Tenant's failure to comply in full with
this Article, Landlord may, after written notice to Tenant and Tenant's
failure to cure within thirty (30) days of its receipt of such notice, at
Landlord's option, perform any and all of Tenant's obligations as aforesaid
and all reasonable costs and expenses incurred by Landlord in the exercise of
this right shall be deemed to be Additional Rent payable on demand and with
interest at the Default Rate until payment at the rate provided in this Lease.

              (ii) The parties acknowledge and agree that Tenant shall not be
held responsible for any environmental issue or violation of applicable
Environmental Law at the Premises unless such issue was caused by an action
or omission of Tenant or its agents, employees, consultants or invitees.

              (iii) This Article 10 shall survive the expiration or sooner
termination of this Lease.

    11.  TENANT'S ALTERATIONS.

         (a) Except as otherwise provided in this subsection (a), Tenant will
not cut or drill into or secure any fixture, apparatus or equipment or make
alterations, improvements or physical additions (collectively, "Alterations")
of any kind to any part of the Premises without first obtaining the written
consent of Landlord, such consent not to be unreasonably withheld. Landlord's
consent shall not be required with regard to those alterations that, in the
aggregate, cost less than $50,000.00 for each calendar year during the Term
or any renewal term of this Lease, provided said alterations are
non-structural in nature, do not affect the structural integrity of the
Building, do not in any material respect affect the cosmetic style of the
Building and do not

                                    -15-


adversely affect any utility systems or other building systems in or for the
Building.  In addition, Landlord's consent shall not be required for the
installation of any office equipment or fixtures including internal
partitions which do not require disturbance of any structural elements or
systems (other than attachment thereto) within the Building.  Tenant shall be
required to furnish to Landlord a full set of proposed plans and
specifications for the Alterations.  If Landlord approves Tenant's
Alterations for which such approval is required and agrees to permit Tenant's
contractors to do the work, Tenant, prior to the commencement of labor or
supply of any materials, must furnish to Landlord (i) a duplicate or original
policy or certificates of insurance evidencing (a) general public liability
insurance for personal injury and property damage in the minimum amount of
$1,000,000.00 combined single limit, (b) statutory workman's compensation
insurance, and (c) employer's liability insurance from each contractor to be
employed (all such policies shall be non-cancelable without thirty (30) days
prior written notice to Landlord; (ii) construction documents prepared and
sealed by a registered Pennsylvania architect if such alteration is in excess
of $15,000; (iii) all applicable building permits required by law; and (iv)
an executed, effective Waiver of Mechanics Liens from such contractors and
all sub-contractors.  Any consent by Landlord permitting Tenant to do any or
cause any work to be done in or about the Premises shall be and hereby is
conditioned upon Tenant's work being performed by workmen and mechanics
working in harmony and not interfering with labor employed by Landlord,
Landlord's mechanics or their contractors or by any other tenant or their
contractors.  If at any time any of the workmen or mechanics performing any
of Tenant's work shall be unable to work in harmony or shall interfere with
any labor employed by Landlord, other tenants or their respective mechanics
and contractors, then the permission granted by Landlord to Tenant permitting
Tenant to do or cause any work to be done in or about the Premises, may be
withdrawn by Landlord upon forty-eight (48) hours written notice to Tenant.
Tenant shall be deemed to own all Alterations that are not deemed to be
fixtures subject to the provisions of this Section 11; provided, however,
that Landlord and Tenant agree that the Trade Fixtures of Tenant (as
hereinafter defined) shall not be deemed to be fixtures for purposes of this
Section 11.  The term "Trade Fixtures", for purposes of this Section 11,
shall be comprised of the furniture, fixtures and equipment utilized by
Tenant in connection with its business operations and shall include items
such as, but not limited to, freezers, ovens, autoclaves and other equipment
that would not be deemed to be fixtures except for the fact that said items
are hooked or bolted or otherwise affixed onto existing fixtures of the
Building.  At the expiration or sooner termination of this Lease, Tenant
shall be required to remove, at its sole cost an expense, all Trade Fixtures
in a good and workmanlike manner so as not to damage the Premises or
Building.  Tenant shall be responsible for the repair of any damage caused by
the removal of the Trade Fixtures and shall be required, at its sole cost and
expense, to restore any areas affected by this Section 11(a) to a "vanilla
shell" condition.

          (b)    Not earlier than nine (9) months and not later than six (6)
months prior to the expiration of the Term or the Renewal Term of this Lease,
Tenant shall furnish to Landlord a written list of those items that Tenant
desires to remove from the Building upon said expiration.  The Landlord
shall, within thirty (30) days of the receipt of said notification from
Tenant, determine, in its sole and exclusive discretion, and provide to
Tenant a written list and/or

                                     -16-


category of items (i) that Tenant shall be required to remove from the
Building in order to return the Building to a "vanilla shell" condition for
generic industrial space, and (ii) that Landlord agrees may be left in the
Building by Tenant.  Tenant shall be permitted to remove those items, as
determined by Landlord in its reasonable judgement, that do not affect its
obligation to return the Building to a "vanilla shell" condition for generic
industrial space.  In the event of any disagreement between the Landlord and
the Tenant with regard to any item set forth in this Section 11(b), said item
shall be required to be removed by Tenant unless said item is an item that
Landlord requires remain in the Building as part of the "vanilla shell."
Subject to the provisions of this Section 11(b), all items left on the
Premises by Tenant shall be the Landlord's property and shall remain on the
Premises without compensation to Tenant.  Any installations, removals and
restoration by Tenant shall be in accordance with this Section 11(b) and
shall be accomplished at Tenant's sole cost and expense in a good and
workmanlike manner so as not to damage the Premises or Building.  Tenant
shall be responsible for the repair of any damage caused by such
installation, removal and restoration and shall be required, at its sole cost
and expense, to restore any areas affected by this Section 11(b) to a
"vanilla shell" condition.

          (c)    If Tenant fails to remove any items required to be removed
pursuant to Section 11(a) or 11(b) hereof no later than the date of the
expiration or earlier termination of this Lease, Landlord may do so and the
reasonable costs and expenses thereof shall be deemed Additional Rent
hereunder and shall be reimbursed by Tenant to Landlord within fifteen (15)
business days of Tenant's receipt of an invoice therefor from Landlord.

     12.  CONSTRUCTION LIENS.

          (a)    Tenant will not voluntarily suffer or permit any
contractor's, subcontractor's or supplier's lien (a "Construction Lien") to
be filed against the Premises or any part thereof by reason of work, labor
services or materials supplied or claimed to have been supplied to Tenant;
and if any Construction Lien shall at any time be filed against the Premises
or any part thereof, Tenant, within (30) days after notice of the filing
thereof, shall cause it to be discharged of record by payment, deposit, bond,
order of a court of competent jurisdiction or otherwise.  If Tenant shall
fail to cause such Construction Lien to be discharged within the period
aforesaid, then in addition to any other right or remedy, Landlord may, but
shall not be obligated to, discharge it either by paying the amount claimed
to be due or by procuring the discharge of such lien by deposit or by bonding
proceedings.  Any amount so paid by Landlord, plus all of Landlord's
reasonable costs and expenses associated therewith (including, without
limitation, reasonable legal fees), shall constitute Additional Rent payable
by Tenant under this Lease and shall be paid by Tenant to Landlord on demand
with interest from the date of advance by Landlord at the Default Rate.

          (b)    Nothing in this Lease, or in any consent to the making of
alterations or improvements shall be deemed or construed in any way as
constituting authorization by Landlord for the making of any alterations or
additions by Tenant within the meaning of 49 P.S. Sections 1101-1902, as
amended or under the Contractor and Subcontractor Payment Act or any


                                     -17-


amendment thereof, or constituting a request by Landlord, express or implied,
to any contractor, subcontractor or supplier for the performance of any labor
or the furnishing of any materials for the use or benefit of Landlord.

     13.  ASSIGNMENT AND SUBLETTING.

          (a)    For any assignment and subletting, subject to the remaining
subsections of Article 13, except as expressly permitted pursuant to this
section, Tenant shall not, without the prior written consent of Landlord,
which consent is not to be unreasonably withheld or delayed, assign or
hypothecate this Lease or any interest herein or sublet the Premises or any
part thereof.  Any of the foregoing acts without such consent shall be void
and shall, at the option of Landlord, terminate this Lease.  Subject to
subparagraph 13(i) below, this Lease shall not, nor shall any interest
herein, be assignable as to the interest of Tenant by operation of law or by
merger, consolidation or asset sale, without the written consent of Landlord.
Tenant may assign the subject lease or may sublet the premises or any part
thereof, without Landlord's consent after notice, to any subsidiary, parent,
affiliate or controlled corporation which is owed at least 50% by Tenant, or
to any corporation to which Tenant may be converted or with which it may
merge with Tenant as survivor, or who acquires substantially all of Tenant's
stock or assets provided that as to asset acquisitions, (A) the financial
condition of the proposed assignee or sublessee is at least equal to the
financial condition of the Tenant as of the date of this Lease, as determined
by Landlord in its reasonable judgement, and (B) the prospective assignee and
the Tenant enter into an Assignment and Assumption Agreement with Landlord in
form and substance satisfactory to Landlord and its legal counsel, providing,
INTER ALIA, that the Tenant shall remain bound to Landlord under the Lease.
For any other subletting, Landlord agrees that it will not unreasonably
withhold, condition or delay its consent.

          (b)    If at any time or from time to time during the term of this
Lease Tenant desires to assign this Lease or sublet all or any part of the
Premises, Tenant shall give notice to Landlord of such desire, including the
name, address and contact party for the proposed assignee or subtenant, a
description of such party's business history, the effective date of the
proposed assignment of sublease (including the proposed occupancy date by the
proposed assignee or sublessee), and in the instance of a proposed sublease,
the square footage to be subleased, a floor plan professionally drawn to
scale, depicting the proposed sublease area, and a statement of the duration
of the proposed sublease (which shall in any and all events expire by its
terms prior to the scheduled expiration of this Lease, and immediately upon
the sooner termination hereof). Landlord may, at its option, and in its sole
and absolute discretion, exercisable by notice given to Tenant ("Landlord's
Election Notice") within forty-five (45) days next following Landlord's
receipt of Tenant's notice (which notice from Tenant shall, as a condition of
its effectiveness, include all of the above-enumerated information), elect to
recapture the Premises or such portion as is proposed by Tenant to be sublet
(and in each case, the designated and non-designated parking spaces included
in this demise, or a pro-rata portion thereof in the instance of the
recapture of less than all of the Premises), and terminate this Lease in the
instance of a proposed assignment, or recapture that portion of the Premises
proposed to be sublet (and a pro-rata

                                     -18-



portion of designated and non-designated parking spaces, as aforesaid) and
terminate the Lease with respect thereto, in the instance of a proposed
sublease; provided, however, that in the event that the Landlord elects to
recapture the Premises or such portion as is proposed by Tenant to be sublet,
Tenant shall be permitted to withdraw its request for an assignment or
sublease by furnishing written notice thereof to Landlord within five (5)
days of the date of the Landlord's Election Notice. The Landlord, if it so
elects, as an alternative to its option to recapture the Premises or such
portion as is proposed by Tenant to be sublet, shall have the right to allow
said assignment or sublease and, in said instance, Landlord shall be entitled
to retain one hundred percent (100%) of any additional payments (over and
above the Rent and Additional Rent payable under this Lease) received by
Tenant from said assignee or sublessee in connection with the assignment or
sublease of all or part of the Premises after Tenant's recovery of those
reasonable costs and expenses incurred directly in connection therewith.
Notwithstanding the language contained in this subsection (b), the Tenant
shall have the one time right to sublease up to 5,000 square feet of space in
the Premises, subject to the Landlord's approval in accordance with
Section 13(a) hereof, without the Landlord having the right to recapture said
space provided that said sublease is to one single sublessee for a one time
sublease right only. In the event that the sublease is for more than 5,000
square feet, or in the event that the sublease is not the first sublease
request under this Section 13, then Landlord shall have all of the recapture
rights set forth in this subsection (b). NOTWITHSTANDING THE LANGUAGE
CONTAINED IN THIS SECTION 14(b), THE TENANT SHALL HAVE THE RIGHT TO SUBLEASE
ONE HUNDRED PERCENT (100%) OF THE PREMISES FROM TIME TO TIME WITHOUT
TRIGGERING THE RIGHT OF THE LANDLORD TO RECAPTURE THE PREMISES UNDER THIS
SECTION 13(b) PROVIDED THAT (i) ALL OF THE OTHER TERMS AND CONDITIONS SET
FORTH IN THIS SECTION 13 AND THIS LEASE ARE MADE SUBJECT TO SAID SUBLEASE,
AND (ii) LANDLORD RECEIVES ONE HUNDRED PERCENT (100%) OF THE EXCESS RENT
RECEIVED BY TENANT FROM SAID SUBLESSEE (WITH NO DEDUCTION OF ANY COSTS OR
EXPENSES INCURRED BY TENANT IN CONNECTION THEREWITH), AND (iii) LANDLORD
SHALL HAVE THE FULL RIGHT TO RECAPTURE THE PREMISES IN THE EVENT THAT SAID
PROPOSED SUBLEASE WOULD OCCUR WITHIN THE LAST THREE (3) YEARS OF THE ORIGINAL
TERM OF THIS LEASE OR THE LAST EIGHTEEN (18) MONTHS OF ANY RENEWAL OPTION
UNDER THIS LEASE.

         (c)   If Landlord elects to recapture the Premises or a portion
thereof as aforesaid, then from and after the effective date thereof as
approved by Landlord, after Tenant shall have fully performed such
obligations as are enumerated herein to be performed by Tenant in connection
with such recapture, and except as to obligations and liabilities accrued and
unperformed (and any other obligations expressly stated in this Lease to
survive the expiration or sooner termination of this Lease), Tenant shall be
released of and from all lease obligations thereafter otherwise accruing with
respect to the Premises (or such lesser portion as shall have been recaptured
by Landlord). The Premises, or such portion thereof as Landlord shall have
elected to recapture, shall be delivered by Tenant to Landlord free and clear
of all furniture, furnishings, personal property and removable fixtures, with
Tenant repairing and restoring any and all damage to the Premises resulting
from the installation, handling or removal thereof, and otherwise in the same
condition as Tenant is, by the terms of this Lease, required to redeliver the
Premises to Landlord upon the expiration or sooner termination of this Lease.
The cost of erecting any required demising walls, entrances and entrance
corridors, and any other or further


                                     -19-





improvements required in connection therewith, including without limitation,
modifications to HVAC, electrical, plumbing, fire, life safety and security
systems (if any), painting, wallpapering and other finish items as may be
acceptable to or specified by Landlord, all of which improvements shall be
made in accordance with applicable code requirements and Landlord's
then-standard base building specifications, shall be performed by Landlord's
contractors, at Tenant's sole cost and expense.  Upon the completion of any
recapture and termination as provided herein, Tenant's remaining Fixed Rent,
Operating Expense and remaining monetary obligations of Tenant shall be
adjusted pro-rated based upon the reduced rentable square footage then
comprising the Premises.

          (d)    If Landlord provides written notification to Tenant electing
not to recapture the Premises (or so much thereof as Tenant had proposed to
sublease), then Tenant may proceed to market the designated space and may
complete such transaction and execute an assignment of this Lease or a
sublease agreement (in each case in form acceptable to Landlord) within a
period of five (5) months next following Landlord's notice to Tenant that it
declines to recapture such space, provided that Tenant shall have first
obtained in any such case the prior written consent of Landlord to such
transaction, which consent shall not be unreasonably withheld.  If, however,
Tenant shall not have assigned this Lease or sublet the Premises with
Landlord's prior written consent as aforesaid within five (5) months next
following Landlord's notice to Tenant that Landlord declines to recapture
the Premises (or such portion thereof as Tenant initially sought to sublease),
then in such event, Tenant shall again be required to request Landlord's
consent to the proposed transaction, whereupon Landlord's right to recapture
the Premises (or such portion as Tenant shall desire to sublease) shall be
renewed upon the same terms and as otherwise provided in subsection (b) above.

                 For purposes of this Section 13(d), and without limiting the
basis upon which Landlord may withhold its consent to any proposed assignment
or sublease, the parties agree that it shall not be unreasonable for Landlord
to withhold its consent to such assignment or sublease if: (i) the proposed
assignee or sublessee shall have a net worth less than the net worth of
Tenant at the time Tenant executes this Lease, or which is otherwise not
acceptable to Landlord in Landlord's reasonable discretion; (ii) the proposed
assignee or sublessee shall have no reliable credit history or an unfavorable
credit history, or other reasonable evidence exists that the proposed
assignee or sublessee will experience difficulty in satisfying its financial
or other obligations under this Lease; (iii) the proposed assignee or
sublessee, in Landlord's reasonable opinion, is not reputable and of good
character; (iv) the portion of the Premises requested to be subleased renders
the balance of the Premises unleasable as a separate area; (v) Tenant is
proposing a sublease at a rental or subrental rate which is substantially
less than the then fair market rental rate for the portion of the Premises
being subleased or assigned, or Tenant is proposing to assign or sublease to
an existing tenant of the Building or another property owned by Landlord or
by its partners, or to another prospect with whom Landlord or its partners,
or their affiliates are then negotiating; (vi) the proposed assignee or
sublessee will cause Landlord's existing parking facilities to be reasonably
inadequate, or in violation of code requirements, or require Landlord to
increase the parking area or the number of parking spaces to meet code

                                     -20-



requirements, or the nature of such party's business shall reasonably require
more than four (4) parking spaces per per 1,000 rentable square feet of floor
space, or (vii) the nature of such party's proposed business operation would
or might reasonably permit or require the use of the Premises in a manner
inconsistent with the "Permitted Use" specified herein, would or might
reasonably otherwise be in conflict with express provisions of this Lease,
would or might reasonably violate the terms of any other lease for the
Building, or would, in Landlord's reasonable judgement, otherwise be
incompatible with other tenancies in the Building.

          (e)    Any sums or other economic consideration received by Tenant
as a result of any subletting, assignment or license (except rental or other
payments received which are attributable to the amortization of the cost of
leasehold improvements made to the sublet or assigned portion of the premises
by Tenant for subtenant or assignee, and other reasonable expenses incident
to the subletting or assignment, including standard leasing commissions)
whether denominated rentals under the sublease or otherwise, which exceed, in
the aggregate, the total sums which Tenant is obligated to pay Landlord under
this Lease (prorated to reflect obligations allocable to that portion of the
premises subject to such sublease or assignment) shall be paid fifty (50)
percent to Landlord in their entirety without affecting or reducing any other
obligation of Tenant hereunder.

          (f)    Regardless of Landlord's consent, no subletting or
assignment shall release Tenant of Tenant's obligation or alter the primary
liability of Tenant to pay the Rent and to perform all other obligations to
be performed by Tenant hereunder.  Consent to one assignment or subletting
shall not be deemed consent to any subsequent assignment or subletting.

          (g)    In the event that (i) the Premises or any part thereof are
sublet and Tenant is in default under this Lease, or (ii) this Lease is
assigned by Tenant, then, Landlord may collect Rent from the assignee or
subtenant and apply the net amount collected to the rent herein reserved; but
no such collection shall be deemed a waiver of the provisions of this Article
13 with respect to assignment and subletting, or the acceptance of such
assignee or subtenant as Tenant hereunder, or a release of Tenant from
further performance of the covenants herein contained.

          (h)    In connection with each proposed assignment or subletting of
the Premises by Tenant, Tenant shall pay to Landlord Landlord's reasonable
attorneys' fees in an amount not to exceed $750.00.

          (i)    Notwithstanding anything to the contrary contained herein,
regardless of whether Landlord shall consent thereto (or whether such
transaction shall otherwise be permitted hereunder upon notice to, but
without the consent of Landlord), no assignment of this Lease and no
subletting of the Premises or any portion thereof shall release Tenant of
Tenant's obligations hereunder, or alter the primary liability of Tenant to
pay the Rent and to perform any and all other obligations to be performed by
the holder of the tenant interest hereunder, and it shall be an express
condition of any assignment or sublease that a fully-executed, original


                                     -21-



counterpart of the assignment or sublease agreement, in form specified by or
otherwise acceptable to Landlord, shall be furnished to Landlord prior to the
effective date thereof. Any assignment document shall, among its terms,
contain an express agreement by the assignee to assume and be bound by all of
the obligations to be performed and discharged by the holder of the tenant
interest hereunder, and shall include an affirmation by the assignor of its
continuing primary liability hereunder notwithstanding such assignment. Any
sublease document shall, among its terms, be expressly subject and
subordinate in all respects to this Lease, and the shall contain an
affirmation by the sublessor of its continuing primary liability hereunder
notwithstanding such sublease. The acceptance of rental by Landlord from any
other person shall not be deemed to be a waiver by Landlord of any provision
hereof. Consent to one assignment or subletting shall not be deemed consent
to any subsequent assignment or subletting. In the event of default by any
assignee of Tenant or any successor of Tenant in the performance of any of
the terms hereof, Landlord may proceed directly against Tenant without the
necessity of exhausting remedies against such assignee or successor.

            (j)    Anything in this Article 13 to the contrary
notwithstanding (including, without limitation, any provisions herein
regarding permitted assignments or subleases) no assignment or sublease shall
be permitted under this Lease if, at the time Tenant seeks approval
therefor, or at any time thereafter until such assignment or sublease becomes
effective and shall be implemented, Tenant is in default beyond applicable
cure periods of any of its obligations under this Lease.

     14.    LANDLORD'S RIGHT OF ENTRY. Subject to the provisions of Section
38(T) hereof, Landlord and persons authorized by Landlord may enter the
Premises at all reasonable times upon not less than forty-eight (48) hours
notice (except in the case of an emergency in which case no prior notice is
necessary) for the purpose of inspections, repairs, alterations to adjoining
space, appraisals, or other reasonable purposes; including enforcement of
Landlord's rights under this Lease. Landlord shall not be liable for
inconvenience to or disturbance of Tenant by reason of any such entry other
than resulting from the negligence or intentional misconduct of Landlord or
its agents; provided, however, that in the case of repairs or work, such
shall be done, so far as practicable, so as to not unreasonably interfere
with Tenant's use of the Premises. Provided, however, that such efforts shall
not require Landlord to use overtime labor unless Tenant shall pay for the
increased costs to be incurred by Landlord for such overtime labor. Landlord
also shall have the right to enter the Premises at all reasonable times after
giving not less than three (3) days prior notice to Tenant, to exhibit the
Premises to any prospective purchaser, tenant and/or mortgagee.

                                     -22-


     15.    REPAIRS AND MAINTENANCE.

            (a)    Except as specifically otherwise provided in subparagraphs
(b) and (c) of this Article, Tenant, at its sole cost and expense and
throughout the Term (as may be extended) of this Lease, shall keep and
maintain the Premises in good order and condition, free of accumulation of
dirt and rubbish, and shall promptly make all repairs other than repairs to
the footings and foundations and the structural steel columns and girders
forming a part of the Premises necessary to keep and maintain such good order
and condition. Tenant shall have the option of replacing lights, ballasts,
tubes, ceiling tiles, outlets and similar equipment itself or it shall have
the ability to advise Landlord of Tenant's desire to have Landlord make such
repairs. If requested by Tenant, Landlord shall make such repairs to the
Premises with a reasonable time of notice to Landlord and shall charge Tenant
for such services at Landlord's standard rate (such rate to be competitive
with the market rate for such services). Tenant shall not use or permit the
use of any portion of the Premises for outdoor storage except for exterior
chemical storage in connection with Tenant's business operations at the
Premises, provided that (i) the proposed storage area is designated on the
plans to be provided in advance to the Landlord for its approval, (ii) Tenant
has received, at its sole cost and expense, all federal, state and local
permits, approvals and authorizations for the utilization of said storage
area, (iii) the installation, use and operation of the storage area complies
with all federal, state and local environmental and other laws, rules and
regulations, and (iv) in the event that said storage area utilizes an area
that would otherwise constitute one or more parking spaces in the Parking
Area, the parking space or spaces utilized for storage area shall be counted
in the number of parking spaces that Landlord is required to furnish to
Tenant hereunder. Tenant shall be permitted to utilize the area that the
previous tenant in the Premises utilized as a storage area provided, however,
that Tenant hereby acknowledges that Landlord makes no representations,
warranties or covenants regarding whether appropriate federal, state and
local permits, approvals, and authorizations were previously obtained in
connection with said storage area. When used in this Article 15, the term
"repairs" shall include replacements and renewals when necessary. All repairs
made by Tenant shall utilize materials and equipment which are at least equal
in quality and usefulness to those originally used in constructing the
Building and the Premises. Tenant shall maintain all HVAC systems serving the
Building and the Premises.

            (b)    Landlord, throughout the Term of this Lease and at
Landlord's sole cost and expenses, shall make all necessary repairs to the
footings and foundations and the structural steel columns and girders forming
a part of the Premises. Landlord shall also be responsible, at its sole cost
and expense, for correcting any violations of, or as may be necessary to
comply with, all municipal, county, state and federal governmental laws,
codes and requirements and repairs required to correct latent defects in the
Building, subject to the other provisions of this Lease. This requirement
does not apply if Tenant's equipment or use of the Premises is the cause for
such repair, in which event it shall be Tenant's responsibility at its sole
cost and expense to correct said violations.

                                     -23-


            (c)    Landlord, throughout the Term of this Lease, shall make
all necessary repairs to the Building outside of the Premises and the common
areas, including the roof, walls, exterior portions of the Premises and the
Building, utility lines, equipment and other utility facilities in the
Building, which serve more than one tenant of the Building, and to any
driveways, sidewalks, curbs, loading, parking and landscaped areas, and other
exterior improvements for the Building; provided, however, that Landlord
shall have no responsibility to make any repairs unless and until Landlord
receives written notice of the need for such repair. Tenant shall pay its
Allocated Share of the cost of all repairs to be performed by Landlord
pursuant to this Paragraph 15(c) as Additional Rent as provided, in Article 6
hereof. Tenant will receive a total of one hundred (100) parking spaces for
the subject building at no cost to the Tenant, during the entire lease term
and any extensions thereof, to be designated for Tenant's sole and exclusive
use. Said parking will be located immediately adjacent to the subject
building.

            (d)    Landlord shall keep and maintain all common areas
appurtenant to the Building and any sidewalks, parking areas, curbs and
access ways adjoining the Property in a clean and orderly condition, free of
accumulation of dirt, rubbish, snow and ice, and shall keep and maintain all
landscaped areas in a neat and orderly condition. Tenant shall pay its
Allocated Share of the cost of all work to be performed by Landlord pursuant
to this Paragraph (d) as Additional Rent as provided in Article 6 hereof.

            (e)    Notwithstanding anything herein to the contrary, repairs
to the Premises, Building or Project and its appurtenant common areas made
necessary by a negligent or wilful act or omission of Tenant or any employee,
agent, contractor, or invitee of Tenant which are not covered by insurance
required to be maintained under this Lease shall be made at the sole cost and
expense of Tenant.

     16.    INSURANCE; SUBROGATION RIGHTS.

            (a)    Tenant shall obtain and keep in force at all times during
the term hereof, at its own expense, comprehensive general liability
insurance including contractual liability and personal injury liability and
all similar coverage, with combined single limits of $3,000,000.00 on account
of bodily injury to or death of one or more persons as the result of any one
accident or disaster and on account of damage to property, or in such other
amounts as Landlord may from time to time require. The policy limits set
forth herein shall be subject to periodic review, and Landlord reserves the
right to require that Tenant increase the liability coverage limits if, in
the reasonable opinion of Landlord, the coverage becomes inadequate and is
less than commonly maintained by tenants of similar buildings in the area
making similar uses.

            (b)    Tenant shall, at its sole cost and expense, maintain in
full force and effect on all Tenant's trade fixtures, equipment and personal
property on the Premises, a policy of all risk property insurance covering
the full replacement value of such property.

                                     -24-







               (c)  All insurance required hereunder shall not be subject to
cancellation without at least thirty (30) days prior notice to all insureds,
and shall name Landlord, Brandywine Realty Trust, Landlord's Agent and Tenant
as insureds, as their interests may appear, and, if requested by Landlord,
shall also name as an additional insured any mortgagee or holder of any
mortgage which may be or become a lien upon any part of the Premises.  Prior
to the commencement of the Term, Tenant shall provide Landlord with
certificates and copies of the policy or policies of insurance above referred
to, with evidence that the coverages required have been obtained and that
premiums have been paid in full for the policy periods.  Tenant shall also
furnish to Landlord throughout the term hereof replacement certificates or
copies of renewal policies, together with evidence of like paid premiums at
least thirty (30) days prior to the expiration dates of the then current
policy or policies.  All the insurance required under this Lease shall be
issued by insurance companies authorized to do business in the Commonwealth
of Pennsylvania with a financial rating of at least an A-X as rated in the
most recent edition of Best's Insurance Reports and in business for the past
five years.  The limit of any such insurance shall not limit the liability of
Tenant hereunder.  If Tenant fails to procure and maintain such insurance,
Landlord may, but shall not be required to, procure and maintain the same, at
Tenant's expense to be reimbursed by Tenant as Additional Rent within ten
(10) days of written demand.  Any deductible under such insurance policy or
self-insured retention under such insurance policy in excess of Twenty Five
Thousand Dollars ($25,000.00) for products liability insurance and Five
Thousand Dollars ($5,000.00) for all other insurance coverages must be
approved by Landlord in writing prior to issuance of such policy.  Tenant
shall not self-insure without Landlord's prior written consent, which consent
may be withheld by Landlord in its sole, exclusive discretion.  The policy
limits set forth herein shall be subject to periodic review, and Landlord
reserves the right to require that Tenant increase the liability coverage
limits if, in the reasonable opinion of Landlord, the coverage becomes
inadequate and is less than commonly maintained by tenants of similar
buildings in the area making similar uses.

               (d)   Landlord shall obtain and maintain the following
insurance during the Term of this Lease: (i) replacement cost insurance
including all risk perils on the Building and on the Project, (ii) builder's
risk insurance for the Landlord Work to be constructed by Landlord in the
Project, and (iii) comprehensive liability insurance (including bodily injury
and property damage) covering Landlord's operations at the Project in amounts
reasonably required by the Landlord's lender or Landlord.

               (e)  Each party hereto, and anyone claiming through or under
them by way of subrogation, waives and releases any cause of action it might
have against the other party, including Tenant and Brandywine Realty Trust
and their respective employees, officers, members, partners, trustees and
agents, on account of any loss or damage that is insured against under any
insurance policy required to be obtained hereunder (to the extent that such
loss or damage is recoverable under such insurance policy) that covers the
Project, Building or Premises, Landlord's or Tenant's fixtures, personal
property, leasehold improvements or business and which names Landlord and
Brandywine Realty Trust or Tenant, as the case may be, as a party insured.
Each party hereto agrees that it will cause its insurance carrier to endorse
all applicable policies

                                      -25-


waiving the carrier's right to recovery under subrogation or otherwise against
the other party.  During any period while such waiver of right of recovery is in
effect, each party shall look solely to the proceeds of such policies for
compensation for loss, to the extent such proceeds are paid under such policies.

          17. INDEMNIFICATION.  Except for any acts of Landlord's willful
misconduct or negligent acts, Tenant shall defend, indemnify and hold
harmless Landlord, Brandywine Realty Services Corp. and Brandywine Realty
Trust and their respective employees and agents from and against any and all
third-party claims, actions, damages, liability and expense (including all
attorney's fees, expenses and liabilities incurred in defense of any such
claim or any action or proceeding brought thereon) arising from (i) Tenant's
use of the Premises in violation of the terms of this Lease, (ii) the
improper conduct of Tenant's business in violation of this Lease, (iii) any
activity, work or things done, permitted or suffered by Tenant in or about
the Premises or elsewhere contrary to the requirements of the Lease, (iv) any
breach or default in the performance of any obligation of Tenant's part to be
performed under the terms of this Lease, and (v) any negligence or willful
act of Tenant or any of Tenant's agents, contractors or employees and/or
negligence or other tortious acts of third-parties not covered by insurance
policies required to be maintained under this Lease, and in case Landlord,
Brandywine Realty Services Corp. or Brandywine Realty Trust shall be made a
party to any litigation commenced by or against Tenant, its agents,
subtenants, licensees, concessionaires, contractors, customers or employees,
then Tenant shall defend, indemnify and hold harmless Landlord, Brandywine
Realty Services Corp. and Brandywine Realty Trust and shall pay all costs,
expenses and reasonable attorney's fees incurred or paid by Landlord,
Brandywine Realty Services Corp. and Brandywine Realty Trust in connection
with such litigation, after notice to Tenant and Tenant's refusal to defend
such litigation, and upon notice from Landlord shall defend the same at
Tenant's expense by counsel satisfactory to Landlord.  Tenant shall further
indemnify and hold harmless Landlord, Brandywine Realty Services Corp. and
Brandywine Realty Trust from and against any and all third-party claims,
actions, damages, liability and expense (including, without limitation,
reasonable attorney's fees and disbursements) which may be imposed upon or
incurred by or asserted against Landlord by reason of (a) loss of life,
personal injury and/or damage to property occurring in or about, or arising
out of, the Premises, adjacent sidewalks and loading platforms or areas and
common areas appurtenant to the Building occasioned by any act or omission
of Tenant, its agents, subtenants, licensees, concessionaires, contractors,
customers, employees and/or third party and (b) any failure on the part of
Tenant to keep, observe and perform any of the terms, covenants, agreements,
conditions, limitations or Rules and Regulations contained in this Lease on
Tenant's part to be kept, observed and performed.  The indemnification set
forth in this Section 17 shall not apply in a legal action commenced by
Tenant against Landlord for breach by Landlord of its obligations under this
Lease; provided, however, that said indemnification shall be applicable in
the event a counterclaim is filed by Landlord with respect to said legal
action that pertains to a subject matter that is covered by the
indemnification set forth in this Section 17.

                                      -26-


          18.  QUIET ENJOYMENT. Provided Tenant has performed all of the
terms and conditions of this Lease, including the payment of Fixed Rent and
Additional Rent, to be performed by Tenant, Tenant shall peaceably and
quietly hold and enjoy the Premises for the Term, without hindrance from
Landlord, or anyone claiming by through or under Landlord under and subject
to the terms and conditions of this lease and of any mortgages now or
hereafter affecting all of or any portion of the Premises.

          19.  FIRE DAMAGE AND OTHER CASUALTIES.

               (a)  Except as provided below, in case of damage to the
Premises by fire or other insured casualty, Landlord shall repair the damage.
Such repair work shall be commenced promptly following notice of the damage
and completed with due diligence, taking into account the time required for
Landlord to effect a settlement with and procure insurance proceeds from the
insurer, except for delays due to governmental regulation, scarcity of or
inability to obtain labor or materials, intervening acts of God or other
causes beyond Landlord's reasonable control.

               (b)  Notwithstanding the foregoing, if (i) the damage is of a
nature or extent that, in Landlord's reasonable judgment (to be communicated
to the other within sixty (60) days from the date of the casualty), the
repair and restoration work would require more than one hundred eighty (180)
consecutive days to complete after the casualty and, assuming normal work
crews not engaged in overtime, or (ii) if more than thirty (30%) percent of
the total area of the Building is extensively damaged, Landlord and Tenant
each shall have the right to terminate this Lease and all the unaccrued
obligations of the parties hereto, by sending written notice of such
termination to the other within ten (10) days of receipt of the notice
described above.  Such notice is to specify a termination date no less than
fifteen (15) days after its transmission; provided, however, that in addition
to the foregoing, in the event Tenant shall have also vacated the Premises
because the nature or extent of the damage rendered the Premises
untenantable, Tenant may by notice in writing to Landlord within five (5)
days of receipt of Landlord's written notice elect to make the termination of
the Lease retroactive to the date of such vacation of the Premises by Tenant.
Notwithstanding the foregoing, in the event Tenant is responsible for the
aforesaid casualty, Tenant shall NOT have the right to terminate this Lease
if Landlord is willing to rebuild and restore the Premises.

               (c)  If the insurance proceeds received by Landlord as dictated
by the terms and conditions of any financing then existing on the Building,
(excluding any rent insurance proceeds) would not be sufficient to pay for
repairing the damage or are required to be applied on account of any mortgage
which encumbers any part of the Premises or Building, or if the nature of
loss is not covered by Landlord's fire insurance coverage, Landlord may elect
either to (i) repair the damage as above provided notwithstanding such fact
or (ii) terminate this Lease by giving Tenant notice of Landlord's election
within thirty (30) days after Landlord's knowledge of the damage and of the
unavailability or insufficiency of insurance proceeds.  If the election is to
terminate, Landlord shall give Tenant at least thirty (30) days prior notice
specifying the termination date.

                                      -27-



                  (d) In the event Landlord has not completed restoration of
the Premises within one hundred eighty (180) days from the date of casualty
(subject to delay due to weather conditions, shortages of labor or materials
or other reasons beyond Landlord's control which delay in any event will not
exceed an additional thirty (30) business days), Tenant may terminate this
Lease by written notice to Landlord within thirty (30) business days
following the expiration of such 180 day period (as extended for reasons
beyond Landlord's control as provided above) unless, within thirty (30)
business days following receipt of such notice, Landlord has substantially
completed such restoration and delivered the Premises to Tenant for occupancy.

                  (e) In the event of damage or destruction to the Premises or
any part thereof, Tenant's obligation to pay Fixed Rent and Additional Rent
shall be equitably adjusted or abated, provided the deduction or abatement of
Rent shall not exceed rent insurance proceeds received by Landlord attributable
to the Premises for the period during which it was damaged. Notwithstanding the
foregoing, there shall be no abatement in Rent or Additional Rent if Tenant
caused or is responsible for the casualty such that insurance proceeds are
unavailable therefor.

         20.      SUBORDINATION; RIGHTS OF MORTGAGEE.

                  (a) This Lease shall be subject and subordinate to the lien of
any mortgages now or hereafter placed upon the Premises, Building and/or Project
and land of which they are a part without the necessity of any further
instrument or act on the part of Tenant to effectuate such subordination. Tenant
further agrees to execute and deliver upon demand such further instrument or
instruments evidencing such subordination of this Lease to the lien of any such
mortgage and such commercially reasonable further instrument or instruments of
attornment as shall be desired by any mortgagee or proposed mortgagee or by any
other person provided Tenant receives a standard form of Nondisturbance
Agreement (defined below) from such mortgagee. Notwithstanding the foregoing,
any mortgagee may at any time subordinate its mortgage to this Lease, without
Tenant's consent, by notice in writing to Tenant, and thereupon this Lease shall
be deemed prior to such mortgage without regard to their respective dates of
execution and delivery and in that event such mortgagee shall have the same
rights with respect to this Lease as though it had been executed prior to the
execution and delivery of the mortgage.

                  (b) In the event Landlord shall be or is alleged to be in
default of any of its obligations owing to Tenant under this Lease, Tenant
agrees to give to the holder of any mortgage (collectively the "Mortgagee") now
or hereafter placed upon the Premises, Building and/or Project, notice by
registered mail of any such default which Tenant shall have served upon
Landlord, provided that prior thereto Tenant has been notified in writing (by
way of Notice of Assignment of Rents and/or Leases or otherwise in writing to
Tenant) of the name and addresses of any such Mortgagee. Tenant shall not be
entitled to exercise any right or remedy as there may be because of any default
by Landlord without having given such notice to the Mortgagee; and Tenant
further agrees that if Landlord shall fail to cure such default the Mortgagee
shall have any additional time periods (measured from the later of the date on
which the default should have been cured by Landlord or the Mortgagee's receipt
of such notice from Tenant), within which to


                                      -28-


cure such default, provided that if such default be such that the same could not
be cured within such period and Mortgagee is diligently pursuing the remedies
necessary to effectuate the cure (including but not limited to foreclosure
proceedings if necessary to effectuate the cure); then Tenant may not exercise
any right or remedy as there may be arising because of Landlord's default,
including but not limited to, termination of this Lease as may be expressly
provided for herein or available to Tenant as a matter of law, if the Mortgagee
either has cured the default within such time periods, or as the case may be,
has initiated the cure of same within such period and is diligently pursuing the
cure of same as aforesaid.

                  (c) Attached to this Lease as Exhibit F is a form of
Subordination, Attornment and Non-Disturbance Agreement ("Non-Disturbance
Agreement") that is hereby deemed to be acceptable in form and substance to each
of Landlord and Tenant. Landlord and Tenant hereby each agree that upon request
of the existing or a future mortgagee of Landlord, each of Landlord and Tenant
shall enter into the Non-Disturbance Agreement or a form of non-disturbance
agreement substantially similar to that set forth in Exhibit F. In the event
that a future mortgagee shall be unwilling to enter into the Non-Disturbance
Agreement as aforesaid, Landlord and Tenant hereby each agrees to utilize their
best efforts in good faith to agree to the form of a new non-disturbance
agreement with said future mortgage. In the event that Landlord, Tenant and
said future mortgagee are unable to agree upon the terms of a new
non-disturbance agreement, this Lease shall remain in full force and effect and
the obligations of Tenant shall not in any manner be affected except that,
anything to the contrary contained in this Lease notwithstanding, this Lease
shall not be subject and subordinate to such future mortgage. Tenant shall be
obligated to enter into a new non-disturbance agreement provided that its terms
are materially similar in substance to the Non-Disturbance Agreement.

         21.      CONDEMNATION.

                  (a) If more than twenty (20%) percent of the floor area of the
Premises is taken or condemned for a public or quasi-public use (a sale in lieu
of condemnation to be deemed a taking or condemnation for purposes of this
Lease), this Lease shall, at either party's option, terminate as of the date
title to the condemned real estate vests in the condemnor, and the Fixed Rent
and Additional Rent herein reserved shall be apportioned and paid in full by
Tenant to Landlord to that date and all rent prepaid for period beyond that date
shall forthwith be repaid by Landlord to Tenant.

                  (b) If less than twenty (20%) percent of the floor area of the
Premises is taken or if neither Landlord nor Tenant have elected to terminate
this Lease pursuant to the preceding sentence, Landlord shall do such work as
may be reasonably necessary to restore the portion of the Premises not taken to
tenantable condition for Tenant's uses, but shall not be required to expend more
than the net award Landlord reasonably expects to be available for restoration
of the Premises. If Landlord determines that the damages available for
restoration of the Building and/or Project will not be sufficient to pay the
cost of restoration, or if the condemnation damage award is required to be
applied on account of any mortgage which encumbers any part of the


                                      -29-


Premises, Building and/or Project, Landlord may terminate this Lease by giving
Tenant ninety (90) days prior written notice specifying the termination date.

                  (c) If this Lease is not terminated after any such taking or
condemnation, the Fixed Rent and the Additional Rent shall be equitably reduced
in proportion to the area of the Premises which has been taken for the balance
of the Term.

                  (d) If a part or all of the Premises shall be taken or
condemned, all compensation awarded upon such condemnation or taking shall go to
Landlord and Tenant shall have no claim thereto other than (i) Tenant's right to
bring a claim for the cost of the alterations made by Tenant at Tenant's sole
cost and expense, provided that said claim does not in any manner or affect
adversely affect any condemnation claim by Landlord, and (ii) Tenant's damages
associated with moving, storage and relocation; and Tenant hereby expressly
waives, relinquishes and releases to Landlord any claim for damages or other
compensation to which Tenant might otherwise be entitled because of any such
taking or limitation of the leasehold estate hereby created, and irrevocably
assigns and transfers to Landlord any right to compensation of all or a part of
the Premises or the leasehold estate.

         22.      ESTOPPEL CERTIFICATE. Each party agrees at any time and from
time to time, within ten (10) days after the other party's written request, to
execute, acknowledge and deliver to the other party a written instrument in
recordable form certifying that this Lease is unmodified and in full force and
effect (or if there have been modifications, that it is in full force and effect
as modified and stating the modifications), and the dates to which Rent,
Additional Rent, and other charges have been paid in advance, if any, and
stating whether or not to the best knowledge of the party signing such
certificate, the requesting party is in default in the performance of any
covenant, agreement or condition contained in this Lease and, if so, specifying
each such default of which the signer may have knowledge. It is intended that
any such certification and statement delivered pursuant to this Article may be
relied upon by any prospective purchaser of the Project or any
mortgagee thereof or any assignee of Landlord's interest in this Lease or of any
mortgage upon the fee of the Premises or any part thereof.

         23.      DEFAULT.

                  If:

                  (i) Tenant shall fail to pay any installment of Fixed Rent or
any amount of Additional Rent when due and has failed to remit said repayment
within five (5) days of date of written notice thereof from Landlord, provided,
however, that in the event that any notice is required to be given by Landlord
more than two (2) times in any twelve (12) month period of this Lease or more
than ten (10) times during the Term or any renewal term of the Lease, Tenant
shall be deemed to be in default under this Lease without the requirement of any
notice from Landlord.


                                      -30-


              (ii) Tenant "vacates" the Premises (other than in the case of a
permitted subletting or assignment) or permits the same to be unoccupied as
defined in Section 9(b) hereof.

              (iii) Tenant fails to observe or perform any of Tenant's other
agreements or obligations herein contained within thirty (30) days after
written notice specifying the default, or the expiration of such additional
time period as is reasonably necessary to cure such default, provided Tenant
immediately commences and thereafter proceeds with all due diligence and in
good faith to cure such default,

              (iv) Tenant makes any assignment for the benefit of creditors,

              (v) Tenant commits an act of federal or state bankruptcy or
files a petition or commences any proceeding under any bankruptcy or
insolvency law,

              (vi) a petition is filed or any proceeding is commenced against
Tenant under any federal or state bankruptcy or insolvency law and such
petition or proceeding is not dismissed within thirty (30) days,

              (vii) Tenant is adjudicated a bankrupt,

              (viii) Tenant by any act indicates its consent to, approval of
or acquiescence in, or a court approves, a petition filed or proceeding
commenced against Tenant under any federal or state bankruptcy or insolvency
law,

              (ix) a receiver or other official is appointed for Tenant or
for a substantial part of Tenant's assets or for Tenant's interests in this
Lease,

              (x) any attachment or execution against a substantial part of
Tenant's assets or of Tenant's interests in this Lease remains unstayed or
undismissed for a period of more than ten (10) days,

              (xi) a substantial part of Tenant's assets or of Tenant's
interest in this Lease is taken by legal process in any action against
Tenant, or

              (xii) Tenant shall have committed an Event of Default under the
terms of that certain Lease, dated even date herewith, by and between
Landlord and Tenant with regard to that certain land and premises known as
660 Allendale Road, King of Prussia, Pennsylvania,

then, in any such event, an Event of Default shall be deemed to exist and
Tenant shall be in default hereunder.

    If an Event of Default shall occur, the following provisions shall apply
and Landlord shall have, in addition to all other rights and remedies
available at law or in equity, the rights and

                                    -31-


remedies set forth therein, which rights and remedies may be exercised upon
or at any time following the occurrence of an Event of Default unless, prior
to such exercise, Landlord shall agree in writing with Tenant that the
Event(s) of Default has been cured by Tenant in all respects.

    (a)   ACCELERATION OF RENT. By notice to Tenant, Landlord shall have the
right to accelerate all Fixed Rent and all expense installments due hereunder
and otherwise payable in installments over the remainder of the Term, and, at
Landlord's option, any other Additional Rent to the extent that such
Additional Rent can be determined and calculated to a fixed sum; and the
amount of accelerated rent to the termination date, without further notice or
demand for payment, shall be due and payable by Tenant within five (5) days
after Landlord has so notified Tenant, such amount collected from Tenant
pursuant to a judgment shall be discounted to present value using an interest
rate of ten percent (10%) per annum. Additional Rent which has not been
included, in whole or in part, in accelerated rent, shall be due and payable
by Tenant during the remainder of the Term, in the amounts and at the times
otherwise provided for in this Lease.

    Notwithstanding the foregoing or the application of any rule of law based
on election of remedies or otherwise, if Tenant fails to pay the accelerated
rent in full when due, Landlord thereafter shall have the right by notice to
Tenant, (i) to terminate Tenant's further right to possession of the Premises
and (ii) to terminate this Lease under subparagraph (b) below; and if Tenant
shall have paid part but not all of the accelerated rent, the portion thereof
attributable to the period equivalent to the part of the Term remaining after
Landlord's termination of possession or termination of this Lease shall be
applied by Landlord against Tenant's obligations owing to Landlord, as
determined by the applicable provisions of subparagraphs (c) and (d) below.

    (b)   TERMINATION OF LEASE. By notice to Tenant, Landlord shall have the
right to terminate this Lease as of a date specified in the notice of
termination and in such case, Tenant's rights, including any based on any
option to renew, to the possession and use of the Premises shall end
absolutely as of the termination date; and this Lease shall also terminate in
all respects except for the provisions hereof regarding Landlord's damages
and Tenant's liabilities arising prior to, out of and following the Event of
Default and the ensuing termination.

    Following such termination and the notice of same provided above (as well
as upon any other termination of this Lease by expiration of the Term or
otherwise) Landlord immediately shall have the right to recover possession of
the Premises; and to that end, Landlord may enter the Premises and take
possession, with the necessity of giving Tenant any notice to quit or any
other further notice, with legal process or proceedings, and in so doing
Landlord may remove Tenant's property (including any improvements or
additions to the Premises which Tenant made, unless made with Landlord's
consent which expressly permitted Tenant to not remove the same upon
expiration of the Term), as well as the property of others as may be in the
Premises, and make disposition thereof in such manner as Landlord may deem to
be commercially reasonable and necessary under the circumstances.

                                    -32-


    (c)   TENANT'S CONTINUING OBLIGATIONS/LANDLORD'S RELETTING RIGHTS

         (1)   Unless and until Landlord shall have terminated this Lease
under subparagraph (b) above, Tenant shall remain fully liable and
responsible to perform all of the covenants and to observe all the conditions
of this Lease throughout the remainder of the Term to the early termination
date; and, in addition, Tenant shall pay to Landlord, upon demand and as
Additional Rent, the total sum of all costs, losses and expenses, including
reasonable attorneys' fees, as Landlord incurs, directly or indirectly,
because of any Event of Default having occurred.

         (2)   If Landlord either terminates Tenant's right to possession
without terminating this Lease or terminates this Lease and Tenant's
leasehold estate as above provided, then, subject to the provisions below,
Landlord shall have the unrestricted right to relet the Premises or any
part(s) thereof to such tenant(s) on such provisions and for such period(s)
as Landlord may deem appropriate. If Landlord relets the Premises after such
a default, the costs recovered from Tenant shall be reallocated to take into
consideration any additional rent which Landlord receives from the new tenant
which is in excess to that which was owed by Tenant.

    (d)   LANDLORD'S DAMAGES.

         (1)   The damages which Landlord shall be entitled to recover from
Tenant shall be the sum of:

              (A)   all Fixed Rent and Additional Rent accrued and unpaid as
of the termination date; and

              (B)   (i) all reasonable costs and expenses incurred by Landlord
in recovering possession of the Premises, including removal and storage of
Tenant's property, in accordance with Section 11 hereof, (ii) the costs and
expenses of restoring the Premises to the condition in which the same were to
have been surrendered by Tenant as of the expiration of the Term and
accordance with Section 11 hereof, and (iii) the costs of reletting
commissions; and

              (C)   all Fixed Rent and Additional Rent (to the extent that the
amount(s) of Additional Rent has been then determined) otherwise payable by
Tenant over the remainder of the Term as reduced to present value.

Less deducting from the total determined under subparagraphs (A), (B) and (C)
all Rent and all other Additional Rent to the extent determinable as
aforesaid, (to the extent that like charges would have been payable by
Tenant) which Landlord receives from other tenant(s) by reason of the leasing
of the Premises or part during or attributable to any period falling within
the otherwise remainder of the Term.

         (2)   The damage sums payable by Tenant under the preceding provisions
of this paragraph (d) shall be payable on demand from time to time as the
amounts are

                                       -33-


determined; and if from Landlord's subsequent receipt of rent as aforesaid
from reletting, there be any excess payment(s) by Tenant by reason of the
crediting of such rent thereafter received, the excess payment(s) shall be
refunded by Landlord to Tenant.

                (3)  Landlord may distrain for rent, and enforce the provisions
of this Lease and may enforce and protect the rights of Landlord hereunder by a
suit or suits in equity or at law for the specific performance of any
covenant or agreement contained herein, and for the enforcement of any other
appropriate legal or equitable remedy, including, without limitation,
injunctive relief, and for recovery of all moneys due or to become due from
Tenant under any of the provisions of this Lease.

           (e)  LANDLORD'S RIGHT TO CURE.  Without limiting the generality of
the foregoing, if Tenant shall be in default in the performance of any of its
obligations hereunder, Landlord, without being required to give Tenant any
notice or opportunity to cure, may (but shall not be obligated to do so), in
addition to any other rights it may have in law or in equity, cure such
default on behalf of Tenant, and Tenant shall reimburse Landlord upon demand
for any sums paid or costs incurred by Landlord in curing such default,
including reasonable attorneys' fees and other legal expenses, together with
interest at 10% per annum Rate from the dates of Landlord's incurring of
costs or expenses.

           (f)  ADDITIONAL REMEDIES.  In addition to, and not in lieu of any of
the foregoing rights granted to Landlord:

               (i)  TENANT HEREBY EMPOWERS ANY PROTHONOTARY, CLERK OF COURT OR
ATTORNEY OF ANY COURT OF RECORD TO APPEAR FOR TENANT IN ANY AND ALL ACTIONS
WHICH MAY BE BROUGHT FOR EVICTION OF THE TENANT FROM THE PREMISES AND FOR
POSSESSION OF THE PREMISES BY LANDLORD, AND TO SIGN FOR TENANT AN AGREEMENT
FOR ENTERING IN ANY COMPETENT COURT AN ACTION OR ACTIONS FOR EVICTION OR
RECOVERY OF SAID POSSESSION, AND IN SAID SUIT OR IN SAID ACTION OR ACTIONS TO
CONFESS JUDGEMENT AGAINST TENANT FOR EVICTION AND FOR SUCH POSSESSION.  SUCH
AUTHORITY SHALL NOT BE EXHAUSTED BY ONE EXERCISE THEREOF, BUT JUDGMENT MAY BE
CONFESSED AS AFORESAID FROM TIME TO TIME AS OFTEN AS TENANT SHALL HAVE
COMMITTED AN EVENT OF DEFAULT, AND SUCH POWERS MAY BE EXERCISED AS WELL AFTER
THE EXPIRATION OF THE TERM OR DURING ANY EXTENSION OR RENEWAL OF THIS LEASE.

           (g)  INTEREST ON DAMAGE AMOUNTS.  Any sums payable by Tenant
hereunder, which are not paid after the same shall be due, shall bear
interest from that day until paid at the rate of four (4%) percent over the
then Prime Rate as published daily under the heading "Money Rates" in THE
WALL STREET JOURNAL, unless such rate be usurious as applied to Tenant, in
which case the highest permitted legal rate shall apply (the "Default Rate").


                                       -34-


           (h)  LANDLORD'S STATUTORY RIGHTS.  Landlord shall have all rights
and remedies now or hereafter existing at law or in equity with respect to
the enforcement of Tenant's obligations hereunder and the recovery of the
Premises.  No right or remedy herein conferred upon or reserved to Landlord
shall be exclusive of any other right or remedy, but shall be cumulative and
in addition to all other rights and remedies given hereunder or now or
hereafter existing at law.  Landlord shall be entitled to injunctive relief
in case of the violation, or attempted or threatened violation, of any
covenant, agreement, condition or provision of this Lease, or to a decree
compelling performance of any covenant, agreement, condition or provision of
this Lease.

           (i)  REMEDIES NOT LIMITED.  Nothing herein contained shall limit
or prejudice the right of Landlord to exercise any or all rights and remedies
available to Landlord by reason of default or to prove for and obtain in
proceedings under any bankruptcy or insolvency laws, an amount equal to the
maximum allowed by any law in effect at the time when, and governing the
proceedings in which, the damages are to be proved, whether or not the amount
be greater, equal to, or less than the amount of the loss or damage referred
to above.

           (j)  NO WAIVER BY LANDLORD.  No delay or forbearance by Landlord
in exercising any right or remedy hereunder, or Landlord's undertaking or
performing any act or matter which is not expressly required to be undertaken
by Landlord shall be construed, respectively, to be a waiver of Landlord's
rights or to represent any agreement by Landlord to undertake or perform such
act or matter thereafter.  Waiver by Landlord of any breach by Tenant of
any covenant or condition herein contained (which waiver shall be effective
only if so expressed in writing by Landlord) or failure by Landlord to
exercise any right or remedy in respect of any such breach shall not
constitute a waiver or relinquishment for the future of Landlord's right to
have any such covenant or condition duly performed or observed by Tenant, or
of Landlord's rights arising because of any subsequent breach of any such
covenant or condition nor bar any right or remedy of Landlord in respect of
such breach or any subsequent breach.  Landlord's receipt and acceptance of
any payment from Tenant which is tendered not in conformity with the
provisions of this Lease or following an Event of Default (regardless of any
endorsement or notation on any check or any statement in any letter
accompanying any payment)  shall not operate as an accord and satisfaction or
a waiver of the right of Landlord to recover any payments then owing by
Tenant which are not paid in full, or act as a bar to the termination of this
Lease and the recovery of the Premises because of Tenant's previous default.

      24.  CURING TENANT'S DEFAULTS.  If Tenant shall default in the
performance of any of its non-monetary obligations hereunder, Landlord
without prejudice and in addition to any other rights it may have at law or
in equity, after giving Tenant written notice of such default and after
failure by Tenant within thirty (30) days of the receipt of such notice to
correct or to undertake and diligently pursue correction of said default(s)
in which event the thirty day period shall be extended for a reasonable time
not to exceed an additional fifteen (15) days (which notice and/or
opportunity to cure shall not be required in case Landlord shall determine
that an emergency exists requiring prompt action), may cure such default(s)
on behalf of Tenant; and


                                       -35-


Tenant shall reimburse Landlord on demand for all costs incurred by Landlord
in that regard plus interest thereon from the date(s) of expenditure at the
Default Rate, which shall be deemed Additional Rent payable hereunder.

      26.  LANDLORD'S REPRESENTATIONS AND WARRANTIES.  Landlord represents
and warrants to Tenant that:  (a) Landlord is the fee owner of the Building
and the Project; and (b) Landlord has the authority to enter into this Lease.

      27.  SURRENDER.  Tenant shall, at the expiration of the Term, promptly
quit and surrender the Premises in good order and condition and in conformity
with the applicable provisions of this Lease, excepting only reasonable wear
and tear and damage by fire or other insured casualty.  Tenant shall have no
right to hold over beyond the expiration of the Term and in the event Tenant
shall fail to deliver possession of the Premises as herein provided, such
occupancy shall not be construed to effect or constitute other than a tenancy
at sufferance.  During any period of occupancy beyond the expiration of the
Term the amount of rent owed to Landlord by Tenant shall automatically become
two hundred percent (200%) the sum of the Rent as those sums are at that time
calculated under the provisions of the Lease.  If Tenant fails to surrender
the space within thirty (30) days of the termination date, Landlord may elect
to automatically extend the Term for an additional month or additional year,
at Landlord's option, with a Rent of two hundred percent (200%) the sum of
the Rent as those sums are at that time calculated under the provisions of
the Lease.  The acceptance of rent by Landlord or the failure or delay of
Landlord in notifying or evicting Tenant following the expiration or sooner
termination of the Term shall not create any tenancy rights in Tenant and any
such payments by Tenant may be applied by Landlord against its costs and
expenses, including attorney's fees incurred by Landlord as a result of such
holdover.  Landlord agrees to treat Tenant as a holdover (as opposed to a
trespasser) so long as Landlord and Tenant are negotiating in good faith to
extend the term of this Lease.

      28.  RULES AND REGULATIONS.  Tenant agrees that at all times during the
terms of this Lease (as same may be extended) it, its employees, agents,
invitees and licenses shall comply with all rules and regulations specified
on EXHIBIT "G" attached hereto and made a part hereof, together with all
reasonable Rules and Regulations as Landlord may from time to time promulgate
provided they do not increase the financial burdens of Tenant or unreasonably
restrict Tenant's rights under this Lease or materially and adversely affect
Tenant's use or occupancy of the Premises.  Tenant's right to dispute the
reasonableness of any changes in or additions to the Rules and Regulations
shall be deemed waived unless asserted to Landlord within ten (10) business
days after Landlord shall have given Tenant written notice of any such
adoption or change.  In case of any conflict or inconsistency between the
provisions of this Lease and any Rules and Regulations, the provisions of
this Lease shall control.  Landlord shall have no duty or obligation to
enforce any Rule and Regulation, or any term, covenant or condition of any
other lease, against any other tenant, and Landlord's failure or refusal to
enforce any Rule or Regulation or any term, covenant of condition of any
other lease against any other tenant shall be


                                       -36-





without liability of Landlord to Tenant.  However, if Landlord does enforce
Rules or Regulations, Landlord shall endeavor to enforce same equally in a
non-discriminatory manner.

          29.  GOVERNMENTAL REGULATIONS.

               (a)  Tenant shall, in the use and occupancy of the Premises and
the conduct of Tenant's business or profession therein, at all times comply with
all applicable laws, ordinances, orders, notices, rules and regulations of the
federal, state and municipal governments, or any of their departments and the
regulations of the insurers of the Premises, Building and/or Project.

               (b)  Without limiting the generality of the foregoing, Tenant
shall (i) obtain, at Tenant's expense, before engaging in Tenant's business or
profession within the Premises, all necessary licenses and permits including
(but not limited to) state and local business licenses or permits, and (ii)
remain in compliance with and keep in full force and effect at all times all
licenses, consents and permits necessary for the lawful conduct of Tenant's
business or profession at the Premises.  Tenant shall pay all personal property
taxes, income taxes and other taxes, assessments, duties, impositions and
similar charges which are or may be assessed, levied or imposed upon Tenant and
which, if not paid, could be liened against the Premises or against Tenant's
property therein or against Tenant's leasehold estate.

               (c)  Landlord shall be responsible for compliance with Title III
of the American with Disabilities Act of 1990, 42 U.S.C. Section 12181 ET SEQ.
and its regulations, (collectively, the "ADA") (i) as to the design and
construction of exterior common areas (E.G. sidewalks and parking areas) and
(ii) with respect to the initial design and construction by Landlord of
Landlord's Work (as defined in Article 4 hereof).  Except as set forth above in
the initial sentence hereto, Tenant shall be responsible for compliance with the
ADA in all other respects concerning the use and occupancy of the Premises,
which compliance shall include, without limitation (i) provision for full and
equal enjoyment of the goods, services, facilities, privileges, advantages or
accommodations of the Premises as contemplated by and to the extent required by
the ADA, (ii) compliance relating to requirements under the ADA or amendments
thereto arising after the date of this Lease and (iii) compliance relating to
the design, layout, renovation, redecorating, refurbishment, alteration, or
improvement to the Premises made or requested by Tenant at any time following
completion of the Landlord's Work.

               (d)  Tenant shall indemnify, protect, defend and save Landlord
harmless with regard to any non-compliance or alleged non-compliance by Tenant
with any law, order, ordinance, regulation, permit, license or other
governmental matter in any way relating to the conduct of Tenant's business or
profession in the Premises.  If Landlord is named as defendant or a responsible
party with respect to any alleged violation or non-compliance by Tenant as
aforesaid, Landlord also may require, by notice to Tenant, that the matters or
conduct giving rise thereto be discontinued by Tenant unless and until the
alleged violation or non-compliance is resolved in Tenant's favor.


                                      -37-


          30.  NOTICES.  Wherever in the Lease it shall be required or permitted
that notice or demand be given or served by either party to this Lease to or on
the other party, such notice or demand shall be deemed to have been duly given
or served if in writing and either: (i) personally served; (ii) delivered by
pre-paid nationally recognized overnight courier service (E.G. Federal Express)
with evidence of receipt required for delivery; or (iii) forwarded by Registered
or Certified mail, return receipt requested, postage pre-paid; in all such cases
addressed to the parties at the addresses set forth in Article 1(1) hereof.
Each such notice shall be deemed to have given to or served upon the party to
which addressed on the date the same is delivered or delivery is refused.
Either party hereto may change its address to which said notice shall be
delivered or mailed by giving written notice of such change to the other party
hereto, as herein provided.

          31.  BROKERS.  Tenant represents and warrants to Landlord that Tenant
has had no dealings, negotiations or consultations with respect to the Premises
or this transaction with any broker or finder other than the Broker identified
in Article 1(k); and that otherwise no broker or finder called the Premises to
Tenant's attention for lease or took any part in any dealings, negotiations or
consultations with respect to the Premises or this Lease.  Tenant agrees to
indemnify and hold Landlord harmless from and against all liability, cost and
expense, including attorney's fees and court costs, arising out of any
misrepresentation or breach of warranty under this Article.

          32.  CHANGE OF BUILDING/PROJECT NAME.  Landlord reserves the right at
any time and from time to time to change the name by which the Building and/or
Project is designated.

          33.  LANDLORD'S LIABILITY.  Landlord's obligations hereunder shall be
binding upon Landlord only for the period of time that Landlord is in ownership
of the Building; and, upon termination of that ownership, Tenant, except as to
any obligations which are then due and owing, shall look solely to Landlord's
successor in interest in the Building for the satisfaction of each and every
obligation of Landlord hereunder.  Neither Landlord nor any of its partners
shall be any personal liability under any of the terms, conditions or covenants
of this Lease and Tenant shall look solely to Landlord's equity interest in the
Project for the satisfaction of any claim, remedy or cause of action accruing to
Tenant as a result of the breach of any section of this Lease by Landlord.  In
addition to the foregoing, no recourse shall be had for an obligation of
Landlord hereunder, or for any claim based thereon or otherwise in respect
thereof, against any past, present or future trustee, member, partner,
shareholder, officer, director, partner, agent or employee of Landlord, whether
by virtue of any statute or rule of law, or by the enforcement of any assessment
or penalty or otherwise, all such other liability being expressly waived and
released by Tenant with respect to the above-named individuals and entities.

          34.  AUTHORITY.  Tenant represents and warrants that (a) Tenant is
duly organized, validly existing and legally authorized to do business in the
Commonwealth of Pennsylvania, and (b) the persons executing this Lease are duly
authorized to execute and deliver this Lease on behalf of Tenant.


                                      -38-


          35.  NO OFFER.  The submission of the Lease by Landlord to Tenant for
examination does not constitute a reservation of or option for the Premises or
of any other space within the Building or in other buildings owned or managed by
Landlord or its affiliates.  This Lease shall become effective as a Lease only
upon the execution and legal deliverly thereof by both parties hereto.

          36.  RENEWAL.  Provided Tenant is not in default of any obligations
under this Lease, either at the time of exercise of this option, or at the
commencement of the Renewal Term and Tenant is fully occupying the Premises and
the Lease is in full force and effect, Tenant shall have the right to renew this
Lease for two (2) terms of five (5) years each beyond the end of the initial
Term (each, a "Renewal Term").  Tenant shall furnish written notice of its
intent to renew at lease twelve (12) months prior to the expiration of the
application Term, failing which, such renewal right shall be deemed waived; time
being of the essence.  The terms and conditions of this Lease during each
Renewal Term shall remain unchanged, except that Tenant shall NOT be entitled to
any additional construction allowance under Article 4 or otherwise and except
the Fixed Rent to be paid by Tenant to Landlord for each year of each Renewal
Term, as set forth in Exhibit B attached hereto and made a part hereof, will
be the Fixed Rent for the prior year, increase by three percent (3%).  Tenant
hereby acknowledges that in the event that Landlord's costs in connection with
those items that comprise the Operating Expenses, excluding the items listed in
Section 6(a)(3) hereof, increase from time to time during the Term and any
Renewal Term of this Lease, then the Operating Expenses to be charged to Tenant
shall increase accordingly.  As used in this Lease, the word "Term" shall
include any validly exercised Renewal Term.

          37.  ROOF RIGHTS.

               (a)  Tenant shall have the obligation to replace the exiting roof
of the Premises, in which event the Landlord shall contribute the sume of One
Hundred Fifty Thousand Dollars ($150,000.00) to Tenant upon the completion of
the roof and Landlord's verification thereof.  All of Tenant's work in
connection with said roof shall be done in compliance with all appropriate
zoning and building code statutes, laws, rules, regulations and ordinances and
Tenant shall be responsible, at its own cost and expense, for the procurement of
any and all permits and certificates of occupancy in connection therewith.
Landlord shall have the right to approve the Tenant's choice of the roofing
contractor selected by Tenant, which approval shall not be unreasonably withheld
or delayed by Landlord.  The roof replacement shall be effected by Tenant within
the five (5) year period commencing on the Commencement Date of this Lease.
Tenant shall be responsible for all maintenance, repairs and replacement of the
roof during the Term and any renewal term of this Lease and, to the extent an
assignment is permitted, shall be assigned all warranties and guarantees, if
any, held by Landlord with respect thereto for enforcement thereof by Tenant.
In the event that said warranties or guaranties cannot be assigned, Landlord,
upon Tenant's request, shall take reasonable steps to enforce said warranties or
guaranties.

               (b)  So long as it (i) does not impact Landlord's roof warranty
and (ii) complies with all applicable laws, rules and regulations, Tenant, at
its sole cost and expense but


                                      -39-


without additional charge hereunder other than utility fees which may be
imposed for actual usage, shall have access to the roof of the Building in
designated areas mutually agreed upon for the purpose of installation of
microwave satellite, antenna and other communications devices or supplemental
HVAC units and venting units (collectively, the "Roof Equipment") and with
respect to telecommunications installations, Tenant shall use its best
efforts to utilize US Realtel to provide such services, or such other
contractor as may be acceptable to Landlord, upon its prior written consent
and approval, which consent shall not be reasonably withheld or delayed.
Notwithstanding the foregoing, all such Roof Equipment shall be for the sole
benefit of Tenant and Landlord, shall relate specifically to Tenant's use of
the Premises, and shall not be used as a switching station, amplification
station or by other tenants or third parties. Tenant shall make a request for
approval of the Roof Equipment hereunder by submission of specific plans and
specifications for the work to be performed by Tenant. Landlord shall respond
in writing within fifteen (15) business days from receipt of the same,
advising Tenant of approved contractors and those portions of the work that
are acceptable and disapproving those portions of the work that are, in
Landlord's judgment, reasonably exercised, unacceptable and with respect to
the plans, specifying in detail the nature of Landlord's objection. Tenant
shall be solely responsible for the removal of all Roof Equipment and the
restoration of the roof upon the expiration or early termination of this
Lease unless directed in writing by Landlord otherwise. All installation,
repair, replacement and modification of the Roof Equipment shall be
coordinated with Landlord, shall only use those contractors approved by
Landlord, which approval shall not be unreasonably withheld or delayed by
Landlord, and shall be in accordance with the Rules and Regulations set forth
herein.

38.  MISCELLANEOUS PROVISIONS.

     A. SUCCESSORS. The respective rights and obligations provided in this
Lease shall bind and inure to the benefit of the parties hereto, their
successors and assigns; provided, however, that no rights shall inure to the
benefit of any successors of Tenant unless Landlord's written consent for the
transfer to such successor and/or assignee has first been obtained as
provided in Article 12 hereof.

     B.  GOVERNING LAW. This Lease shall be construed, governed and enforced
in accordance with the laws of the Commonwealth of Pennsylvania, without
regard to principles relating to conflicts of law.

     C. SEVERABILITY. If any provisions of this Lease shall be held to be
invalid, void or unenforceable, the remaining provisions hereof shall in no
way be affected or impaired and such remaining provisions shall remain in
full force and effect.

     D. CAPTIONS. Marginal captions, titles or exhibits and riders and the
table of contents in this Lease are for convenience and reference only, and
are in no way to be construed as defining, limiting or modifying the scope or
intent of the various provisions of this Lease.

                                    -40-



              E. GENDER. As used in this Lease, the word "person" shall mean
and include, where appropriate, an individual, corporation, partnership or
other entity; the plural shall be substituted for the singular, and the
singular for the plural, where appropriate; and the words of any gender shall
mean to include any other gender.

              F. ENTIRE AGREEMENT. This Lease, including the Exhibits and any
Riders hereto (which are hereby incorporated by this reference, except that
in the event of any conflict between the printed portions of this Lease and
any Exhibits or Riders, the term of such Exhibits or Riders shall control),
supersedes any prior discussions, proposals, negotiations and discussions
between the parties and the Lease contains all the agreements, conditions,
understandings, representations and warranties made between the parties
hereto with respect to the subject matter hereof, and may not be modified
orally or in any manner other than by an agreement in writing signed by both
parties hereto or their respective successors in interest. Without in any way
limiting the generality of the foregoing, this Lease can only be extended
pursuant to the terms hereof, and in Tenant's case, with the terms hereof, and
in Tenant's case, with the due exercise of an option (if any) contained herein
or a formal agreement signed by both Landlord and Tenant specifically extending
the term. No negotiations, correspondence by Landlord or offers to extend the
term shall be deemed an extension of the termination date for any period
whatsoever.

              G.  COUNTERPARTS. This Lease may be executed in any number of
counterparts, each of which when taken together shall be deemed to be one and
the same instrument.

              H.  TELEFAX SIGNATURES. The parties acknowledge and agree that
notwithstanding any law or presumption to the contrary a telefaxed signature
of either party whether upon this Lease or any related document shall be
deemed valid and binding and admissible by either party against the other as
if same were an original ink signature.

              I.  CALCULATION OF TIME. In computing any period of time
prescribed or allowed by any provision of this Lease, the day of the act,
event or default from which the designated period of time begins to run shall
not be included. The last day of the period so computed shall be included,
unless it is a Saturday, Sunday or a legal holiday, in which event the period
runs until the end of the next day which is not a Saturday, Sunday, or legal
holiday. Unless otherwise provided herein, all Notices and other periods
expire as of 5:00 p.m. (LOCAL TIME IN NEWTOWN SQUARE, PENNSYLVANIA) on the
last day of the Notice or other period.

              J.  NO MERGER. There shall be no merger of this Lease or of the
leasehold estate hereby created with the fee estate in the Premises or any
part thereof by reason of the fact that the same person, firm, corporation,
or other legal entity may acquire or hold, directly or indirectly, this Lease
of the leasehold estate and the fee estate in the Premises or any interest in
such fee estate, without the prior written consent of Landlord's mortgagee.

                                  -41-



              K. TIME OF THE ESSENCE. TIME IS OF THE ESSENCE IN ALL
PROVISIONS OF THIS LEASE, INCLUDING ALL NOTICE PROVISIONS TO BE PERFORMED BY
OR ON BEHALF OF TENANT.

              L.  RECORDATION OF LEASE. Tenant shall not record this Lease
without the written consent of Landlord. Upon Landlord's request or with
Landlord's written consent, the parties agree to execute a short form of this
Lease for recording purposes containing such terms as Landlord believes
appropriate or desirable, the expense thereof to be borne by Tenant. If such
a short form of this Lease is recorded, upon the termination of this Lease,
Tenant shall execute, acknowledge, and deliver to Landlord an instrument in
writing releasing and quitclaiming to Landlord all right, title and interest
of Tenant in and to the Premises arising from this Lease or otherwise, all
without cost or expense to Landlord.

              M.  ACCORD AND SATISFACTION. No payment by Tenant or receipt by
Landlord of a lesser amount than any payment of Fixed Rent or Additional Rent
herein stipulated shall be deemed to be other than on account of the earliest
stipulated Fixed Rent or Additional Rent due and payable hereunder, nor shall
any endorsement or statement or any check or any letter accompanying any
check or payment as Rent be deemed an accord and satisfaction. Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the balance of such Rent or pursue any other right or remedy provided for in
this Lease, at law or in equity.

              N.  NO PARTNERSHIP. Landlord does not, in any way or for any
purpose, become a partner of Tenant in the conduct of its business, or
otherwise, or joint venturer or a member of a joint enterprise with Tenant.
This Lease establishes a relationship solely of that of a landlord and tenant.

              O.  NO PRESUMPTION AGAINST DRAFTER. Landlord and Tenant
understand, agree, and acknowledge that: (i) this Lease has been freely
negotiated by both parties; and (ii) that, in the event of any controversy,
dispute, or contest over the meaning, interpretation, validity, or
enforceability of this Lease, or any of its terms or conditions, there shall
be no inference, presumption, or conclusion drawn whatsoever against either
party by virtue of that party having drafted this Lease or any portion
thereof.

              P.  COMPLIANCE WITH LAWS. At the commencement of Tenant's
initial Lease Term, and upon Landlord's delivery of the Premises to Tenant,
the exterior, and all structural elements, of the Building shall be in
compliance with all municipal, county, state and federal laws, codes, and
requirements. Landlord and Tenant hereby acknowledge that the respective
rights and obligations of Landlord and Tenant with regard to the ADA are
addressed in Section 29(c) hereof.

              Q.  CONSENT/DUTY TO ACT REASONABLY. Regardless of any reference
to the words "sole" or "absolute" (except for matters which (a) are
reasonably likely to have an adverse effect on the structural integrity of
the Building, (b) are reasonably likely to have an adverse

                                   -42-



effect on the Building's systems, or (c) are reasonably likely to have an
effect on the exterior appearance of the Building, whereupon in each such
case Landlord's duty is to act in good faith and in compliance with the
Lease), any time the consent of Landlord or Tenant is required, such consent
shall not be unreasonably withheld, conditioned or delayed. Whenever the
lease grants Landlord or Tenant the right to take action, exercise
discretion, established rules and regulations or make allocations or other
determinations (other than decisions to exercise expansion, contractions,
cancellation, termination or renewal options), Landlord and Tenant shall act
reasonably and in good faith and take no action which is reasonably likely to
result in the frustration of the reasonable expectations of a sophisticated
tenant or landlord concerning the benefits to be enjoyed under this Lease.

              R.  DAYS. All references to "notice" shall mean written notice
given in compliance with Section 30 of this Lease. Whenever in the Lease a
payment is required to be made by one party to the other, but a specific date
for payment is not set forth or a specific number of days within which
payment is to be made is not set forth, or the words "immediately",
"promptly" and/or "on demand", or their equivalent, are used to specify when
such payment is due, then such payment shall be due within five (5) days
after the party which is entitled to such payment.

              S.  ABATEMENT OF RENT WHEN TENANT IS PREVENTED FROM USING
PREMISES. In the event that Tenant is prevented from using, and does not
use, the Premises or any portion thereof, for three (3) consecutive business
days or ten (10) business days in any twelve (12) month period (the
"Eligibility Period") as a result of (a) any damage or destruction to the
Premises and/or the Building, (b) any repair, maintenance or alteration
performed by Landlord after the Commencement Date and required or permitted
by this Lease, which substantially interferes with Tenant's use of the
Premises, (c) any failure by Landlord to provide Tenant with services or
access to the Premises and/or the Building, (d) any eminent domain proceeding
which substantially interferes with Tenant's use of the Premises, (e) the
presence of Hazardous Materials in, on or around the Premises or the Building
which poses a health risk to occupants of the Premises and are not
attributable to the acts of Tenant or its employees, agents representatives,
licensees or invitees, or (f) construction activities of Landlord on or about
the Building and/or Project, and provided that said prevention is not caused
by the acts or omissions of Tenant or its employees, agents, representatives,
licensees or invitees, Tenant's rent shall be abated or reduced, as the case
may be, after expiration of the Eligibility Period and for such time, on a
day-for-day basis, that Tenant continues to be so prevented from using, and
does not use, the Premises or a portion thereof, in the proportion that the
rentable area of the portion of the Premises that Tenant is prevented from
using, and does not use, bears to the total rentable area of the Premises.
However, in the event that Tenant is prevented from conducting, and does not
conduct its business in any portion of the Premises for a period of time in
excess of the Eligibility Period, and the remaining portion of the Premises
is not sufficient to allow Tenant to effectively conduct its business
therein, and if Tenant does not conduct its business from such remaining
portion, then for such time after expiration of the Eligibility Period during
which Tenant is so prevented from effectively conducting its business
therein, the Rent for the entire

                                 -43-



Premises shall be abated: provided however, if Tenant re-occupies and
conducts its business from any portion of the Premises during such period,
the rent allocable to such preoccupied portion, based on the proportion that
the rentable area of such re-occupied portion of the Premises bears to the
total rentable area of the Premises, shall be payable by Tenant form the date
such business operations commence. If Tenant's right to abatement occurs
because of an eminent domain taking and/or because of damage or destruction
to the Premises, the Building, or Tenant's property, Tenant's abatement
period shall continue until Tenant has been given sufficient time and
sufficient access to the Premises and/or the Building, to rebuild such
portion it is required to rebuild, to install its property, furniture,
fixtures, and equipment to the extent the same shall have been removed and/or
damaged as a result of such damage or destruction and/or eminent domain
taking and to move in over one (1) weekend. It is hereby acknowledged and
agreed, however, that in the event that said prevention is caused by the acts
or omissions of Tenant or its employees, agents, representatives, licensees or
invitees, Tenant shall have no right to any abatement or reduction of rent
hereunder.

              T.  Secured Areas. Tenant may designate certain areas of the
Premises as "Secured Areas", should Tenant require such areas for the purpose
of securing certain valuable property or confidential information, or for
conducting research and development or product production activities on the
Premises. Tenant shall provide observation windows for all the Secured Areas.
All Secured Areas shall be designated on a site plan of the Premises provided
to Landlord by Tenant. Landlord may not enter such Secured Areas except in
the case of emergency or in the event of a Landlord inspection, in which case
Landlord shall provide Tenant with ten (10) days' prior written notice of the
specific date and time of such Landlord inspection. Tenant hereby
acknowledges that Landlord may be required to enter the Secured Areas in
order to comply with federal, state or local statutes, rules or regulations
or upon court order and shall be permitted such access in such event. Tenant
may require that Landlord be accompanied by an employee of Tenant on all
non-emergent entries by Landlord onto the Premises and may change locks on
the Premises provided Landlord is supplied with replacement keys.

              U.  Removal of Property. Subject to Section 11 hereof, all
articles of personal property and all movable business and trade fixtures,
machinery and equipment, furniture and movable partitions owned by Tenant or
installed by or on behalf of Tenant in the Premises shall remain the property
of Tenant, and may be removed by Tenant at any time during the Term of the
Lease in accordance with the Rules and Regulations for the subject Premises.
Subject to the requirements set forth in Section 11 hereof all articles of
personal property and all business and trade fixtures, machinery and
equipment, furniture and removal partitions owned by Tenant or installed by
or on behalf of Tenant in the Premises shall remain the property of Tenant,
and may be removed by Tenant at any time during the Term of the Lease in
accordance with the rules and regulations for the subject premises; provided,
however, that the Tenant shall be required to effect all necessary repairs in
connection with said removal at its sole cost and expense and shall be
required, at its sole cost and expense, to return that portion of the
affected Premises to its original condition.

                                   -44-



              V.  Construction Activities. Landlord has informed Tenant that
Landlord intends to construct a multi-story building and appurtenant
improvements adjacent to the Building as part of the Project. Landlord shall
use its reasonable efforts to minimize the impact of said construction
activities on the business operations of the Tenant. The Tenant hereby
acknowledges that as part of said construction activities, Landlord shall be
reconfiguring the parking lot that is part of the Premises and the Project
and will be performing the Landlord Work. Tenant further acknowledges that a
substantial portion of said work will most likely be conducted during normal
business hours and the Landlord shall grant access to the Premises to the
Tenant and its employees, agents, representatives, licensees and invitees.
Landlord shall conduct such construction activities to minimize, to the
extent reasonably practicable, adverse impact on Tenant's use and occupancy
of the Premises arising as a result of such construction activities.

     39.  WAIVER OF TRIAL BY JURY. LANDLORD AND TENANT WAIVE THE RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT
MATTER OF THIS LEASE. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY
MADE BY TENANT AND TENANT ACKNOWLEDGES THAT NEITHER LANDLORD NOR ANY PERSON
ACTING ON BEHALF OF LANDLORD HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE
THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT.
TENANT FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE
OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS LEASE AND IN THE MAKING
OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL,
AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
TENANT FURTHER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE MEANING AND
RAMIFICATIONS OF THIS WAIVER PROVISION AND AS EVIDENCE OF SAME HAS EXECUTED
THIS LEASE.

     40.  CONSENT TO JURISDICTION. Tenant hereby consents to the exclusive
jurisdiction of the state courts located in Delaware County and
Philadelphia County and to the federal courts located in the Eastern District
of Pennsylvania.

     41.  TERMINATION OF EXISTING LEASE. Landlord and Tenant hereby agree that
the current Lease between Landlord and Tenant shall terminate on the
Commencement Date of this Lease.



          IN WITNESS WHEREOF, the parties hereto have executed this Lease under
seal the day and year first above written.

                                     -45-



ATTEST:                       LANDLORD:

                              BRANDYWINE OPERATING PARTNERSHIP, L.P.

                              By:   Brandywine Realty Trust,
                                    its general partner


/s/ Anthony A. Nichols, Jr.   By:/s/ Gerard H. Sweeney
- ---------------------------      ------------------------------------
ANTHONY A. NICHOLS, JR.          Gerard H. Sweeney,
 Vice President-Operations       President and CEO


ATTEST:                       TENANT:

                              THE IMMUNE RESPONSE CORPORATION


/s/ Creighton W. Lawhead      By:/s/ Dennis J. Carlo
- ---------------------------      ------------------------------------
HEAD OF INVESTOR RELATIONS       Name:
                                 Title: Pres/CEO


                                      -46-


                                  EXHIBIT "A"


                                   SPACE PLAN




                                  EXHIBIT "B"

                                 RENT SCHEDULE



Months         Period          Rent PSF     Annual Rent      Monthly Rent
                                                 
  1-12     11/1/99-10/31/00    $ 8.75       $459,620.00      $38,301.67
 13-24     11/1/00-10/31/01    $ 9.02       $473,802.56      $39,483.55
 25-36     11/1/01-10/31/02    $ 9.29       $487,985.12      $40,665.43
 37-48     11/1/02-10/31/03    $ 9.57       $502,692.96      $41,891.08
 49-60     11/1/03-10/31/04    $ 9.86       $517,926.08      $43,160.51
 61-72     11/1/04-10/31/05    $10.16       $533,684.48      $44,473.71
 73-84     11/1/05-10/31/06    $10.46       $549,442.88      $45,786.91
 85-96     11/1/06-10/31/07    $10.77       $565,726.56      $47,143.88
 97-108    11/1/07-10/31/08    $11.10       $583,060.80      $48,588.40
109-120    11/1/08-10/31/09    $11.43       $600,395.04      $50,032.92
121-132    11/1/09-10/31/10    $11.78       $618,779.84      $51,564.99
133-144    11/1/10-10/31/11    $12.14       $637,689.92      $53,140.83



ATTEST:                        LANDLORD:

                               BRANDYWINE OPERATING PARTNERSHIP, L.P.

                               By:   Brandywine Realty Trust,
                                    its general partner


/s/ Anthony A. Nichols, Jr.    By:/s/ Gerard H. Sweeney
- ---------------------------      -------------------------------[SEAL]
ANTHONY A. NICHOLS, JR.          Title:
 Vice President-Operations

ATTEST:                        TENANT:

                               THE IMMUNE RESPONSE CORPORATION


/s/ Creighton W. Lawhead       By:/s/ Dennis J. Carlo
- ---------------------------       ------------------------------[SEAL]
HEAD OF INVESTOR RELATIONS        Title: Pres/CEO




                               FIRST RENEWAL TERM


Months         Period          Rent PSF     Annual Rent      Monthly Rent
                                                 
 1-12      11/1/11-10/31/12    $12.50       $656,820.60      $54,735.05
13-24      11/1/12-10/31/13    $12.88       $676,525.32      $56,377.11
25-36      11/1/13-10/31/14    $13.27       $696,821.04      $58,068.42
37-48      11/1/13-10/31/15    $13.66       $717,725.64      $59,810.47
49-60      11/1/15-10/31/16    $14.08       $739,257.36      $61,604.78


                               SECOND RENEWAL TERM


Months         Period          Rent PSF     Annual Rent      Monthly Rent
                                                 
 1-12      11/1/16-10/31/17    $14.50       $761,435.16      $63,452.93
13-24      11/1/17-10/31/18    $14.93       $784,278.12      $65,356.51
25-36      11/1/18-10/31/19    $15.38       $807,806.52      $67,317.21
37-48      11/1/19-10/31/20    $15.84       $832,040.76      $69,336.73
49-60      11/1/20-10/31/21    $16.31       $857,001.96      $71,416.83


RENTAL SCHEDULED BASED ON 52,528 SQUARE FEET

ATTEST:                        LANDLORD:

                               BRANDYWINE OPERATING PARTNERSHIP, L.P.

                               By:   Brandywine Realty Trust,
                                    its general partner


/s/ Anthony A. Nichols, Jr.    By:/s/ Gerard H. Sweeney
- ---------------------------      -------------------------------[SEAL]
ANTHONY A. NICHOLS, JR.          Title:
 Vice President-Operations

ATTEST:                        TENANT:

                               THE IMMUNE RESPONSE CORPORATION


/s/ Creighton W. Lawhead       By:/s/ Dennis J. Carlo
- ---------------------------       -------------------------------[SEAL]
HEAD OF INVESTOR RELATIONS        Title: Pres/CEO




                                  EXHIBIT "C"

                             PARKING EASEMENT AREA




                                  EXHIBIT "D"

                             CONSTRUCTION DOCUMENTS




                           MODIFICATIONS TO THE IRC

                    680 MANUFACTURING FACILITY - 1998/1999


In preparation for approval of our Remune-TM- product, modifications
to the layout of the facility were necessary to meet FDA guidelines. As you
can see from the attached CAD drawings (used for our 1998 meeting with the
FDA), the primary area for modifications was the central portion of the
building. The modifications focused on several functional areas:

     - Reorganization of our raw materials and quarantine area was completed.
     This involved installation of racking and reorganization of layout for
     efficient receipt of raw materials and handling of quarantined and
     finished goods.

     - Installation of a central processing area for down-stream processing
     of our product. This included chemical inactivation and column
     chromatography of the product. This process now utilizes a kill tank
     system for treatment of waste as permitted by our local municipality.

     - Reorganization and improved efficiencies in our sterile finish and
     fill suite areas. This included the installation of conveyor belts to
     improve product flow.

     - Improvements to the air handling and boiler/chiller systems to support
     the upgraded facilities. This included the installation of redundant
     equipment to support manufacturing consistency in the event of equipment
     failure.

After the manufacturing area upgrades were complete, but before manufacturing
had begun, Immune Response upgraded the office areas. This included the
installation of a new conference room and upgraded lobby entrance.
Additionally, the number of offices was increased and systems furniture was
installed to support an enhanced workforce.



                       OVERALL VIEW OF I.R.C. INCORPORATED



                                     [MAP]





PLANNED
ENHANCEMENT
PROJECT



                                     [MAP]




NEW BUILDING
CONFIGURATION



                                     [MAP]



                                  EXHIBIT "E"

                          TENANT'S LIST OF MATERIAL'S
                               TENANT'S PERMITS











                     DESCRIPTION OF THE HAZARDOUS MATERIALS
                                       AT
                                    IRC, INC.

SUMMARY:

The 680 Allendale Road facility is classified as a "small quantity generator"
and does not treat any hazardous chemical waste on-site. All hazardous
wastes are shipped and disposed of by licensed hazardous waste disposal
contractor (current contractor is Advanced Environmental Technical Services,
EPA #NJD980536593). Infectious dry waste is packaged and shipped off-site for
disposal by incineration also by a licensed waste contractor (BFI, EPA
#PAD150177939). After chemically inactivating and filtering our product
(Remune-TM-), as part of our FDA approved manufacturing process, the resultant
fluid is then thermally sterilized and then discharged into the sewer. This
process is permitted under our Industrial Wastewater Discharge Permit (permit
#98T-0010) issued by Upper Merion Township (a copy of the current permit is
attached). Additionally, we are authorized (EPA #PAD981108384) by the
Pennsylvania Department of Environmental Protection for the use, storage, and
disposal of hazardous materials. As can be seen in the hazardous materials
inventory below, overall quantities are very small with the exception of very
dilute sodium hydroxide.

The company is inspected annually by both the Upper Merion Municipal Utility
Authority and by the Pennsylvania Department of Environmental Protection.
Every IRC, Inc. inspection has been violation free. Due to the facility's
efforts in discharge compliance and pollution prevention, the Township has
awarded IRC, Inc. with the Environmental Compliance Award every year since
1996 and with the Pollution Prevention Award for the last two years. Copies
of our latest awards are attached.

Only those materials necessary for production are kept and only in quantities
required for our manufacturing process. As is evidenced by the above mentioned
inspection results, all hazardous materials are stored in proper containers and
under proper storage conditions. Because of the small quantities, low risk
nature of our materials, and preparedness of our Emergency Response Team, the
risk of any off-site release or property damage is extremely low.

The following is a specific description of the types and volumes of hazardous
materials used in our manufacturing process:




CHEMICAL                       QUANTITY
- --------                       --------
                           
50% sodium hydroxide            20  4   Liter bottles
beta-propiolactone              120 0.1 Liter bottles/month
acetic acid                     36  4   Liter bottles






CHEMICAL (contd.)                       QUANTITY
- --------                                --------
                                    
hydrochloric acid                       12  2.5 Liter bottles
methanol                                 4  4   Liter bottles
acetonitrile                             9  4   Liter bottles
ethyl alcohol                            2  4   Liter bottles
benzyl alcohol                           2  4   Liter bottles
propanol                                 2  4   Liter bottles
chloroform                               1  0.5 Liter bottle
dimethyl sulfoxide                       1  5   milliliter bottle
dithiothreital                              >25 grams
diaminobenzidine                            >25 grams
1 M & 0.01 M sodium hydroxide           54  55  gallon Drums






                    INDUSTRIAL WASTEWATER DISCHARGE PERMIT

                             PERMIT NO. 98T-0010
                                        --------


                            UPPER MERION TOWNSHIP

                    INDUSTRIAL WASTEWATER DISCHARGE PERMIT

In accordance with the provisions of Upper Merion Township (hereafter, the
Township) Ordinance No. 93-614 and 40 CFR 403.8 and 403.12,

                              IRC, INCORPORATED
                             680 ALLENDALE ROAD
                          KING OF PRUSSIA, PA 19406


Is hereby authorized to discharge industrial wastewater from the above
identified facility and through the outfall(s) identified herein into the
Township's sewer system in accordance with the conditions set forth in this
permit. Compliance with this permit does not relieve the permittee of its
obligation to comply with any or all applicable pretreatment regulations,
standards or requirements under Local, State, and Federal laws, including any
such regulations, standards, requirements, or laws that may become effective
during the term of this permit.

Noncompliance with any term or condition of this permit shall constitute a
violation of Township Ordinance No. 93-614.

The Township reserves the right to establish by Ordinance more stringent
limitations or requirements on discharges to the wastewater disposal system if
deemed necessary to comply with the objectives presented in Section 1.1 of
Township Ordinance No. 93-614.

This permit is being issued biannually by the Township. This biannual permit is
in effect as of October 1, 1998, and expiring at midnight on September 30, 2000.



By: /s/ Janet L. Serfass
   ---------------------------
    Janet L. Serfass
    MIPP Administrator

Issued this 23 day of September, 1998.


                                   EXHIBIT F

                   NON-DISTURBANCE AND ATTORNMENT AGREEMENT

This Agreement is made on _______________, between ____________________________
________________("Superior Mortgagee"), whose address is ______________________
________________, BRANDYWINE OPERATING PARTNERSHIP, L.P., a Delaware limited
partnership ("Landlord"), whose address is 14 Campus Boulevard, Newtown
Square, Pennsylvania 19073, and THE IMMUNE RESPONSE CORPORATION, a Delaware
corporation ("Tenant"), whose address is 5935 Darwin Court, Carlsbad,
California 92008, who agree as follows:

     1.  RECITALS.  This Agreement is made with reference to the following
facts and objectives:

         (a)  Superior Mortgagee is, or it is anticipated that Superior
Mortgagee will become, the beneficiary under a certain mortgage ("Mortgage")
on improved property located at 680 Allendale Road, King of Prussia, PA
("Property"), more specifically described in Schedule "__" attached hereto
and made a part hereof by this reference.  Superior Mortgagee shall also be
deemed to include any lender who executes this Agreement and subsequently
acquires title to the building pursuant to a bankruptcy    proceeding
involving Landlord.

         (b)  On or about ____________, 199_, Landlord leased to Tenant, and
Tenant leased from Landlord, the Property.  A copy of the lease between
Landlord and Tenant ("Lease") is attached hereto as Schedule "__" and made a
part hereof by this reference.

         (c)  The parties desire, under the provisions set forth in this
Agreement, to assure Tenant that in the event of the foreclosure of the
Mortgage, or in the event of a sale in lieu of such foreclosure, or in the
event that Superior Mortgagee directly or indirectly becomes the new landlord
of the Building because of its providing financing to Landlord, the terms of
the Lease shall not be terminated, disturbed, or adversely affected, provided
an Event of Default has not occurred under SECTION 23 of the Lease and
subject to the cure rights set forth in SECTION 23 of the Lease ("Tenant
Default").  All terms with initially capitalized letters, which are not
otherwise defined in this Agreement, shall have the meanings ascribed to them
in the Lease unless the context indicates otherwise.

     2.  SUBORDINATION.  Subject to all the terms and provisions of this
Agreement, the Lease and the rights of Tenant thereunder are and shall
continue hereafter to be subject and subordinate to the Mortgage and to all
of the terms, conditions and provisions thereof, to all advances made
thereunder, to the full extent of the principal sum and interest thereon from
time to time secured thereby and to any renewals, modifications,
consolidations, replacements, and extensions thereof including any increase
in the indebtedness secured thereby or any


supplements thereto; PROVIDED, HOWEVER, that Superior Mortgagee acknowledges,
consents and agrees to all the terms and provisions of the Lease and Tenant's
use and occupancy of the Property thereunder.

     3.  ATTORNMENT.  If Landlord is in default under the Mortgage after
expiration of the applicable period that Landlord has in which to cure its
default, and if a foreclosure sale takes place due to such default, or if
Superior Mortgagee shall notify Tenant of such transfer of title to the
Property or if Superior Mortgagee becomes the new Landlord of the Building,
after receipt of such notice, upon the effective date of such transfer of
title, and after Tenant has received written notice of such transfer of
title, Tenant shall attorn to Superior Mortgagee as Tenant's landlord under
the Lease, and Tenant agrees to execute any instruments reasonably requested
to evidence such attornment.  Upon attornment, the Lease shall continue in
full force and effect, so long as a Tenant Default has not occurred, and
Tenant shall perform all Tenant's obligations under the Lease directly to
Superior Mortgagee, as if Superior Mortgagee were the landlord under the
Lease.  Tenant agrees to make any modifications of the Lease requested by
Superior Mortgagee hereunder, provided that such modifications do not
adversely affect any right of Tenant under the Lease or increase any of
Tenant's monetary obligation s under the Lease.

     4.  NON-DISTURBANCE BY SUPERIOR MORTGAGEE.  If a Tenant Default is not in
existence at the time of the transfer of title as provided in the above
paragraph, the Lease shall continue with the same force and effect as if
Superior Mortgagee and Tenant had entered into a lease with the same
provisions as those contained in the lease, and the terms of the Lease and
Tenant's leasehold estate in the Property shall not be terminated, disturbed,
or adversely affected, except according to the terms of the Lease.

     5.  CONDITIONS OF SUPERIOR MORTGAGEE'S RECOGNITION.  Until a Tenant
Default occurs, Superior Mortgagee or such other purchaser shall recognize
the leasehold estate of Tenant under all of the terms, covenants and
conditions of the Lease for the remaining balance of the term and any
renewals thereof with the same force and effect as if Superior Mortgagee or
such other purchaser were the Landlord under the Lease, and Superior
Mortgagee and Tenant shall immediately enter into a written agreement with
the same provisions as those in the Lease, except for any technical changes
that are necessary because of the substitution of Superior Mortgagee in place
of Landlord; provided, however, that Superior Mortgagee, or such other
purchaser, shall not be (i) liable for any act or omission of Landlord or any
other prior lessor which occurred prior to the time the Superior Mortgagee
purchased or acquired its interest under the Lease, except that Tenant shall
have the right to deduct from rents next due under the Lease any (a)
remaining credit of Fixed Rent or Recognized Expenses and Taxes (collectively
"Operating Expenses"), (b) unpaid amounts for Tenant's work (including any
allowances for expansions, renewals, initial construction, remodeling or
refurbishing), or the cost incurred by Tenant in constructing or completing
any Landlord's Work which were required to be constructed or completed by
Landlord at Landlord's expenses, (c) unpaid arbitration or court award, (d)
unpaid commission due and owing to Tenant's real estate broker all as set
forth in the Lease, (ii) except as provided in (i) to the contrary, obligated
to cure any defaults of


Landlord or any other prior lessor under the Lease which occurred prior to
the time that Superior mortgage purchased or acquired its interest under the
Lease (except to the extent that the default is not monetary and remains in
existence at the time the Superior Mortgagee purchased or acquired its
interest under the Lease and is required to be cured to allow Tenant to use
the Building and the Premises for its normal and customary business
operations and if after the Superior Mortgagee acquires possession of the
Building, the Superior Mortgagee commences to cure such default and
diligently proceeds to cure such default, Superior Mortgagee shall not be
responsible for any damages caused by the prior Landlord's default), (iii)
except as provided in (i) to the contrary, subject to any offsets or defenses
which Tenant may be entitled to assert against Landlord or any other prior
lessor, (iv) bound by any payment of rent or additional rent by Tenant to
Landlord or any other prior lessor for more than one month in advance, (v)
bound by any amendment or modification of the Lease which would adversely
affect any right of Landlord under the Lease and without the written consent
of Superior Mortgagee or such other purchaser who has first, in writing,
notified Tenant of its interest, which consent cannot be unreasonably
withheld, or (vi) except as provided in (i) to the contrary, liable or
responsible for or with respect to the retention, application and/or return
to Tenant of any security deposit paid to Landlord or any other prior lessor,
whether or not still held by Landlord, unless and until Superior Mortgagee or
such other purchaser has actually received for its own account as landlord
the full amount of such security deposit, or any portion thereof (such
liability and responsibility being limited to the amount received, if any).

     6.  SUPERIOR MORTGAGEE'S RIGHT TO CURE LEASE DEFAULTS.  In the event of
a default by Landlord or other occurrence under the Lease that would give
rise to an offset against rent payable pursuant to the Lease, or a right of
Tenant to terminate the Lease, Tenant will give Superior Mortgagee notice of
such default or occurrence pursuant to the terms of Section 8 of this
Agreement and will give Superior Mortgagee a period of the greater of (i)
thirty (30) days after written notice to Superior Mortgagee, or (ii) such
time as is provided to the Landlord under the Lease to cure such default or
rectify such occurrence.  It is understood that the time period available to
Superior Mortgagee to cure such default may run concurrently with the time
period available to Landlord to cure such default.  Tenant agrees that
notwithstanding any provision of the Lease to the contrary, it will not be
entitled to cancel the Lease, or to abate or offset against the rent, or to
exercise any other right or remedy until Superior Mortgagee has been given
written notice of default and an opportunity to cure the same as provided
herein.

     7.  COVENANTS OF SUPERIOR MORTGAGEE.

     (a) Superior Mortgagee shall, at the request of Tenant, oppose any
rejection of this Lease in the event a bankruptcy proceeding is instituted
involving Landlord as the debtor.

     (b) Superior Mortgagee shall serve Tenant, in the same manner and at the
same time, with a copy of all notices it serves on Landlord with respect to
any default by Landlord on any obligation of Landlord to Superior Mortgagee.



    8.   MISCELLANEOUS

         (a)  NO EFFECT ON MORTGAGE. Nothing in this Agreement shall be
deemed to change in any manner the provisions of the Mortgage as between
Superior Mortgagee and Landlord or to waive any right that Superior Mortgagee
may now have or later acquire against Landlord by reason of the Mortgage.

         (b)  ATTORNEYS' FEES. If any party commences an action against any
of the other parties arising out of or in connection with this Agreement, the
prevailing party shall be entitled to recover from the losing party
reasonable attorneys' fees and costs of such action.

         (c)  NOTICE. Any notice, demand, request, consent, approval, or
communication that any party desires or is required to give to another party
or any other person shall be in writing and either served personally or sent
by prepaid, first-class mail. Any notice, demand, request, consent, approval,
or communication that any party desires or is required to give to the other
party shall be addressed to the other party at the address set forth in the
introductory paragraph of this Agreement. Any party may change its address by
notifying the other parties of the change of address. Notice shall be deemed
communicated within two (2) business days from the time of mailing, if mailed
as provided in this paragraph.

         (d)  SUCCESSORS. This Agreement shall be binding on and inure to the
benefit of the parties hereto and their successors and assigns.

         (e)  GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Pennsylvania.

         (f)  NO MODIFICATIONS UNLESS IN WRITING. This Agreement contains all
of the agreements and understandings between the parties hereto regarding
this Agreement relating to the leasing of the Premises and the obligations of
Landlord and Tenant in connection with such Lease. This Agreement supersedes
any and all prior agreements and understandings between Landlord, Tenant and
Superior Mortgagee and alone expresses the agreement of the parties. This
Agreement shall not be amended, changed or modified in any way unless in
writing executed by Landlord, Tenant and Superior Mortgagee. Landlord, Tenant
and Superior Mortgagee shall not have waived or released any of their rights
hereunder unless in writing and executed by Landlord, Tenant and Superior
Mortgagee.

    IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.



                           LANDLORD:

                           BRANDYWINE OPERATING PARTNERSHIP, L.P.,
                           a Delaware limited partnership
                           By: Brandywine Realty Trust,
                               its general partner

                           By:
                              ---------------------------------------
                           Its:
                               --------------------------------------


                           TENANT:

                           THE IMMUNE RESPONSE CORPORATION,
                           a Delaware corporation

                           By:
                              ---------------------------------------
                           Its:
                               --------------------------------------


                           SUPERIOR MORTGAGEE:

                           ------------------------------------------
                           a
                            -----------------------------------------


                           By:
                              ---------------------------------------
                           Its:
                               --------------------------------------




                               EXHIBIT "G"

                     BUILDING RULES AND REGULATIONS
                     LAST REVISION: NOVEMBER 1, 1999

Landlord reserves the right to rescind any of these rules and make such other
and further rules and regulations as in the judgment of Landlord shall from
time to time be needed for the safety, protection, care and cleanliness of
the Project, the operations thereof, the preservation of good order therein
and the protection and comfort of its tenants, their agents, employees and
invitees, which rules when made and notice thereof given to Tenant, shall be
binding upon him in a like manner as if originally prescribed provided in no
event shall such modifications materially and adversely affect Tenant's use
or occupancy of the Premises under the Lease. Landlord will notify Tenant in
writing thirty (30) days prior to the implementation of any materials changes
to the Building Rules and Regulations.

1.  Sidewalks, entrances, passages, elevators, vestibules, stairways,
    corridors, halls, lobby and any other part of the Building shall not be
    obstructed or encumbered by any Tenant or used for any purpose other than
    ingress or egress to and from each tenant's premises.

2.  No awnings or other projections shall be attached to the outside walls of
    the Building without the prior written consent of Landlord.

3.  No showcases or other articles shall be put in front of or affixed to any
    part of the exterior of the Building, or placed in hallways or vestibules
    until the plans for said showcases or other articles have been submitted
    to Landlord for its approval, which approval shall not be unreasonably
    withheld or delayed.

4.  Rest rooms and other plumbing fixtures shall not be used for any purposes
    other than those for which they were constructed and no debris, rubbish,
    rags or other substances shall be thrown therein. Only standard toilet
    tissue may be flushed in commodes. All damage resulting from any misuse
    of these fixtures shall be the responsibility of the Tenant whose
    employees, agents, visitors, clients, or licensees shall have caused same.

5.  Subject to Tenant's right to effect Alterations to the Building as set
    forth in the Lease, no tenant, without the prior written consent of
    Landlord, shall mark, paint, drill into, bore, cut or string wires or in
    any way deface any part of the Building except for the reasonable hanging
    of decorative or instructional materials on the walls of the Building.

6.  Tenants shall not construct or maintain, use or operate in any part of
    the project any electrical device, wiring or other apparatus in
    connection with a loud speaker system or other sound/communication system
    which may be heard outside the Premises. Any such communication system to
    be installed within the Premises shall require the prior written approval
    of Landlord.



7.  No baby carriages, vehicles (other than bicycles) or animals, birds or
    other pets of any kind shall be brought into or kept in or about the
    Building.

8.  Except for orders emitted by Tenant in connection with its business
    operations in compliance with Applicable Environmental Law (as defined in
    the Lease), no tenant shall cause or permit any unusual or objectionable
    odors to be produced upon or permeate from its premises.

9.  No space in the Building shall be used for sale at auction of
    merchandise, goods or property of any kind.

10. No tenant may change the use of the premises from that Permitted under
    the Lease without the prior written approval of Landlord.

11. No tenant, or employees of Tenant, shall disturb or interfere with the
    occupants of this or neighboring buildings or residences by voice,
    musical instrument, radio, talking machines, whistling, singing or in any
    way.

12. No tenant shall throw anything out of the doors, windows, or down
    corridors or stairs of the Building.

13. Except as specified to the contrary in the Lease, Tenant shall not place,
    install or operate on the Premises or in any part of the Project, any
    engine, stove or machinery or conduct mechanical operations or cook
    thereon or therein except for: coffee machine, microwave oven or vending
    machines, or place or use in or about the Premises or Project any
    explosives, gasoline, kerosene oil, acids, caustics or any other
    flammable, explosive, or hazardous material without prior written consent
    of Landlord.

14. Except for the existing exterior main entry area facing Allendale Road,
    no smoking is permitted in the rest rooms, hallways, elevators, stairs,
    lobby, exit and entrances vestibules, sidewalks or parking lot area
    except for those exterior areas specifically designated by the Tenant,
    and subject to Landlord's approval, which shall not be unreasonably
    withheld, as smoking areas. All cigarette ashes and butts are to be
    deposited in the exterior containers provided for same, and not disposed
    of on sidewalks, parking lot areas, or toilets within the Building rest
    rooms.

15. Tenant shall be permitted to install its own locks and security system
    through the exterior and interior of the Premises provided that the
    Tenant shall provide to Landlord a copy of its lock and security plan
    upon the termination of its tenancy. In addition, the Tenant, upon the
    termination of its tenancy, shall return to the Landlord all keys for the
    Premises, either furnished to or otherwise procured by such tenant, and
    all security access cards to the Building.



16. Tenant shall not use the name of the Building, Landlord or Landlord's
    Agent in any way in connection with his business except as the address
    thereof. Landlord shall also have the right to prohibit any advertising
    by Tenant, which, in its sole opinion, tends to impair the reputation of
    the Building or its desirability as a building for offices, and upon
    written notice from Landlord, Tenant shall refrain from or discontinue
    such advertising.

17. Tenant shall place into effect a security system requiring all persons
    entering the Premises or the Building to log in when entering the
    Premises or Building.

18. No space within the Building, or in the common areas such as the parking
    lot, may be used at any time for the purpose of lodging, sleeping, or for
    any immoral or illegal purposes.

19. No pictures, signage, advertising, decals, banners, etc. are permitted to
    be placed in or on windows in such a manner as they are visible from the
    exterior, without the prior written consent of Landlord.

20. Tenant shall be responsible to Landlord for any acts of vandalism
    performed in the Building by its employees, agents, licensees, invitees
    or visitors.

21. No tenant shall permit the visit to its Premises of persons in such
    numbers or under such conditions as to interfere with the use and
    enjoyment of the entrances, hallways, elevators, lobby or other public
    portions or facilities of the Building and exterior common areas by other
    tenants.

22. Any work to be performed by Landlord in connection with the Premises or
    the Building shall be in accordance with the provisions of the Lease.
    Tenant's employees shall not perform any work or do anything outside of
    their regular duties unless under special instructions from Landlord.
    Requests for such requirements must be submitted in writing to Landlord.

23. Except for Landlord's negligent or intentional acts, Landlord will not be
    responsible for lost or stolen personal property, equipment, money or
    jewelry from Tenant's area or common areas of the Project regardless of
    whether such loss occurs when an area is locked against entry or not.

24. Tenant and its agents, employees, licensees, visitors and invitees shall
    observe and comply with the driving and parking signs and markers on the
    Building grounds and surrounding areas.

                             *********************



                                    [LOGO]
                            THE IMMUNE RESPONSE
                                 CORPORATION


November 10, 1999




Melinda Monostra, RPA
Property Manager
Brandywine Realty Trust
14 Campus Boulevard, Suite 100
Newtown Square, PA 19073

Re:   680 Allendale Road, King of Prussia, PA

Dear Melinda,

In accordance with the new lease dated 11/1/99 for the above referenced
facility, it is our understanding we will now be responsible for operating
expenses for an estimated amount of $6,250 monthly. However, as you are
aware, we have paid $14,526.18 for the quarterly installment of real estate
taxes and insurance. This amount is equal to three monthly payments of
$4,842.06 for October, November and December. We are deducting this amount
from the monthly amount due for November of $6,250. The remaining balance due
for November and December is $1,407.94 per month. Enclosed is our check in
the amount of $1,407.94 for November. We will include the additional amount
due for December with the monthly rent check.

Please feel free to contact me directly at (760) 603-3352, should you have
any questions.

Sincerely,


/s/ Grace Turner
Grace Turner
Benefits and Facilities Administrator

/gt







[CHECK]








[CHECK]








[CHECK]

EX-21.1

                                                                    Exhibit 21.1


                         SUBSIDIARIES OF THE REGISTRANT




                       I.R.C. Inc., a Delaware corporation

EX-23.1

                                                                    Exhibit 23.1


                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS



As independent public accountants, we hereby consent to the incorporation of our
report in this Form 10-K into The Immune Response Corporation's previously filed
Registration Statements on Form S-8 pertaining to the 1989 Stock Plan, the
Amended and Restated 1990 Directors' Stock Plan and the Special Nonstatutory
Stock Option Agreement of The Immune Response Corporation.



                                                  Arthur Andersen LLP



San Diego, California
March 28, 2000

EX-27

 


<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES F2 AND F3 OF THE COMPANY'S FORM 10-K FOR THE YEAR-TO-DATE, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

<MULTIPLIER> 1,000

                             
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1999
<PERIOD-START>                             JAN-01-1999
<PERIOD-END>                               DEC-31-1999
<CASH>                                           4,183
<SECURITIES>                                    18,904
<RECEIVABLES>                                        0
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                                23,289
<PP&E>                                          18,956
<DEPRECIATION>                                   8,196
<TOTAL-ASSETS>                                  39,997
<CURRENT-LIABILITIES>                            8,603
<BONDS>                                              0
<PREFERRED-MANDATORY>                            9,627
<PREFERRED>                                          0
<COMMON>                                            66
<OTHER-SE>                                      18,745
<TOTAL-LIABILITY-AND-EQUITY>                    39,997
<SALES>                                              0
<TOTAL-REVENUES>                                22,082
<CGS>                                                0
<TOTAL-COSTS>                                   37,050
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                  45
<INCOME-PRETAX>                               (14,968)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                           (14,968)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                  (14,968)
<EPS-BASIC>                                      (.64)
<EPS-DILUTED>                                    (.64)