UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2003

Commission File No. 0-16614

NEORX CORPORATION

(Exact name of Registrant as specified in its charter)

Washington	91-1261311
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
410 West Harrison Street, Seattle, Washington 98119-4007
(Address of principal executive offices)
Registrant’s telephone number, including area code: (206) 281-7001

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 ý No o

        Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act. 

Yes o No ý

As of May 2, 2003, 26,978,768 shares of the Registrant’s common stock, $.02 par value per share, were outstanding.

TABLE OF CONTENTS

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2003

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2003 and 2002
	Condensed Consolidated Statements Of Cash Flows for the Three Months Ended March 31, 2003 and 2002
	Notes to Condensed Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II	OTHER INFORMATION
Item 6.	Exhibits and Reports on Form 8-K
	Signature
	Certifications

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PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

NEORX CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

	March 31, 2003			December 31, 2002
ASSETS
Current assets:
Cash and cash equivalents	$	2,573		$	6,564
Investment securities	9,475			9,572
Prepaid expenses and other current assets	695			1,269
Total current assets	12,743			17,405
Facilities and equipment, net	8,467			8,509
Other assets, net	79			79
Total assets	$	21,289		$	25,993
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	838		$	1,024
Accrued liabilities	898			1,674
Current portion of note payable	328			512
Total current liabilities	2,064			3,210
Long-term liabilities:
Note payable, net of current portion	5,245			5,182
Asset retirement obligation	480			—
Other	25			25
Total long-term liabilities	5,750			5,207
Shareholders’ equity:
Preferred stock, $.02 par value, 3,000,000 shares authorized: Convertible preferred stock, Series 1, 205,340 shares issued and outstanding at March 31, 2003 and December 31, 2002 (entitled in liquidation to $5,300 and $5,175 at March 31, 2003 and December 31, 2002)	4			4
Common stock, $.02 par value, 60,000,000 shares authorized, 26,845,032 and 26,765,082 shares issued and outstanding at March 31, 2003 and December 31, 2002, respectively	537			535
Accumulated other comprehensive income — unrealized loss on investment securities	(54		)	(101		)
Additional paid-in capital	224,127			224,035
Accumulated deficit	(211,139		)	(206,897		)
Total shareholders’ equity	13,475			17,576
Total liabilities and shareholders’ equity	$	21,289		$	25,993

See accompanying notes to the condensed consolidated financial statements.

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NEORX CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months ended March 31,
	2003			2002
Revenues	$	116		$	310
Operating expenses:
Research and development	2,611			6,041
General and administrative	1,432			1,739
Total operating expenses	4,043			7,780
Loss from operations	(3,927		)	(7,470		)
Other income (expense):
Realized gain on sale of securities	16			110
Loss on disposal of equipment	(10		)	—
Interest income	54			396
Interest expense	(60		)	(103		)
Total other income (expense)	—			403
Net loss before cumulative effect of change in accounting principle	(3,927		)	(7,067		)
Cumulative effect of change in accounting principle	(190		)	—
Net loss	(4,117		)	(7,067		)
Preferred stock dividends	(125		)	(125		)
Net loss applicable to common shares	$	(4,242	)	$	(7,192	)
Loss per share:
Basic and diluted loss per common share before cumulative effect of change in accounting principle	$	(0.15	)	$	(0.27	)
Cumulative effect of change in accounting principle	(0.01		)	—
Basic and diluted loss per common share	$	(0.16	)	$	(0.27	)
Weighted average common shares outstanding — basic and diluted	26,815			26,576
Pro forma amounts had accounting principle been applied retroactively:
Net loss	$	(3,927	)	$	(7,094	)
Preferred stock dividends	(125		)	(125		)
Loss applicable to common shares	$	(4,052	)	$	(7,219	)
Loss per share:
Basic and diluted	$	(0.15	)	$	(0.27	)

See accompanying notes to the condensed consolidated financial statements.

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NEORX CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months ended March 31,
	2003			2002
Cash flows from operating activities:
Net loss	$	(4,117	)	$	(7,067	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	217			416
Gain on sale of securities	(16		)	(110		)
Loss on disposal of equipment	10			—
Cumulative effect of change in accounting principle	190			—
Accretion of asset retirement obligation liability	16			—
Common stock issued for services	4			—
Stock options and warrants issued for services	57			38
Change in operating assets and liabilities:
Prepaid expenses and other assets	521			72
Accounts payable	(186		)	61
Accrued liabilities	(868		)	(140		)
Net cash used in operating activities	(4,172		)	(6,730		)
Cash flows from investing activities:
Proceeds from sales and maturities of investment securities	10,691			5,542
Purchases of investment securities	(10,531		)	—
Facilities and equipment purchases	—			(287		)
Proceeds from sales of equipment	142			—
Net cash provided by investing activities	302			5,255
Cash flows from financing activities:
Proceeds from stock options and warrants exercised	—			14
Repayment of note payable principal	(121		)	—
Net cash (used in) provided by financing activities	(121		)	14
Net decrease in cash and cash equivalents	(3,991		)	(1,461		)
Cash and cash equivalents:
Beginning of period	6,564			4,097
End of period	$	2,573		$	2,636

See accompanying notes to the condensed consolidated financial statements.

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NEORX CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of NeoRx Corporation and subsidiary (the Company).  All significant intercompany balances and transactions have been eliminated in consolidation.

The interim financial statements contained herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading.  These financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2002.

In the opinion of management, the interim financial statements reflect all adjustments, consisting only of normal recurring accruals necessary to present fairly the Company’s financial position as of March 31, 2003 and the results of its operations and cash flows for the periods ended March 31, 2003 and 2002.

The results of operations for the quarters ended March 31, 2003 and 2002 are not necessarily indicative of the expected operating results for the full year.

The Company accounts for its stock option plans for employees in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations.  As such compensation expense related to employee stock options is recorded if, on the date of grant, the fair value of the underlying stock exceeds the exercise price.  The Company applies the disclosure-only requirements of SFAS No. 123, “Accounting for Stock-Based Compensation”, which allows entities to continue to apply the provisions of APB Opinion No. 25 for transactions with employees and to provide pro forma results of operations disclosures for employee stock option grants as if the fair-value based method of accounting in SFAS No. 123 had been applied to these transactions.  Stock compensation costs related to fixed employee awards with pro rata vesting are recognized on a straight-line basis over the period of benefit, generally the vesting period of the options.  For options and warrants issued to non-employees, the Company recognizes stock compensation costs utilizing the fair value methodology prescribed in SFAS No. 123 over the related period of benefit.

Had compensation cost for these stock option plans for employees been determined using the fair value based method of accounting under SFAS 123, “Accounting for Stock-Based Compensation,” the Company’s net loss applicable to common shares and net loss per share would have been the pro forma amounts indicated below (in thousands, except per share data):

	Quarter ended March 31,
	2003			2002
Net loss applicable to common shares:
As reported	$	(4,242	)	$	(7,192	)
Add: Stock-based employee compensation expense included in reported net loss	—			—
Deduct: Stock-based employee compensation determined under fair value based method for all awards	(481		)	(948		)
Pro forma	$	(4,723	)	$	(8,140	)
Net loss per common share, basic and diluted:
As reported	$	(0.16	)	$	(0.27	)
Pro forma	$	(0.18	)	$	(0.31	)

The per share weighted-average fair value of stock options granted during the quarters ended March 31, 2003 and 2002 was $0.43 and $2.89, respectively, on the grant date using the Black-Scholes option pricing model with

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the following assumptions:

	Quarter ended March 31,
	2003		2002
Expected dividend rate	0.0	%	0.0	%
Risk-free interest rate	2.36	%	3.83	%
Expected volatility	134.4	%	105.0	%
Expected life in years	2.97		2.97

Note 2.  Net Loss Per Common Share

Basic and diluted loss per share are based on net loss applicable to common shares, which is comprised of net loss and preferred stock dividends in all periods presented. Shares used to calculate basic loss per share are based on the weighted average number of common shares outstanding during the period.  Shares used to calculate diluted loss per share are based on the potential dilution that would occur upon the exercise or conversion of securities into common stock using the treasury stock method.  Calculations of basic and diluted loss per share for the quarters ended March 31, 2003 and 2002 exclude the effect of options and warrants to purchase additional shares of common stock because the share increments would not be dilutive.

The computation of diluted net loss per share excludes the following options and warrants to acquire shares of common stock for the periods indicated because their effect would not be dilutive:

	March 31, 2003		March 31, 2002
Common stock options	5,185,645		4,636,129
Weighted average exercise price per share	$	3.50	$	5.05
Common stock warrants	890,000		1,051,000
Weighted average exercise price per share	$	9.62	$	8.85

In addition, 234,088 shares of common stock that would be issuable upon conversion of the Company’s preferred stock are not included in the calculation of diluted loss per share for the quarters ended March 31, 2003 and 2002 because the effect of including such shares would not be dilutive.

Note 3.  Comprehensive Loss

The Company’s comprehensive loss for the quarters ended March 31, 2003 and 2002 was $4,070,000 and $7,395,000, respectively.  The comprehensive loss for the quarters ended March 31, 2003 and 2002 consisted of net loss of $4,117,000 and $7,067,000, respectively, and a net unrealized gain (loss) on investment securities of $47,000 and $(328,000) for the quarters ended March 31, 2003 and 2002, respectively.

Note 4.  New Accounting Pronouncements

In August 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs.  The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and (or) normal use of the asset.  Statement No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made.  The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset.  If the obligation is settled for other than the carrying amount of the liability, the Company will

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recognize a gain or loss on settlement. The Company  adopted this Statement on January 1, 2003.  The cumulative effect of adopting this change in accounting principle in the first quarter of 2003 is discussed in Note 5.

In June 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities.  Statement No. 146 nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The principal difference between Statement No. 146 and Issue No. 94-3 relates to the recognition of a liability for a cost associated with an exit or disposal activity.  Statement No. 146 requires that a liability be recognized for those costs only when the liability is incurred, that is, when it meets the definition of a liability in the FASB’s conceptual framework.  In contrast, under Issue No. 94-3, a company recognized a liability for an exit cost when it committed to an exit plan.  Statement No. 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities.  The Statement is effective for exit or disposal activities that are initiated after December 31, 2002.   The Company adopted this Statement on January 1, 2003.  Management cannot determine the impact of adopting this statement on its consolidated financial statements, as its effects will be prospective.

In November 2002, the Financial Accounting Standards Board Emerging Issues Task Force issued its consensus concerning Revenue Arrangements with Multiple Deliverables (“EITF 00-21”).  EITF 00-21 addresses how to determine whether a revenue arrangement involving multiple deliverables should be divided into separate units of accounting, and, if separation is appropriate, how the arrangement consideration should be measured and allocated to the identified accounting units.  The guidance in EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003.  The Company does not anticipate that adoption of EITF 00-21 will have a material impact on its consolidated financial statements.

Note 5.  Asset Retirement Obligation

The company recorded a $0.2 million cumulative effect of change in accounting principle in the first quarter of 2003 as a result of the Company’s adoption of SFAS 143, Accounting for Asset Retirement Obligations.  Under SFAS 143, the Company recorded an asset and liability in the amount of $0.4 million related to estimated fair value of future decommissioning costs associated with the Denton facility.  This estimate will be depreciated over the seven year estimated useful life of the asset and the asset retirement obligation will be accreted over the thirty years that represents the expected time that will elapse prior to the settlement of the obligation.  The Company adopted SFAS 143 on January 1, 2003.  A reconciliation of the asset retirement obligation follows (in 000’s):

Asset retirement obligation calculated as of date of Denton facility purchase (April 1, 2001)	$	364
Accretion-2001	40
Balance at December 31, 2001	404
Accretion-2002	60
Balance at December 31, 2002	464
Accretion-January 1, 2003 to March 31, 2003	16
Balance at March 31, 2003	$	480

In addition, had the Company applied the provisions of SFAS 143 as of the date of acquisition of the Denton facility, and using current January 1, 2003 assumptions for interest rates and decommissioning costs, depreciation expense would have increased by $51,000 and $39,000, respectively, for the years ended December 31, 2002 and 2001.

Had this change been applied retroactively, operating expenses would have increased by $111,000, $79,000 and $27,000, respectively, for the years ended December 31, 2002 and 2001 and the quarter ended March 31, 2002.  Net loss and net loss per share applicable to common shares as reported was $23,593,000, $24,303,000

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and $7,192,000 and $0.89, $0.92 and $0.27, respectively, for the years ended December 31, 2002 and 2001 and the quarter ended March 31, 2002.  Had this change been applied retroactively, net loss and net loss per share applicable to common shares would have been $23,704,000, $24,382,000 and $7,219,000 and $0.89, $0.92 and $0.27, respectively, for the years ended December 31, 2002 and 2001 and the quarter ended March 31, 2002.

Note 6.  Liquidity

The Company will need to raise additional capital to fund its proposed STR pivotal clinical trial program and its future operating cash needs.  In April 2003 the Company received $10 million from two agreements with Boston Scientific Corporation relating to the sale to Boston Scientific of certain NeoRx intellectual property.  The Company expects that its cash, cash equivalents, investment securities and interest income will be sufficient to fund its anticipated working capital and capital requirements through the third quarter of 2004.

During 2002, the Company discontinued all PretargetÒ  technology activities, reduced staffing by 67% and terminated the facilities lease at the 410 West Harrison Street location in Seattle, effective in April 2003.  PretargetÒ is a development platform for targeted therapeutics that deliver intense doses of anti-cancer agents to tumor cells while largely sparing healthy tissues.

                In connection with its 2001 purchase of the radiopharmaceutical manufacturing plant and other assets of International Isotopes Inc. located in Denton, TX, the Company assumed  $6,000,000 principal amount of restructured debt held by Texas State Bank, McAllen, TX.  The loan, which matures in April 2009, is secured by the assets acquired in the transaction.  During 2002 and early 2003, the Company reduced the staff at the Denton facility to four employees, and is operating the facility in standby mode pending a decision to resume clinical testing of STR and production of clinical materials.  The Company is seeking a buyer or partner interested in continuing the facility’s radiopharmaceutical manufacturing operations and producing the STR compound.  Under the loan, the Denton facility and the assets used in the facility cannot be transferred without the written approval of the Bank.  Moreover, the loan states that an event of default may be deemed to occur if the Company abandons, vacates or discontinues operations on a substantial portion of the Denton facility or there is a material adverse change in the Company’s operations.  The Company does not believe that operating the facility in its current standby mode violates these provisions, nor has Texas State Bank suggested that it views such operation as a potential violation.  The Company can provide no assurance, however, that Texas State Bank will not at some time in the future seek to rely on these or  other provisions of the loan to declare the Company in default of the loan.  If this were to occur, Texas State Bank could declare the entire outstanding amount of the loan ($5,573,000 at March 31, 2003) due and immediately payable by the Company. In such case, the Company’s cash resources and assets could be impaired depending on the Company’s ability to raise funds through a sale of the Denton facility and other means.  Based on a recent appraisal of the Denton facility, the fair market value of the facility and its assets exceeds the outstanding debt.

The Company is addressing its need for additional capital by pursuing opportunities for the licensing, sale or divestiture of certain intellectual property and other assets, including its Pretarget^® technology platform.  In addition, the Company is seeking a buyer or partner for its manufacturing facility in Denton, TX interested in continuing the facility’s radiopharmaceutical manufacturing operations and producing the STR compound.  The Company also may seek to raise capital through the sale of equity and/or debt securities or the establishment of other funding facilities.  In the event that sufficient additional funds are not obtained through asset sales, licensing arrangements, strategic partnering opportunities and/or sales of securities on a timely basis, the Company plans to reduce expenses through the delay, reduction or curtailment of its STR development activities and/or further reduction of costs for facilities and administration.

The Company’s actual capital requirements will depend upon numerous factors, including:

•the rate of progress and costs of its clinical trial and research and development activities, including costs of procuring clinical materials;

•actions taken by the US Food and Drug Administration (FDA) and other regulatory authorities;

9

•the costs of discontinuing projects and technologies or decommissioning existing facilities, if the Company undertakes those activities;

•the timing and amount of milestone or other payments the Company might receive from potential strategic partners;

•the timing and amount of payments the Company might receive from potential licenses;

•the Company’s degree of success in commercializing STR or other cancer therapy product candidates;

•the emergence of competing technologies and products, and other adverse market developments; and

•the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights.

There can be no assurance that the Company will be able to obtain needed additional capital or enter into relationships with corporate partners on a timely basis, on favorable terms, or at all.  Conditions in the capital markets in general and the life science capital market specifically may affect the Company’s potential financing sources and opportunities for strategic partnering.

Note 7.  Subsequent Events

In April  2003, the Company entered into agreements with Boston Scientific Corporation relating to the sale to Boston Scientific of certain NeoRx intellectual property.  Under the first agreement the Company assigned to Boston Scientific Corporation certain NeoRx intellectual property in exchange for a cash payment of $9 million.  The intellectual property assigned to Boston Scientific includes a portfolio of NeoRx patents and patent applications in the cardiovascular field.Under a second agreement, NeoRx granted to Boston Scientific an exclusive license to use certain other NeoRx intellectual property, for which NeoRx received a one-time cash payment of $1 million.  The exclusive license grants Boston Scientific the right to use, in certain medical device fields, a separate portfolio of NeoRx patents and patent applications resulting from collaboration with University of Cambridge investigators.  The purchase price was determined by arms length negotiations. The intellectual property rights assigned to Boston Scientific do not include rights to NeoRx’s STR or Pretarget® programs.

Also in April 2003, the Company announced that the FDA has lifted the clinical hold on the Company’s STR product candidate for multiple myeloma.  The FDA’s decision follows NeoRx’s submission of data from a dosimetry study of STR, in which multiple myeloma patients were treated and detailed radiation dosimetry data were collected, as previously requested by the FDA.  NeoRx continues to follow these patients for safety and efficacy results.  Three-year survival data on the STR Phase I/II patients will be available by the end of 2003. NeoRx also has submitted to the FDA a proposal for further clinical development of STR, and expects to submit a full pivotal phase III study protocol before the end of  second quarter 2003 for the FDA’s review.

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

This Form 10-Q contains forward-looking statements. These statements relate to future events or future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “propose” or “continue,” the negative of these terms or other terminology.  These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors described below in the section entitled “Additional factors that may affect results.” These factors may cause our actual results to differ materially from any forward-looking statement.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on our forward-looking statements, which speak only as of the date of this report.

Critical Accounting Policies and Estimates

Basis of Revenue Recognition: To date, the Company does not have any significant ongoing revenue sources.  On occasion, the Company derives significant revenue from licensing its patented technologies and government grants.  Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin No. 101, revenues from collaborative agreements are recognized as earned as the Company performs research activities under the terms of each agreement.  Billings in excess of amounts earned are classified as deferred revenue.  Non-refundable upfront technology license fees, where the Company is providing continuing services related to product development, are deferred.  Such fees are recognized as revenue over the product development periods based on estimated total development costs.

Quarter ended March 31, 2003 compared to quarter ended March 31, 2002

Revenue for the first quarter of 2003 was $0.1 million, compared to $0.3 million for the first quarter of 2002.  Revenue for the first quarter of 2003 consisted of revenue from a facilities lease agreement.  Revenue for the first quarter of 2002 consisted primarily of revenue from government grants and a facilities lease agreement.

Total operating expenses for the first quarter of 2003 decreased 48% to $4.0 million from $7.8 million for the first quarter of 2002.  Research and development expenses decreased 57% to $2.6 million for the first quarter of 2003 from $6.0 million for the first quarter of 2002.  The decrease in research and development expenses for the first quarter is the result of significantly reduced staffing, the suspension of the Company’s PretargetÒ programs and other cost reduction actions taken in 2002.  General and administrative expenses declined 18% to $1.4 million for the first quarter of 2003 compared to $1.7 million for the first quarter of 2002.  The decrease in general and administrative costs for first quarter ended March 31, 2003 was due to reductions in staff and decreased expenditures for recruiting and outside services.

The company recorded a $0.2 million cumulative effect of change in accounting principle in the first quarter of 2003 as a result of the Company’s adoption of SFAS 143, Accounting for Asset Retirement Obligations.  Under SFAS 143, the Company recorded an asset and liability in the amount of $0.4 million related to estimated fair value of future decommissioning costs associated with the Denton facility.  This estimate will be depreciated over the seven year estimated useful life of the asset and the asset retirement obligation will be accreted over the thirty years that represents the expected time that will elapse prior to the settlement of the obligation.

Cash and investment securities as of March 31, 2003 were $12.0 million compared to $16.1 million at December 31, 2002.  The average cash expenditure rate for the first quarter of 2003 was $1.4 million per month.  On April 21, 2003, NeoRx announced that it received a total of $10 million from intellectual property agreements with Boston Scientific Corporation. On April 23, 2003 NeoRx announced that the US Food and Drug Administration (FDA) had lifted the clinical hold on the company’s Skeletal Targeted Radiotherapy (STR) product candidate for multiple myeloma.  Cash expenditures for 2003 are expected to be approximately $12 million for the year.  This number may increase depending on the timing and progress of activities related to our STR clinical trials during the current year.

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Liquidity and capital resources

We have financed our operations primarily through the sale of equity securities, technology licensing, collaborative agreements and debt instruments.  We invest excess cash in investment securities that will be used to fund future operating costs.  Cash, cash equivalents and investment securities totaled $12,048,000 at March 31, 2003 versus $16,136,000 at December 31, 2002.  We primarily fund current operations with our existing cash and investments.  Cash used in operating activities for the first quarter of 2003 totaled $4,172,000.  Revenues and other income sources for the first quarter of 2003 were not sufficient to cover operating expenses.

We currently maintain a line of credit with Pharmaceutical Product Development, Inc. (PPD) of up to $5.0 million to assist in funding the pivotal phase III trial of our STR product in development.   This line of credit is available to us only upon the successful resumption and subject to conditions related to the specific design of the STR phase III trials, and the proceeds can only be applied to the expenses related to the phase III trials.  We have not drawn funds on this line of credit to date, which carries an annual interest rate of 16%.

On November 12, 2002, we entered into an agreement with IDEC Pharmaceuticals Corp. relating to the sale to IDEC of certain NeoRx intellectual property and the grant to IDEC of certain license rights.  We received $7.9 million in cash and may receive in the future royalty payments with respect to certain products. The intellectual property addressed by this agreement includes a portfolio of US and international patents and certain associated technology and know-how relating to antibody-based therapeutics and ligand-linker technology.  The intellectual property rights transferred to IDEC did not include rights to our STR or Pretarget programs.  With respect to the patents involved in the sale, we retained a license for the development of certain NeoRx products.

On April 17, 2003, we entered into agreements with Boston Scientific Corporation relating to the sale to Boston Scientific Corporation of certain NeoRx intellectual property.  Under the first agreement, the Company assigned to Boston Scientific  certain NeoRx intellectual property in exchange for a cash payment of $9 million.  The intellectual property assigned to Boston Scientific includes a portfolio of NeoRx patents and patent applications in the cardiovascular field. Under a second agreement, NeoRx granted to Boston Scientific an exclusive license to use certain other NeoRx intellectual property, for which NeoRx received a one-time cash payment of $1 million.  The exclusive license grants Boston Scientific the right to use, in certain medical device fields, a separate portfolio of NeoRx patents and patent applications resulting from collaboration with University of Cambridge investigators.

We will need to raise additional capital to fund our proposed STR pivotal clinical trial program and our future operating cash needs.  We expect that our cash, cash equivalents, investment securities and interest income will be sufficient to fund our anticipated working capital and capital requirements through the third quarter of 2004.  During 2002, we discontinued all Pretarget technology activities, reduced staffing by 67% and terminated the facilities lease at the 410 West Harrison Street location in Seattle, effective in April 2003.

                In connection with our 2001 purchase of the radiopharmaceutical manufacturing plant and other assets of International Isotopes Inc. located in Denton, TX, we assumed  $6,000,000 principal amount of restructured debt held by Texas State Bank, McAllen, TX.  The loan, which matures in April 2009, is secured by the assets acquired in the transaction.  During 2002 and early 2003, we reduced the staff at the Denton facility to four employees, and we are operating the facility in standby mode pending a decision to resume clinical testing of STR and production of clinical materials.  We are seeking a buyer or partner interested in continuing the facility’s radiopharmaceutical manufacturing operations and producing the STR compound.  Under the loan, the Denton facility and the assets used in the facility cannot be transferred without the written approval of the Bank.  Moreover, the loan states that an event of default may be deemed to occur if the Company abandons, vacates or discontinues operations on a substantial portion of the Denton facility or there is a material adverse change in the Company’s operations.  We do not believe that operating the facility in its current standby mode violates these provisions, nor has Texas State Bank suggested that it views such operation as a potential violation.  We can provide no assurance, however, that Texas State Bank will not some time in the future seek to rely on these or other provisions of the loan to declare the Company in default of the loan.  If this were to occur, Texas State Bank could declare the entire outstanding amount

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of the Loan ($5,573,000 at March 31, 2003) due and immediately payable by the Company. In such case, our cash resources and assets could be impaired depending on our ability to raise funds through a sale of the Denton facility and other means.  Based on a recent appraisal of the Denton facility, the fair market value of the facility and its assets exceeds the outstanding debt.

We are addressing our need for additional capital by pursuing opportunities for the licensing, sale or divestiture of certain intellectual property and other assets, including our Pretarget^® technology platform.  In addition, we are seeking a buyer or partner for our manufacturing facility in Denton, TX interested in continuing the facility’s radiopharmaceutical manufacturing operations and producing the STR compound.  We also may seek to raise capital through the sale of equity and/or debt securities or the establishment of other funding facilities.  In the event that sufficient additional funds are not obtained through asset sales, licensing arrangements, strategic partnering opportunities and/or sales of securities on a timely basis, we plan to reduce expenses through the delay, reduction or curtailment of our STR development activities and/or further reduction of costs for facilities and administration.

 Our actual capital requirements will depend upon numerous factors, including:

•the rate of progress and costs of our clinical trial and research and development activities, including costs of procuring clinical materials;

•actions taken by the FDA and other regulatory authorities;

•the costs of discontinuing projects and technologies or decommissioning existing facilities, if we undertake those activities;

•the timing and amount of milestone or other payments we might receive from potential strategic partners;

•the timing and amount of payments we might receive from potential licenses;

•our degree of success in commercializing STR or other cancer therapy product candidates;

•the emergence of competing technologies and products, and other adverse market developments; and

•the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights.

There can be no assurance that we will be able to obtain needed additional capital or enter into relationships with corporate partners on a timely basis, on favorable terms, or at all.  Conditions in the capital markets in general and the life science capital market specifically may affect our potential financing sources and opportunities for strategic partnering.  Our financial statements are prepared on a going concern basis, however if we are forced to liquidate our assets, we may not recover the carrying amount of such assets.

Related party transactions

The Company’s Vice Chairman of the Board of Directors, Dr. Craves, is a founder of Bay City Capital, LLC, also known as BCC, a merchant bank focused on the life sciences industry.  NeoRx’s Executive Chairman and Chairman of the Board of Directors, Jack Bowman, is on the business advisory board of BCC.  The Company and BCC entered into an agreement whereby BCC will act as the Company’s advisor for the purpose of identifying opportunities to enter into strategic alliances and provide assistance relating to structuring and negotiating such transaction. The Company paid a retainer fee of $80,000 for each calendar quarter of 2002.  The Company renewed the agreement for one additional year from January 1, 2003 and paid a retainer fee of $26,667 for the quarter ended

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March 31, 2003 and will pay $25,000 per quarter thereafter, plus reasonable travel and other expenses.  The agreement also includes a percentage of gross value of cash, securities, property or other consideration derived from a transaction, ranging from one to five percent, depending on the ultimate amount of consideration raised.

                In connection with consulting services performed in 2003 and 2002, Dr. Paul G. Abrams, the former CEO of the Company, received consulting fees of approximately $76,600 for each of the quarters ended March 31, 2003 and 2002, respectively.

                The Company had a demand note receivable from an officer with a balance of approximately $90,700 that was recorded in other assets at March 31, 2002.  This note was paid in full on May 24, 2002.  There were no demand note receivables from related parties outstanding at March 31, 2003.

Additional factors that may affect results

In addition to the other information contained in this report, the following factors could affect the Company’s actual results and could cause our actual results to differ materially from those achieved in the past or expressed or implied by our forward-looking statements.

We have a history of operating losses, we expect to continue to incur losses, and we may never become profitable.

We have not been profitable for any year since our formation in 1984.  As of March 31, 2003, we had an accumulated deficit of $211.1 million. These losses have resulted principally from costs incurred in our research and development programs and from our general and administrative activities.  To date, we have been engaged only in research and development activities and have not generated any significant revenues from product sales.  We anticipate that our proposed Skeletal Targeted Radiotherapy (STR) product will not be commercially available for several years, if at all. We expect to incur additional operating losses in the future. These losses may increase significantly if we expand development and clinical trial efforts.  Our ability to achieve long-term profitability is dependent upon obtaining regulatory approvals for STR or any other proposed products and successfully commercializing our products alone or with third parties.  However, our operations may not be profitable even if we succeed in commercializing any product.

We will need to raise additional capital, and our future access to capital is uncertain.

It is expensive to develop cancer therapy products and conduct clinical trials for these products.  Although we currently are focusing on our STR product candidate, we may in the future simultaneously conduct clinical trials and preclinical research for a number of different indications and cancer therapy product candidates, which is costly. Our future revenues may not be sufficient to support the expense of our operations and the conduct of our clinical trials and preclinical research.  We will need to raise additional capital:

•to fund operations;

•to continue the research and development of our STR product candidate; and

•to commercialize STR or any other proposed products.

We expect that our cash, cash equivalents, investment securities and interest income will be sufficient to fund our anticipated working capital and capital requirements only through the  third quarter of 2004.

We are addressing our need for additional capital by pursuing opportunities for the licensing, sale or divestiture of certain intellectual property and other assets, including our Pretarget^® technology platform.   In addition, we are seeking a buyer or partner for our manufacturing facility in Denton, TX, interested in continuing the facility’s radiopharmaceutical manufacturing operations and producing the STR compound.   We also may seek to raise capital through the sale of equity and/or debt securities, or the establishment of other funding facilities.  We

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cannot provide assurance, however, that any sale or license of assets, strategic collaborations, or sales of securities will be available to the Company on a timely basis or on acceptable terms, if at all. On March 20, 2003, the Company’s  Common Stock listing was transferred from The Nasdaq National Market to The Nasdaq SmallCap Market.  This transfer may adversely affect our ability to raise capital through the sale of securities.  We may be required to enter into relationships with third parties to develop or commercialize products or technologies that we otherwise would have sought to develop independently; moreover, such relationships may not be on terms as commercially favorable to us as might otherwise be the case.  If we raise additional funds by issuing equity securities, further dilution to shareholders may result, and new investors could have rights superior to current security holders.  The terms of additional funding also may limit our operating and financing flexibility.  In the event that sufficient additional funds are not obtained through asset sales, licensing arrangements, strategic partnering opportunities and/or sales of securities on a timely basis, we plan to reduce expenses through the delay, reduction or curtailment of our STR development activities and/or further reduction of costs for facilities and administration.

The amount of additional financing we need will depend on a number of factors, including the following:

•the rate of progress and costs of our clinical trial and research and development activities, including costs of procuring clinical materials;

•actions taken by the FDA and other regulatory authorities;

•the costs of discontinuing projects and technologies or decommissioning existing facilities, if we undertake those activities;

•the timing and amount of milestone or other payments we might receive from potential strategic partners;

•the timing and amount of payments we might receive from potential licenses;

•our degree of success in commercializing STR or other cancer therapy product candidates;

•the emergence of competing technologies and products, and other adverse market developments; and

•the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights.

                In connection with our 2001 purchase of the radiopharmaceutical manufacturing plant and other assets of International Isotopes Inc. located in Denton, TX, we assumed  $6,000,000 principal amount of restructured debt held by Texas State Bank, McAllen, TX.  The loan, which matures in April 2009, is secured by the assets acquired in the transaction.  During 2002 and early 2003, we reduced the staff at the Denton facility to four employees, and we are operating the facility in standby mode pending a decision to resume clinical testing of STR and production of clinical materials.  We are seeking a buyer or partner interested in continuing the facility’s radiopharmaceutical manufacturing operations.  Under the terms of the loan, the Denton facility and the assets used in the facility cannot be transferred without the written approval of Texas State Bank.  Moreover, the loan states that an event of default may be deemed to occur if the Company abandons, vacates or discontinues operations on a substantial portion of the Denton facility or there is a material adverse change in the Company’s operations.  We do not believe that operating the facility in its current standby mode violates these provisions, nor has Texas State Bank suggested that it views such operation as a potential violation.  We can provide no assurance, however, that Texas State Bank will not, some time in the future, seek to rely on these or other provisions of the loan to declare the Company in default of the loan.  If this were to occur, Texas State Bank could declare the entire outstanding amount of the loan ($5,573,000 at March 31, 2003) due and immediately payable by the Company. In such case, our cash resources and assets could be impaired, depending on our ability to raise funds through a sale of the Denton facility and other

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means.  Based on a recent appraisal of the Denton facility, the fair market value of the facility and its assets exceeds the outstanding debt.

Our potential products must undergo rigorous clinical testing and regulatory approvals, which could be costly, time consuming, and subject us to unanticipated delays or prevent us from marketing any products.

The manufacture and marketing of our proposed STR product and our research and development activities are subject to regulation for safety, efficacy and quality by the FDA in the United States and comparable authorities in other countries.

The process of obtaining FDA and other required regulatory approvals, including foreign approvals, is expensive, often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved.  We are developing STR for treatment of multiple myeloma, a cancer of the bone marrow.  Our STR product candidate is novel; therefore, regulatory agencies lack direct experience with it. This may lengthen the regulatory review process, increase our development costs and delay or prevent commercialization of our STR product candidate. An earlier phase III study of STR in multiple myeloma was placed on clinical hold by the FDA after some patients in our STR phase I/II trials developed a serious delayed toxicity.  The FDA requested that we collect additional radiation dosimetry data from a small number of multiple myeloma patients to validate the patient-specific dosing method we used in earlier studies of STR and had proposed to use in our planned pivotal trial program. The study also used an adjusted radiation dose and a revised administration regimen. We completed patient enrollment in this dosimetry study of STR in late 2002. Follow-up evaluations are ongoing, and include assessments of STR safety and efficacy. In February 2003 we submitted to the FDA data from our phase II dosimetry study of STR in patients with multiple myeloma.  We also submitted to the FDA a proposal for further clinical development of STR in patients with primary refractory or relapsed multiple myeloma, using a revised dosing method.  In April 2003 the FDA lifted the clinical hold on our STR product candidate for multiple myeloma. We expect to submit a full pivotal phase III study protocol before the end of  second quarter 2003 for the FDA’s review.

In July 2002 we decided to curtail further Pretarget^® product development activities.  The discontinued Pretarget activities include our Pretarget^® Lymphoma and Pretarget^® Carcinoma phase I/II clinical programs and manufacturing development activities associated with the Pretarget programs.  We are seeking to sell or license our Pretarget patent portfolio.  We have completed phase I safety studies for Pretarget Lymphoma in patients with non-Hodgkin’s lymphoma, and for Pretarget Carcinoma in patients with gastrointestinal adenocarcinoma. We have complied with the FDA’s requirement that we complete a 90-day follow-up on all patients treated to date with Pretarget Lymphoma.  We submitted the follow-up data to the FDA for review and obtained clearance for continued clinical development of this product.   We do not plan to enroll additional patients in either the Pretarget Lymphoma or Pretarget Carcinoma program, or otherwise further pursue development of these Pretarget product candidates internally.

No cancer product using our technologies has been approved for marketing. Consequently, there is no precedent for the successful commercialization of products based on our technologies.  In addition, we have had only limited experience in filing and pursuing applications necessary to gain regulatory approvals.  This may impede our ability to obtain timely approvals from the FDA or foreign regulatory agencies, if at all. We will not be able to commercialize STR until we obtain regulatory approval, and consequently any delay in obtaining, or inability to obtain, regulatory approval could harm our business.

If we violate regulatory requirements at any stage, whether before or after marketing approval is obtained, we may be fined, forced to remove a product from the market or experience other adverse consequences, including delay, which could materially harm our financial results.  Additionally, we may not be able to obtain the labeling claims necessary or desirable for product promotion.  We also may be required to undertake post-marketing trials.  In addition, if we or other parties identify side effects after any of our products are on the market, or if manufacturing problems occur, regulatory approval may be withdrawn and reformulation of our products, additional clinical trials, changes in labeling of our products, and/or additional marketing applications may be required.

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The requirements governing the conduct of clinical trials and manufacturing and marketing of our proposed STR product outside the United States vary widely from country to country.  Foreign approvals may take longer to obtain than FDA approvals and can involve additional testing.  Foreign regulatory approval processes include all of the risks associated with the FDA approval processes.  Also, approval of a product by the FDA does not ensure approval of the same product by the health authorities of other countries.

We may take longer to complete our clinical trials than we project, or we may be unable to complete them at all.

Although for planning purposes we project the commencement, continuation and completion of our clinical trials, the time to initiation and completion of our STR clinical trial program depends upon numerous factors, including:

•our ability to obtain adequate funding;

•our receipt of approvals by the FDA and other regulatory agencies and the timing thereof;

•other actions by regulators;

•the rate of progress and costs of our clinical trial and research and development activities;

•our ability to access sufficient, reliable and affordable supplies of the STR compound for clinical studies, including third-party supplies of holmium-166, the radionuclide used in our STR product candidate, as well as other materials used in the manufacture of the STR compound;

•the costs of  ramping up and maintaining manufacturing operations, should we determine this to be necessary;

•the extent of scheduling conflicts with participating clinicians and clinical institutions; and

•our ability to identify and enroll patients who meet trial eligibility criteria.

We may not commence or complete our proposed clinical trial program for our STR product candidate as projected, may not conduct it successfully, or may not conduct it at all.

We currently rely on academic institutions and clinical research organizations to conduct, supervise or monitor some or all aspects of clinical trials involving our proposed STR product.  Further, we are seeking to enter into license agreements, partnerships or other collaborative arrangements to support financing and development of STR.  To the extent that we now or in the future participate in such collaborative arrangements, we will have less control over the timing, planning and other aspects of our clinical trials.  In addition, if sufficient additional funds are not obtained by the Company through sale and/or license of assets, strategic partnering opportunities and/or sales of securities on a timely basis, we may be required to reduce expenses by delaying, reducing or curtailing our STR development activities.  If we fail to commence or complete, or experience delays in or are forced to curtail our proposed clinical program, our stock price and our ability to conduct our business could be harmed.

If testing of a particular product does not yield successful results, we will be unable to commercialize that product.

Our research and development programs are designed to test the safety and efficacy of our proposed products in humans through extensive preclinical and clinical testing.  We may experience numerous unforeseen events during, or as a result of, the testing process that could delay or prevent commercialization of STR or any other proposed products, including the following:

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•safety and efficacy results obtained in early human clinical trials may not be indicative of results obtained in later clinical trials;

•the results of preclinical studies may be inconclusive, or they may not be indicative of results that will be obtained in human clinical trials;

•after reviewing test results, we or any potential collaborators may abandon projects that we previously believed were promising;

•our potential collaborators or regulators may suspend or terminate clinical trials if the participating subjects or patients are being exposed to unacceptable health risks; and

•the effects of our potential products may not be the desired effects or may include undesirable side effects or other characteristics that preclude regulatory approval or limit their commercial use if approved.

Clinical testing is very expensive, can take many years, and the outcome is uncertain.  We cannot at this time predict if, when, or under what conditions, we will undertake further clinical studies, including initiating a revised pivotal phase III program, for STR.  The data collected from our clinical trials may not be sufficient to support regulatory approval of our proposed STR product, or any other proposed products.  The clinical trials of our proposed STR product and other proposed products may not be completed on schedule, and the FDA or foreign regulatory agencies may not ultimately approve any of our product candidates for commercial sale.  Our failure to adequately demonstrate the safety and efficacy of a cancer therapy product under development would delay or prevent regulatory approval of the product, which could prevent us from achieving profitability.

We are dependent on suppliers for the timely delivery of materials and services and may experience in the future interruptions in supply.

For our STR product in development to be successful, we need access to sufficient, reliable and affordable supplies of the STR compound for clinical studies.  Moreover, STR requires sufficient, reliable and affordable quantities of holmium-166, the radionuclide used in our STR product candidate, and DOTMP, the small-molecule compound used in our STR product candidate to deliver holmium-166 to the bone.  Sources of these materials may be limited, and we, or potential third-party suppliers of the STR compound, may be unable to obtain these materials in amounts and at prices necessary to successfully commercialize our proposed STR product.  Timely delivery of the holmium-166 component material and of the STR compound is critical.  For example, holmium-166 loses its effectiveness for treating patients within a short period of time.  As a result, the STR product must be shipped within 24 hours of its manufacture to the site where the patient is to be treated.  Failures or delays in the manufacturing and shipping processes could compromise the quality and effectiveness of our product. There are, in general, relatively few sources of holmium-166. To date, we have depended on a single source vendor, the University of Missouri Research Reactor facility group (MURR), for the holmium-166 component of our STR product candidate. In December 2001 we entered into a contract with MURR to supply holmium-166, under which MURR was responsible for the manufacture of holmium-166, including process qualification, quality control, packaging and shipping, from its Columbia, MO reactor facility.  This supply contract expired in December 2002. We, or potential third-party suppliers of our STR compound, may pursue negotiation of a long-term supply contract for holmium-166 for our proposed further clinical studies, including a revised pivotal phase III program. There can be no assurance that such a contract can be negotiated on acceptable terms.  While MURR generally has provided us materials with acceptable quality, quantity and cost in the past, it may be unable or unwilling to meet our future demands, or demands of potential third-party suppliers of our STR compound. If MURR or an alternate supplier is unable or unwilling to provide supplies of holmium-166 at a cost and on other terms acceptable to the Company, the manufacture and delivery of our STR product could be impaired, and we may suffer delays in, or be prevented from, initiating or completing further clinical trials of our STR product.

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If we fail to negotiate and maintain collaborative arrangements with third parties, our research, development, manufacturing, clinical testing, sales and marketing activities may be delayed or reduced.

We rely in part on third parties to perform for us or assist us with a variety of important functions, including research and development, manufacturing and clinical trials management.  We also license technology from others to enhance or supplement our technologies.  We may not be able to locate suppliers to manufacture our product components or any proposed products at a cost or in quantities necessary to make them commercially viable.  We intend to rely on third-party contract manufacturers to produce large quantities of certain materials, potentially including the STR compound, for clinical trials and product commercialization.  Third-party manufacturers may not be able to meet our needs with respect to timing, quantity, quality or cost.  If we are unable to contract for a sufficient supply of needed materials or products on acceptable terms, or if we should encounter delays or difficulties in our relationships with manufacturers, our clinical testing may be delayed, thereby delaying the submission of products for regulatory approval or market introduction and subsequent sales.  Any such delay may reduce our revenues and potential profitability.

Moreover, any potential third-party manufacturers and NeoRx must continually adhere to current Good Manufacturing Practices (cGMP) regulations enforced by the FDA through its facilities inspection program.  If our facilities, or the facilities of these manufacturers, cannot pass a pre-approval plant inspection, the FDA will not grant pre-market approval of our proposed products. In complying with cGMP and foreign regulatory requirements, we and any of our potential third-party manufacturers will be obligated to expend time, money and effort in production, record-keeping and quality control to assure that our products meet applicable specifications and other requirements.  If we, or any of our potential third-party manufacturers, fail to comply with these requirements, we may be subject to regulatory action.

In April 2001, we purchased a radiopharmaceutical manufacturing facility and certain other assets located in Denton, TX from International Isotopes Inc.  In addition to the manufacturing facility, we purchased existing equipment, documentation, and certain processes. The facility achieved cGMP status and was issued appropriate radiation permits by the State of Texas. This radiopharmaceutical manufacturing facility has assumed responsibility for all aspects of the manufacture of the STR compound, including process qualification, quality control, packaging and shipping, and production of the clinical material for the completed STR dosimetry study. In October 2002, we reduced staffing at the facility to a total of 21 employees.  During the third quarter of 2002, we recognized a non-cash asset impairment charge of $5.6 million on certain facilities, equipment and intangibles, resulting in part from our decision to reduce staff at the Denton facility and to eliminate contract manufacturing activities at this facility.  The loss on the Denton facility and related equipment was determined via outside appraisals.

In January 2003 we implemented a further reduction in staff and laid off an additional 13 employees at the Denton manufacturing facility.  We are operating the Denton facility in standby mode pending a decision to resume clinical testing of STR and production of clinical materials.  An additional impairment charge of $0.6 millionrelating to intangible assets for licenses and processes at the Denton manufacturing facility was recorded in the fourth quarter of 2002. The fourth quarter impairment charge is associated with our decision to suspend production of STR and to operate the Denton facility instandby mode.

We believe that the Denton facility has the capabilities and capacity to serve as the principal manufacturing site for the STR compound for our proposed clinical studies, including a revised pivotal phase III program, and for potential commercial manufacture. We may operate the facility ourselves, or alternatively, engage a buyer or partner interested in continuing the facility’s radiopharmaceutical manufacturing operations and producing the STR compound.  Our decision whether to continue to utilize the Denton facility as our primary manufacturing site for STR in the future will depend on a number of factors, including:

•actions taken by the FDA and the timing thereof;

•our ability to obtain adequate funding and the timing thereof;

•our ability to access sufficient, reliable and affordable third-party supplies of holmium-166;

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•the costs of ramping up and maintaining manufacturing operations;

•the availability of qualified personnel;

•the availability and nature of strategic partnering opportunities; and

•the availability and cost of potential third-party suppliers of STR.

There can be no assurance that acceptable manufacturing alternatives will be available to us on a timely or cost-effective basis.  If we use the Denton facility to produce the STR compound for our proposed future clinical studies, we may be required to re-certify the facility with the FDA. The ramp-up and re-certification processes at the Denton facility could take up to six months or more.  If we transition the STR production process to a third-party supplier, such third-party supplier also could require significant start-up time to qualify and implement the manufacturing process.  In either case, our ability to move forward with further STR clinical studies could be adversely affected, and we may incur significant additional costs in connection with manufacturing operations.

We intend to enter into collaborations for one or more of the research, development, manufacturing, marketing and other commercialization activities relating to our STR product candidate. If we are unable to secure collaborators, or if we lose collaborators, our product development and potential for profitability may suffer.  If any collaborator breaches or terminates an agreement with us, or fails to conduct its collaborative activities in a timely manner, the commercialization of our STR product candidate could be slowed down or blocked completely.  Disputes may arise between NeoRx and collaborators on a variety of matters, including financial or other obligations under our agreements.  These disputes may be both expensive and time-consuming and may result in delays in the development and commercialization of our proposed STR product.

Our Common Stock listing was transferred from The Nasdaq National Market to The Nasdaq SmallCap Market; failure to maintain continued listing on Nasdaq could affect its market price and liquidity.

Our Common Stock listing was transferred from The Nasdaq National Market to The Nasdaq SmallCap Market on March 20, 2003.  We elected to seek a transfer to The Nasdaq SmallCap Market because we have been unable to regain compliance with The Nasdaq National Market minimum $1.00 bid price requirement for continued listing. By transferring to The SmallCap Market, we were afforded an extended grace period in which to satisfy the The SmallCap Market $1.00 minimum bid price requirement.  On May 6, 2003, we received notice from Nasdaq confirming that we are now in compliance with the $1.00 SmallCap minimum bid price requirement.  As a result of rule changes adopted by Nasdaq in March 2003, we will not be eligible to relist our Common Stock on The Nasdaq National Market unless and until our Common Stock maintains a minimum bid price of $5.00 per share and we otherwise comply with the initial listing requirements for The Nasdaq National Market.  The transfer to The Nasdaq SmallCap Market may have a negative impact on the value of our Common Stock, because securities trading on The Nasdaq SmallCap Market typically are less liquid than those traded on The Nasdaq National Market.

Moreover, there can be no assurance that we will be able to maintain compliance with the SmallCap Market minimum $1.00 bid price requirement or successfully transfer to The Nasdaq National Market..  If we were to be delisted from The Nasdaq SmallCap Market, our Common Stock would be listed on the over-the-counter bulletin board or another quotation system or exchange on which we would qualify.  Such delisting would have a material adverse effect on the trading price and liquidity of our stock, and shareholders’ ability to sell shares of our stock would be severely limited.  Among other things, our Common Stock may then constitute “penny stock,” which would place an increased regulatory burden upon brokers, making them less likely to make a market in our stock.

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We face substantial competition in the development of cancer therapies and may not be able to compete successfully, and our potential products may be rendered obsolete by rapid technological change.

The competition for development of cancer therapies is intense.  There are numerous competitors developing products to treat the diseases for which we are seeking to develop products. We initially are focusing our STR product candidate on the treatment of multiple myeloma. Several companies, including Celgene Corp. and Millennium Pharmaceuticals Inc., also are developing therapeutics for multiple myeloma.  In addition, a number of established pharmaceutical companies, including GlaxoSmithKline, Amersham PLC, Mallinckrodt, Inc. (Tyco Healthcare) and Bristol-Myers Squibb Co., are developing proprietary technologies or have enhanced their capabilities by entering into arrangements with, or acquiring, companies with technologies applicable to the treatment of cancer.  Many of our existing or potential competitors have, or have access to, substantially greater financial, research and development, marketing and production resources than we do and may be better equipped than we are to develop, manufacture and market competing products.  Our competitors may have, or may develop and introduce, new products that would render our technology and proposed STR product less competitive, uneconomical or obsolete.

We also expect to face increasing competition from universities and other non-profit research organizations.  These institutions carry out a significant amount of cancer research and development.  These institutions are becoming increasingly aware of the commercial value of their findings and more active in seeking patent and other proprietary rights, as well as licensing revenues.

If we are unable to protect our proprietary rights, we may not be able to compete effectively, or operate profitably.

Our success is dependent in part on obtaining, maintaining and enforcing our patents and other proprietary rights and our ability to avoid infringing the proprietary rights of others.  Patent law relating to the scope of claims in the biotechnology field in which we operate is still evolving and, consequently, patent positions in our industry may not be as strong as in other, better-established fields.  Accordingly, the United States Patent and Trademark Office (USPTO) may not issue patents from the patent applications owned by or licensed to us.  If issued, the patents may not give us an advantage over competitors with similar technologies.

We own over 100 issued United States patents and have licenses to additional patents.  However, the issuance of a patent is not conclusive as to its validity or enforceability and it is uncertain how much protection, if any, will be given to our patents if we attempt to enforce them and they are challenged in court or in other proceedings, such as oppositions, which may be brought in foreign jurisdictions to challenge the validity of a patent.  A third party may challenge the validity or enforceability of a patent after its issuance by the USPTO.  It is possible that a competitor may successfully challenge our patents or that a challenge will result in limiting their coverage.  Moreover, the cost of litigation to uphold the validity of patents and to prevent infringement can be substantial.  If the outcome of litigation is adverse to us, third parties may be able to use our patented invention without payment to us.  Moreover, it is possible that competitors may infringe our patents or successfully avoid them through design innovation.  To stop these activities we may need to file a lawsuit.  These lawsuits can be expensive and would consume time and other resources, even if we were successful in stopping the violation of our patent rights.  In addition, there is a risk that a court would decide that our patents are not valid and that we do not have the right to stop the other party from using the inventions.  There is also the risk that, even if the validity of our patents were upheld, a court would refuse to stop the other party on the ground that its activities do not infringe our patents.

In addition to the intellectual property rights described above, we rely on unpatented technology, trade secrets and confidential information.  Therefore, others may independently develop substantially equivalent information and techniques or otherwise gain access to, or disclose our technology.  We may not be able to effectively protect our rights in unpatented technology, trade secrets and confidential information. We require each of our employees, consultants and advisors to execute a confidentiality agreement at the commencement of an employment or consulting relationship with us.  However, these agreements may not provide effective protection of our information or, in the event of unauthorized use or disclosure, they may not provide adequate remedies.

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The use of our technologies could potentially conflict with the rights of others.

Our competitors or others may have or acquire patent rights that they could enforce against us.  If they do so, we may be required to alter our products, pay licensing fees or cease activities.  If our products conflict with patent rights of others, third parties could bring legal actions against us claiming damages and seeking to enjoin manufacturing and marketing of the affected products.  If these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license in order to continue to manufacture or market the affected products.  We may not prevail in any legal action and a required license under the patent may not be available on acceptable terms or at all.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.

The cost to us of any litigation or other proceedings relating to intellectual property rights, even if resolved in our favor, could be substantial.  Some of our competitors may be better able to sustain the costs of complex patent litigation because they have substantially greater resources.  If there is litigation against us, we may not be able to continue our operations.  If third parties file patent applications, or are issued patents claiming technology also claimed by us in pending applications, we may be required to participate in interference proceedings in the USPTO to determine priority of invention.  We may be required to participate in interference proceedings involving our issued patents and pending applications.  We may be required to cease using the technology or license rights from prevailing third parties as a result of an unfavorable outcome in an interference proceeding.  A prevailing party in that case may not offer us a license on commercially acceptable terms or at all.

Product liability claims in excess of the amount of our insurance would adversely affect our financial condition.

The testing, manufacturing, marketing and sale of STR and any other proposed cancer therapy products that we may have under development may subject us to product liability claims.  We are insured against such risks up to a $10 million annual aggregate limit in connection with clinical trials of our products under development and intend to obtain product liability coverage in the future.  However, insurance coverage may not be available to us at an acceptable cost, if at all.  We may not be able to obtain insurance coverage that will be adequate to satisfy any liability that may arise.  Regardless of merit or eventual outcome, product liability claims may result in decreased demand for a product, injury to our reputation, withdrawal of clinical trial volunteers and loss of revenues.  As a result, regardless of whether we are insured, a product liability claim or product recall may result in losses that could be material.

Our use of radioactive and other hazardous materials exposes us to the risk of material environmental liabilities, and we may incur significant additional costs to comply with environmental laws in the future.

Our research and development and manufacturing processes, as well as the manufacturing processes that may be used by our collaborators, involve the controlled use of hazardous and radioactive materials.  As a result, we are subject to foreign, federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials and wastes in connection with our use of these materials.  Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by such laws and regulations, we may be required to incur significant costs to comply with environmental and health and safety regulations in the future. In the event that we discontinue operations in facilities that have had past research and manufacturing processes where hazardous and radioactive materials have been in use, we may have significant decommissioning costs associated with the termination of operation of these facilities.  These potential decommissioning costs also may reduce the market value of the facilities and may limit our ability to sell or otherwise dispose of these facilities in a timely and cost-effective manner, if at all. In addition, the risk of accidental contamination or injury from hazardous and radioactive materials cannot be completely eliminated.  In the event of such an accident, we could be held liable for any resulting damages, and any such liability could exceed our resources.

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Even if we bring products to market, changes in healthcare reimbursement could adversely affect our ability to effectively price our products or obtain adequate reimbursement for sales of our products.

The levels of revenues and profitability of biotechnology companies may be affected by the continuing efforts of government and third-party payors to contain or reduce the costs of healthcare through various means.  For example, in certain foreign markets pricing or profitability of prescription pharmaceuticals is subject to governmental control.  In the United States, there have been, and we expect that there will continue to be, a number of federal and state proposals to implement similar governmental controls.  It is uncertain what legislative proposals will be adopted or what actions federal, state or private payors for healthcare goods and services may take in response to any healthcare reform proposals or legislation.  Even in the absence of statutory change, market forces are changing the healthcare sector.  We cannot predict the effect healthcare reforms may have on the development, testing, commercialization and marketability of our proposed cancer therapy products.  Further, to the extent that such proposals or reforms have a material adverse effect on the business, financial condition and profitability of other companies that are prospective collaborators for certain of our potential products, our ability to commercialize our products under development may be adversely affected.  In addition, both in the United States and elsewhere, sales of prescription pharmaceuticals depend in part on the availability of reimbursement to the consumer from third-party payors, such as governmental and private insurance plans.  Third-party payors are increasingly challenging the prices charged for medical products and services.  If we succeed in bringing one or more products to market, we cannot be certain that these products will be considered cost-effective and that reimbursement to the consumer will be available or will be sufficient to allow us to sell our products on a competitive or profitable basis.

The loss of key employees could adversely affect our operations.

                Since July 2002, we have implemented three reductions in force. In July 2002, we reduced staff by 31 persons.  In October 2002, we further reduced our work force, primarily at our Denton, TX manufacturing facility, by an additional 13 persons. In January 2003, we reduced staff by an additional 21 persons.  Also in January 2003, we accepted the resignations of Richard Ghalie, MD, Vice President, Medical and Regulatory Affairs, and Les Sabo, Vice President, Manufacturing.  On March 11, 2003 Jack L. Bowman was named Executive Chairman of the Company and Chairman of its Board of Directors.  As of March 20, 2003, we had a total work force of 35 full-time employees and one part-time employee. Our success depends, to a significant extent, on the continued contributions of our principal management and scientific personnel.  The loss of the services of one or more of the principal members of our scientific and management staff could delay our STR product development activities or other programs and research and development efforts.  We do not maintain key-person life insurance on any of our officers, employees or consultants.

Competition for qualified employees among companies in the biotechnology and biopharmaceutical industry is intense.  Our future success depends upon our ability to attract, retain and motivate highly skilled employees.  In order to commercialize our proposed products successfully, we will in the future, be required to expand substantially our workforce, particularly in the areas of manufacturing, clinical trials management, regulatory affairs, business development and sales and marketing.  These activities will require the addition of new personnel, including management, and the development of additional expertise by existing management personnel.  Our current financial situation may make it more difficult to attract and retain key employees.

Our stock price is volatile and, as a result, you could lose some or all of your investment.

There has been a history of significant volatility in the market prices of securities of biotechnology companies, including our Common Stock, and it is likely that the market price of our Common Stock will continue to be highly volatile.  Our business and the relative price of our Common Stock may be influenced by a large variety of industry factors, including:

•announcements by us or our competitors concerning acquisitions, strategic alliances, technological innovations and new commercial products;

•the availability of critical materials used in developing and manufacturing our proposed STR product;

•the progress and results of clinical trials;

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•developments concerning patents, proprietary rights and potential infringement; and

•the expense and time associated with, and the extent of our ultimate success in, securing regulatory approvals.

In addition, public concern about the safety of STR and any other products we develop, comments by securities analysts, our ability to maintain the listing of our Common Stock on the Nasdaq system and conditions in the capital markets in general and in the life science capital market specifically, may have a significant effect on the market price of our Common Stock.  The realization of any of the risks described in this report, as well as other factors, could have a material adverse impact on the market price of our Common Stock and may result in a loss of some or all of your investment.

In the past, securities class action litigation often has been brought against companies following periods of volatility in their stock prices.  We may in the future be the target of similar litigation.  Securities litigation could result in substantial costs and divert our management’s time and resources, which could cause our business to suffer.

Certain provisions in our articles of incorporation and Washington state law could discourage a change of control.

Our articles of incorporation authorize our Board of Directors to issue up to 3,000,000 shares of preferred stock and to determine the price, rights, preference, privileges and restrictions, including voting rights, of those shares without any further vote or action by our shareholders.  The issuance of preferred stock could have the effect of delaying, deferring or preventing a change of control, even if this change would benefit our shareholders.  In addition, the issuance of preferred stock may adversely affect the market price of our Common Stock and the voting and other rights of the holders of our Common Stock.

We have adopted a shareholders’ rights plan, which is intended to protect the rights of shareholders by deterring coercive or unfair takeover tactics.  The Board of Directors declared a dividend to holders of our Common Stock of one preferred share purchase right for each outstanding share of Common Stock.  The right is exercisable ten days following the offer to purchase or acquisition of beneficial ownership of 20% of the outstanding Common Stock by a person or group of affiliated persons.  Each right entitles the registered holder, other than the acquiring person or group, to purchase from NeoRx one-hundredth of one share of Series A Junior Participating Preferred Stock at the price of $40, subject to adjustment.  The rights expire April 10, 2006.  In lieu of exercising the right by purchasing one one-hundredth of one share of Series A Preferred Stock, the holder of the right, other than the acquiring person or group, may purchase for $40 that number of shares of our Common Stock having a market value of twice that price.

Washington law imposes restrictions on certain transactions between a corporation and significant shareholders.  Chapter 23B.19 of the Washington Business Corporation Act prohibits a target corporation, with some exceptions, from engaging in particular significant business transactions with an acquiring person, which is defined as a person or group of persons that beneficially owns 10% or more of the voting securities of the target corporation, for a period of five years after the acquisition, unless the transaction or acquisition of shares is approved by a majority of the members of the target corporation’s board of directors prior to the acquisition.  Prohibited transactions include, among other things:

•a merger or consolidation with, disposition of assets to, or issuance or redemption of stock to or from the acquiring person;

•termination of 5% or more of the employees of the target corporation; or

•receipt by the acquiring person of any disproportionate benefit as a shareholder.

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A corporation may not opt out of this statute.  This provision may have the effect of delaying, deterring or preventing a change in control of NeoRx or limiting future investment in NeoRx by significant shareholders and their affiliates and associates.

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Item 3.  Quantitative and Qualitative Disclosures about Market Risk

                The Company is exposed to the impact of interest rate changes and changes in the market values of its investments.

Interest Rate Risk

                The Company’s exposure to market rate risk for changes in interest rates relates primarily to the Company’s debt securities included in its investment portfolio.  The Company does not have any derivative financial instruments.  The Company invests in debt instruments of the U.S. Government and its agencies and high-quality corporate issuers.  Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk.  Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall.  Due in part to these factors, the Company’s future investment income may fall short of expectations due to changes in interest rates or the Company may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates.  At March 31, 2003, the Company owned no government debt instruments and owned corporate debt securities in the amount of $11.1 million. The Company’s exposure to losses as a result of interest rate changes is managed through investing primarily in securities with relatively short maturities of up to three years and securities with variable interest rates.  The Company had no corporate debt securities that had maturity dates greater than one year at March 31, 2003.

Item 4.  Controls and Procedures

                Under the supervision of and with the participation of the Company’s management, including the Company’s Executive Chairman, Chief Executive Officer and Vice President, Finance, the Company has evaluated the effectiveness and design and operation of its disclosure controls and procedures within 90 days of the filing date of this quarterly report and, based on their evaluation, the Executive Chairman, Chief Executive Officer and the Vice President, Finance have concluded that these disclosure controls and procedures are effective.  There were no significant changes in the Company’s internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation.

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PART II.  OTHER INFORMATION
Item 6.	Exhibits and Reports on Form 8-K
	(a) Exhibits — See Exhibit Index filed herewith.
	(b) Reports on Form 8-K:
	Form 8-K dated March 11, 2003, announcing that the Company has applied to transfer its Common Stock to The Nasdaq SmallCap Market and announcing the appointment of Jack L. Bowman as Executive Chairman of the Company.
	Form 8-K dated March 20, 2003, announcing transfer of Company Common Stock to The NASDAQ SmallCap Market.

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SIGNATURES

Pursuant to the requirements 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.

NEORX CORPORATION
(Registrant)
By:	/s/ MELINDA G. KILE
	Melinda G. Kile
	Vice President, Finance and Chief Accounting Officer

Date: May 15, 2003

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CERTIFICATIONS

I, Jack L. Bowman, certify that:

1.             I have reviewed this quarterly report on Form 10-Q of NeoRx Corporation;

2.             Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.             Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.             The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)             designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)            evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)             presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.             The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)             all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)            any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.             The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:       May 15, 2003

/S/ JACK L. BOWMAN

Jack L. Bowman

Executive Chairman

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CERTIFICATIONS

I, Douglass B. Given, MD, PhD, certify that:

1.             I have reviewed this quarterly report on Form 10-Q of NeoRx Corporation;

2.             Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.             Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.             The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)             designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)            evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)             presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.             The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)             all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)            any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.             The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:       May 15, 2003

/S/ DOUGLASS B. GIVEN

Douglass B. Given, MD, PhD

President and Chief Executive Officer

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I, Melinda G. Kile, certify that:

1.             I have reviewed this quarterly report on Form 10-Q of NeoRx Corporation;

2.             Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.             Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.             The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)             designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)            evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)             presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.             The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)             all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)            any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.             The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:       May 15, 2003

/s/ MELINDA G. KILE

Melinda G. Kile

Vice President, Finance and Chief Accounting Officer

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EXHIBIT INDEX

Exhibit	Description
3.1(a)	Restated Articles of Incorporation, dated April 29, 1996	(B)
3.1(b)	Articles of Amendment, dated March 31, 1997, to Restated Articles of Incorporation	(C)
3.1(c)	Articles of Amendment, dated August 8, 1997, to Restated Articles of Incorporation	(K)
3.2	Bylaws, as amended, of the registrant	(K)
10.1	Restated 1994 Stock Option Plan (‡)	(F)
10.2	Lease Agreement for 410 West Harrison facility, dated February 15, 1996, between NeoRx Corporation and Diamond Parking, Inc	(H)
10.3	Amendment No. 1, dated August 14, 2000, to Lease Agreement between NeoRx Corporation and Dina Corporation	(J)
10.4	1991 Stock Option Plan for Non-Employee Directors, as amended (‡)	(E)
10.5	1991 Restricted Stock Plan (‡)	(D)
10.6	Agreement, dated as of December 15, 1995	(F)
10.7	Stock Option Agreement, dated July 30, 2001, between NeoRx Corporation and Douglass B. Given (‡)	(G)
10.8	Indemnification Agreement (‡)	(H)
10.9	Form of Key Executive Severance Agreement (‡)	(I)
10.10	Officer Change in Control Agreement (‡)	(K)
10.11	Key Executive Severance Agreement (‡)	(K)
10.12	License Agreement, dated June 30, 1999, between NeoRx and The Dow Chemical Company	(L)
10.13	Credit Facility Agreement, dated February 3, 2000, between NeoRx Corporation and Pharmaceutical Product Development, Inc.	(M)
10.14	Facilities Lease, dated July 24, 2000, between NeoRx Corporation and F5 Networks	(N)
10.15	Stock Option Agreement, dated December 19, 2000, between NeoRx Corporation and Carl S. Goldfischer (‡)	(J)
10.16	Stock Option Agreement, dated January 17, 2001, between NeoRx Corporation and Carl S. Goldfischer  (‡)	(J)
10.17	Stock Option Agreement, dated November 16, 2000, between NeoRx Corporation and Douglass Given (‡)	(J)
10.18	Sublicense Agreement, dated May 15, 1997, between NeoRx Corporation and Roche Molecular Biochemicals.  Certain portions of the agreement have been omitted pursuant to a grant of confidential treatment.	(O)
10.19	Stock Option Grant Program for Nonemployee Directors under the NeoRx Corporation 1994 Restated Stock Option Plan (‡)	(P)
10.20	First Amendment to Sublease Agreement, dated March 30, 2001, between NeoRx Corporation and F5 Networks	(O)
10.21	Amendment No. 3 to Consulting Agreement, dated January 1, 2002, between NeoRx Corporation and Bay City Capital BD, LLC	(A)
10.22	Separation Agreement, dated September 13, 2001, between NeoRx Corporation and Richard L. Anderson (‡)	(A)
10.23	Form of VP Change in Control Agreements (‡)	(A)
10.24	Clinical Manufacture and Supply Agreement, dated December 1, 2001, between NeoRx Corporation and MURR.  Certain portions of the agreement have been omitted pursuant to a grant of confidential treatment.	(A)
10.25	Facilities Lease, dated February 15, 2002, between NeoRx Corporation and Selig Real Estate Holdings Six	(A)
10.26	Form of VP Severance Agreements (‡)	(A)
10.27	Lease Termination/Continuation Agreement between NeoRx Corporation and Dina Corporation	(R)
10.28	Purchase Agreement dated as of November 12, 2002, between NeoRx Corporation and IDEC Pharmaceutical Corporation	(S)
10.29	Change in Control Agreement, dated February 12, 2003, between NeoRx Corporation and Douglass B. Given	(T)
99.1	Certification of Quarterly Report by Executive Chairman and Chairman of the Board	(Q)
99.2	Certification of Quarterly Report by President and Chief Executive Officer	(Q)
99.3	Certification of Quarterly Report by Vice President, Finance	(Q)

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‡ Management contract or compensatory plan.

(A)	Filed as an exhibit to the Company’s Form 10-K for the fiscal year ended December 31, 2001 and incorporated herein by reference.
(B)	Filed as an exhibit to the Company’s Form 10-K for the fiscal year ended December 31, 1996 and incorporated herein by reference.
(C)	Filed as an exhibit to the Company’s Registration Statement on Form S-3 (Registration No. 333-25161), filed April 14, 1997 and incorporated herein by reference.
(D)	Filed as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 1991 and incorporated herein by reference.
(E)	Filed as an exhibit to the Company’s Registration Statement on Form S-2 (Registration No. 33-71164) effective December 13, 1993 and incorporated herein by reference.
(F)	Filed as an exhibit to the Company’s Form 10-K for the fiscal year ended December 31, 1995 and incorporated herein by reference.
(G)	Filed as an exhibit to the Company’s Registration Statement on Form S-8 (Registration No. 333-71368), filed October 10, 2001 and incorporated herein by reference.
(H)	Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended March 31, 1996 and incorporated herein by reference.
(I)	Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 1996 and incorporated herein by reference.
(J)	Filed as an exhibit to the Company’s Form 10-K for the fiscal year ended December 31, 2000 and incorporated herein by reference.
(K)	Filed as an exhibit to the Company’s Form 10-K for the fiscal year ended December 31, 1998 and incorporated herein by reference.
(L)	Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended September 30, 1999 and incorporated herein by reference.  Certain portions of the agreement have been omitted pursuant to a grant of confidential treatment.
(M)	Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended March 31, 2000 and incorporated herein by reference.  Certain portions of the agreement have been omitted pursuant to a grant of confidential treatment.
(N)	Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended September 30, 2000 and incorporated herein by reference.  Certain portions of the agreement have been omitted pursuant to a grant of confidential treatment.
(O)	Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended March 31, 2001 and incorporated herein by reference.
(P)	Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 2002 and incorporated herein by reference.
(Q)	Submitted herewith.
(R)	Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended September 30, 2002 and incorporated herein by reference.
(S)	Filed as an exhibit to the Company’s Current Report on Form 8-K filed as of November 27, 2002 and incorporated herein by reference.  Certain portions of the agreement have been omitted pursuant to a grant of confidential treatment.
(T)	Filed herewith.

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