<PAGE>   1

================================================================================

                     SECURITIES AND EXCHANGE COMMISSION
                                
                           WASHINGTON, D.C.  20549
                            _____________________
                                
                                  FORM 10-K
                                
            Annual Report Pursuant to Section 13 or 15(d) of the
                     Securities and Exchange Act of 1934
                                
                  FOR FISCAL YEAR ENDED SEPTEMBER 30, 1995
                                
                                   0-14732
                          (Commission file number)

                          ADVANCED MAGNETICS, INC.
           (Exact name of registrant as specified in its charter)

                Delaware                             4-2742593
        (State of Incorporation)       (IRS employer identification number)

           725 Concord Avenue                           02138
        Cambridge, Massachusetts                     (ZIP Code)
 (Address of principal executive offices)

                               (617) 354-3929
                       (Registrant's telephone number)
                                
         Securities registered pursuant to Section 12(g) of the Act:
                   Common Stock, par value $.01 per share
                                
     Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

          Yes     X                No  _________
               -------

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

     The aggregate market value of Common Stock held by non-
affiliates of the registrant at December 8, 1995 was
approximately $135,190,000, based upon the last reported sale
price of the Common Stock on The American Stock Exchange.  The
number of shares of the registrant's Common Stock outstanding at
December 8, 1995 was 6,754,328.

     Documents incorporated by reference:

          Portions of the Annual Report to Stockholders for the
          fiscal year ended September 30, 1995 are incorporated
          by reference into Parts II and IV hereof.

          Portions of the Company's Proxy Statement relating to
          the Company's Annual Meeting of Stockholders to be held
          on February 6, 1996 are incorporated by reference into

          Part III hereof.

================================================================================

<PAGE>   2
(TM) = TRADEMARK
 (R) = Registared Mark



                                   PART I


ITEM 1.  BUSINESS:

COMPANY OVERVIEW

        Advanced Magnetics, Inc., a Delaware corporation ("Advanced Magnetics"
or the "Company"), develops, manufactures and markets innovative
biopharmaceutical products based principally on its proprietary colloidal
superparamagnetic particle technology.  The Company is targeting two primary
product areas: (i) magnetic resonance imaging ("MRI") contrast agents for
diagnosis of cancer and other diseases and (ii) a drug delivery system for the
delivery of therapeutic agents to the liver.  The Company is currently
conducting preclinical studies of the delivery of an antiviral agent for the
treatment of hepatitis B.

        The MRI contrast agents being developed by the Company are colloidal
superparamagnetic formulations designed to enhance images of the abdomen, the
liver and the lymphatic system, as well as other systems.  In many cases, MRI
images made using contrast agents are clearer and permit the identification of
smaller abnormalities than images produced by computerized tomography ("CT
scanning"), MRI without contrast agents and other imaging techniques.  The
Company expects to market its contrast agents both directly and through
marketing partners.

        The Company has entered into marketing, manufacturing and distribution
agreements for its contrast agents with Berlex Laboratories, Inc. ("Berlex") in
the United States and Canada, Mallinckrodt Medical, Inc. ("Mallinckrodt"), a
division of  The Mallinckrodt Group, Inc., in the United States, Guerbet, S.A.
("Guerbet") in Western Europe and Brazil, and Eiken Chemical Co., Ltd.
("Eiken") in Japan.

        The Company's products are at various stages of clinical development in
the United States and abroad:

- - The Company submitted a New Drug Application ("NDA") to the U.S. Food and 
  Drug Administration ("FDA") for Feridex I.V.(TM), the   Company's first
  generation liver contrast agent, in February 1994 which was accepted for
  filing in April 1994.  The Company expects to receive an "approvable" letter
  from the FDA for the product in the first calendar quarter of 1996.  The
  "approvable" letter is the last official action by the FDA prior to granting
  a final approval for marketing of a pharmaceutical.

- - In fiscal 1993, Guerbet filed a dossier in Europe for Feridex I.V. (sold 
  under the tradename Endorem(TM) in Europe) which was unanimously approved by
  the European Union's ("EU") Committee for Proprietary Medicinal Products 
  ("CPMP") in September 1994. The product has since been approved for marketing
  in all EU countries except Italy, Austria and Turkey.

- - In March 1994, Eiken filed a new drug application for approval of Feridex I.V.
  in Japan with the Japanese Ministry of Health (Koseisho).  It is presently
  anticipated by Eiken that approval to market in Japan will be received in 
  1996.

- - In November 1993, the Company submitted an NDA to the FDA for its oral 
  contrast agent GastroMARK[REGISTERED TM] (AMI-121), a product used for
  marking of the bowel in MRI procedures.  This NDA was accepted for filing in
  January 1994 and is currently being reviewed by the FDA.  The Company expects
  to receive an initial FDA action letter in the first calendar quarter of
  1996.

- - In fiscal 1993, Guerbet received marketing approval in several European 
  countries, including France, for GastroMARK (sold under the
  tradename Lumirem[TRADEMARK] in Europe).


<PAGE>   3

- - Phase II human clinical trials for Combidex[TRADEMARK] (AMI-227) were
  completed in the United States in fiscal 1994.  In 1995, the
  Company initiated Phase III U.S. trials for Combidex in imaging
  of lesions of the liver and spleen, which trials are expected to
  be completed by the end of 1995.  Additional Phase III trials for
  imaging of lymph nodes and for the use of Combidex as a vascular
  brightening contrast agent in magnetic resonance angiography
  (MRA) were planned and discussed with the FDA in 1995.  These
  Phase III trials are expected to begin in 1996.

- - Phase II clinical trials for Combidex were initiated in
  Europe in fiscal 1994, and Phase III human trials were initiated
  in Europe in 1995.  Phase I trials are expected to begin in Japan
  in fiscal 1996.

- - The Company is currently conducting preclinical studies of
  an antiviral agent for the treatment of hepatitis B.  A human
  Phase I clinical trial for this product is planned for mid-1996.

     The Company was incorporated in Delaware in 1981.  The
Company's principal executive offices are located at 725 Concord
Avenue, Cambridge, Massachusetts 02138, and its telephone number
is (617) 354-3929.

MRI INDUSTRY BACKGROUND

     Diagnostic imaging is an established part of high technology
medicine and is routinely used when diagnosis and treatment plans
depend on visualizing internal abnormalities and changes in
structure.  A number of methods exist for viewing the internal
structure of the body in order to diagnose disease and injury.
These techniques include x-rays, CT scanning, nuclear imaging,
ultrasound and MRI.  MRI is based on the magnetic properties that
certain nuclei in body tissue exhibit when placed in a strong
magnetic field.  In MRI, the patient is placed inside a tube-
shaped magnet and a short radio frequency pulse is applied.
After the pulse is turned off, the nuclei of the patient's cells
emit a weak signal in the radio frequency range, which is
recorded and analyzed by computer as the nuclei return to
equilibrium.  The computer then generates a detailed image of the
tissue or organ, which may be analyzed by a radiologist in making
a diagnosis.

     Contrast agents increase the utility of many diagnostic
imaging techniques by making possible clearer distinctions among
different organs and types of tissues.  The availability of more
effective, safer contrast agents has resulted in increased use of
diagnostic imaging.  The market for contrast agents used in
diagnostic imaging has been undergoing sustained and rapid
growth, especially in the last five to ten years.  MRI, as the
newest and most rapidly growing imaging modality, represents a
significant growth opportunity as it has the least developed
contrast agent market.

     MRI is considered superior to x-ray and CT scanning for the
imaging of the brain and spinal column.  The Company believes
that MRI will be increasingly used for a wider range of
applications as additional contrast agents become available to
enhance image quality, reduce image analysis time and permit the
identification of tumors and other structures that are less
readily identifiable using other diagnostic imaging techniques.


                                     -2-

<PAGE>   4

TECHNOLOGY

     Advanced Magnetics' core technology is based on its ability
to design and manufacture extremely small superparamagnetic iron
oxide particles of controlled sizes and with specific bioactive
coatings.  These coated particles range in size from
approximately one-thousandth to approximately one-twentieth the
size of a normal red blood cell.  When placed in a magnetic
field, superparamagnetic iron oxides become strongly magnetic,
but do not maintain their magnetism once the field is removed.
The Company's proprietary technology and expertise enable it to
synthesize, sterilize and stabilize superparamagnetic particles
in a manner necessary for their use in pharmaceutical products.
The Company's rights to technology are derived from and protected
by license agreements, issued patents, patent applications and
trade secrets.  See "Business - Patents and Trade Secrets."

CONTRAST AGENTS

     The Company is developing intravenous MRI contrast agents
for imaging of the liver and the lymphatic system, and the
gastrointestinal tract.  The Company has chosen to develop liver
and lymphatic agents because many common cancers first
metastasize to the liver and lymph nodes.  Therefore, these
products may become important diagnostic elements for the staging
of metastatic disease.  No MRI contrast agents specifically for
the liver and the lymphatic system are currently being marketed
anywhere in the world except for Feridex I.V. in Europe.

     The gastrointestinal agent being developed by the Company is
intended to improve imaging of abdominal organs by distinguishing
between the loops of the bowel and other abdominal organs and
structures.  GastroMARK is administered orally, and the iron it
contains is excreted through the bowel.  The Company's other
contrast agents are injected into the vascular system.  The iron
in each injected dose of contrast agent constitutes less than 2%
of the average normal body stores of iron for adult women (less
than 1% for men) and is ultimately added to normal body stores of
iron.


<TABLE>
     The following table summarizes potential applications,
marketing partners and current United States and foreign status
for each of the Company's MRI contrast agents.

<CAPTION>
                                MRI CONTRAST AGENTS
                                -------------------
          
IMAGING                                MARKETING             UNITED STATES             FOREIGN
PRODUCT         APPLICATIONS           PARTNERS              STATUS                    STATUS
- -------         ------------           --------              ------                    ------

<S>             <C>                    <C>                   <C>                       <C>
Feridex I.V.,   Diagnosis of liver     Berlex (United        NDA filed in              Unanimously
Endorem         lesions                States and Canada),   February 1994.            approved by EU's
                                       Eiken (Japan), and    Accepted for filing       Committee for
                                       Guerbet (Western      by FDA in April           Proprietary
                                       Europe and Brazil)    1994. "Approvable"        Medicinal
                                                             letter expected in the    Products.
                                                             first calendar quarter    Approved in all
                                                             of 1996.                  EU countries in
                                                                                       Europe except 
                                                                                       Italy, Austria and
                                                                                       Turkey.
                                                                                       Marketing has 
                                                                                       begun in Europe.
                                                                                       Japanese NDA 


</TABLE>


                                     -3-

<PAGE>   5



<TABLE>
<CAPTION>
                                MRI CONTRAST AGENTS
                                -------------------
          
IMAGING                                MARKETING             UNITED STATES             FOREIGN
PRODUCT         APPLICATIONS           PARTNERS              STATUS                    STATUS
- -------         ------------           --------              ------                    ------

<S>             <C>                    <C>                   <C>                       <C>
                                                                                       filed in March
                                                                                       1994.  Japanese
                                                                                       approvals
                                                                                       expected in 1996.

GastroMARK,     Marking of the         Guerbet (Western      NDA submitted in          Approved in most
Lumirem (AMI-   bowel in abdominal     Europe and Brazil)    November 1993.            countries in 
121)            imaging                and Mallinckrod       Accepted for filing       Europe.     
                                       (United States,       by FDA in January         Marketing has 
                                       Canada and            1994.  Initial FDA        begun in Europe.
                                       Mexico)               action letter expected 
                                                             in the first calendar
                                                             quarter of 1996.

Combidex,       Diagnosis of status    Guerbet (Western      IND submitted in          Phase II trials in
Sinerem(TM)     of lymph nodes,        Europe and Brazil)    February 1992.            Europe in 1994.
(AMI-227)       liver lesions and      and Eiken (Japan)     Phase II trials           European Phase 
                blood vessels (in                            completed in 1994.        III testing began 
                MRA)                                         Initial Phase III trials  in 1995.  Phase 
                                                             expected to be            I/II testing to
                                                             completed in 1995.        begin in Japan in
                                                             Additional Phase III      1996.
                                                             trials expected to
                                                             begin in 1996.

</TABLE>

                                                     
                                     -4-

<PAGE>   6

     "Phase I clinical trials" refers to the first phase of human
pharmaceutical clinical trials in which testing for the safety
and tolerance of the product is conducted on a small group of
normal subjects.  "Phase II clinical trials" and "Phase III
clinical trials" refer to the second and third phases of human
clinical trials, where preliminary dosing and efficacy studies
are conducted and where additional testing for efficacy and
safety is conducted on an expanded patient group.  For a further
description of the substantial regulatory requirements subsequent
to the completion of preclinical testing, see "Business -
Government Regulation."

     FERIDEX I.V. LIVER AGENT.  Feridex I.V., the Company's first
generation liver contrast agent, is injected intravenously and
taken up by the Kupffer cells (which are present throughout
normal liver tissue) but not by tumors, dramatically enhancing
the contrast between them.  The liver is a principal site for
metastasis of primary cancer originating in other parts of the
body, particularly cancer of the colon, the most common cancer in
the United States.  Diagnosis of metastasis at an early stage can
be difficult because small tumors are frequently not accompanied
by detectable physical symptoms.  Identification of metastatic
tumors in the liver has a significant impact on physicians'
treatment plans for cancer.  The Company believes that Feridex
I.V. will allow magnetic resonance images of liver tumors that
are smaller than those generally identified with CT scanning, the
most widely used technique for liver imaging.  The Company
believes that if an effective MRI contrast agent were available
for imaging the liver, a substantial number of the liver scans
now done using CT scanning and other imaging techniques would
instead, or also, use MRI.

     The Company submitted an NDA for Feridex I.V. in February
1994 which was accepted for filing in April 1994 and expects to
receive an "approvable" letter for the product in the first
calendar quarter of 1996.  The "approvable" letter is the last
official action by the FDA prior to granting a final approval
letter for marketing of a pharmaceutical. The product was
approved in September 1994 by the EU's Committee for Proprietary
Medicinal Products.  All the member states of the EU have issued
local approvals to market this product except Italy, Austria and
Turkey.  Marketing of the product  has begun in  Europe under the
tradename Endorem.  Eiken filed an application for Japanese
regulatory approval early in March 1994.  Eiken expects approval
in Japan in fiscal 1996.  The Company has licensed Feridex I.V.
on an exclusive basis to Berlex in the United States and Canada,
to Eiken in Japan and to Guerbet in Western Europe and Brazil.
See "Business - Licensing and Marketing Arrangements."

     GASTROMARK ORAL CONTRAST AGENT.  MRI imaging of organs and
tissues in the abdomen without contrast agents is difficult
because these organs and tissues cannot be easily distinguished
from the loops of the bowel.  The Company's GastroMARK oral
contrast agent, when ingested, flows through and darkens the
image of the loops of the bowel.  By more clearly identifying the
intestinal loops, GastroMARK improves visualization of adjacent
abdominal tissues, including the pancreas, liver, kidneys and
pelvis.

     The Company submitted an NDA for GastroMARK with the FDA in
November 1993, which application is currently under review by the
agency.  The Company expects an initial FDA action letter in the
first calendar quarter of 1996.

     The Company has granted Mallinckrodt the exclusive right to
co-market GastroMARK in the United States, Canada and Mexico.
The Company has also licensed the manufacturing and marketing
rights to GastroMARK on an exclusive basis to Guerbet in Western
Europe and Brazil.  Guerbet began receiving governmental
approvals in Europe in March 1993.  Marketing of the product in
Europe has begun under the trade name Lumirem.

     COMBIDEX LYMPHATIC AND BLOOD PERFUSION AGENT.  The Company
believes that Combidex will be useful in diagnostic imaging of
the lymphatic system.  The relatively long blood circulation half-
life of this product affords it time to be cleared from the blood
stream and accumulate in the lymph nodes.  Lymph nodes are
frequently sites for metastases of different types of cancer,
particularly breast cancer, and efficient imaging 


                                     -5-

<PAGE>   7

of lymph nodes would play a significant part in determining courses 
of treatment.  There are currently no available non-invasive methods
for effectively detecting tumors in lymph nodes.  The long
circulating half-life of Combidex also permits its use in
analyzing the perfusion, or blood content, of tissues such as the
heart and brain.  Heart attacks and strokes decrease blood flow
in damaged tissue, and the Company believes that Combidex may be
useful in delineating the affected area or visualizing areas of
vascular constriction.

     Advanced Magnetics has granted exclusive rights to
manufacture, market and sell Combidex in Japan to Eiken and an
exclusive right to market and sell Combidex in Western Europe and
Brazil to Guerbet.  Phase II clinical testing was completed in
the United States and was initiated in Europe in 1994.  Phase III
human trials were initiated in the United States and Europe in
1995.  Additional Phase III trials for imaging of lymph nodes and
for the use of Combidex as a vascular brightening contrast agent
in MRA are expected to begin in 1996.  Phase I trials will begin
in Japan in 1996.  See "Business - Licensing and Marketing
Arrangements."

     AMI-HS LIVER AGENT.  AMI-HS is a second generation MRI liver
imaging agent.  This agent is directed specifically to hepatocyte
cells, which constitute more than 90% of the cells in the liver.
The contrast agent consists of a superparamagnetic particle
coated with the polysaccharide arabinogalactan, which is taken up
by the Asialoglycoprotein ("ASG") receptor found exclusively on
healthy hepatocyte cells.  Other normal cells in the body, as
well as cancer cells and diseased hepatocytes, lack this receptor
and therefore cannot localize the agent.  This differential
uptake enhances contrast between healthy and diseased tissue and
could improve the ability of MRI to detect small tumors or
lesions in the liver.  In December 1994, the Company submitted an
IND application to the FDA in order to begin Phase I human
clinical testing, which was completed in 1995.  At the present
time, the Company intends to allocate its resources to developing
and marketing other contrast agents.

     OTHER CONTRAST AGENTS UNDER DEVELOPMENT.  The Company is
developing additional contrast agents.  The Company believes that
a variety of peptides, antibodies, proteins and polysaccharides
may be used to coat its superparamagnetic iron oxide particles
and to target them to specific receptors, and is currently
researching the use of these substances in new contrast agents.
In 1995, the Company entered into an agreement with Massachusetts
General Hospital for the development of receptor-directed
superparamagnetic contrast agents, with the pancreas being the
principal target organ of this initial effort.

HEPATIC DELIVERY SYSTEMS

     The Company's experience in developing receptor-specific MRI
contrast agents has led it to pursue opportunities in the
delivery and development of receptor-specific therapeutic agents.
The Company believes that arabinogalactan, which binds to the ASG
receptor found on healthy hepatocytes with high specificity, will
prove useful for delivering therapeutic substances to the liver
because of its high specificity, low cost and lack of toxicity in
the bloodstream.  The Company believes that the attachment of
therapeutic agents to arabinogalactan can increase the
concentration of the agent in the liver and reduce toxic effects
of the agent on other organs, including the nervous system,
kidneys and bone marrow.  AraA, for example, a potent inhibitor
of hepatitis B virus replication, is not currently used for the
treatment of this disease principally due to its neurotoxicity.
The potency and safety of AraA as a therapeutic agent for
hepatitis B as tested in animals and in vitro, however, are
substantially enhanced when attached to arabinogalactan. The
conjugate made by the attachment of AraA to arabinogalactan has
shown excellent safety and efficacy in preclinical studies and
the Company expects to test it in human beings in 1996.

     The Company believes that the delivery and use enhancements
seen when AraA is attached to arabinogalactan may be obtained
with other therapeutic agents.  The attachment of a variety of
therapeutic agents to arabinogalactan is an active area of
research and may lead to a series of arabinogalactan-based


                                     -6-

<PAGE>   8

pharmaceuticals for the treatment of liver disease generally
(Hepatitis B, Hepatitis C, and liver cancer).  The Company
believes it has a strong intellectual property position regarding
arabinogalactan.  It has received two U.S. patents pertaining to
the use of arabinogalactan for the delivery of therapeutic agents
and has additional domestic and foreign patent applications
pending.

IN VITRO DIAGNOSTIC AND RESEARCH PRODUCTS

     In fiscal 1994, the Company sold substantially all of the
assets and business of the Company's non-therapeutic IN VITRO
diagnostic reagent, separation and research product lines as well
as associated licensing and services (the "In Vitro Product
Line") to PerSeptive Biosystems, Inc. ("PerSeptive").  In
connection with the sale, PerSeptive assumed certain specified
liabilities associated with the In Vitro Product Line and issued
151,759 shares of its Common Stock (the "Acquisition Shares") to
the Company at $27.39 per share for a total of $4,156,674.  In
addition, for fiscal 1995, PerSeptive was required to pay the
Company an earn-out payment of $3,404,527, based on a percentage
of the revenues derived from the In Vitro Product Line during
1993 and royalties received during PerSeptive's 1995 fiscal year.
PerSeptive has elected to pay this earn-out in PerSeptive common
stock and the Company expects to receive this payment during
fiscal 1996.

     Under a related license agreement, the Company granted to
PerSeptive a perpetual, royalty-free license to use certain
patents and other intellectual property retained by the Company
on an exclusive basis within the non-therapeutic, in vitro diagnostic 
reagent, separation and research products and services fields, 
subject to specified, pre-existing licenses.

LICENSING AND MARKETING ARRANGEMENTS

     CONTRAST AGENTS.  Advanced Magnetics has entered into
various licensing agreements with respect to its MRI contrast
agents.  These agreements generally provide for the payment of
license fees upon execution and, in some cases, when the Company
or the licensee achieves specified regulatory milestones.  The
agreements also provide for royalties based on the licensee's
sales.  In certain cases, the Company sells active ingredients or
finished contrast agents to its licensees for payments based on a
percentage of sales.  In general, the agreements have terms of
more than 10 years, and are generally terminable upon specified
events such as non-performance, insolvency or assignment without
consent.

     In February 1995, the Company entered into a license and
marketing agreement and supply agreement with Berlex
Laboratories, Inc. (a subsidiary of Schering A.G., Germany),
granting Berlex exclusive marketing rights to Feridex I.V. in the
United States and Canada.  Under the terms of the agreements,
Berlex paid a $5,000,000 license fee on execution of the
agreements and agreed to pay an additional $5,000,000 license fee
upon receipt by the Company of a New Drug Approval from the FDA.
In addition, the Company will receive payments for manufacturing
the agent and royalties on future sales of the agent.  See
"Contrast Agents - Feridex I.V."

     In 1987, the Company entered into a supply and distribution
agreement with Guerbet.  Under this agreement, Guerbet has been
appointed the exclusive distributor of the Company's Feridex I.V.
liver contrast agent in Western Europe and Brazil.  Guerbet is
responsible for conducting clinical trials and securing the
necessary regulatory approvals in the countries in its territory.
Guerbet paid the Company license fees of $500,000 and is required
to pay royalties based on sales.  The Company is entitled to
receive an additional percentage of Guerbet's sales in return for
selling to Guerbet its requirements for the active ingredient
used in the liver contrast agent.  In 1994, Guerbet informed the
Company that it had received approval from the EU's CPMP for
Feridex I.V.  All of the EU countries except Italy, Austria and
Turkey have approved the product for marketing.  Sales began in
Germany in January 1995.


                                     -7-

<PAGE>   9

     In 1990, the Company entered into a manufacturing and
distribution agreement for GastroMARK with Mallinckrodt.  Under
this agreement, Mallinckrodt received the exclusive right to
manufacture and co-market GastroMARK in the United States, Canada
and Mexico. The Company may also sell the product through its own
direct sales personnel.  Mallinckrodt has paid $1,350,000 under
the contract and has agreed to pay $500,000 on FDA approval of
the NDA.  Additionally, the Company will receive royalties based
on Mallinckrodt's sales.  The Company is required to sell to
Mallinckrodt its requirements of the active ingredient of
GastroMARK.  The Company submitted an NDA for GastroMARK in
November 1993 which was accepted for filing by the FDA in January
1994.  The NDA is currently under active review by the FDA.  See
"Contrast Agents - GastroMARK Oral Contrast Agent."

     In 1989, the Company entered into a second supply and
distribution agreement with Guerbet granting Guerbet an exclusive
right in Western Europe and Brazil to manufacture and sell
GastroMARK and any future Advanced Magnetics MRI contrast agents
that Guerbet decides to market.  Under the terms of this second
distribution agreement, Guerbet paid the Company a license fee of
$700,000.  In addition, Guerbet will pay the Company royalties,
plus a percentage of net sales, as the purchase price for the
active ingredient.  The Company is required to sell to Guerbet
its requirements for the active ingredient used in the contrast
agents.  Guerbet surrendered its rights to market AMI-HS in 1995.
In fiscal 1993, Guerbet informed the Company that it had received
marketing approval in several European countries, including
France, for Lumirem, Guerbet's tradename for GastroMARK.  Most
European countries have now approved this product for marketing,
and sales commenced in 1994.

     In 1990, the Company entered into a manufacturing and
distribution agreement with Eiken, granting Eiken the exclusive
right in Japan to manufacture and distribute GastroMARK and any
future Advanced Magnetics MRI contrast agents that Eiken decides
to market.  Upon execution of this agreement, Eiken paid the
Company a license fee of $1,000,000.  Additionally, Eiken agreed
to pay the Company royalties on sales of all products
manufactured by Eiken under the agreement.  In 1995, Eiken
surrendered its right to develop AMI-HS.

     In 1991, the Company entered into two agreements with Squibb
Diagnostics, a division of Bristol Myers Squibb Co. ("Squibb
Diagnostics"), covering certain technology and the manufacturing
and marketing of AMI-HS and Combidex.  The Company and Squibb
Diagnostics have terminated these agreements.  Under certain
circumstances, the Company is obligated to pay Squibb Diagnostics
royalties in connection with product sales of AMI-HS and Combidex
up to a maximum of $2,000,000 and $2,750,000, respectively.


MANUFACTURING AND SUPPLY ARRANGEMENTS

     The Company's Cambridge, Massachusetts facility is
registered with the FDA and is subject to current "Good
Manufacturing Practices" as prescribed by the FDA.  The Company
currently manufactures bulk Feridex I.V. product for sale to
Guerbet and has developed the necessary capabilities to
manufacture Feridex I.V., finished product for sale to Berlex and
GastroMARK bulk product for sale to Guerbet and Mallinckrodt.
The Company also manufactures Combidex for preclinical and
clinical testing by Guerbet as well and the Company also expects
to utilize contract manufacturers from time to time if
appropriate.

COMPETITION AND REIMBURSEMENT

     A number of companies are actively developing MRI contrast
agents and several companies are currently marketing FDA-approved
MRI contrast agents in the United States.  Advanced Magnetics
expects to compete in the marketing of MRI contrast agents with
companies which manufacture or sell CT contrast media and early
stage companies that do not presently market contrast agents.
Many competitors, including 


                                     -8-

<PAGE>   10

major pharmaceutical companies, have substantially greater 
financial, marketing and human resources than the Company.  
The Company believes that success in the MRI contrast agent market 
as well as the antiviral therapeutics market will depend in large 
part on successful development of efficacious products, timely 
receipt of regulatory approvals and product manufacturing at 
commercially acceptable costs.  There can be no assurance that the 
Company will be able to compete successfully with its existing 
competitors or its new competitors.

     The Company's success will also depend on private or
governmental insurance reimbursement to patients for use of the
products, which cannot be assured.

     There can be no assurance that the Company's proposed
products will be successful or that they will not become obsolete
as a result of technological advances, including new methods of
imaging or new diagnostic tests that do not require imaging for
diagnosis of a disease.  In addition, new therapeutic agents may
be introduced which reduce the incidence of disease and therefore
the need for diagnosis.  In the area of antiviral therapeutics,
competitors may develop more effective or more convenient
therapies than the Company's, making the Company's products
obsolete or otherwise limited in market potential.

RESEARCH AND DEVELOPMENT

     Advanced Magnetics' future success will depend in part on
its ability to commercialize its products currently under
development and to develop new products.  In May 1995, the
Company entered into a sponsored research and license agreement
with the General Hospital corporation, a not-for-profit
Massachusetts Corporation doing business as Massachusetts General
Hospital ("MGH").  The agreement covers organ-specific, receptor-
directed, ultrasmall superparamagnetic iron oxides for use as MRI
contrast agents.  The target organ for the initial collaboration
is the pancreas.  The Company agreed to pay MGH a minimum of
$300,000, but payments could exceed this amount depending on
milestone achievements and product sales.

     During the fiscal years ended September 30, 1993, 1994 and
1995, the Company spent $6,863,229, $6,621,929 and $8,601,791,
respectively, on research and development on Company products.

PATENTS AND TRADE SECRETS

     The Company's policy is to aggressively protect its
competitive technology position by a variety of means, including
applying for patents in the United States and in appropriate
foreign countries.  Advanced Magnetics has been granted twenty-
two United States patents and has pending several United States
patent applications covering various aspects of the production of
magnetic colloids and particles, the composition of particles,
the formulation of colloids and certain applications of these
colloids and particles.  The Company has filed counterpart patent
applications in several foreign countries.  Although the Company
believes that further patents will be issued on pending
applications, no assurance to this effect can be given.  One of
the Company's patents is the subject of an interference
proceeding in the U.S. Patent Office.  The Company does not
believe that the resolution of this interference proceeding will
be material to its business.  Moreover, in May 1993, the Company
entered into a patent cross licensing agreement covering MRI
patents with Nycomed Imaging A.S. of Oslo, Norway and in February
1995, the Company entered into a patent cross licensing agreement
covering MRI patents with Schering AG, Germany.  With these cross
licensing agreements in place, the Company knows of no
intellectual property impediments to the Company or its licensees
manufacturing and marketing MRI contrast agents.  There can be no
assurance, however, that others will not develop or assert rights
to technology that would negatively impact the Company's and its
licensees' ability to manufacture and market MRI contrast agents
or that any other licenses necessary to the Company would be
available on favorable terms or at all.


                                     -9-

<PAGE>   11

     The Company has received a U.S. patent covering the use of
arabinogalactan as a delivery system for therapy agents and has
received a notice of allowance for two other therapeutic agent
patents.  Additional therapeutic applications are pending but
there is no assurance that any additional patents will issue to
the Company.

     The Company also intends to rely on its trade secrets to
maintain and develop its commercial position.  Although the
Company seeks to protect its proprietary information, there can
be no assurance that others will not either independently develop
the same or similar information, obtain unauthorized access to
the Company's proprietary information or misuse information to
which the Company has granted access.

GOVERNMENT REGULATION

     Manufacturers of clinical diagnostic products intended for
human IN VIVO use and therapeutic pharmaceuticals are subject to
regulation by the FDA and similar agencies of foreign countries.
The MRI contrast agents under development are classified as
pharmaceutical agents and are regulated by the Division of
Medical Imaging of the FDA.  The approval process for both
contrast agents and any therapeutic agent developed, such as the
Company's receptor-specific drug delivery system for the
targeting of antiviral drugs to the liver for the treatment of
hepatitis B, involves extensive preclinical work with animals,
submission of an IND exemption, clinical trials in three phases
with FDA review at each stage, submission of an NDA, extensive
FDA review, and final approval for marketing.  The process takes
several years and there can be no assurance of receiving final
approval.  To date, no MRI contrast agent based on magnetic
particles has been approved by the FDA.

     Both before and after approval is obtained, a product, its
manufacturer, and the holder of the NDA for the product are
subject to comprehensive regulatory oversight.  Violations of
regulatory requirements at any stage, including the preclinical
and clinical testing process, the approval process, or thereafter
(including after approval) may result in various adverse
consequences, including the FDA's delay in approving or refusal
to approve a product, withdrawal of an approved product from the
market, and/or the imposition of criminal penalties against the
manufacturer and/or NDA holder.  In addition, later discovery of
previously unknown problems may result in restrictions on such
product, manufacturer, or NDA holder, including withdrawal of the
product from the market.  Also, new government requirements may
be established that could delay or prevent regulatory approval of
the Company's products under development.

     Even after initial FDA approval has been obtained, further
studies, including post-marketing studies, may be required to
provide additional data on safety and will be required to gain
approval for the use of a product as a treatment for clinical
indications other than those for which the product was initially
tested.  Also, the FDA will require post-marketing reporting to
monitor the side effects of the drug.  Results of post-marketing
programs may limit or expand further marketing of the products.
Further, if there are any modifications to the drug, including
changes in indication, manufacturing process, labeling or
manufacturing facilities, an NDA supplement may be required to be
submitted to the FDA.

     The Company's operations are subject to regulation by a
variety of other governmental agencies.  The Company possesses a
By-product Materials License from the Nuclear Regulatory
Commission ("NRC") for receipt, possession, manufacturing, and
distribution of radioactive materials.  The Company holds
Registration Certificates from the United States Drug Enforcement
Administration and the Commonwealth of Massachusetts Department
of Public Health for handling controlled substances.  The Company
is registered with the United States Environmental Protection
Agency ("EPA") as a generator of hazardous waste.  All hazardous
waste disposal must be made in accordance with EPA and NRC
requirements.  The Company is subject to the regulations of the
Occupational Safety and Health Act and has in effect a safety
program to 


                                     -10-

<PAGE>   12

assure compliance with these regulations.  To date, the Company 
has not experienced any significant problems in complying with 
these regulations.

MAJOR CUSTOMERS

     For the fiscal year ended September 30, 1995, approximately
75% of total revenues were derived from two major customers:
Berlex (52%) and Guerbet (23%).  Revenues in fiscal 1995, 1994
and 1993, from customers and licensees outside of the United
States, principally in Europe and Japan, amounted to 23%, 3% and
16%, respectively, of the Company's total revenues.

HUMAN RESOURCES

     As of December 8, 1995, the Company had 62 full-time
employees, 53 of whom were engaged in research and development.
The Company's future success depends in part on its ability to
recruit and retain talented and trained scientific personnel.
The Company has been successful to date in obtaining such
personnel, but there can be no assurance that such success will
continue.

     None of the Company's employees is represented by a labor
union, and the Company considers its relations with its employees
to be excellent.


I
TEM 2.   PROPERTIES:

PROPERTIES

     The Company's principal pharmaceutical manufacturing and
research and development operations are located in a modern
Company-owned building of approximately 25,000 square feet in
Cambridge, Massachusetts, which includes a recently completed
3,800 square-feet expansion.  The Company has leased two
additional premises in Cambridge of approximately 18,000 total
square feet to be used for manufacturing, warehousing and
executive office space.  In addition, the Company has leased
premises of approximately 5,200 square feet in Princeton,
New Jersey used by the Company's Clinical Development Group as a
general business, sales and administrative office.  The Company
believes these facilities are adequate for its current and
anticipated short-term needs.


ITEM 3.  LEGAL PROCEEDINGS:

     The Company and certain of its officers were sued in an
action entitled DAVID D. STARK, M.D. V. ADVANCED MAGNETICS, INC.,
JEROME GOLDSTEIN, ERNEST V. GROMAN, AND LEE JOSEPHSON, Civil
Action No. 92-12157-WGY, in the United States District Court for
the District of Massachusetts on September 3, 1992.  The
plaintiff, a former consultant to the Company, claims that he was
incorrectly omitted as an inventor or joint inventor on certain
of the Company's patents and on pending applications, and seeks
injunctive relief and unspecified damages.  In addition, the
complaint also alleges state law claims for breach of contract,
breach of good faith and fair dealing, breach of implied
contract, misappropriation of trade secrets, conversion,
negligent misrepresentation, misrepresentation, unjust
enrichment, and unfair trade practices.  The case has been
administratively closed, subject to being reopened upon motion of
either party.  While the outcome of the action cannot be
determined, the Company believes the action is without merit, and
intends to defend the action vigorously if it is reopened.

     The Company and certain of its officers were sued in DAVID
D. STARK V. ADVANCED MAGNETICS, INC., JEROME GOLDSTEIN, ERNEST V.
GROMAN AND LEE JOSEPHSON, Civil Action No. 93-02846-C, in the
Superior Court Department of the Massachusetts Trial Court for
Middlesex County.  This case involves the claims of breach 


                                     -11-

<PAGE>   13

of contract, breach of good faith and fair dealing, breach of
implied contract, unjust enrichment, and unfair trade practices
that were originally dismissed by, but later remanded to, the
Federal Court in the above-mentioned action, as well as a new
count alleging tortious interference with contractual or
advantageous relations.  On August 29, 1994, the Superior Court
granted partial summary judgment in the Company's favor and
dismissed the unfair trade practices and tort counts.  On March
7, 1995, the Superior Court granted the parties' joint motion for
partial stay and essentially stayed the action pending resolution
of the parallel federal action described above.  While the
outcome of the action cannot be determined, the Company believes
the action is without merit, and intends to defend the action
vigorously.

     Except as described above, the Company knows of no material
litigation or proceeding, pending or threatened, to which the
Company may become a party.


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

     No matters were submitted to a vote of the Company's
security holders during the quarter ended September 30, 1995.


                                     -12-

<PAGE>   14


                             PART II


ITEM 5.   MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS:

     The information set forth under the caption "Price Range of
Common Stock" on page 13 of the Company's 1995 Annual Report to
Stockholders, which appears as Exhibit 13.1, is incorporated
herein by reference.

     On December 8, 1995 there were approximately
302 shareholders of record.  The Company believes that the number
of beneficial holders of Common Stock exceeds 2,300.  The last
reported sale price of the Common Stock on December 8, 1995 was
$25.125 per share.  The Company has never declared or paid a cash
dividend on its capital stock.


ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA:

     The information set forth under the caption "Selected
Consolidated Financial Data" on page 14 of the Company's 1995
Annual Report to Stockholders, which appears as Exhibit 13.1, is
incorporated herein by reference.



ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULT OF OPERATIONS:
                                
     The information set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" on pages 15 through 18 of the Company's 1995 Annual
Report to Stockholders, which appears as Exhibit 13.1, is
incorporated herein by reference.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:

     The Independent Auditors' Report and the consolidated
financial statements for the Company set forth on pages 19
through 31 of the Company's 1995 Annual Report to Stockholders,
which appears as Exhibit 13.1, are incorporated herein by
reference.


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

     Not applicable.


                                     -13-

<PAGE>   15


                            PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:

     The information required by this item, with respect to the
directors of the registrant, is incorporated by reference from
the Company's definitive proxy statement in connection with its
Annual Meeting of Stockholders to be held on February 6, 1996, to
be filed with the Commission not later than 120 days after the
close of the fiscal year ended September 30, 1995, in the table
under the caption "Election of Directors."

The executive officers of the Registrant are as follows:

     Jerome Goldstein, 56, is a founder of the Company and has
been Chairman of the Board of Directors, President and Treasurer
since the Company's organization in November 1981.  Mr. Goldstein
is also a director of Matritech, Inc.  Mr. Goldstein was a co-
founder of Clinical Assays, Inc., serving from 1972 to 1980 as
Vice President and then as President.  Mr. Goldstein is the
brother of Leslie Goldstein, a director of the Company, and
husband of Marlene Kaplan Goldstein.

     Lee Josephson, 50, is a founder of the Company and has been
employed as Senior Vice President-Research since November 1990.
From December 1985 until November 1990, Dr. Josephson was Vice
President-Research of the Company and from December 1981 until
December 1985, he was a Senior Scientist of the Company.

     Jerome M. Lewis, 46, joined the Company in April 1986 as a
Senior Scientist and has been Vice President - Scientific
Operations since February 1991.  Prior to April 1986, Dr. Lewis
was employed as a senior scientist by Petroferm Ltd., a
biotechnology company.

     Anthony P. Annese, 66, joined the Company in December 1987
as Vice President - Finance.  Prior to December 1987, Mr. Annese
was Controller of the Clinical Assays Division of Baxter
International, Inc.

     Paula M. Jacobs, 51, joined the Company in January 1986 as
Vice President - Development.  From 1981 to 1986, Dr. Jacobs was
employed at Seragen, Inc., first as Production Manager and later
as General Manager of the Research Products Division.

     Leonard M. Baum, 42, joined the Company in October 1994 as
Senior Vice President.  From 1986 to 1994, Mr. Baum was employed
as Senior Director, Worldwide Regulatory Affairs/Drug Safety by
Squibb Diagnostics.

     Mark C. Roessel, 45, joined the Company in January 1982 as
Director of Regulatory Affairs and has been Vice President -
Regulatory Affairs since January 1995.  Prior to January 1982,
Mr. Roessel was Compliance Manager of the Clinical Assay Division
of Baxter International, Inc.

     Marlene Kaplan Goldstein is a founder of the Company and has
been Secretary of the Company since the Company's organization in
November 1981.


ITEM 11.  EXECUTIVE COMPENSATION:

     The information required by this item is incorporated by
reference from the Company's definitive proxy statement in
connection with its Annual Meeting of Stockholders to be held on
February 6, 1996, to be filed with the Commission not later than
120 days after the close of the fiscal year ended September 30,
1995, under the captions "Compensation of Directors" and
"Executive Compensation."



                                     -14-

<PAGE>   16



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT:

     The information required by this item is incorporated by
reference from the Company's definitive proxy statement in
connection with its Annual Meeting of Stockholders to be held on
February 6, 1996, to be filed with the Commission not later than
120 days after the close of the fiscal year ended September 30,
1995, in the tables under the captions "Principal Stockholders"
and "Election of Directors."


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:

     Not applicable.


                                     -15-

<PAGE>   17


                             PART IV


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

(a)  The following documents are filed as part of this Annual
     Report on Form 10-K:

     1.  CONSOLIDATED FINANCIAL STATEMENTS. The following
     consolidated financial statements of the Company and
     Independent Auditors' Report are incorporated in Item 8 of
     this report by reference to the Company's 1995 Annual Report
     to Stockholders.


     Report of Independent Accountants
     Consolidated Balance Sheets at September 30, 1995
          and 1994
     Consolidated Statements of Operations for the Years
          Ended September 30, 1995, 1994 and 1993
     Consolidated Statements of Stockholders' Equity for
          the Years Ended September 30, 1995, 1994 and 1993
     Consolidated Statements of Cash Flows for the Years
          Ended September 30, 1995, 1994 and 1993

     Notes to Consolidated Financial Statements


     2.  CONSOLIDATED FINANCIAL STATEMENT SCHEDULES.
Consolidated financial statement schedules have been omitted
because the required information is not present or not present in
amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated
financial statements or the notes thereto.

     3 (a).    The exhibits listed in the Exhibit Index
     immediately preceding the Exhibits are filed as a part 
     of this Annual Report on Form 10-K.

     3 (b).    Reports on Form 8-K:  No reports on Form 8-K were
     filed by the Company during the fiscal quarter ended
     September 30, 1995.




                                     -16-

<PAGE>   18


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

                                   ADVANCED MAGNETICS, INC.

                                 By:  /s/ Jerome Goldstein
                                      ---------------------------------------
                                      Jerome Goldstein, Chairman of the Board
                                      of Directors, President and Treasurer

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


<TABLE>
<CAPTION>
           Name                         Title                                         Date
           ----                         -----                                         ----

<S>                             <C>                                             <C>
/s/ Jerome Goldstein            Chairman of the Board of                        December 22, 1995
- ----------------------------    Directors, President and Treasurer
Jerome Goldstein                (principal executive and financial officer)


/s/ Anthony P. Annese           Vice President-Finance                          December 22, 1995
- ----------------------------    (principal accounting officer)
Anthony P. Annese     

/s/ Thomas Coor                 Director                                        December 22, 1995
- ----------------------------
Thomas Coor


/s/ Leslie Goldstein            Director                                        December 22, 1995
- ----------------------------
Leslie Goldstein


/s/ Richard L. McIntire         Director                                        December 22, 1995
- ----------------------------
Richard L. McIntire


/s/ Edward B. Roberts           Director                                        December 22, 1995
- ----------------------------
Edward B. Roberts


/s/Roger E. Travis              Director                                        December 22, 1995
- ----------------------------
Roger E. Travis


/s/ George M. Whitesides        Director                                        December 22, 1995
- ----------------------------
George M. Whitesides

</TABLE>



                                     -17-


<PAGE>   19


<TABLE>


                          EXHIBIT INDEX

<CAPTION>
Exhibit
Number                  Description                                                     Page
- -------                 -----------                                                     ----

   <S>       <C>
   3.1(1)    Certificate of Incorporation of the Company, as amended.
   
   3.2(2)    By-Laws of the Company, as amended.
   
   10.1(6)   1983 Stock Option Plan of the Company, as amended on 
             November 13, 1990.
   
   10.2(7)   1987 Employee Stock Purchase Plan.
   
   10.3(7)   1992 Employee Stock Purchase Plan.
   
   10.4(7)   1992 Non-Employee Director Stock Option Plan.
   
   10.5(9)   1993 Stock Plan.
   
   10.6(9)   1993 Non-Employee Director Stock Option Plan.
   
   10.7(3)   Technology Agreement dated January 21, 1983 between the 
             Company and Corning Glass Works (now Ciba Corning Diagnostics 
             Corp.) (confidential treatment previously granted).
   
   10.8(2)   Agreements between the Company and ML Technology Ventures, 
             L.P. dated as of March 23, 1987 (confidential treatment previously 
             granted).
   
   10.9(2)   Clinical Testing, Supply and Marketing Agreement between the 
             Company and Guerbet, S.A. dated May 22, 1987 (confidential 
             treatment previously granted).
   
   10.10(4)  Clinical Testing, Supply and Marketing Agreement between the 
             Company and Eiken Chemical Co., Ltd., dated August 30, 1988 
             (confidential treatment previously granted).
   
   10.11(5)  Contrast Agent Agreement dated between the Company and Guerbet, 
             S.A. dated September 29, 1989 (confidential treatment 
             previously granted).
   
   10.12(6)  Contrast Agent Agreement between the Company and Eiken 
             Chemical Co., Ltd. dated March 27, 1990 (confidential treatment 
             previously granted).
   
   10.13(6)  Amendment to Clinical Testing, Supply and Marketing Agreement 
             between the Company and Eiken Chemical Co., Ltd., dated 
             September 29, 1990 (confidential treatment previously granted).

</TABLE>


                                     -18-

<PAGE>   20
   


<TABLE>
   <S>       <C>
   10.14(6)  License, Supply and Marketing Agreement between the Company and
             Mallinckrodt Medical, Inc., dated June 28, 1990 (confidential 
             treatment previously granted).
   
   10.15(6)  Agreement of Amendment between the Company and ML 
             Technology Ventures, L.P. dated as of June 28, 1990.
   
   10.16(7)  Technology License Agreement between the Company and Squibb
             Diagnostics, dated February 5, 1991 (confidential treatment 
             previously granted).
   
   10.17(7)  AMI-227 License Agreement between the Company and Squibb
             Diagnostics, dated February 5, 1991 (confidential treatment 
             previously granted).
   
   10.18(7)  AMI-HS License Agreement between the Company and Squibb
             Diagnostics, dated February 5, 1991 (confidential treatment 
             previously granted).
   
   10.19(7)  Warrant Purchase Agreement between the Company and Squibb
             Diagnostics, dated February 11, 1991.
   
   10.20(7)  Purchase Agreement between the Company and ML Technology 
             Ventures, L.P., dated July 23, 1991.
   
   10.21(7)  Agreement of Amendment to Clinical Testing, Supply and 
             Marketing Agreement between the Company and Guerbet, S.A., dated 
             August 13, 1990.
   
   10.22(8)  Asset Purchase Agreement dated as of October 15, 1993 by and 
             between the Company and PerSeptive Biosystems, Inc.
   
   10.23(10) License, Supply and Marketing Agreement dated September 27, 1993
             between the Company and Sterling (confidential treatment previously
             granted).
   
   10.24(10) Termination Agreement dated November 8, 1993 between the 
             Company and Squibb Diagnostics (confidential treatment previously 
             granted).
   
   10.25(10) Amendment to License Agreement dated November 8, 1993 between 
             the Company and Squibb Diagnostics (confidential treatment 
             previously granted).
   
   10.26(11) Termination Agreement dated August 30, 1994 between the Company
             and Bristol-Myers Squibb Co.
   
   10.27(12) License and marketing agreement between the Company and Berlex
             Laboratories, Inc. dated as of February 1, 1995.

</TABLE>


                                     -19-

<PAGE>   21

  10.28 (12)    Supply Agreement between the Company and Berlex Laboratories, 
                Inc. dated as of February 1, 1995.

  11.1          Computation of earnings per share.

  13.1          1994 Annual Report

  23.1          Consent of Coopers & Lybrand L.L.P., independent accountants.

___________________

(1)     Incorporated herein by reference to the exhibits to the Company's 
        Registration Statement on Form S-8 (File No. 33-13953).

(2)     Incorporated herein by reference to the exhibits to the Company's 
        Annual Report on Form 10-K for the fiscal year ended September 30, 1987.

(3)     Incorporated herein by reference to the exhibits to the Company's 
        Registration Statement on Form S-1 (File No. 33-5312).

(4)     Incorporated herein by reference to the exhibits to the Company's 
        Annual Report on Form 10-K for the fiscal year ended September 30, 1988.

(5)     Incorporated herein by reference to the exhibits to the Company's 
        Annual Report on Form 10-K for the fiscal year ended September 30, 1989.

(6)     Incorporated herein by reference to the exhibits to the Company's 
        Annual Report on Form 10-K for the fiscal year ended September 30, 1990.

(7)     Incorporated herein by reference to the exhibits to the Company's 
        Annual Report on Form 10-K for the fiscal year ended September 30, 1991.

(8)     Incorporated herein by reference to the exhibits to the Company's 
        Current Report on Form 8-K dated October 15, 1993.

(9)     Incorporated herein by reference to the exhibits to the Company's 
        definitive proxy statement for the fiscal year ended September 30, 1992.

(10)    Incorporated herein by reference to the exhibits to the Company's 
        Annual Report on Form 10-K, as amended, for the fiscal year ended 
        September 30, 1993.

(11)    Incorporated herein by reference to the exhibits to the Company's 
        Annual Report on Form 10-K, for the fiscal year ended September 30, 
        1994.

(12)    Incorporated herein by reference to the exhibits to the Company's 
        Quarterly Report on Form 10-Q, for the fiscal quarter ended 
        December 31, 1994.


                                     -20-





<PAGE>   1
                                                     Exhibit 11.1
                                                                 
                    ADVANCED MAGNETICS, INC.
         STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
          Years Ended September 30, 1995, 1994 and 1993


                                        1995     1994     1993
Weighted average number of shares                        
issued and outstanding                6,730,3  6,690,5   6,651,0
                                      15       00        61
Assumed exercise of options reduced                      
by the number of shares which could                      
have been purchased with the          140,524  104,191   --
proceeds of those options
Assumed exercise of warrants reduced                     
by the number of shares which could                      
have been purchased with the          --       11,834    --
proceeds of those warrants
Weighted average number of common                        
and common equivalent shares          6,870,8  6,806,5   *6,651,
                                      39       25        061

_________________________________________

*Due to net loss for fiscal 1993, computation of per share
earnings include only weighted average number of shares issued
and outstanding.






<PAGE>   1
                                                         Exhibit 13.1


                                FINANCIAL REVIEW

CONTENTS

Selected Financial Data........................................    14
Management's Discussion and Analysis of Financial Condition
  and Results of Operations....................................    15
Report of Independent Accountants..............................    19
Balance Sheets.................................................    20
Statements of Operations.......................................    21
Statements of Stockholders' Equity.............................    22
Statements of Cash Flows.......................................    23
Reconciliation of Net Income to Net Cash Provided by
  Operating Activities.........................................    24
Notes to Financial Statements..................................    25


PRICE RANGE OF COMMON STOCK 

        The Company's common stock is listed on the American Stock Exchange
under the symbol AVM.  The Company has paid no cash dividends.  On December 8,
1995 there were approximately 302 shareholders of record.


<TABLE>
        The table below sets forth the high and low sales price of the
Company's common stock on the American Stock Exchange for the fiscal quarters
of 1995 and 1994.

<CAPTION>
                                  FISCAL QUARTER
                  FIRST       SECOND      THIRD       FOURTH
- -----------------------------------------------------------------
<S>               <C>         <C>         <C>         <C>
1995 High         $16 3/4     $19 1/4     $23 3/8     $29
     Low          $13 1/4     $14 1/4     $17 1/2     $21
1994 High         $14 1/8     $15 7/8     $15         $17 1/2
     Low          $10 3/8     $12         $11 1/2     $12 1/4
</TABLE>


        Other financial and general information, including copies of our annual
report on Form 10-K, is available without cost.  Please write to:

                               Investor Relations
                               Advanced Magnetics, Inc.
                               61 Mooney Street
                               Cambridge, MA  02138

<PAGE>   2

<TABLE>
<CAPTION>

                                                                SELECTED FINANCIAL DATA

                                                           For the Years Ended September 30,
                                       -------------------------------------------------------------------------
                                            1995          1994          1993          1992           1991
                                         ----------    ----------    ----------    -----------    -----------
<S>                                      <C>           <C>           <C>           <C>            <C>
Statement of Operations Data:
Revenues:
 License fees......................      $5,000,000    $5,505,000    $ 1,010,000   $ 1,550,000    $ 4,000,000
 Royalties.........................         189,493        15,924        906,138     1,313,532      1,005,441
 Product sales.....................       2,120,457       280,975      3,836,300     4,062,299      3,835,692
 Contract research and 
 development ......................              --            --        402,911       810,881      2,050,541
 Earnings on investments...........       2,287,311     1,845,005      2,823,102     2,513,000      1,296,008
                                         ----------    ----------    -----------   -----------    -----------
    Total revenues ................       9,597,261     7,646,904      8,978,451    10,249,712     12,187,682

Costs and Expenses:
 Cost of product sales.............         425,187        54,983      1,525,564     1,736,949      1,704,522
 Contract research and     
 development expenses .............              --            --        193,391       607,163        707,596
 Company-sponsored research 
 and development expenses .........       8,601,791     6,621,929      6,863,229     5,431,911      4,935,405
 Charge (credit) for purchase
 of in-process research and     
 development*  ....................        (380,000)      760,000             --            --      6,250,375
 S, G and A expenses...............       1,759,348     1,963,480      2,777,840     2,201,633      2,592,792
                                        -----------    ----------    -----------   -----------    -----------
    Total cost and expenses .......      10,406,326     9,400,392     11,360,024     9,977,656     16,190,690

Other Income:
 Gain on sale of in vitro 
 product line** ...................       3,404,527     2,649,580             --            --             --
                                        -----------    ----------    -----------   -----------    -----------
Income (loss) before provision
 for income taxes and 
 cumulative effect of         
 accounting change ................       2,595,462       896,092     (2,381,573)      272,056     (4,003,008)
Income tax provision (benefit) ....         400,000         8,000             --            --       (413,300)
                                        -----------    ----------    -----------   -----------    -----------
Income (loss) before cumulative      
 effect of accounting change ......       2,195,462       888,092     (2,381,573)      272,056     (3,589,708)
Cumulative effect of accounting 
 change ...........................         117,540            --             --            --             --
                                        -----------    ----------    -----------   -----------    -----------
Net income (loss) .................     $ 2,313,002    $  888,092    $(2,381,573)  $   272,056    $(3,589,708)
                                        ===========    ==========    ============  ===========    ===========
Net income (loss) per share 
 before cumulative effect of    
 accounting change ...............      $       .32    $      .13    $      (.36)  $       .04    $      (.70)
Cumulative effect of accounting
 change ..........................              .02            --             --            --             --
                                        -----------    ----------    -----------   -----------    -----------
Income (loss) per share ..........      $       .34    $      .13    $      (.36)  $       .04    $      (.70)
                                        ===========    ==========    ============  ===========    ===========
Weighted avg. number of 
 common and common 
 equivalent shares ...............        6,870,839     6,806,525      6,651,061     6,759,882      5,140,670
                                        -----------    ----------    -----------   -----------    -----------
- -------------------------                                
<FN>
*    In August 1994, the Company reacquired the development and marketing rights to the MRI contrast agent 
     Combidex previously licensed to Squibb Diagnostics, a Division of Bristol-Myers Squibb Company, Inc., 
     and recorded a related $760,000 charge for the purchase of in-process research and development.  In the 
     first fiscal quarter of 1995, a credit for $380,000 was recorded to the purchase of in-process research 
     and development.  In July 1991, the Company purchased the interest of ML Technology Ventures, L.P. in
     Advanced Magnetics Joint Venture for a purchase price of $1,650,000 in cash and 241,875 shares of common 
     stock and recorded a related charge for the purchase of in-process research and development.
**   On October 15, 1993, the Company sold its in vitro product line to PerSeptive Biosystems, Inc.
</TABLE>


                                      -2-

<PAGE>   3


<TABLE>
<CAPTION>
                                                           For the Years Ended September 30,
                                         --------------------------------------------------------------------
                                            1995          1994          1993          1992           1991
                                         -----------   -----------   -----------   -----------    -----------
<S>                                      <C>           <C>           <C>           <C>            <C>
Balance Sheet Data:
Working capital .............            $41,985,100   $38,891,406   $37,547,326   $40,911,752    $19,242,185
                                         -----------   -----------   -----------   -----------    -----------
Total assets ................            $50,843,222   $46,672,700   $45,877,548   $48,127,736    $25,762,664
                                         -----------   -----------   -----------   -----------    -----------
Stockholders' equity ........            $49,071,072   $45,451,475   $44,654,428   $47,085,724    $24,460,025
                                         -----------   -----------   -----------   -----------    -----------
</TABLE>











                                     -3-

<PAGE>   4


                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

        Since its inception in November 1981, Advanced Magnetics, Inc. (the
"Company") has focused its efforts on developing its core magnetic particle
technology to develop magnetic resonance imaging (MRI) contrast agents and its
core polysaccharide technology for delivery of antiviral therapeutics.  The
Company has funded its operations with cash from license fees from corporate
partners, royalties, sales of its products, fees from contract research
performed for third parties, the proceeds of financings and income earned on
invested cash.  The Company's success in the market for diagnostic and
therapeutic products will depend, in part, on the Company's ability to:
successfully develop, test, produce and market its products; obtain necessary
governmental approvals in a timely manner; attract and maintain key employees;
and successfully respond to technological changes in its marketplace.

        The Company's operating results may continue to vary significantly from
quarter to quarter or from year to year depending on a number of factors,
including:  the timing of payments from corporate partners and research grants;
the introduction of new products by the Company; the timing and size of orders
from the Company's customers; and the acceptance of the Company's products. The
Company's current planned expense levels are based in part upon expectations as
to future revenue.  Consequently, profits may vary significantly from quarter
to quarter or year to year based on the timing of revenue.  Revenue or profits
in any period will not necessarily be indicative of results in subsequent
periods and there can be no assurance that the Company will maintain
profitability or that revenue growth can be sustained in the future.

        A substantial portion of the Company's expenses consists of research
and development expenses.  The Company expects its research and development
expenses to increase as it funds additional clinical trials and associated
toxicology and pharmacology studies and as it devotes resources to developing
additional contrast agents and new therapeutic drugs.

        On October 15, 1993, the Company sold its in vitro product line to
PerSeptive Biosystems, Inc. ("PerSeptive") for $4,156,674 in PerSeptive common
stock, plus an earn-out based on PerSeptive's 1995 in vitro product line
revenues.  The Company recognized a pre-tax gain of $2,649,580 in the first
fiscal quarter of 1994.  The earn-out is based on a percentage of PerSeptive's
revenue derived from in vitro product line for the fiscal year ended September
30, 1995.  The Company was advised by PerSeptive that the earn-out value is
$3,404,527 and, accordingly, the Company recognized a related pre-tax gain of
$3,404,527 in the fourth fiscal quarter of 1995.  PerSeptive has elected to
satisfy the payment of the earn-out with shares of PerSeptive common stock of
equivalent value.  The number of shares to be issued will be determined when
PerSeptive files a registration statement for these shares with the Securities
and Exchange Commission, which is expected to occur during fiscal 1996.



                                     -4-

<PAGE>   5

RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO FISCAL 1994
 
REVENUES 

        Total revenues for the fiscal year ended September 30, 1995 increased
26% to $9,597,261 from $7,646,904 for the fiscal year ended September 30, 1994.

        License fee revenues for the fiscal year ended September 30, 1995 were
$5,000,000 compared to $5,505,000 for fiscal year ended September 30, 1994. The
Company received a non-refundable $5,000,000 license fee on February 1, 1995
from Berlex Laboratories, Inc. ("Berlex") under an agreement granting Berlex a
product license and exclusive marketing rights to the Company's Feridex
I.V.(TM) MRI contrast agent in the United States and Canada.  License fee
revenues for the fiscal year ended September 30, 1994 included a non-refundable
license fee of $3,000,000 paid by Squibb Diagnostics, a division of
Bristol-Myers Squibb Co.  ("Squibb Diagnostics") and a non-refundable milestone
license fee of $2,500,000 paid by Sterling Winthrop, Inc., a subsidiary of
Eastman Kodak Company ("Sterling").  On October 6, 1994, the Company terminated
its marketing and distribution agreement with Sterling for Feridex I.V. as a
direct result of the sale by Sterling of its prescription pharmaceuticals
business.  The agreement with Sterling was not assignable without the Company's
consent which was not granted.

        Product sales for the fiscal year ended September 30, 1995 were
$2,120,457 compared to $280,975 for the fiscal year ended September 30, 1994. 
Product sales increased as a result of $2,013,869 of Feridex I.V. contrast
agent sales to Guerbet, S.A., the Company's European licensee (sold in Europe
under the trade name Endorem(TM)).  Product sales of $280,975 for the fiscal
year ended September 30, 1994 were primarily attributable to the sale of
GastroMARK(R) by Guerbet, S.A. (sold in Europe under the trade name
Lumirem(TM)).

        Royalties for the fiscal year ended September 30, 1995 were $189,493
compared to $15,924 for the fiscal year ended September 30, 1994.  The
royalties were earned on Guerbet, S.A.'s European product sales of Feridex I.V.
and GastroMARK contrast agents.

        Interest, dividends and gains and losses on sales of securities
resulted in revenues of $2,287,311 in the fiscal year ended September 30, 1995
compared to revenues of $1,845,005 in the fiscal year ended September 30, 1994. 
These amounts include interest and dividends of $2,232,345 for the fiscal year
ended September 30, 1995 compared to $1,801,436 for the fiscal year ended
September 30, 1994.  The increase was primarily a result of an increase in
interest revenue from the purchase of United States Treasury Notes.  Net gains
from the sale of marketable securities were $54,966 for the fiscal year ended
September 30, 1995 compared to a net gain of $161,109 in the fiscal year ended
September 30, 1994.  There were net unrealized losses of $117,540 resulting
from an adjustment to the carrying value of marketable securities from cost to
market during fiscal 1994.  In the first fiscal quarter ended December 31,
1994, the Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" and recorded
a cumulative effect of the 

                                     -5-


<PAGE>   6

accounting change of $117,540, including the reversal of the reverse for the 
carrying value of marketable securities.

COSTS AND EXPENSES

        The cost of product sales for the fiscal year ended September 30, 1995
was $425,187 compared to $54,983 for the fiscal year ended September 30, 1994. 
The cost of product sales was 20% of sales for both fiscal years.  Cost of
product sales increased in line with the increase in product sales.  Research
and development expenses for the fiscal year ended September 30, 1995 were
$8,601,791, an increase of 30% compared to $6,621,929 for the fiscal year ended
September 30, 1994.  The increase in research and development expenses was
primarily due to expenditures for the human clinical trials of Combidex(TM) and
pre-clinical development of the Company's antiviral therapeutics.  In the first
fiscal quarter ended December 31, 1994, the Company and Bristol-Myers Squibb
Co. agreed that 1,200 vials of Combidex (formerly known as AMI-227) delivered
were not acceptable.  In addition, they modified their prior agreement whereby
Bristol-Myers Squibb Co. was relieved of its obligation to deliver Combidex to
the Company for clinical trials and the Company was relieved of its obligation
to pay $500,000 to Bristol-Myers Squibb Co. Accordingly, the Company recorded a
credit for $380,000 to the purchase of in-process research and development as
well as a $120,000 adjustment to the value of the warrants to purchase 600,000
shares of the Company's common stock which had been previously granted to
Bristol-Myers Squibb Co. General and administrative expenses for the fiscal
year ended September 30, 1995 were $1,759,348, a decrease of 10% from
$1,963,480 for the fiscal year ended September 30, 1994.  The decrease was
primarily due to a decrease in legal and consulting fees.

GAIN ON SALE OF IN VITRO PRODUCT LINE

        On October 15, 1993, the Company sold its in vitro product line to
PerSeptive for $4,156,674 in PerSeptive common stock, plus an earn-out based on
PerSeptive's 1995 in vitro product line revenues.  The Company recognized a
pre-tax gain of $2,649,580 for the fiscal year ended September 30, 1994.  The
Company was advised by PerSeptive that the earn-out value is $3,404,527.
Accordingly, the Company recognized a pre-tax gain of $3,404,527 and recorded
an account receivable in the fourth fiscal quarter of 1995.

INCOME TAXES

        The income tax provision for the fiscal year ended September 30, 1995
was $400,000.  The tax rate was lower than 34% statutory rate as a result of a
tax benefit of temporary differences and dividend income exclusions.  For the
fiscal year ended September 30, 1994, the income tax provision was $8,000.

EARNINGS

        In the fiscal year ended September 30, 1995, the Company recorded a net
profit of $2,195,462 or $.32 per share before the cumulative effect of an
accounting change.  Including the 

                                      -6-

<PAGE>   7
cumulative effect of an accounting change of $117,540 or $.02 per share, net 
income was $2,313,002 or $.34 per share for the fiscal year ended September 30,
1995 compared to net income of $888,092 and $.13 per share for the fiscal year
ended  September 30, 1994.

RESULTS OF OPERATIONS
FISCAL 1994 COMPARED TO FISCAL 1993
 
REVENUES

        Total revenues of the Company were $7,646,904 in the fiscal year ended
September 30, 1994 compared to $8,978,451 in the fiscal year ended September
30, 1993.  Fiscal year 1993 included $5,017,000 of revenues from the Company's
in vitro product line that was sold to PerSeptive on October 15, 1993.

        License fee revenues for the fiscal year ended September 30, 1994 was
$5,505,000 compared to $1,010,000 for the fiscal year ended September 30, 1993.
License fee revenue for fiscal 1994 included a non-refundable license fee of
$2,500,000 paid by Sterling.  The fee was a milestone payment for the Company's
filing of an NDA with the FDA for the magnetic resonance liver imaging agent,
Feridex I.V.  Also included in fiscal 1994 license fee revenue was a
non-refundable license fee of $3,000,000 paid by Squibb Diagnostics.  In
November 1993, the Company and Squibb Diagnostics amended their agreement
regarding Combidex.  Under the amendment, Squibb Diagnostics was provided the
first right to negotiate a license agreement with the Company regarding
Combidex in Japan, in the event the license agreement regarding Combidex
between the Company and Eiken Chemical Co., Ltd. ("Eiken") was terminated for
any reason.  On August 30, 1994, the Company signed an agreement with
Bristol-Myers Squibb Co. to reacquire the development and marketing rights to
Combidex.  As part of the transaction, Bristol-Myers Squibb Co. returned to the
Company a warrant which was valued at $240,000 to purchase 600,000 shares of
the Company's common stock.  The Company agreed to pay Bristol-Myers Squibb
Co. $1,000,000 in cash, of which $500,000 was paid upon execution of the
agreement and $500,000 was to be paid upon acceptance by the Company of 1,200
vials of Combidex product suitable for worldwide preclinical and clinical
testing.  Furthermore, the Company is required to pay up to $2,750,000 for
royalties on future sales by the Company of Combidex.  License fee revenue for
fiscal 1993 included a non-refundable $1,000,000 license fee paid by Sterling
in September 1993 upon the signing of a license agreement for a product license
and exclusive marketing rights to the Company's Feridex I.V. MRI contrast agent
in the United States, Canada, Mexico and Australia.

        Royalties for the fiscal year ended September 30, 1994 were $15,924
compared to $906,138 for the fiscal year ended September 30, 1993.  The royalty
revenues for fiscal 1993 were attributable to the in vitro license agreements
which were included as a part of the October 1993 sale of the in vitro product
line.

        Product sales of $280,975 for the fiscal year ended September 30, 1994
were primarily attributable to the European launch of the GastroMARK oral
contrast agent.  Product sales for 


                                     -7-


<PAGE>   8

the fiscal year ended September 30, 1993 were $3,836,300 for the in vitro 
products which were included as part of the sale to PerSeptive.                

        There were no fees from contract research and development for the
fiscal year ended September 30, 1994 compared to $402,911 for the fiscal year
ended September 30, 1993. Included in the contract research and development
revenues for the fiscal year ended September 30, 1993 was $205,581 of fees for
several research projects with one party for the development of specific in
vitro diagnostics products that were completed in fiscal 1993.

        Interest, dividends and gains and losses on sales of securities
resulted in revenues of $1,845,005 in the fiscal year ended September 30, 1994
compared to revenues of $2,823,102 in the fiscal year ended September 30, 1993. 
These amounts include interest and dividends of $1,801,436 for the fiscal year
ended September 30, 1994 compared to $1,791,676 for the fiscal year ended
September 30, 1993.  Net gain from sales of marketable securities was $161,109
in the fiscal year ended September 30, 1994 compared to a net gain of
$1,031,426 for the fiscal year ended September 30, 1993.  There were net
unrealized losses of $117,540 resulting from an adjustment to the carrying
value of marketable securities from cost to market during fiscal 1994.  No
similar adjustment was required at the end of fiscal 1993.

COSTS AND EXPENSES

        The cost of product sales for the fiscal year ended September 30, 1994
related to the sale of contrast agents.  Due to the sale of the in vitro
product line to PerSeptive, there were no in vitro production costs for the
fiscal year ended September 30, 1994.  There were no contract research and
development expenses in the fiscal year ended September 30, 1994 due to the
absence of such contracts.  For the fiscal year ended September 30, 1993,
contract research and development expenses were $193,391.  Company-sponsored
research and development expenses for the fiscal year ended September 30, 1994
were $6,621,929, a decrease of 4% compared to $6,863,229 for the fiscal year
ended September 30, 1993.  The decrease in research and development expenses
for the fiscal year ended September 30, 1994 was primarily due to the absence
of research and development activity for the in vitro product line offset by
increases in the in vivo research and development expenses.  In the fiscal year
ended September 30, 1994, the Company recorded a $760,000 charge for the
purchase of in-process research and development related to the transaction with
Bristol-Myers Squibb Co. noted above.  Selling, general and administrative
expenses decreased from $2,777,840 in the fiscal year ended September 30, 1993
to $1,963,480 in the fiscal year ended September 30, 1994.  The decrease was
primarily due to the absence of selling, general and administrative expenses
associated with the in vitro product line which was sold to PerSeptive.

GAIN ON SALE OF IN VITRO PRODUCT LINE

        On October 15, 1993, the Company sold its in vitro product to
PerSeptive for $4,156,674 in PerSeptive common stock plus an earn-out based on
PerSeptive's 1995 in vitro product line revenues.  The Company recognized a
pre-tax gain of $2,649,580 for the fiscal year ended 


                                     -8-

<PAGE>   9

September 30, 1994.  Revenue and pre-tax income from the in vitro product 
line for the fiscal year ended September 30, 1994 reflected 15 days of revenue 
and income which were immaterial.

INCOME TAXES

        The income tax provision for the fiscal year ended September 30, 1994
was $8,000.  In fiscal 1994, the tax rate was significantly lower than the 34%
statutory rate as a result of the tax benefits of temporary differences and
dividend income exclusions.  For the fiscal year ended September 30, 1993,
there was no income tax provision due to an operating loss.  The Company
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" in fiscal 1994.  The adoption did not have a material impact on
the Company's results of operations or financial position.

EARNINGS

        In the fiscal year ended September 30, 1994, the Company recorded a net
profit of $888,092 and $.13 per share, compared to a net loss of $2,381,573 and
$.36 per share in the fiscal year ended September 30, 1993.

LIQUIDITY AND CAPITAL RESOURCES 

        At September 30, 1995, the Company's cash and cash equivalents totaled
$1,066,419, representing a decrease of $5,395,774 from cash and cash
equivalents of $6,462,193 at September 30, 1994.  Additionally, the Company had
marketable securities of $36,561,263 at September 30, 1995.  Net cash used in
operating activities was $1,858,766 in the fiscal year ended September 30, 1995
compared to net cash used in operating activities of $212,644 and $581,755 in
the fiscal years ending September 30, 1994 and 1993, respectively.  The
$1,858,766 net use of cash from operating activities in fiscal 1995 was
principally due to an increase in research and development expenses of
$1,979,862 and an increase in accounts receivable of $2,231,625.  In October
1995, $1,905,000 of the $5,884,542 in accounts receivable was received.  The
earn-out due September 30, 1995 from the sale of the in vitro product line on
October 15, 1993 which is included in accounts receivable will be satisfied in
its entirety with shares of PerSeptive common stock of equivalent value by no
later than the end of fiscal 1996.  Net cash used in investing activities was
$3,850,553 in the fiscal year ended September 30, 1995 compared to $19,072,027
and $4,334,275 used in investing activities for the fiscal years ended
September 30, 1994 and 1993, respectively.  Net cash used in investing
activities in the fiscal year ended September 30, 1995 included the purchase of
United States Treasury Notes at a cost of $4,997,891, of which $3,000,000
matured in the fiscal year ended September 30, 1995.  Net cash used in
investing activities in the fiscal year ended September 30, 1994 included the
purchase of United States Treasury Notes at a cost of $22,294,632 and net
marketable securities sales of $4,040,044.  Cash provided by financing
activities in the fiscal year ended September 30, 1995 was $313,545, which
resulted from issuance of common stock under employee stock option and purchase
plans.  Net cash used by financing activities in the fiscal years ended
September 30, 1994 and 1993 was $91,045 and $49,723, respectively.


                                     -9-

<PAGE>   10

        Capital expenditures for the fiscal year ended September 30, 1995 were
$1,484,382 compared to $780,586 for the fiscal year ended September 30, 1994.
The increase in capital expenditures for the fiscal year ended September 30,
1995 was primarily attributable to an upgrade in the Company's magnetic
resonance imaging equipment and for the capital expenditures associated with
the establishment of the Clinical Development Group in the Company's Princeton,
New Jersey office.  The Company has no current commitment for any additional
acquisitions or major equipment expenditures.  The Company believes its
available cash and cash equivalents are sufficient to meet its currently
anticipated needs through fiscal 1997.  The Company expects that expenditures
for research and development for fiscal year 1996 will increase due to human
clinical trials for the Company's development stage contrast agents and
antiviral hepatitis therapeutics.

        Management believes that the sources of liquidity for future needs can
be generated from existing cash balances, cash generated from investing
activities and cash generated from operations.  In addition, the Company will
consider from time to time various financing alternatives and may seek to raise
additional capital through equity or debt financing or to enter into corporate
partnering arrangements.  There can be no assurance, however, that such funding
will be available on terms acceptable to the Company, if at all.




                                    -10-

<PAGE>   11


                      REPORT OF INDEPENDENT ACCOUNTANTS


To the Directors and Stockholders of Advanced Magnetics, Inc.:

We have audited the accompanying balance sheets of Advanced Magnetics, Inc. as
of September 30, 1995 and 1994 and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended September 30, 1995.  These financial statements are the responsibility of
the Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Magnetics, Inc. as of
September 30, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1995, in
conformity with generally accepted accounting principles.

As discussed in Note A to the financial statements, effective October 1, 1994,
Advanced Magnetics, Inc. adopted the Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."



/s/ Coopers & Lybrand L.L.P.

Boston, Massachusetts
November 8, 1995





                                    -11-

<PAGE>   12

<TABLE>
                          ADVANCED MAGNETICS, INC.
                               BALANCE SHEETS
<CAPTION>

ASSETS                                                   
                                                                                         September 30,
                                                                                     1995           1994
<S>                                                                             <C>              <C>
Current Assets:
Cash and cash equivalents ...............................................       $  1,066,419     $  6,462,193
Marketable securities (Note C) ..........................................         36,561,263       33,199,085
Accounts receivable .....................................................          5,884,542          248,390
Recoverable income taxes (Note G) .......................................             90,117           90,117
Inventories (Note D) ....................................................             55,567               --
Prepaid expenses ........................................................             99,342          112,846
                                                                                 -----------      -----------
    Total current assets ................................................         43,757,250       40,112,631
                                                                                ============      ===========
Property, plant and equipment:
Land ....................................................................            360,000          360,000
Buildings ...............................................................          4,320,766        4,316,706
Laboratory equipment ....................................................          6,886,813        5,598,456
Furniture and fixtures ..................................................            516,418          324,453
                                                                                 -----------      -----------
                                                                                  12,083,997       10,599,615
Less - accumulated depreciation and amortization ........................          5,143,097        4,136,092
                                                                                 -----------      -----------
Net property, plant and equipment .......................................          6,940,900        6,463,523
                                                                                 -----------      -----------

Other assets ............................................................            145,072           96,546

    Total assets ........................................................        $50,843,222      $46,672,700
                                                                                 ===========      ===========


LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable ........................................................        $   407,998      $   273,385
Accrued expenses (Note F) ...............................................          1,214,152          947,840
Income taxes payable (Note G) ...........................................            150,000               --
                                                                                 -----------      -----------
    Total current liabilities ...........................................          1,772,150        1,221,225
                                                                                 -----------      -----------

Commitments and Contingencies (Notes E, N and O)

Stockholders' equity (Notes C, H, I, K and L):
Preferred stock, par value $.01 per share, authorized 2,000,000 shares;                         
  none issued ...........................................................                 --               --
Common stock, par value $.01 per share, authorized 15,000,000 shares; 
  issued and outstanding 6,753,413 shares in 1995 and 6,712,572 shares 
  in 1994 ...............................................................             67,534           67,126
Additional paid-in capital ..............................................         45,093,972       44,660,834
Retained earnings .......................................................          3,036,517          723,515
Net unrealized gain on marketable securities ............................            873,049               --
                                                                                 -----------      -----------
    Total stockholders' equity ..........................................         49,071,072       45,451,475
                                                                                 -----------      -----------
         Total liabilities and stockholders' equity .....................        $50,843,222      $46,672,700
                                                                                 ===========      ===========
</TABLE>


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


                                    -12-

<PAGE>   13

<TABLE>

                                        ADVANCED MAGNETICS, INC.
                                        STATEMENTS OF OPERATIONS

<CAPTION>
                                                                       For The Years Ended September 30,
                                                               ---------------------------------------------
                                                                  1995             1994              1993
                                                               ----------       ----------        ----------
<S>                                                            <C>              <C>               <C>
Revenues:
License fees ...........................................       $5,000,000       $5,505,000        $1,010,000
Royalties ..............................................          189,493           15,924           906,138
Product sales ..........................................        2,120,457          280,975         3,836,300
Contract research and development ......................               --               --           402,911
Interest, dividends and net gains and losses                
  on sales of securities ...............................        2,287,311        1,845,005         2,823,102
                                                               ----------       ----------       -----------
    Total revenues .....................................        9,597,261        7,646,904         8,978,451

Costs and Expenses:
Cost of product sales ..................................          425,187           54,983         1,525,564
Contract research and development expenses .............               --               --           193,391
Company-sponsored research and development 
  expense ..............................................        8,601,791        6,621,929         6,863,229
Charge (credit) for purchase of in-process 
   research and development (Note O) ...................         (380,000)         760,000                --
Selling, general and administrative expenses ...........        1,759,348        1,963,480         2,777,840
                                                               ----------       ----------       -----------
    Total costs and expenses ...........................       10,406,326        9,400,392        11,360,024
                                
Other income:
Gain on sale of in vitro product line (Note B) .........        3,404,527        2,649,580                --
                                                               ----------       ----------       -----------

Income (loss) before provision for income taxes and 
  cumulative  effect of accounting change ..............        2,595,462          896,092        (2,381,573)
Income tax provision ...................................          400,000            8,000                --
                                                               ----------       ----------       -----------
Income (loss) before cumulative effect of accounting 
   change ..............................................        2,195,462          888,092        (2,381,573)

Cumulative effect of accounting change (Note C) ........          117,540               --                --
                                                               ----------       ----------       -----------
Net income (loss)  .....................................       $2,313,002       $  888,092       $(2,381,573)
                                                               ==========       ==========       ===========
Net income (loss) per share before cumulative effect of     
  accounting change ....................................       $     0.32       $     0.13       $     (0.36)
Cumulative effect of accounting change .................             0.02               --                --
                                                               ----------       ----------       -----------

Income (loss) per share ................................       $     0.34       $     0.13       $     (0.36)
                                                               ==========       ==========       ===========
Weighted average number of common and common 
  equivalent shares (Note A) ..........................         6,870,839        6,806,525         6,651,061
                                                               ----------       ----------       -----------
</TABLE>


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

                                    -13-

<PAGE>   14

<TABLE>
                                                     ADVANCED MAGNETICS, INC.
                                                STATEMENTS OF STOCKHOLDERS' EQUITY
                                        FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994, 1995

<CAPTION>                                                                                       Net
                                                                                             Unrealized
                                        Common Stock          Additional     Retained         Gain On         Total
                                     -------------------        Paid-In      Earnings        Marketable    Stockholders'
                                     Shares       Amount        Capital      (Deficit)       Securities       Equity
                                     ------       ------      ----------     ---------       ----------    -------------
<S>                                 <C>         <C>           <C>           <C>              <C>           <C>
Balance at September 30, 
  1992                              6,648,599   $   66,486    $44,802,242   $ 2,216,996      $      --     $47,085,724
Shares issued in connection 
  with the exercise of stock 
  options ......................       20,046          201         73,773            --             --          73,974 
Shares surrendered in
 connection with the        
 exercise of stock options .....       (3,481)         (35)       (43,708)           --             --         (43,743)
Shares issued in connection 
  with employee stock 
  purchase plan (Note H) .......       13,298          133        162,369            --             --         162,502
Common shares repurchased 
  (Note K) .....................      (18,000)        (180)      (242,276)           --             --        (242,456)
Net loss  ......................           --           --             --    (2,381,573)            --      (2,381,573)
                                    ---------    ---------    -----------    ----------      ---------     -----------

Balance at September 30, 
  1993                              6,660,462       66,605     44,752,400      (164,577)            --      44,654,428
Shares issued in connection 
  with the exercise of stock 
  options ......................       70,648          706        417,406            --             --         418,112 
Shares surrendered in
  connection with the 
  exercise of stock options ....       (4,193)         (42)       (58,147)           --             --         (58,189)
Shares issued in connection 
  with employee stock 
  purchase plan (Note H) .......       10,355          104        105,517            --             --         105,621
Common shares repurchased 
  (Note K) .....................      (24,700)        (247)      (316,342)           --             --        (316,589)
Repurchase of warrants 
  (Note K) .....................           --           --       (240,000)           --             --        (240,000)
Net profit .....................           --           --             --       888,092             --         888,092
                                    ---------    ---------    -----------    ----------      ---------     -----------

Balance at September 30, 
  1994                              6,712,572       67,126     44,660,834       723,515             --      45,451,475
Shares issued in connection 
  with the exercise of stock 
  options ......................       29,494          295        207,060            --             --         207,355
Shares surrendered in
  connection with the       
  exercise of stock options ....       (1,476)         (15)       (24,588)           --             --         (24,603)  
Shares issued in connection
  with employee stock 
  purchase plan (Note H) .......       12,823          128        130,666            --             --         130,794
Repurchase of warrants 
  (Note K)  ....................           --           --        120,000            --             --         120,000
Net unrealized gain on 
  marketable securities ........           --           --             --            --        873,049         873,049 
Net profit .....................           --           --             --     2,313,022             --       2,313,002
Balance at September 30, 
  1995                              6,753,413    $  67,534    $45,093,972   $ 3,036,517      $ 873,049     $49,071,072
                                    =========    =========    ===========   ===========      =========     ===========
</TABLE>


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


                                  -14-

<PAGE>   15

<TABLE>
                                 ADVANCED MAGNETICS, INC.
                                 STATEMENTS OF CASH FLOWS
                            
<CAPTION>
                                                        For The Years Ended September 30,
                                                 -----------------------------------------------
                                                         1995           1994           1993
                                                     -----------    -----------    ------------
<S>                                                  <C>            <C>            <C>
Cash Flows from Operating Activities:
Cash received from customers ....................    $ 5,380,513    $ 5,864,116    $  6,714,827
Cash paid to suppliers and employees ............     (8,920,459)    (8,112,462)    (10,185,682)
Cash paid for purchase of in-process research and 
  development (Note O) ..........................             --       (260,000)             --
Dividends and interest received .................      1,876,214      1,716,811       1,769,625
Income taxes paid ...............................       (250,000)      (205,067)       (124,087)
Income tax refund  ..............................             --        622,849         212,136
Net realized gains on sales of marketable 
  securities ....................................         54,966        161,109       1,031,426
                                                     -----------    -----------    ------------
Net cash (used in) operating activities .........     (1,858,766)      (212,644)       (581,755)
                                                     -----------    -----------    ------------

Cash Flows from Investing Activities:
Proceeds from sales of marketable securities ....      1,385,830      6,863,154      24,725,632
Proceeds from notes and bonds maturing ..........      3,000,000             --         150,000
Purchase of marketable securities ...............     (6,703,475)   (25,117,742)    (27,105,583)
Capital expenditures ............................     (1,484,382)      (780,586)     (2,304,771)
(Increase) decrease in other assets and deposits.        (48,526)       (36,853)        200,447
                                                     -----------    -----------    ------------
Net cash (used in) investing activities .........     (3,850,553)   (19,072,027)     (4,334,275)
                                                     -----------    -----------    ------------

Cash Flows from Financing Activities:
Proceeds from issuance of common stock ..........        313,545        465,544         192,733 
Purchase of treasury stock ......................             --       (316,589)       (242,456)
Purchase of warrants  ...........................             --       (240,000)             --
                                                     -----------    -----------    ------------
Net cash provided by (used in) financing 
  activities ....................................        313,545        (91,045)        (49,723)
                                                     -----------    -----------    ------------
Net (decrease) in cash and cash equivalents .....     (5,395,774)   (19,375,716)     (4,965,753) 
Cash and cash equivalents at beginning of year ..      6,462,193     25,837,909      30,803,662
                                                     -----------    -----------    ------------
Cash and cash equivalents at end of year ........    $ 1,066,419    $ 6,462,193    $ 25,837,909
                                                     ===========    ===========    ============
</TABLE>
                       


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


                                     -15-

<PAGE>   16

<TABLE>

                                          ADVANCED MAGNETICS, INC.
                                        RECONCILIATION OF NET INCOME
                                TO NET CASH PROVIDED BY OPERATING ACTIVITIES
<CAPTION>

                                                                     For The Years Ended September 30,
                                                            ---------------------------------------------------
                                                                   1995             1994            1993
                                                               -----------      -----------     ------------
<S>                                                            <C>              <C>             <C>   
Net income (loss)  ....................................        $ 2,313,002      $   888,092     $(2,381,573)
Adjustments to Reconcile Net Income to Net Cash Used 
  in Operating Activities, net of assets disposed of:
Depreciation and amortization .........................          1,007,005          877,803         821,246
Decrease in deferred income tax asset .................                ---              ---         349,948
Net unrealized loss on market value of securities .....                ---          117,540             ---
Cumulative effect of accounting change ................           (117,540)             ---             ---
Accretion of U.S. Treasury Notes discount .............            (53,943)             ---             ---
(Increase) decrease in accounts receivable ............         (2,231,625)         (22,332)        537,427
(Increase) decrease in inventories ....................            (55,567)             ---         155,125
(Increase) decrease in prepaid expenses ...............             13,504          134,063        (149,088)
(Increase) decrease in recoverable income taxes .......                 --          259,831         (95,948)
(Decrease) increase in accounts payable and accrued 
  expenses ............................................            900,925         (318,061)        181,108
Increase in income taxes payable ......................            150,000              ---             ---
Gain on sale of in vitro product line (Note B) ........         (3,404,527)      (2,649,580)            ---
Accrual (credit) for the purchase of in-process  
  research and development (Note O) ...................           (380,000)         500,000             ---
                                                               -----------      -----------     -----------
     Total adjustments ................................         (4,171,768)      (1,100,736)      1,799,818
                                                               -----------      -----------     -----------
Net cash provided by (used in) operating activities ...        $(1,858,766)     $  (212,644)    $  (581,755)
                                                               ===========      ===========     ===========
</TABLE>


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


                                     -16-


<PAGE>   17


                        NOTES TO FINANCIAL STATEMENTS


A.      SUMMARY OF ACCOUNTING POLICIES:
                         

Business

        Founded in November 1981, Advanced Magnetics Inc., a Delaware
Corporation (the "Company"), is a biopharmaceutical company engaged in the
development and manufacture of compounds utilizing the Company's core
proprietary colloidal superparamagnetic particle technology for magnetic
resonance imaging ("MRI") and for polysaccharide directed, receptor-mediated
drug delivery systems.  The initial products developed by the Company are
diagnostic imaging agents for use in conjunction with MRI to aid in the
diagnosis of cancer and other diseases. In therapeutics, the Company is
developing antiviral products, for the treatment of Hepatitis.

Cash and Cash Equivalents

        Cash and cash equivalents consist of cash on hand, money market funds
and marketable securities having a maturity of less than three months at the
date acquired.  Approximately 55% of the cash and cash equivalents are held in
two money-market accounts.

Marketable Securities

        In its first fiscal quarter ended December 31, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."  Prior period financial statements
have not been restated.  The Company's current portfolio consists of securities
classified as available-for-sale which are recorded at fair market value.  The
fair values of marketable securities are based on quoted market prices.  Net
unrealized gains or losses on marketable securities are recorded as a separate
component of equity.  Interest income is accrued as earned.  Dividend income is
accrued on the ex-dividend date, and net realized gains and losses are computed
on the basis of average cost and are recognized when realized.

Inventories

        Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.

Property, Plant and Equipment

        Property, plant and equipment are stated at cost.  The cost of additions
and improvements is charged to the property accounts while maintenance and
repairs are expenses as incurred.  



                                     -17-

<PAGE>   18

Upon sale or other disposition of property and equipment, the cost and related
depreciation are removed from the accounts and any resulting gain or loss is 
reflected in income.

Depreciation and Amortization

        Depreciation and amortization are recorded on the straight line method
based on rates sufficient to provide for retirement over estimated useful lives
as follows:  buildings - 40 years; laboratory equipment and furniture and
fixtures - 5 years; and leasehold improvements - over the life of the lease.

Revenue Recognition

        Revenue is recognized when products are shipped, when contract
objectives are achieved or when research activities are performed.  License and
royalty revenues are accrued as earned.

Income Taxes

        The provision for income taxes includes federal and state income taxes
currently payable and deferred income taxes arising from the recognition of
certain income and expenses in different periods for financial and tax reporting
purposes.

Income (Loss) per Share

        Income per share is computed on the basis of the weighted average number
of common and common share equivalents outstanding during each period.  Loss per
share is computed on the weighted average number of shares outstanding during
the period.

B.      SALE OF IN VITRO PRODUCT LINE:

        On October 15, 1993, the Company sold its in vitro product line to
PerSeptive Biosystems, Inc. ("PerSeptive") for 151,759 shares of PerSeptive
common stock which was worth $4,156,674 as of that date, plus an additional
earn-out amount based on the results of fiscal 1995.  The earn-out included a
percentage of PerSeptive's royalty derived from the in vitro product line for
the fiscal year ended September 30, 1995 as well as a percentage of 1993 product
line sales.  The Company recognized pre-tax gains on this sale of $3,404,527 and
$2,649,580 in fiscal 1995 and 1994, respectively.  PerSeptive has elected to
satisfy the 1995 earn-out amount with shares of PerSeptive common stock of
equivalent value.  The number of shares to be issued for the earn-out will be
determined when PerSeptive files a registration statement for these shares with
the Securities and Exchange Commission.  PerSeptive is required to file this
statement no later than September 30, 1996, and interest will accrue if payment
is received after December 15, 1995.  The in vitro product line generated
revenues of $5,017,000 and pre-tax income of $1,635,000 for the fiscal year
ended September 30, 1993.  Net assets included in the sale of the in vitro
product line were $1,592,000 at October 15, 1993.  This amount consisted of
current assets, property and equipment, net of current liabilities.


                                     -18-

<PAGE>   19

C.      MARKETABLE SECURITIES:


<TABLE>
        The cost and fair value of the marketable securities portfolio at
September 30, 1995 are as follows:

<CAPTION>
                                            Cost       Fair Value
                                         -----------   -----------
<S>                                      <C>           <C>
U.S. government securities
  Due in one year or less ............   $ 9,501,365   $ 9,476,430
  Due after one through five years ...    14,869,406    14,737,500
Corporate debt
  Due after five through ten years ...     1,980,040     2,002,500
Preferred stock ......................     6,116,668     5,740,023
Common stock .........................     3,220,735     4,604,810
                                         -----------   -----------
                                         $35,688,214   $36,561,263
                                         ===========   ===========
</TABLE>



        At September 30, 1994, the aggregate cost and fair value of the
marketable securities portfolio were $33,316,625 and $33,199,085, respectively.

        At September 30, 1995, gross unrealized holding gains and gross
unrealized holding losses were $1,722,965 and $849,916, respectively, resulting
in a net unrealized holding gain of $873,049 which was recorded as a separate
component of equity.  At September 30, 1994, the Company recorded a $117,540
unrealized net loss on the fair value of securities.  In the first fiscal
quarter ended December 31, 1994, the Company recorded a cumulative effect of the
accounting change of $117,540 including the reversal of the reserve for the
carrying value of the marketable securities.

        During the year ended September 30, 1995, gross realized gains and gross
realized losses on the sale of marketable securities were $57,394 and $2,428,
respectively, resulting in a net realized gain of $54,966.  Proceeds relating to
the gross realized gains and gross realized losses were $693,224 and $747,572,
respectively.  Proceeds from U.S. treasury bonds maturing were $3,000,000.


<TABLE>
        Interest, dividends and net gains (losses) on sales of securities
consist of the following:

<CAPTION>
                                            Years Ended September 30,
                                     ----------------------------------------
                                          1995         1994         1993
                                       ----------   ----------   ----------
<S>                                    <C>          <C>          <C>
Interest income ....................   $1,644,329   $1,135,614   $1,259,960
Dividend income ....................      588,016      665,822      531,716
Net gains on sales of securities ...       54,966      161,109    1,031,426
Unrealized (loss included in
the determination of income ........          ---     (117,540)         ---
                                       ----------   ----------   ----------
                                       $2,287,311   $1,845,005   $2,823,102
                                       ==========   ==========   ==========
</TABLE>






                                     -19-

<PAGE>   20

D.      INVENTORIES:

        At September 30, 1994, there were no inventories as the Company's
products were predominately in the research and development stages and the
Company produced products for sale on a made-to-order basis only.  In the fourth
fiscal quarter ended September 30, 1995, the Company began to accumulate
production costs for its products for future sale resulting in an ending
inventory of $55,567 of raw materials.

E.      COMMITMENTS:

        The Company leases laboratory, office and warehouse space under various
agreements.  Rental expenses for the years ended September 30, 1995, 1994, and
1993 amounted to $320,920, $38,017, and $237,755, respectively.  Future minimum
lease payments for fiscal 1996, 1997 and 1998 amount to $336,368, $216,331 and
$35,233, respectively.


<TABLE>

F.      ACCRUED EXPENSES:


        Accrued expenses consist of the following at September 30:

<CAPTION>
                                                             1995        1994
                                                         ----------    --------
<S>                                                      <C>           <C>
Salaries and other compensation ........................ $  194,881    $190,497
Professional fees ......................................    154,668     119,925
Other ..................................................    348,856     137,418
Accrual for payment due Bristol-Myers Squibb Co. 
  for purchase of in-process research and development ..        ---     500,000
Payable for the purchase of marketable securities ......    515,747          --
                                                         ----------    --------
                                                         $1,214,152    $947,840
                                                         ==========    ========
</TABLE>



G.      INCOME TAXES:

        Deferred tax assets and deferred tax liabilities are recognized based on
temporary differences between the financial reporting and tax basis of assets
and liabilities using statutory rates.  A valuation allowance is recorded
against deferred tax assets if it is more likely than not that some or all of
the deferred tax assets will not be realized.


<TABLE>
        The income tax provision consists of the following:

<CAPTION>
                                   Years Ended September 30,
                           -------------------------------------------
                                1995           1994          1993
                             ----------    -----------   ------------
<S>                          <C>           <C>           <C>
Currently payable:
  Federal ...............    $  385,000    $      ---    $  (349,948)
  State .................        15,000         8,000            ---
                             ----------    ----------    -----------
                                400,000         8,000       (349,948)
                             ----------    ----------    -----------
</TABLE>



                                     -20-

<PAGE>   21


<TABLE>
<S>                               <C>           <C>         <C>
Deferred:
  Federal ......................       ---         ---        349,948
  State ........................       ---         ---            ---        
                                  --------      ------      ---------
                                       ---         ---        349,948
                                  $400,000      $8,000      $     ---
                                  ========      ======      =========
</TABLE>




<TABLE>
        The provisions for income taxes were at different rates than the U.S.
statutory rates for the following reasons:

<CAPTION>
                                                    Years Ended September 30,
                                                  -----------------------------
                                                    1995       1994       1993
                                                   ------     ------     ------
<S>                                                <C>        <C>        <C>
U.S. Federal statutory tax (benefit) rate ......    34.0%      34.0%     (34.0%)
Dividends received deductions ..................    (5.2)     (17.7)      (5.3)
Other, including a prior year tax adjustment ...     1.0        1.7        1.6
Losses without tax benefit .....................     ---        ---       37.7
Tax benefit of temporary differences ...........   (14.4)     (17.1)       ---
                                                    15.4%       0.9%       -0-
</TABLE>




        The components of the deferred tax assets and liabilities at September
30, were as follows:


<TABLE>
<CAPTION>
                                                      1995          1994
                                                  -----------   -----------
<S>                                                <C>          <C>
Assets
  Net operating loss carryforward ...............  $  460,506   $   847,811
  Research and experimentation tax credit
  carryforward ..................................   1,656,069     1,331,147
  Deductible intangibles ........................     911,066     1,492,948
  Other .........................................     630,670       224,697

Liabilities
  Property, plant and equipment depreciation ....    (249,373)     (646,623)
  Other .........................................     (96,598)      (63,199)
                                                  -----------   -----------
                                                    3,312,340     3,186,781
Valuation Allowance                                (3,312,340)   (3,186,781)
                                                  -----------   -----------
Net deferred taxes                                $       ---   $       ---
                                                  ===========   ===========
</TABLE>


        Due to the uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its otherwise recognizable net deferred tax assets.  Realization of
favorable tax attributes is, therefore, reflected as a tax benefit in the
provision for income taxes.



                                     -21-

<PAGE>   22


<TABLE>
        The net tax effects of temporary differences on the provision for income
taxes were as follows:

<CAPTION>
                                                    Years Ended September 30,
                                                --------------------------------
                                                   1995       1994         1993
                                                --------------------------------
<S>                                              <C>        <C>         <C>
Tax benefit of temporary differences for 
  financial reporting purposes .............     $220,831   $407,787    $    ---
Tax benefit of net operating loss for 
  income tax purposes ......................          ---        ---     349,948
                                                 --------   --------    --------
                                                 $220,831   $407,787    $349,948
                                                 ========   ========    ========
</TABLE>


        At September 30, 1995, the recoverable income taxes result from
carryback of losses for federal income tax purposes to amounts paid for income
taxes in prior years.

        At September 30, 1995, the Company had unused net operating loss (NOL)
carryforwards for federal income tax purposes of approximately $830,000 which
expire in fiscal 2010.  The Company also has federal research and
experimentation credits of approximately $1,500,000 which expire in fiscal 2010.

H.      EMPLOYEE STOCK PURCHASE PLAN:

        The Company's 1992 Employee Stock Purchase Plan (the "Purchase Plan")
provides for the issuance of up to 150,000 shares of common stock to employees
of the Company.  Under the terms of the Purchase Plan, eligible employees may
purchase shares in five annual offerings ending 1997, through payroll deductions
of up to a maximum of 10% of the employee's earnings, at a price equal to the
lower of 85% of the fair market value of the stock on the applicable annual
offering commencement date of June 1 or termination date of May 31.  The third
offering under the Purchase Plan ended on May 31, 1995 and 12,823 shares of
common stock were purchased by eligible employees at a price of approximately
$10.20 per share.  As of September 30, 1995, 36,476 shares have been issued
under the Purchase Plan.

I.      STOCK OPTION PLAN:

        The Company's 1993 Stock Option Plan (the "1993 Stock Plan") provides
for the grant of options to the Company's directors, officers, employees and
consultants to purchase up to an aggregate of 500,000 shares of common stock at
a price equal to the fair market value of the stock at the date of grant.  The
maximum term of the options under the 1993 Stock Plan is ten years.  The number
of shares available for future grants at September 30, 1995 was 289,800.

        The Company's 1983 Stock Option Plan (the "Plan") does not allow for
option grants after June 1993.  The Plan provided for the grant of options to
purchase up to 900,000 shares of common stock at a price equal to the fair
market value of the stock at the date of grant to the Company's employees and
mandatory grants to outside directors upon initial election to the Board of
Directors.  The maximum terms of incentive stock options and non- statutory
options under the Plan are ten years and ten years plus thirty days,
respectively.




                                     -22-

<PAGE>   23

        The Company has also granted to certain scientific advisors nonstatutory
options to purchase a total of 29,625 shares of common stock at a price equal to
fair market value at the date of grant.  All options have been exercised.


<TABLE>
        The table below summarizes stock option activity during the past three
fiscal years for the Company's 1993 and 1983 Stock Option Plans:

<CAPTION>
                                                 Number           Option
                                                of Shares          Price
                                              --------------------------------
<S>                                             <C>        <C>      <C>  <C>
Options outstanding at September 30, 1992 ...   282,032    $ 1.33   to   $11.88
 Granted ....................................    35,100     13.00   to    15.00
 Exercised ..................................   (20,046)     1.00   to    11.00
 Expired ....................................    (4,927)     7.00   to    15.00
                                              -------------
Options outstanding at September 30, 1993 ...    292,159      1.00   to    15.00
 Granted ....................................   126,500     12.00   to    16.00
 Exercised ..................................   (70,648)     1.00   to    12.00
 Expired ....................................   (40,752)     7.00   to    15.00
                                              -------------
Options outstanding at September 30, 1994 ...   307,259      1.00   to    16.00
 Granted ....................................    86,200     15.00   to    22.00
 Exercised ..................................   (29,494)     1.00   to    15.00
 Expired ....................................    (4,775)    12.00   to    15.00
                                              -------------
Options outstanding at September 30, 1995       
 (177,140 shares exercisable) ................  359,190      1.33   to    22.00
</TABLE>
                             

        On November 5, 1991, the Company's Board of Directors adopted the 1992
Non-Employee Director Stock Option Plan which the shareholders approved.  This
plan provides for the grant to each non-employee director on November 5, 1991,
and each fifth anniversary thereafter, an option to purchase 5,000 shares of
common stock up to an aggregate of 100,000 shares at a price equal to the fair
market value of the stock at the date of the grant, vesting over a five year
period.  Under this plan, options to purchase 30,000 shares of common stock at a
price of $21.00 per share were granted, none of which have been exercised. No
grants may be made under this plan after November 4, 2001.

        On November 10, 1992, the Company's Board of Directors adopted the 1993
Non-Employee Director Stock Option Plan which the shareholders approved.  This
plan provides for the grant to each non-employee director on November 10, 1992,
and each sixth anniversary thereafter, an option to purchase 5,000 shares of
common stock up to an aggregate of 100,000 shares at a price equal to the fair
market value of the stock at the date of the grant, vesting over a five year
period.  Under this plan, options to purchase 30,000 shares of common stock at a
price of $14.50 per share were granted, none of which have been exercised. No
grants may be made under this plan after November 10, 2002.


                                     -23-

<PAGE>   24

J.      EMPLOYEE'S SAVING PLAN:

        The Company provides a 401(k) Plan to employees of the Company by which
they may defer compensation for income tax purposes under Section 401(k) of the
Internal Revenue Code.  Each employee may elect to defer a percentage of his or
her salary on a pre-tax basis up to a specified maximum percentage.  The Company
matches every dollar each employee contributes to the 401(k) Plan up to six
percent of each employee's salary to a maximum of $2,000 annually per employee. 
Salary deferred by employees and contributions by the Company to the 401(k) Plan
are not taxable to employees until withdrawn from the 401(k) Plan and
contributions are deductible by the Company when made.  The amount of the
Company's matching contribution for the 401(k) Plan was $99,751, $79,851, and
$114,789 for 1995, 1994 and 1993, respectively.

K.      COMMON STOCK TRANSACTIONS:

        On February 11, 1991, Squibb Diagnostics, a division of Bristol-Myers
Squibb Co., purchased for $950,000 a warrant covering 600,000 shares of common
stock exercisable at $10.92 per share and escalating in exercise price in
subsequent years.  On August 30, 1994, the Company signed an agreement to
reacquire the development and marketing rights to the MRI contrast agent
Combidex.  As part of the transaction, Bristol-Myers Squibb Co.  returned the
warrant which was valued at $240,000 to the Company.  In the first quarter of
fiscal 1995, the Company and Bristol- Myers Squibb Co. agreed to modify the
agreement.  As a result, payments to be made under the agreement were modified
(See Note O).  Accordingly, the Company adjusted the value of the warrant to
purchase 600,000 shares of the Company's common stock by $120,000 in the first
quarter of fiscal 1995.

        In November 1993, the Board of Directors authorized the purchase of
350,000 shares of the Company's common stock on the open market.  Through
September 30, 1995, the Company purchased 24,700 shares for $316,589 and the
shares have been retired.  The Board had previously authorized the purchase of
500,000 shares of which 170,100 were retired through fiscal 1993.

L.      PREFERRED STOCK:

        The preferred stock may be issued from time to time in one or more
series. The rights, preferences, restrictions, qualifications and limitations of
such stock shall be determined by the Board of Directors.

M.      BUSINESS SEGMENTS AND CUSTOMERS: 

        The Company's operations are located solely within the United States. 
The Company is focused principally on developing and manufacturing MRI contrast
agents and therapeutic drug delivery systems.  Prior to fiscal 1994, the Company
was also engaged in developing, producing and marketing in vitro medical
diagnostic products for research and clinical laboratories, hospitals, and other
manufacturers of diagnostics products.  Accordingly, its revenues are
attributable to one principal business segment.  The Company performs ongoing
credit 



                                     -24-

<PAGE>   25

evaluations of its customers and generally does not require collateral.
Two customers accounted for 52% and 23% respectively of the Company's revenues
in fiscal 1995.  Two customers accounted for 39% and 33% respectively of the
Company's revenues in fiscal 1994 and three customers accounted for 11%, 9% and
5% respectively of the Company's revenues in fiscal 1993.

        Revenues in fiscal 1995, 1994 and 1993 from customers and licensees
outside of the United States, principally in Europe and Japan, accounted to 23%,
3% and 16%, respectively.

N.      LEGAL PROCEEDINGS:

        The Company and certain of its officers were sued in an action in the
United States District Court for the District of Massachusetts on September 3,
1992.  The plaintiff, a former consultant to the Company, claims that he was
incorrectly omitted as an inventor or joint inventor on certain of the Company's
patents and on pending applications, and seeks injunctive relief and unspecified
monetary damages.  In April 1993, the plaintiff's federal court claims were
dismissed, and the plaintiff appealed.  The Appeals Court vacated the judgment
and remanded the case to the U.S. District Court.  The plaintiff filed a related
case in the Superior Court of the Commonwealth of Massachusetts.  The Superior
Court has dismissed most of the related tort claims on summary judgment.  While
the final outcome of these actions cannot be determined, the Company believes
that the plaintiff's claims are without merit and intends to defend the actions
vigorously.

O.      AGREEMENTS:

        In fiscal 1993, the Company entered into an agreement with Sterling
Winthrop, Inc. ("Sterling") for a product license and exclusive marketing rights
to Advanced Magnetics' Feridex I.V.  MRI liver imaging contrast agent in the
United States, Canada, Mexico and Australia.  Under the agreement, Sterling
would have paid up to $7,750,000 in license fees based on achieving certain
milestones, of which $1,000,000 was received and recognized in license revenues
in fiscal 1993.

        In fiscal 1994, Sterling paid a $2,500,000 non-refundable milestone
payment for the Company's filing of a New Drug Application ("NDA") with the U.S.
Food and Drug Administration ("FDA") for Feridex I.V.  On October 6, 1994, the
Company terminated its marketing and distribution agreement with Sterling as a
direct result of the sale by Sterling of its prescription pharmaceutical
business.  The agreement with Sterling was not assignable without the Company's
consent, which was not sought by Sterling nor given by the Company.

        In fiscal 1991, the Company entered into agreements with Squibb
Diagnostics granting exclusive world-wide rights (except for Japan, Western
Europe and Brazil) to manufacture and sell two MRI products, AMI-HS and
Combidex.  In addition, Squibb Diagnostics received the right to use the
Company's core technology in its own development of other MRI contrast agents.
The Company was to receive up to $10,000,000 in licensing fees, of which
$4,000,000 was received and recognized in license revenues when the agreements
were signed in fiscal 1991 


                                     -25-

<PAGE>   26

and $1,000,000 was received in fiscal 1992 when the Company filed an 
Investigational New Drug ("IND") exemption with the FDA for Combidex.

        The Company and Squibb Diagnostics amended their agreement regarding
Combidex in fiscal 1994 for which the Company received a non-refundable license
fee of $1,000,000.  Also in fiscal 1994, the Company and Squibb Diagnostics
terminated their agreement with respect to the AMI-HS product and Squibb
Diagnostics paid a $2,000,000 license fee milestone payment for Combidex.  On
August 30, 1994, the Company signed an agreement to reacquire the development
and marketing rights to Combidex previously licensed to Squibb Diagnostics. The
Company agreed to pay Bristol-Myers Squibb Co. $1,000,000 in two cash payments,
of which $500,000 was paid on August 30, 1994 and $500,000 was to be paid upon
acceptance of Combidex product suitable for use in worldwide preclinical and
clinical studies.  Furthermore, the Company is required to pay up to $2,750,000
in future royalties based on the Company's sale of Combidex. As part of the
transaction, Bristol- Myers Squibb Co., returned to the Company a warrant to
purchase 600,000 shares of the Company's common stock, valued at $240,000.  The
Company recorded a $760,000 expense which represented the value of in-process
research and development reacquired.  In the first quarter of fiscal 1995, the
Company and Bristol-Myers Squibb Co. agreed that the 1,200 vials of Combidex
delivered to the Company were not acceptable.  In addition, they modified their
prior agreement whereby Bristol-Myers Squibb Co. was relieved of its obligation
to deliver Combidex to the Company for clinical trials and the Company was
relieved of its obligation to pay $500,000 to Bristol-Myers Squibb Co. 
Accordingly, the Company recorded a credit for $380,000 to the purchase of in-
process research and development and adjusted the value of the warrant downward
by $120,000 in the first quarter of fiscal 1995.

        On February 1, 1995, the company entered into an agreement with Berlex
Laboratories, Inc. ("Berlex") granting Berlex a product license and exclusive
marketing rights to Feridex I.V. in the United States and Canada.  Under the
terms of the agreement, Berlex paid a $5,000,000 non-refundable license fee and
will pay an additional $5,000,000 license fee when the product has been approved
for commercial marketing in the United States by the FDA.  In addition, the
Company will receive payments for manufacturing the product and royalties on
future sales.  The Company submitted an NDA for Feridex I.V. to the FDA in
February 1994.

        On May 9, 1995, the Company entered into a Research and License
Agreement with the General Hospital Corporation, a not- for-profit Massachusetts
Corporation doing business as Massachusetts General Hospital ("MGH").  The
agreement covers organ-specific, receptor-directed, ultrasmall superparamagnetic
iron oxide for use as MRI contrast agents.  The target organ for the initial
collaboration is the pancreas.  Minimum annual payment to MGH under the
agreement is $300,000, payable quarterly, but payments could exceed this amount
depending on milestone achievements and product sales.  In the fiscal year ended
September 30, 1995, payments of $150,000 were made under the agreement.



                                     -26-

<PAGE>   27

P.      RELATED PARTY TRANSACTIONS:

        During the fiscal years ended September 30, 1995, 1994, and 1993, the
Company paid approximately $7,050, $19,650 and $52,000, respectively, to
Fahnestock & Co. Inc. as commissions in transactions involving its investments
in securities.  Mr. Leslie Goldstein, a shareholder and member of the Company's
Board of Directors and the brother of Jerome Goldstein, Chairman of the Board,
President and Treasurer of the Company, is employed by SRG Associates, a
division of Fahnestock & Co. Inc., as an investment analyst and advisor.

Q.      QUARTERLY FINANCIAL DATA - UNAUDITED:


<TABLE>
        The following table provides quarterly data for the fiscal years ended
September 30, 1995 and 1994.

<CAPTION>
                                                                     Fiscal 1995 Quarters Ended
                                                ---------------------------------------------------------------
                                                 September 30      June 30        March 31      Dec. 31, 1994
                                                ---------------------------------------------------------------
<S>                                               <C>            <C>             <C>            <C>
License fees ................................     $       ---    $       ---     $5,000,000     $      ---
Royalties ...................................         151,127          38,366           ---            ---
Product sales ...............................             ---       1,276,172       789,026         55,259
Interests, dividends and net gains and losses 
  on sales of securities ....................         591,484         575,172       438,669        681,986
                                                ---------------------------------------------------------------
    Total revenues                                    742,611       1,889,710     6,227,695        737,245
Cost of product sales .......................             ---         256,333       157,804         11,050          
Operating expenses ..........................       2,916,799       3,090,004     2,440,599      1,533,737
Gain on sale of in vitro product line 
  (Note B) ..................................       3,404,527             ---           ---            ---
Net income (loss) before cumulative effect 
  of accounting change ......................       1,026,839      (1,278,127)    3,254,292       (807,542)
Cumulative effect of account change 
  (Note C)  .................................             ---             ---           ---        117,540
Net income (loss) ...........................      $1,026,839     $(1,278,127)   $3,254,292     $ (690,002)
Net income (loss) per share before 
  cumulative effect of account change .......      $     0.15     $     (0.19)   $     0.48     $    (0.12)
Cumulative effect of account change .........             ---             ---           ---            .02
                                                ----------------------------------------------------------------
Income (loss) per share                            $     0.15     $     (0.19)   $     0.48      $   (0.10)
</TABLE>




<TABLE>
<CAPTION>
                                                                     Fiscal 1994 Quarters Ended
                                                ---------------------------------------------------------------
                                                 September 30      June 30        March 31      Dec. 31, 1993
                                                ---------------------------------------------------------------
<S>                                               <C>            <C>             <C>            <C>
License fees ................................     $       ---    $2,500,000      $2,000,000     $1,005,000
Royalties ...................................           2,463            --              --         13,461
Product sales ...............................          54,760        25,665         138,950         61,600
Interest, dividends and net gains and losses   
  on sales of securities ....................         422,957       535,896         476,985        409,167
                                                ---------------------------------------------------------------
      Total revenues                                  480,180     3,061,561       2,615,935      1,489,228
Cost of product sales .......................          10,950         5,133          26,600         12,300
Operating expenses ..........................       2,804,558     2,247,376       2,201,177      2,092,298
Gain on sale of in vitro product line 
 (Note B) ...................................             ---           ---             ---      2,649,580
Net income (loss) ...........................     $(2,337,828)   $  905,552      $  371,658     $1,948,710
Net income (loss) per share .................     $     (0.35)   $     0.13      $     0.05     $     0.28
</TABLE>


264APK145/1.160273_1
     



                                     -27-





<PAGE>   1


                                                     Exhibit 23.1

               CONSENT OF INDEPENDENT ACCOUNTANTS


     We consent to the incorporation by reference in the
Registration Statements of Advanced Magnetics, Inc. on Form S-8
(File Nos. 33-8697, 33-13953, 33-40744, 33-46963, and 33-62522)
of our report, which includes an explanatory paragraph regarding
the adoption of Statement of Financial Accounting Standards
No. 115, dated November 8, 1995, on our audits of the financial
statements of Advanced Magnetics, Inc. as of September 30, 1995
and 1994, and for the years ended September 30, 1995, 1994, and
1993, which report is incorporated by reference in this Annual
Report on Form 10-K.


                            COOPERS & LYBRAND LLP


Boston, Massachusetts
December 22, 1995