e10-k

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 and (2) has been subject to such filing requirements for the past 90 days. Yes

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.

As of March 26, 2001, the aggregate value of the approximately 25,685,111 shares of common stock of the Registrant issued and outstanding on such date, excluding approximately 918,227 shares held by all affiliates of the Registrant, was approximately $410,961,776. This figure is based on the closing sales price of $16.00 per share of the Registrant’s common stock as reported on the Nasdaq® National Market on March 26, 2001.

List hereunder the following documents incorporated by reference and the Part of the Form 10-K into which the document is incorporated:

Portions of the 2000 Annual Report to Stockholders are incorporated by reference into Part II. Portions of the Notice of Annual Meeting and Proxy Statement to be filed no later than 120 days following December 31, 2000 are incorporated by reference into Part III.

From time to time in this annual report we may make statements that reflect our current expectations regarding our future results of operations, economic performance, and financial condition, as well as other matters that may affect our business. In general, we try to identify these forward-looking statements by using words such as “anticipate,” “believe,” “expect,” “estimate,” and similar expressions.

While these statements reflect our current plans and expectations, and we base the statements on information currently available to us, we cannot be sure that we will be able to implement these plans successfully. We may not realize our expectations in whole, or in part, in the future.

The forward-looking statements contained in this annual report may cover, but are not necessarily limited to, the following topics: (1) the consequences of our reacquisition of the worldwide marketing, sale and distribution rights to GLIADEL® Wafer from Aventis Pharmaceuticals Products Inc. (“Aventis”); (2) our efforts to market, sell and distribute GLIADEL® Wafer in the United States and internationally; (3) our efforts to expand the labeled uses for GLIADEL® Wafer, including our efforts to obtain additional United States and international regulatory clearances based on the results of the Phase III first surgery trial reported last fall; (4) our efforts to develop polymer drug delivery product line extensions and new polymer drug delivery products; (5) our research programs related to our FKBP neuroimmunophilin ligand technology partnered with Amgen Inc. (“Amgen”), NAALADase inhibition, PARP inhibition, polymer drug delivery (including LIDOMER™ Microspheres) and other technologies; (6) our clinical development activities, including the commencement and conducting of clinical trials, related to our polymer-based drug delivery products and product candidates (including GLIADEL® Wafer and PACLIMER® Microspheres) and our pharmaceutical product candidates, including NIL-A (partnered with Amgen), GPI 5693 (our lead NAALADase inhibitor), AQUAVAN™ Injection (our novel prodrug of propofol) and any future lead compounds in our PARP program; (7) our efforts to scale-up product candidates from laboratory bench quantities to commercial quantities; (8) our efforts to secure adequate supply of the active pharmaceutical ingredients for clinical development and commercialization; (9) our efforts to manufacture drug candidates for clinical development and eventual commercial supply; (10) our strategic plans; (11) anticipated expenditures and the potential need for additional funds; and (12) specific guidance we give in the section entitled “Outlook,” regarding our current expectations of our future operating results.

All of these items involve significant risks and uncertainties. Any of the statements we make in this annual report that are forward-looking are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We wish to caution you that our actual results may differ significantly from the results we discuss in the forward-looking statements.

We discuss factors that could cause or contribute to such differences in the “Risk Factors” section of this annual report. In addition, any forward-looking statements we make in this document speak only as of the date of this document, and we do not intend to update any such forward-looking statements to reflect events or circumstances that occur after that date.

We are a biopharmaceutical company engaged in the development and commercialization of novel products in two principal areas: (1) targeted and controlled drug delivery systems using proprietary biodegradable polymers for the treatment of cancer and other diseases; and (2) therapeutic and diagnostic products for neurological diseases and conditions.

The following table summarizes the current status of our product, product candidates and research programs:

GLIADEL® Wafer, DOPASCAN® Injection, and PACLIMER® Microspheres are registered trademarks of ours. TAXOL® is a registered trademark of Bristol-Myers Squibb Company.


(1)	“Research” includes initial research related to specific molecular targets, synthesis of new chemical entities, and assay development for the identification of lead compounds. “Pre-clinical”


	includes testing of lead compounds in vitro and in animal models, pharmacology and toxicology testing, product formulation and process development prior to the commencement of clinical trials.

(2)	Orion Corporation Pharma (formerly Orion Corporation Farmos) is our corporate partner for GLIADEL® Wafer in Scandinavia.

(3)	We plan to file a Supplemental New Drug Application for this indication during the second quarter of 2001.

(4)	Daiichi Radioisotope Laboratories, Ltd., or DRL, is our corporate partner for DOPASCAN® Injection in Japan, Korea and Taiwan. DRL has informed us that they will commence Phase III clinical investigations in Japan with DOPASCAN® Injection later in 2001.

Our effort to develop and commercialize GLIADEL® Wafer and our other product candidates are subject to numerous risks and uncertainties. Certain of these risks are set forth under the section of this annual report captioned “Risk Factors,” as well as elsewhere in this annual report.

We are a leader in the targeted and controlled delivery of drugs using biodegradable polymers. Delivering high drug concentrations locally for a sustained period of time may increase the efficacy of cancer chemotherapy in slowing tumor growth and/ or reducing tumor mass and may decrease the side effects associated with systemic administration. Our lead product delivers the cancer chemotherapeutic, BCNU and is used to treat a type of brain cancer called glioblastoma multiforme as second line therapy. Until last year, our former corporate partner, Aventis, was responsible for marketing the product in the U.S. and most other countries. In January 2001, we began marketing the product ourselves in the U.S. and initially through distributors elsewhere, and are seeking regulatory approval for use of GLIADEL® Wafer as first line therapy. A second generation polymer product candidate delivering paclitaxel (also known under the brand name TAXOL®) is being studied in the clinic against ovarian cancer. We are doing pre-clinical work with PACLIMER® Microspheres in additional cancer indications. We expect to start a clinical trial investigating LIDOMER™ Microspheres, a polymer delivering lidocaine, a commonly used analgesic, for post-operative pain by late 2001.

Our first product in our drug delivery business is GLIADEL® Wafer, a novel treatment for glioblastoma multiforme (or GBM). GBM grows rapidly, is universally fatal, and is the most common form of primary brain cancer. GLIADEL® Wafer is a proprietary biodegradable polymer product that contains the cancer chemotherapeutic drug BCNU (carmustine). Up to eight GLIADEL® Wafers are implanted in the cavity created when a neurosurgeon removes a brain tumor. The wafers gradually erode from the surface and deliver BCNU directly to the tumor site in high concentrations for an extended period of time without exposing the rest of the body to the toxic side effects of BCNU.

In October 1995, we entered into an agreement with Orion Corporation Pharma (“Orion Pharma”), a major Scandinavian health care company, for the marketing, sales and distribution of GLIADEL® Wafer in Scandinavia. Under this agreement, Orion Pharma purchases GLIADEL® Wafer from us on an exclusive basis for sale in Scandinavia. Orion Pharma commenced sales of GLIADEL® Wafer in Scandinavia in 1997 on a named hospital basis.

In 1996, the U.S. Food and Drug Administration approved GLIADEL® Wafer for use as an adjunct to surgery to prolong survival in patients with recurrent GBM for whom surgery is indicated. Also in 1996, we entered into agreements with Aventis (then Rhône-Poulenc Rorer) granting Aventis marketing rights to GLIADEL® Wafer in the U.S. and clinical development and marketing rights in

the rest of the world (excluding Scandinavia and later, Japan). Under these agreements, Aventis paid us $7.5 million as a one time, non-refundable rights payment, $20.0 million as a non-refundable milestone payment and purchased $7.5 million of our common stock, and agreed to make certain payments upon the achievement of regulatory milestones and pay us a combined transfer price and royalty of between 35% and 40% on Aventis’ net sales of GLIADEL® Wafer to end-users.

In October 2000, we entered into an agreement to reacquire Aventis’ rights in GLIADEL® Wafer for 300,000 shares of our common stock then valued at approximately $8 million. Under this agreement, Aventis continued to market GLIADEL® Wafer for a transition period ending December 31, 2000. Since January 1, 2001, we have been responsible for the marketing, sales and distribution of GLIADEL® Wafer except in Scandinavia, where the product continues to be sold by Orion Pharma. Since the reacquisition of Aventis’ right in GLIADEL® Wafer, we have built a commercial operations function, consisting of approximately 10 internal marketing and sales management, reimbursement and managed care specialists, medical affairs, professional services and customer service personnel, and an approximately 22-person external sales force through Cardinal Sales and Marketing Services, a contract sales organization (“Cardinal Health”).

During the time that Aventis owned the development and marketing rights to GLIADEL® Wafer, Aventis obtained regulatory approval for the product in over 21 countries, including France, Germany, the United Kingdom, Spain, Canada, South Korea and Israel.

In November 2000, we announced the results of a Phase III clinical trial investigating the administration of GLIADEL® Wafer at the time of initial surgery for the treatment of malignant glioma. The 240-person trial was a randomized, double-blind, placebo-controlled study conducted at 38 centers in 14 countries. Based on the results of this study, we expect to file a Supplemental New Drug Application with the FDA in the second quarter of 2001, seeking approval to market GLIADEL® Wafer for first line therapy in patients newly diagnosed with malignant glioma.

During 2000, the Company received $2 million in milestone payments from Aventis as a result of obtaining regulatory approval for GLIADEL® Wafer in the U.K. and Spain. In addition, the Company received $1.5 million in transfer payments for supply of the product from Aventis and $2.4 million in royalties on Aventis’ sales to hospitals and other end-users.

The Company pays a royalty to Massachusetts Institute of Technology (MIT) on sales of GLIADEL® Wafer pursuant to the license agreement under which the Company acquired the underlying technology for this product. During 2000, the Company paid $0.2 million in royalties to MIT.

Future sales of GLIADEL® Wafer are subject to certain risks and uncertainties. A number of these risks are discussed in detail in the section of this annual report entitled “Risks Factors.”

We are working to broaden our line of polymer-based oncology products through the use of other chemotherapeutic agents, different polymer systems and various formulations. In November 1999, we filed an Investigational New Drug application with the FDA, or an “IND,” for the intraperitoneal administration of our second generation polymer oncology product, PACLIMER® Microspheres, in women with ovarian cancer. PACLIMER® Microspheres are a site-specific, controlled release formulation of paclitaxel (TAXOL®) in a proprietary biodegradable polymer called a polyphosphoester (or PPE) developed in collaboration with scientists at Johns Hopkins. We are conducting a Phase I/II clinical trial in association with the Gynecologic Oncology Group, a consortium of leading academic clinical investigators in the field. We are also engaged in research on the suitability of this site-specific, controlled release formulation of paclitaxel for other local cancers, such as tumors of the lung, head and neck, and prostate.

We are the exclusive licensee from MIT and Johns Hopkins of several issued U.S. patents relating to the use of polymers to deliver paclitaxel and certain other chemotherapeutic agents to solid tumors. In addition, we have applied for a number of patents in the U.S. and abroad relating to the composition of matter of PPEs and their use for various kinds of cancer, including ovarian cancer.

We are also exploring the use of our proprietary biodegradable polymer platform to deliver other agents which may have therapeutic utility. We are currently engaged in pre-clinical research for LIDOMER™ Microspheres, with the hope of entering the clinic by late 2001. LIDOMER™ Microspheres are a site-specific, controlled release formulation of the widely used local anesthetic, lidocaine. We intend to target LIDOMER™ Microspheres for the relief of post-surgical pain.

We are also a leader in the research and development of small molecules that regenerate damaged nerves (our neurotrophic program) or protect nerves from damage (our neuroprotectant program) for potential treatment of a range of neurodegenerative diseases and conditions, such as Parkinson’s disease, Alzheimer’s disease, stroke, Amyotrophic Lateral Sclerosis (ALS), multiple sclerosis, spinal cord injury and peripheral neuropathies. Additionally, we are currently in Phase I clinical trials with AQUAVAN™ Injection, a novel prodrug of propofol, a widely-used anesthetic. We are also continuing our efforts to seek partners to continue development of our DOPASCAN® Injection imaging agent for the diagnosis and monitoring of Parkinson’s disease. In addition, we are investigating small molecule therapeutics for certain other neurological conditions.

The Company’s neurotrophic program originated from observations first made in the laboratory of Dr. Solomon Snyder, Director of the Department of Neuroscience at Johns Hopkins, that certain intracellular proteins, known as “immunophilins,” which are targets of immunosuppressant drugs such as FK 506, are enriched 10-40 fold in certain areas of the central nervous system. The Johns Hopkins scientists went on to discover that commonly used immunosuppressive drugs can promote nerve growth. We have exclusively licensed rights to patent applications relating to the neurotrophic effects of certain immunosuppressant drugs and other immunophilin ligands from Johns Hopkins. Our scientists, together with their academic collaborators, further demonstrated that the pathway leading to nerve regeneration could be separated from the immunosuppressant pathway. Our scientists have synthesized a large number of proprietary small molecules, called “neuroimmunophilin ligands,” which are neurotrophic in animal models of various disease states without being immunosuppressive, are orally-bioavailable and are able to cross the blood-brain barrier.

In August 1997, we entered into a collaboration with Amgen Inc. to develop and commercialize a broad class of neuroimmunophilin ligands, referred to as FKBP neuroimmunophilin ligands, as well as any other compounds that may result from the collaboration for all human therapeutic and diagnostic applications. Amgen initially paid us a one time, non-refundable signing fee of $15 million in 1997 and an additional $20 million for 640,095 shares of our common stock and five-year warrants to purchase up to an additional 700,000 shares of our common stock at an exercise price of $35.15 per share. From October 1997, through September 2000, Amgen also paid $13.5 million to support our research relating to the FKBP neuroimmunophilin ligand technology.

If Amgen achieves certain specified development objectives in each of ten different clinical indications, Amgen has agreed to pay us up to a total of $392 million in milestone payments. To date, we have earned milestone payments from Amgen in the amount of $6 million. We will also receive royalties on any future sales of products resulting from the collaboration. Drug development is a risky endeavor, however, and Amgen may not succeed in developing any FKBP neuroimmunophilin

compound into a safe and effective drug that will be approved by the FDA or foreign health regulatory authorities for neurological or other uses. Consequently, we may not earn any of the milestone payments related to such development activities or any royalties.

During 1998, Amgen nominated a neuroimmunophilin ligand, called “NIL-A,” as the lead compound in the program, initially targeting Parkinson’s disease. During 1999, Amgen commenced human trials with NIL-A, focusing on safety, tolerability and pharmacokinetic study in healthy subjects, and filed an Investigational New Drug (IND) application with the U.S. Food and Drug Administration. NIL-A entered Phase II testing in patients with Parkinson’s disease during 2000.

Amgen and we are also currently conducting pre-clinical research for the use of FKBP neuroimmunophilin compounds for other clinical indications, including Alzheimer’s disease, traumatic brain injury, traumatic spinal cord injury, multiple sclerosis, neuropathy and stroke.

To date, we have been granted or have obtained rights to more than 30 U.S. patents relating to our neuroimmunophilin compounds program, including a broad use patent claiming the use of compounds having an affinity for FKBP to stimulate growth of damaged neurons in patients suffering from Parkinson’s disease, Alzheimer’s disease or physical damage to the spinal cord.

Further, we are engaged in pre-clinical research and development of other small molecule neutrophic compounds in addition to those that are the subject of our collaboration with Amgen.

As noted in the “Risk Factors” section and elsewhere in this annual report, there is no guarantee that we or Amgen will be able to successfully develop NIL-A, other neuroimmunophilin compounds or other product candidates into safe and effective drugs for neurological or other uses. Consequently, we may not earn additional milestone payments related to Amgen’s development activities or revenues related to product sales.

In our neuroprotectant program, our scientists are developing novel compounds to protect brain cells from ischemia (the lack of oxygen delivery from reduced blood flow) and other disorders caused by massive release of excitatory amino acid neurotransmitters such as glutamate. We have been exploring distinct intervention points in a biochemical pathway that can lead to neuronal damage, including: (i) pre-synaptic inhibition of glutamate release by inhibiting the enzyme, N-acetylated alpha-linked acidic dipeptidase (“NAALADase”); and (ii) post-synaptic inhibition of the enzyme, poly(ADP-ribose) polymerase (“PARP”). In the first quarter of 2000, we licensed from Dr. Snyder’s laboratory Serine Racemase, an enzyme which plays a key role in the activation of an important post-synaptic glutamate receptor, the N-Methyl D-Aspartate (NMDA) receptor. We are working on the selective inhibition of NAALADase, PARP, D-Serine Racemase and other enzymes in the biochemical pathway to neuronal damage and death as possible mechanisms for inhibiting the toxic effects of excess glutamate in neurological diseases and conditions.

During 2000, our scientists identified a lead compound in our NAALADase inhibitor program, GPI-5693. The initial therapeutic target of GPI-5693 is neuropathic pain and disease modification of diabetic neuropathy, a debilitating and progressive disorder involving severe pain, sensitivity, tingling, weakness and numbness in a patient’s extremities. It may affect close to one million Americans, yet there is currently no therapy that is approved in the United States to treat this disorder. In animal models, we have demonstrated that treatment with GPI-5693 and other NAALADase inhibitors can normalize pain sensitivity, improve nerve conduction velocity (the speed at which a nerve impulse travels), and promote re-myelination of peripheral nerves. In December 2000, we initiated clinical

testing of GPI-5693. The initial study is a Phase I safety, tolerability and pharmacokinetic study in healthy subjects and is being conducted in Europe. We are continuing to explore the therapeutic utility of NAALADase inhibition in several other neurodegenerative disorders, including chronic pain, schizophrenia, head trauma, Amyotrophic Lateral Sclerosis (ALS), glaucoma and Parkinson’s disease.

To date, more than 20 U.S. composition of matter and use patents have been issued relating to Guilford’s NAALADase inhibition program, including a broad use patent claiming the use of NAALADase inhibitors generally for the treatment of glutamate abnormalities (such as stroke, ALS and Parkinson’s disease), compulsive disorders, and prostate cancer.

Our scientists and their academic collaborators were among the first to investigate the use of PARP inhibitors for the prevention of glutamate neurotoxicity. Studies by several academic laboratories using mice that have been genetically altered to possess no or greatly diminished PARP activity suggest that the absence of PARP activity may reduce the area of neuronal damage from stroke by up to 85%-90%, and the area of heart muscle damage during a heart attack by about 40%. Some of our prototype PARP inhibitors have achieved similar results in preclincal models of stroke and heart attack in animals. In addition, our scientists have achieved neuroprotective results not only in transient ischemia models of stroke, but also in the more rigorous permanent ischemia models of stroke.

We have identified a number of distinct chemical series of novel PARP inhibitors with pre-clinical efficacy. In addition, we have obtained results in animal experiments suggesting that PARP inhibitors have potential utility in many therapeutic areas, including myocardial ischemia, traumatic head injuries, Parkinson’s disease, septic shock, type I diabetes and arthritis.

We have filed numerous patent applications in the U.S. and abroad relating to novel compositions of matter and methods of use with respect to PARP inhibitors. To date, we had rights to two issued U.S. patents in the field, including one generally claiming the use of PARP inhibitors for the prevention of glutamate neurotoxicity.

In the first quarter of 2000, we announced that we had licensed from ProQuest Pharmaceuticals Inc. (ProQuest) rights relating to a novel prodrug of a widely used anesthetic, propofol. A prodrug is a compound that is metabolized in the body into a drug. The prodrug, which we call AQUAVAN™ Injection, is water-soluble and rapidly converts to propofol upon intravenous administration in animal models. In contrast, propofol is administered in a lipid emulsion, which can cause complications, such as short shelf life, clogged IV tubing, elevated blood lipids and a potentially higher incidence of bacterial contamination. AQUAVAN™ Injection may offer clinical benefit to patients both as an ICU sedating agent and an anesthesia-induction drug.

Since we licensed AQUAVAN™ Injection from ProQuest, we have filed regulatory submissions to commence clinical studies in Europe and, in January 2001, began a Phase I trial. The trial is a dose escalation study of AQUAVAN™ Injection in healthy volunteers. We are working with anesthesiologists and regulatory consultants to explore recommendations for further clinical studies. Because AQUAVAN™ Injection is a prodrug of an approved anesthetic, we anticipate reduced regulatory, development and timing risks as compared with some of our other programs.

As noted in the section herein captioned “Risk Factors” and elsewhere in this annual report, there is no assurance that we will be able to develop AQUAVAN™ Injection into a safe and effective drug.

Our product candidate for the diagnosis and monitoring of Parkinson’s disease is administered intravenously in trace quantities and allows physicians to obtain images and measure the degeneration of dopamine neurons in the brain. Dopamine neurons are highly concentrated in a specialized area of the brain that degenerates in Parkinson’s disease. Parkinson’s disease is a common neurodegenerative disorder affecting more than 900,000 patients in the United States.

In its early stages, Parkinson’s disease can be very difficult to distinguish clinically from other diseases with similar symptoms but which do not respond well or at all to specific therapy for Parkinson’s disease. Unfortunately, there are no diagnostic tests currently marketed or commercially available that can reliably detect the neuronal degeneration in Parkinson’s disease, and the typical delay between the onset of symptoms and clinical diagnosis is more than two years. The primary way to establish the diagnosis at present is through repeated physician visits and the use of therapeutic trials of drugs such as L-Dopa, which carry with them the risk of unnecessary, sometimes severe side effects.

Following intravenous injections with DOPASCAN® Injection, images of a subject’s brain are obtained with a SPECT camera and can identify the loss of dopamine neurons in the brain. To date, over 2,000 patients have been imaged in the United States and Europe using DOPASCAN® Injection. In a multi-center Phase IIb clinical trial conducted by the Parkinson’s Study Group in the United States and completed in 1997, DOPASCAN® Injection accurately differentiated patients clinically diagnosed with a Parkinsonian disorder (i.e., Parkinson’s disease and progressive supranuclear palsy) from subjects without a Parkinsonian disorder (e.g., essential tremor and healthy controls) with a high sensitivity (98%) and specificity (97%). In addition, no serious adverse events were attributed to DOPASCAN® Injection in this study.

There can be no assurance, however, that similar results will be seen in any other clinical trials for DOPASCAN® Injection that may be conducted in the future or that DOPASCAN® Injection will be approved as a safe and effective FDA-cleared diagnostic.

We have entered into an agreement with Daiichi Radioisotope Laboratories, Ltd. (“DRL”), a leading Japanese radiopharmaceutical company, to develop and commercialize DOPASCAN® Injection in Japan, Korea and Taiwan. DRL has informed us that it plans to commence Phase III clinical trials in 2001. We have sought partners for the manufacture and/or distribution of this product in other territories, including the United States and Europe. However, to date, we have not been able to enter into an arrangement with a third-party manufacturer for the supply of DOPASCAN® Injection on acceptable terms. Unless and until we come to an agreement with a suitable manufacturer or corporate partner, the development of DOPASCAN® Injection will be limited to the activities of our Japanese partner.

We currently manufacture GLIADEL® Wafer using a proprietary process at our 18,000 square foot manufacturing facility in Baltimore, Maryland, which includes areas designated for packaging, quality control, laboratory, and warehousing. The manufacturing facility has been in operation since April 1995. It was initially inspected by the FDA in October 1995, and was re-inspected by the FDA in February 1999. Also, in October 1999, we were inspected by the Medicines Control Agency, the United Kingdom’s regulatory authority. Our current facilities are designed to enable us to produce up to 8,000 GLIADEL® Wafer treatments (each consisting of eight GLIADEL® Wafers) annually.

In January 1998, we completed construction of an expansion of our manufacturing facilities to allow for the additional synthesis of the polyanhydride co-polymer used in the manufacture of GLIADEL® Wafer. We also will be able to use this facility to produce our newest proprietary biodegradable polymers, the PPEs, in connection with the development of other polymer-based products. In addition, our completed construction of a second clean room facility in 1998, we expect could increase our GLIADEL® Wafer manufacturing capacity to 20,000-30,000 treatments annually. We further expect this second clean room facility will provide sufficient capacity to produce any clinical supply of PPE polymer-based product candidates needed in the future, including PACLIMER® Microspheres which are currently under development for ovarian cancer.

We believe that the various materials used in GLIADEL® Wafer are readily available and will continue to be available at reasonable prices. Nevertheless, while we believe that we have an adequate supply of BCNU, the active chemotherapeutic ingredient in GLIADEL® Wafer, to meet current demand, any interruption in the ability of the two current suppliers to deliver this ingredient could prevent us from delivering the product on a timely basis. We depend upon the availability of certain single-source raw materials in its formulations, but we are seeking alternate suppliers for most of these raw materials. We cannot be sure that such sources can be secured successfully on terms acceptable to us, or at all. Failure of any supplier to provide sufficient quantities of raw material in accordance with the FDA’s current Good Manufacturing Practice (cGMP) regulations could cause delays in clinical trials and commercialization of products, including GLIADEL® Wafer.

All domestic prescription pharmaceutical manufacturers are subject to extensive regulation by the federal government, principally the FDA and, to a lesser extent, by state and local governments as well as foreign governments if products are marketed abroad. Biologics and controlled drug products, such as vaccines and narcotics, and radiolabeled drugs, are often regulated more stringently than are other drugs. The Federal Food, Drug, and Cosmetic Act and other federal statutes and regulations govern or influence the development, testing, manufacture, labeling, storage, approval, advertising, promotion, sale and distribution of prescription pharmaceutical products. Pharmaceutical manufacturers are also subject to certain recordkeeping and reporting requirements. Noncompliance with applicable requirements can result in warning letters, fines, recall or seizure of products, total or partial suspension of production and/or distribution, refusal of the government to enter into supply contracts or to approve marketing applications and criminal prosecution.

Upon FDA approval, a drug may only be marketed in the United States for the approved indications in the approved dosage forms and at the approved dosage levels. The FDA also may require post-marketing testing and surveillance to monitor a drug in larger and more diverse patient populations. Manufacturers of approved drug products are subject to ongoing compliance with FDA regulations. For example, the FDA mandates that drugs be manufactured in conformity with the FDA’s applicable cGMP regulations. In complying with the cGMP regulations, manufacturers must continue to expend time, money and effort in production, recordkeeping and quality control to ensure that the product meets applicable specifications and other requirements. The FDA periodically inspects drug manufacturing facilities to ensure compliance with its cGMP regulations. We were last inspected in 1999. Failure to comply subjects the manufacturer to possible FDA action, such as suspension of manufacturing, seizure of the product or voluntary recall of a product. Adverse experiences with the commercialized product must be reported to the FDA. The FDA also may require the submission of any lot of the product for inspection and may restrict the release of any lot that does not comply with FDA regulations, or may otherwise order the suspension of manufacture, voluntary recall or seizure. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following approval.

The steps required before a newly marketed drug may be commercially distributed in the United States include: (i) conducting appropriate preclinical laboratory and animal tests; (ii) submitting to the FDA an application for an IND, which must become effective before clinical trials may commence; (iii) conducting well-controlled human clinical trials that establish the safety and efficacy of the drug product; (iv) filing with the FDA a New Drug Application (“NDA”) for non-biological drugs; and (v) obtaining FDA approval of the NDA prior to any commercial sale or shipment of the non-biological drug. In addition to obtaining FDA approval for each indication to be treated with each product, each domestic drug manufacturing establishment must register with the FDA, list its drug products with the FDA, comply with the FDA’s cGMP requirements and be subject to inspection by the FDA. Foreign manufacturing establishments distributing drugs in the United States also must comply with cGMP requirements, register and list their products, and are subject to periodic inspection by FDA or by local authorities under agreement with FDA. The FDA also regulates drug advertising and promotion as well as the distribution of physician samples. Individual states also often impose licensing requirements on drug manufacturers and distributors. NDA’s also must include a description of the manufacturing processes, including quality control procedures and validation requirements.

With respect to a drug product with an active ingredient not previously approved by the FDA, the manufacturer must usually submit a full NDA, including complete reports of preclinical, clinical and laboratory studies, to prove that the product is safe and effective. A full NDA may also need to be submitted for a drug product with a previously approved active ingredient if studies are required to demonstrate safety and efficacy, such as when the drug will be used to treat an indication for which the drug was not previously approved, or where the dose or method of drug delivery is changed. In addition, the manufacturer of an approved drug may be required to submit for the FDA’s review and approval a supplemental NDA, including reports of appropriate clinical testing, prior to marketing the drug with additional indications or making other significant changes to the product or its manufacture. A manufacturer intending to conduct clinical trials ordinarily will be required first to submit an IND to the FDA containing information relating to previously conducted preclinical studies.

Pre-clinical testing includes formulation development, laboratory evaluation of product chemistry and animal studies to assess the potential safety and efficacy of the product formulation. Preclinical tests to support an FDA application must be conducted in accordance with the FDA regulations concerning Good Laboratory Practices (GLPs). The results of the preclinical tests are submitted to the FDA as part of the IND and are reviewed by the FDA prior to authorizing the sponsor to conduct clinical trials in human subjects. Unless the FDA issues a clinical hold on an IND, the IND will become effective 30 days following its receipt by the FDA. There is no certainty that submission of an IND will result in the commencement of clinical trials or that the commencement of one phase of a clinical trial will result in commencement of other phases or that the performance of any clinical trials will result in FDA approval.

Clinical trials for new drugs typically are conducted in three phases, are subject to detailed protocols and must be conducted in accordance with the FDA’s regulations concerning good clinical practices (GCPs). Clinical trials involve the administration of the investigational drug product to human subjects. Each protocol indicating how the clinical trial will be conducted in the United States must be submitted for review to the FDA as part of the IND. The FDA’s review of a study protocol does not necessarily mean that, if the study is successful, it will constitute proof of efficacy or safety. Further, each clinical study must be conducted under the auspices of an independent institutional review board (“IRB”) established pursuant to FDA regulations. The IRB considers, among other factors, ethical concerns and informed consent requirements. The FDA or the IRB may require changes in a protocol both prior to and after the commencement of a trial. There is no assurance that the IRB or the FDA will permit a study to go forward or, once started, to be completed. Clinical

The three phases of clinical trials are generally conducted sequentially, but they may overlap. In Phase I, the initial introduction of the drug into humans, the drug is tested for safety, side effects, dosage tolerance, metabolism and clinical pharmacology. Phase II involves controlled tests in a larger but still limited patient population to determine the efficacy of the drug for specific indications, to determine optimal dosage and to identify possible side effects and safety risks. Phase II testing for an indication typically takes at least from one and one-half to two and one-half years to complete. If preliminary evidence suggesting effectiveness has been obtained during Phase II evaluations, expanded Phase III trials are undertaken to gather additional information about effectiveness and safety that is needed to evaluate the overall benefit-risk relationship of the drug and to provide an adequate basis for physician labeling. Phase III studies for a specific indication generally take at least from two and one-half to five years to complete. There can be no assurance that Phase I, Phase II or Phase III testing will be completed successfully within any specified time period, if at all, with respect to any of the Company’s product candidates.

Reports of results of the preclinical studies and clinical trials for non-biological drugs are submitted to the FDA in the form of an NDA for approval of marketing and commercial shipment. User fee legislation now requires the submission in fiscal year 2001 of $285,740 to cover the costs of FDA review of a full NDA. Annual fees also exist for certain approved prescription drugs and the establishments that make them. The NDA typically includes information pertaining to the preparation of drug substances, analytical methods, drug product formulation, and details on the manufacture of finished product as well as proposed product packaging and labeling. Submission of an NDA does not assure FDA approval for marketing. In May 1999 the FDA published final regulations describing criteria that the FDA will use to evaluate the safety and efficacy of diagnostic radiopharmaceuticals like DOPASCAN® Injection.

The median FDA approval time is currently about 12 months, although clinical development, reviews, or approvals of treatments for cancer and other serious or life-threatening diseases may be accelerated, expedited or fast-tracked. In addition, approval times can vary widely among the various reviewing branches of the FDA. The approval process may take substantially longer if, among other things, the FDA has questions or concerns about the safety and/or efficacy of a product. In general, the FDA requires at least two properly conducted, adequate and well-controlled clinical studies demonstrating safety and efficacy with sufficient levels of statistical assurance. In certain limited cases the FDA may consider one clinical study sufficient. The FDA also may request long-term toxicity studies or other studies relating to product safety or efficacy. For example, the FDA may require additional clinical tests following NDA approval to confirm product safety and efficacy (Phase IV clinical tests) or require other conditions for approval. Notwithstanding the submission of such data, the FDA ultimately may decide that the application does not satisfy its regulatory criteria for approval.

Confirmatory studies similar to Phase III clinical studies may be conducted after, rather than before, FDA approval under certain circumstances. The FDA may determine under its expedited, accelerated, or fast-track provisions that previous limited studies establish an adequate basis for drug product approval, provided that the sponsor agrees to conduct additional studies after approval to verify safety and effectiveness. Treatment of patients not in clinical trials with an experimental drug may also be allowed under a Treatment IND before general marketing begins. Charging for an investigational drug also may be allowed under a Treatment IND to recover certain costs of development if various requirements are met. These cost-recovery, treatment IND, and expedited, accelerated or fast-track approval provisions are limited, for example, to drug products (i) intended to treat AIDS or other serious severely debilitating or life-threatening diseases especially and that provide meaningful therapeutic benefit to patients over existing treatments, (ii) that are for diseases for which no satisfactory alternative therapy exists, or (iii) that address an unmet medical need. No assurances exist that the Company’s product candidates will qualify for cost-recovery, expedited,

The full NDA process for newly marketed non-biological drugs, such as those being developed by us, including FKBP neuroimmunophilin ligand products and inhibitors of NAALADase and PARP, can take a number of years and involves the expenditure of substantial resources. There can be no assurance that any approval will be granted on a timely basis, or at all or that we will have sufficient resources to carry such potential products through the regulatory approval process.

The Drug Price Competition and Patent Term Restoration Act of 1984 (“DPC-PTR Act”) established abbreviated procedures for obtaining FDA approval for many non-biological drugs which are off-patent and whose marketing exclusivity has expired. Applicability of the DPC-PTR Act means that a full NDA is not required for approval of a competitive product. Abbreviated requirements are applicable to drugs which are, for example, either bioequivalent to brand-name drugs, or otherwise similar to brand-name drugs, such that all the safety and efficacy studies previously done on the innovator product need not be repeated for approval. Changes in approved drug products, such as in the delivery system, dosage form, or strength, can be the subject of abbreviated application requirements. There can be no assurance that abbreviated applications will be available or suitable for our non-biological drug products, including our efforts to develop a controlled-release formulation of the chemotherapeutic agent, paclitaxel (TAXOL®) using our PPEs, or that FDA approval of such applications can be obtained.

A five-year period of market exclusivity is provided for newly marketed active ingredients of drug products not previously approved and a three-year period for certain changes in approved drug products for which reports of new clinical investigations are essential for approval (other than bioequivalence studies). A period of three years is available for changes in approved products, such as in delivery systems of previously approved products. Both periods of marketing exclusivity mean that abbreviated applications, which generally rely to some degree on approvals or on some data submitted by previous applicants for comparable innovator drug products, cannot be marketed during the period of exclusivity. The market exclusivity provisions of the DPC-PTR Act bar only the marketing of competitive products that are the subject of abbreviated applications, not products that are the subject of full NDAs. The DPC-PTR Act also may provide a maximum time of five years to be restored to the life of any one patent for the period it takes to obtain FDA approval of a drug product, including biological drugs. No assurances exist that the exclusivity or patent restoration benefits of the DPC-PTR Act will apply to any of our product candidates.

Products marketed outside the United States which are manufactured in the United States are subject to certain FDA export regulations, as well as regulation by the country in which the products are to be sold. U.S. law can prohibit the export of unapproved drugs to certain countries abroad. We also would be subject to foreign regulatory requirements governing clinical trials and pharmaceutical sales, if products are marketed abroad. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must usually be obtained prior to the commencement of marketing of the product in those countries. The approval process varies from country to country and the time required may be longer or shorter than that required for FDA approval.

In addition to the requirements for product approval, before a pharmaceutical product may be marketed and sold in certain foreign countries the proposed pricing for the product must be approved as well. Products may be subject to price controls and/or limits on reimbursement. The requirements governing product pricing and reimbursement vary widely from country to country and can be

implemented disparately at the national level. The European Union generally provides options for its fifteen Member States to restrict the range of medicinal products for which their national health insurance systems provide reimbursement. Member States in the European Union can opt to have a “positive” or a “negative” list. A positive list is a listing of all medicinal products covered under the national health insurance system, whereas a negative list designates which medicinal products are excluded from coverage. In the European Union, the United Kingdom and Spain use a negative list approach, while France uses a positive list approach. In Canada, each province decides on reimbursement measures.

The European Union also generally provides options for its Member States to control the prices of medicinal products for human use. A Member State may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. For example, the regulation of prices of pharmaceuticals in the United Kingdom (U.K.) is generally designed to provide controls on the overall profits pharmaceutical companies may derive from their sales to the U.K. National Health Service. The U.K. system is generally based on profitability targets or limits for individual companies which are normally assessed as a return on capital employed by the company in servicing the National Health Service market, comparing capital employed and profits.

In comparison, Italy generally establishes prices for pharmaceuticals based on a price monitoring system. The reference price is the European average price calculated on the basis of the prices in four reference markets: France, Spain, Germany and the United Kingdom. Italy typically levels the price of medicines belonging to the same therapeutic class on the lowest price for a medicine belonging to that category (i.e., same active principle, same pharmaceutical form, same route of administration). Spain generally establishes the selling price for new pharmaceuticals based on the prime cost, plus a profit margin within a range established each year by the Spanish Commission for Economic Affairs. Promotional and advertising costs are limited.

In Canada, prices for most new drugs are generally limited such that the cost of therapy for the new drug is in the range of the cost of therapy for existing drugs used to treat the same disease in Canada. Prices of breakthrough drugs and those which bring a substantial improvement are generally limited to the median of the prices charged for those drugs in other industrialized countries, such as France, Germany, Italy, Sweden, Switzerland, the United Kingdom and the United States.

There can be no assurance that any country which has price controls or reimbursement limitations for pharmaceuticals will allow favorable reimbursement and pricing arrangements with respect to our applications for GLIADEL outside of the United States.

We are also governed by other federal, state and local laws of general applicability. These laws include, but are not limited to, those regulating working conditions enforced by the Occupational Safety and Health Administration and regulating environmental hazards under such statutes as the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other environmental laws enforced by the United States Environmental Protection Agency (“USEPA”). The DEA regulates controlled substances, such as narcotics. A precursor compound to DOPASCAN® Injection is a tropane-derivative similar to cocaine and thus is subject to DEA regulations. Establishments handling controlled substances must, for example, be licensed and inspected by the DEA, and may be subject to export, import, security and production quota requirements. Radiolabeled products, including drugs, are also subject to regulation by the Department of Transportation and to state and federal licensing requirements. Various states often have comparable health and environmental laws, such as those governing the use and disposal of controlled and radiolabeled products.

While we are not actively involved in product areas involving biotechnology and we have no current plans to develop products utilizing modern biotechnology, if we were to move in that direction, we would potentially be subject to extensive regulation. The USEPA, the FDA and other federal and state regulatory bodies have developed or are in the process of developing specific

requirements concerning products of biotechnology that may affect research and development programs and product lines. We are unable to predict whether any governmental agency will adopt requirements, including regulations, which would have a material and adverse effect on any future product applications involving biotechnology.

We believe that intellectual property protection is crucial to our business. Our success will depend in large part on our ability to obtain and enforce intellectual property protection for our products and processes and operate without infringing on others’ intellectual property rights. As of December 31, 2000, we owned or had licensed rights to more than 100 U.S. patents and patent applications protecting our key technologies and to corresponding foreign patents and patent applications. We also own certain trademarks.

The value of our intellectual property rights is subject to various uncertainties and contingencies. The scope of intellectual property protection afforded to pharmaceutical and biotechnological inventions is uncertain, and our product candidates are subject to this uncertainty. We cannot be certain that any of our patent applications will be granted, that additional products or processes we develop will be patentable, or that any of our patents will provide us with any competitive advantages. In addition, any existing or future patents or intellectual property owned by us may be challenged, invalidated or circumvented by others.

Further, other companies have been issued patents and have filed patent applications relating to our key technologies. While we do not believe that we are infringing any valid patents of which we are aware, we cannot be certain that our products or product candidates will not infringe or be dominated by patents that have issued or may issue to third parties.

We control the disclosure and use of our proprietary information through confidentiality agreements with employees, consultants and other third parties. However, our confidentiality agreements may not be honored, disclosure of our proprietary information may occur, and disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality obligations.

We support and collaborate in research conducted by other companies, universities and governmental research organizations. We may not be able to acquire exclusive rights to the intellectual property derived from such collaborations and disputes may arise as to rights in derivative or related research programs that we conduct. To the extent that consultants or other research collaborators use third parties’ intellectual property in their work with us, disputes may also arise as to the rights to resulting intellectual property. In addition, in the event we breach any of our collaborative research contracts, such a breach may cause us to lose certain licensed intellectual property rights.

If we are required to defend against charges of infringement of intellectual property rights of third parties or assert our own intellectual property rights against third parties, we may incur substantial costs and could be enjoined from commercializing certain products. We may also be required to pay monetary damages. To avoid or settle litigation, we may seek licenses from third parties or attempt to redesign our products or processes to avoid infringement. However, we may not be successful in obtaining licenses or successfully redesigning our products or processes.

We could also be required to participate in U.S. interference proceedings or international patent oppositions. In fact, in order to protect our intellectual property position with respect to our neuroimmunophilin ligands, we filed a European opposition in 1998 to revoke another company’s European patent. In 2000, we won the opposition, and the subject patent was revoked. However, the patentee has appealed the initial determination, and the patent could be reinstated. If the patent is reinstated, litigation could result.

In March 1994, we entered into an agreement (the “GLIADEL® Wafer Agreement”) with Scios Inc. pursuant to which we licensed from Scios exclusive worldwide rights to numerous U.S. patents and patent applications and corresponding international patents and patent applications for polyanhydride biodegradable polymer technology for use in the field of tumors of the central nervous system and cerebral edema. GLIADEL® Wafer is covered by two of the U.S. patents under this license which expire in 2005 and certain related international patents and patent applications. In April 1994, Scios assigned all of its rights and obligations under the GLIADEL® Wafer Agreement to MIT.

Under the GLIADEL® Wafer Agreement, we are obligated to pay a royalty on all net sales of products incorporating such technology as well as a percentage of all royalties received by us from sublicensees and certain advance and minimum annual royalty payments. We have exclusive worldwide rights to the technology for brain cancer therapeutics, subject to certain conditions, including a requirement to perform appropriate preclinical tests and file an IND with the FDA within 24 months of the identification of a drug-polymer product having greater efficacy than GLIADEL® Wafer. In addition, we are obligated to meet certain development milestones. Although we believe that we can comply with such obligations, our failure to perform these obligations could result in losing our rights to new polymer-based products.

In June 1996, we entered into a license agreement with MIT and Johns Hopkins respecting a patent application covering certain biodegradable polymers for use in connection with the controlled local delivery of certain chemotherapeutic agents (including paclitaxel (TAXOL®) and camptothecin) for treating solid tumors. Under this agreement, we are obligated to make certain annual and milestone payments to MIT and to pay royalties based on any sales of products incorporating the technology licensed to us. Furthermore, under the terms of the agreement, we have committed to spend minimum amounts to develop the technology and to meet certain development milestones. Although we believe that we can comply with such obligations, our failure to perform these obligations could result in losing our rights to such technology.

In July 1996, we entered into a license agreement with Johns Hopkins that currently covers several U.S. patents respecting certain PPEs developed at Johns Hopkins and additional PPEs patent applications. This agreement, among other things, requires us to pay certain processing, maintenance and/or up-front fees, milestone payments and royalties, a portion of proceeds from sublicenses, and fees and costs related to patent prosecution and maintenance and to spend minimum amounts for, and meet deadlines regarding, development of this technology. In the event of termination of these licenses, we could lose our rights to the use of the licensed technology.

We and Johns Hopkins are parties to exclusive license agreements covering the neurotrophic use of neuroimmunophilin ligands, which were jointly discovered by scientists at, and are jointly owned by, Johns Hopkins and us, and inhibition of PARP for neuroprotective uses and certain other technologies. These agreements require us to pay, among other things, certain processing, maintenance, and/or up-front fees, milestone payments and royalties, a portion of proceeds from sublicenses, and fees and costs related to patent prosecution and maintenance and to spend minimum amounts for, and meet deadlines regarding, development of the technologies. In the event of termination of these licenses, we could lose our rights to use the licensed technology (or in the case of joint inventions, exclusive use of such technology). In the case of our license with Johns Hopkins relating to neuroimmunophilin ligands, Johns Hopkins is entitled to a portion of all milestone payments paid to us, including payments under our collaboration with Amgen, and a royalty on net sales of neuroimmunophilin ligand products, again including sale of products under our collaboration with Amgen.

We obtained exclusive worldwide rights to DOPASCAN® Injection pursuant to a March 1994 license agreement (the “RTI Agreement”) with Research Triangle Institute (“RTI”), which grants

us rights to various U.S. and international patents and patent applications relating to binding ligands for certain receptors in the brain which are or may be useful as dopamine neuron imaging agents. DOPASCAN® Injection and certain related precursors and analogues are covered by U.S. patents which start expiring in 2009, as well as certain related international patents and patent applications.

Under the RTI Agreement, we reimbursed RTI for certain past patent-related expenses and agreed to make annual payments to RTI to support mutually agreed-upon research that was conducted at RTI through March 1999. In addition, we are obligated to pay RTI a royalty on gross revenues we receive from products derived from the licensed technology and from sublicensee proceeds and to make certain minimum royalty payments following the first commercial sale of such products. We must use commercially reasonable efforts to develop products related to the licensed technology and to meet certain performance milestones. Our failure to perform our obligations under the RTI Agreement in the future could result in termination of the license.

Aspects of the technology licensed by us under agreements with third party licensors may be subject to certain government rights. Government rights in inventions conceived or reduced to practice under a government-funded program (“subject inventions”) may include a non-exclusive, royalty-free worldwide license to practice or have practiced such inventions for any governmental purpose. In addition, the U.S. government has the right to grant licenses which may be exclusive under any of such inventions to a third party if they determine that: (i) adequate steps have not been taken to commercialize such inventions; (ii) such action is necessary to meet public health or safety needs; or (iii) such action is necessary to meet requirements for public use under federal regulations. The U.S. government also has the right to take title to a subject invention if there is a failure to disclose the invention and elect title within specified time limits. In addition, the U.S. government may acquire title in any country in which a patent application is not filed within specified time limits. Federal law requires any licensor of an invention that was partially funded by the federal government to obtain a covenant from any exclusive licensee to manufacture products using the invention substantially in the United States. Further, the government rights include the right to use and disclose without limitation technical data relating to licensed technology that was developed in whole or in part at government expense. Our principal technology license agreements contain provisions recognizing these government rights.

Prior to 2000, our strategy had been to establish collaborations with larger pharmaceutical companies where possible to develop and promote products that require extensive development, sales and marketing resources.

However, during 2000, we began the transformation into a fully-integrated biopharmaceutical company through our reacquisition of Aventis’ rights to GLIADEL® Wafer. In November 2000, David P. Wright joined us as our Executive Vice President, Commercial Operations. Mr. Wright has extensive experience in the marketing, sale and distribution of pharmaceutical products. He is assembling an in-house department containing marketing, sales management, medical affairs, reimbursement and other relevant functions to manage a sales force of at least 20 people provided through Cardinal Health. Our contract with Cardinal Health allows us to bring this sales force in-house after 12 months on prescribed terms. In addition, our GLIADEL® Wafer product is distributed through Cord Logistics, Inc., which handles fulfillment of customer orders.

In Europe, we have a temporary arrangement with IDIS Limited, based in the U.K., for the distribution of GLIADEL® Wafer on a named hospital basis, while we consider whether to build an in-house European marketing and sales organization or to out-source the marketing and sale of GLIADEL® Wafer in Europe. While the marketing, sale and distribution of GLIADEL® Wafer in

Europe and elsewhere in the world are priorities for us, we are first concentrating on marketing and sales activities in the U.S., and filing the Supplemental New Drug Application seeking to extend the approved label for GLIADEL® Wafer to first-line therapy.

The establishment of our Commercial Operations function will give us more options in the commercialization of our product candidates (other than our FKBP neuroimmunophilin ligands, which are licensed to Amgen and discussed below). For example, if approved, we may be able to market and sell AQUAVAN® Injection, GPI-5693, PACLIMER® Microspheres, and LIDOMERTM Microspheres ourselves in the U.S., and possibly in Europe (if we build our own European commercial operations unit), while seeking development and/or commercialization partners elsewhere in the world.

From time to time, we are in discussions with potential partners for the development and commercialization of GLIADEL® Wafer in Japan, NAALADase inhibitors in Japan and Europe, and DOPASCAN® Injection in Europe and other technologies for different territories.

In August 1997, we entered into a collaboration with Amgen to research, develop and commercialize a broad class of neuroimmunophilin ligands, referred to as FKBP neuroimmunophilin ligands, as well as any other compounds that may result from the collaboration, for all human therapeutic and diagnostic applications. Amgen initially paid us a one time, non-refundable signing fee of $15 million in 1997 and also invested an additional $20 million in us in exchange for 640,095 shares of our common stock and five-year warrants to purchase up to an additional 700,000 shares of our common stock at an exercise price of $35.15 per share. In connection with the sale of these securities, we granted Amgen certain demand and “piggyback” registration rights under applicable securities laws.

As part of this collaboration, Amgen agreed to fund up to a total of $13.5 million to support our research relating to the FKBP neuroimmunophilin ligand technology. This research funding began on October 1, 1997, and concluded in September 2000.

If Amgen achieves certain specified development objectives in each of ten different clinical indications, seven of which are neurological (i.e., Parkinson’s disease, Alzheimer’s disease, traumatic brain injury, traumatic spinal cord injury, multiple sclerosis, neuropathy and stroke) and three of which are non-neurological, Amgen has agreed to pay us up to a total of $392 million in milestone payments.

We will receive royalties on any future sales of products resulting from our collaboration with Amgen. Amgen has agreed to fund, develop and commercialize the FKBP neuroimmunophilin ligand technology. Under limited circumstances, we have the option to conduct certain Phase I and Phase II clinical trials on one product candidate in one indication and we have the right to co-promote in the United States one product resulting from the collaboration.

In October 1995, we entered into an agreement appointing Orion Pharma distributor for GLIADEL® Wafer in Scandinavia, and in December 1995 we entered into an agreement with DRL for the marketing, sale and distribution of DOPASCAN® Injection in Japan, Korea and Taiwan.

We are involved in evolving technological fields in which developments are expected to continue at a rapid pace. Our success depends upon our ability to compete effectively in the research, development and commercialization of products and technologies in our areas of focus. Competition

from pharmaceutical, chemical and biotechnology companies, universities and research institutes is intense and expected to increase. Many of these competitors have substantially greater research and development capabilities, experience and manufacturing, marketing, financial and managerial resources than we do and represent significant competition for us. Acquisitions of competing companies by large pharmaceutical or other companies could enhance the financial, marketing and other resources available to these competitors. These competitors may develop products which are superior to those that we have under development.

We are aware of several competing approaches under development for the treatment of malignant glioma including using radioactive seeds for interstitial radiotherapy, increasing the permeability of the blood-brain barrier to chemotherapeutic agents, sensitizing cancer cells to chemotherapeutic agents using gene therapy and developing chemotherapeutics directed to specific receptors in brain tumors.

A number of companies have shown interest in trying to develop neurotrophic agents to promote nerve growth and repair in neurodegenerative disorders and traumatic central nervous system injuries. However, much of this activity has focused on naturally occurring growth factors. Such large molecules generally cannot cross the blood-brain barrier and thus present problems in administration and delivery. One company has announced that certain of its neuroimmunophilin ligands showed positive results in stimulating nerve growth in an animal model of nerve crush, and has disclosed that it has made patent filings covering compounds and uses in connection with nerve growth promotion. This company also announced in 1999 that it began a Phase II clinical trial for peripheral neuropathy using a neuroimmunophilin compound it originally was developing for multiple drug resistance in cancer patients. In addition, another company announced that IGF-1 showed positive results in clinical trials of a peripheral neurodegenerative disorder.

There is intense competition to develop an effective and safe neuroprotective drug or biological agent. Calcium channel antagonists, calpain inhibitors, adenosine receptor antagonists, free radical scavengers, superoxide dismutase inducers, proteoloytic enzyme inhibitors, phospholipase inhibitors and a variety of other agents are under active development by others. Glutamate or NMDA receptor antagonists are under development by several other companies.

The anesthesia/ sedation field is concentrated in the United States mainly among four major companies, with several other companies doing research in the field. There are numerous products currently on the market that are accepted as relatively safe and effective anesthetic agents and sedation agents. We cannot be sure that we can successfully develop AQUAVAN™ Injection into a safe and effective drug or that it will be cleared for marketing. Even if we do develop it into a safe and effective drug and it is cleared for marketing, the commercial prospects for AQUAVAN™ Injection will depend heavily on its safety and efficacy profile relative to alternatives then available in the market.

We believe that two other companies are clinically evaluating imaging agents for dopamine neurons. In addition, a variety of radiolabeled compounds for use with Positron Emission Tomography (“PET”) scanners have been used to image dopamine neurons successfully in patients with Parkinson’s disease. PET scanning is currently only available in a limited number of hospitals in the United States and Europe.

Any product candidate that we develop and for which we gain regulatory approval, including GLIADEL® Wafer, must then compete for market acceptance and market share. For certain of our product candidates, an important factor will be the timing of market introduction of competitive products. Accordingly, the relative speed with which we and competing companies can develop products, complete the clinical testing and approval processes, and supply commercial quantities of the products to the market is expected to be an important determinant of market success. Other competitive factors include the capabilities of our collaborators, product efficacy and safety, timing and scope of regulatory approval, product availability, marketing and sales capabilities, reimbursement

coverage, the amount of clinical benefit of our product candidates relative to their cost, method of administration, price and patent protection. Our competitors may develop more effective or more affordable products or achieve earlier product development completion, patent protection, regulatory approval or product commercialization than us. The achievement of any of these goals by our competitors could have a material adverse effect on our business, financial condition and results of operations.

Product liability risk is inherent in the testing, manufacture, marketing and sale of our product candidates, and there can be no assurance that we will be able to avoid significant product liability exposure. While we currently maintain $15 million of product liability insurance covering clinical trials and product sales, there can be no assurance that this or any future insurance coverage obtained by us will be adequate or that claims will be covered by our insurance. Our insurance policies provide coverage on a claims-made basis and are subject to annual renewal. Product liability insurance varies in cost, can be difficult to obtain and may not be available to us in the future on acceptable terms, or at all.

At December 31, 2000, we employed 254 individuals. Of these 254 employees, 211 were employed in the areas of research and product development and in manufacturing and quality control of GLIADEL. The remaining 43 employees performed selling, general and administrative functions, including sales and marketing, executive, finance and administration, legal and business development. None of our employees are currently represented by a labor union. To date, we have not experienced work stoppages related to labor issues and we believe our relations with our employees are good.

All employees are required to enter into a confidentiality agreement with us. Hiring and retaining qualified personnel are important factors for our future success. We are likely to continue to add personnel particularly in the areas of sales and marketing, research, clinical research and operations, including manufacturing. Intense competition exists for these qualified personnel from other biotechnology and biopharmaceutical companies as well as academic, research and governmental organizations. There can be no assurance that we will be able to continue to hire qualified personnel and, if hired, that we will be able to retain these individuals.

Craig R. Smith, M.D., age 55, joined the Company as a Director at the Company’s inception in July 1993. Dr. Smith was elected President and Chief Executive Officer in August 1993 and was elected Chairman of the Board in January 1994. Prior to joining the Company, Dr. Smith was Senior Vice President for Business and Market Development at Centocor, Inc., a biotechnology corporation. Before joining Centocor, Dr. Smith served on the Faculty of the Department of Medicine at Johns Hopkins Medical School. Dr. Smith received his M.D. from the State University of New York at Buffalo in 1972 and received training in Internal Medicine at Johns Hopkins Hospital from 1972 to 1975. Dr. Smith is a member of the board of directors of CellGate, Inc. and Molecular Neuroimaging Inc.

David P. Wright, age 53, joined the Company as Executive Vice President, Commercial Operations in November 2000. From 1990 through 1999, Mr. Wright was employed by MedImmune, Inc., most recently as Executive Vice President Sales and Marketing. Prior to joining MedImmune, Mr. Wright was Vice President, Gastrointestinal Business Group, for Smith, Kline and French Laboratories, and held various marketing and sales posts with G.D. Searle, Glaxo, Hoffmann-LaRoche and Pfizer. Mr. Wright received a Master of Arts in Speech Pathology and Audiology from the University of South Florida in 1969.

John P. Brennan, age 58, joined the Company as Vice President, Operations in January 1994 and became Senior Vice President, Operations in January 1997. In February 1999, Mr. Brennan was promoted to Senior Vice President, Technical Operations and General Manager, Drug Delivery Business. From 1980 to 1993, he was Vice President, Technical Operations and Manufacturing for G.D. Searle and Co., where he was responsible for the operation of manufacturing plants in North America, Latin America and Europe and the worldwide pharmaceutical and process technology. Mr. Brennan received his B.S. in Chemistry from the Philadelphia College of Pharmacy and Science in 1968 and attended the Wharton Graduate Management Program in 1976.

Andrew R. Jordan, age 53, joined the Company as Vice President, Secretary, Treasurer and Chief Financial Officer in September 1993 and became Senior Vice President, Treasurer and Chief Financial Officer in January 1997. Prior to joining the Company, Mr. Jordan held various positions with KPMG LLP, a public accounting firm, including partner since 1983. Mr. Jordan’s experience at KPMG LLP included advising early-stage and emerging technology companies and initial and secondary public equity and debt offerings. He received his B.A. from Rutgers College in 1969 and his MBA from Rutgers Graduate School of Business in 1973 and is a Certified Public Accountant.

Peter D. Suzdak, Ph.D., age 42, joined the Company in March 1995 as Vice President, Research. In February 1999, Dr. Suzdak was promoted to Senior Vice President, Research & Development. Prior to joining the Company, Dr. Suzdak was Director of Neurobiology at Novo Nordisk A/S and was responsible for all neurobiology research from 1993 to 1995, and Department Head for Receptor Neurochemistry from 1988 to 1992 as well as a member of the drug discovery management group from 1989 to 1995. Dr. Suzdak received his Ph.D. in Neuroscience from the University of Connecticut and a B.S. in Pharmacy from St. Johns University.

Thomas C. Seoh, age 43, joined the Company in April 1995, as Vice President, General Counsel and Secretary. In August 1999, he was promoted to Senior Vice President. In February 2001, he became Senior Vice President, Corporate Development, General Counsel and Secretary. Mr. Seoh previously held legal management positions with ICN Pharmaceuticals, Inc. group, including Vice President and Associate General Counsel, and with Consolidated Press U.S., Inc., and was associated with the New York and London offices of Lord Day & Lord, Barrett Smith. Mr. Seoh received his J.D. and A.B. from Harvard University.

Nancy J. Linck, Ph.D., J.D., age 59, joined the Company as Vice President, Intellectual Property in November 1998. In February 2001, Dr. Linck was promoted to Senior Vice President, Intellectual Property and Deputy General Counsel. From 1994 to 1998, Dr. Linck was Solicitor for the U.S. Patent and Trademark Office, where she acted as general counsel for the Commissioner of Patents and Trademarks. From 1987 to 1994, Dr. Linck worked as a patent and trademark litigator at the intellectual property law firm of Cushman, Darby & Cushman, first as an Associate from 1987 to 1990, and later as a Partner from 1991 to 1994. Since 1995, Dr. Linck has been engaged as an Adjunct Professor of Law, first at George Washington University School of Law and presently at Georgetown University Law Center. Dr. Linck received her B.S. in Chemistry from the University of California, Berkeley, her M.S. and Ph.D. in Inorganic Chemistry from the University of California, San Diego, and her J.D. from Western New England College School of Law.

William C. Vincek, Ph.D., age 53, joined the Company as Vice President, Corporate Quality in August 1997. In August 1999, he became Vice President, Pharmaceutical & Chemical Development. From November 1993 until Dr. Vincek joined the Company, he was Group Director, CMC & Preclinical Regulatory Affairs and Global Research and Development GMP Quality Assurance at Glaxo Wellcome, Inc. Prior to that time, Dr. Vincek held various positions at SmithKline Beecham Pharmaceuticals and related entities. Dr. Vincek received his Ph.D. in Medicinal Chemistry from the University of Kansas, where he also received an M.S. in Medicinal Chemistry. Dr. Vincek received a B.S. in Chemistry from Colorado State University.

Denise Battles, age 46, joined the Company as Director of Quality Assurance in August 1994 and became Senior Director of Product Compliance in August 1997. Ms. Battles was promoted to Vice President of Corporate Quality in August 1999. Prior to joining the Company, Ms. Battles was employed by Pharmaceutical Systems, Incorporated as the Director of Quality Assurance from 1993 to 1994. Prior thereto, Ms. Battles held various positions with Quality Control and Quality Assurance at Baxter Healthcare Corporation. Ms. Battles received her B.S. in Biology from Fisk University in 1977 and received training at the Lake Forest Graduate School of Management.

Dana C. Hilt, M.D., age 47, joined the Company as Vice President, Clinical Research in May 1998. In February 1999, Dr. Hilt became Vice President, Clinical Research and Drug Metabolism. Prior to joining the Company, Dr. Hilt was employed by Amgen, most recently as Director, Neuroscience from 1996 to 1998. Prior to joining Amgen, Dr. Hilt held a variety of positions at the University of Maryland School of Medicine and the National Institutes of Health. Dr. Hilt received his B.S. degree in Chemistry from the University of Maine, his M.D. from Tufts University School of Medicine, and received training in Internal Medicine at Harvard Medical School and Neurology at Johns Hopkins Hospital.

Margaret M. Contessa age 52, joined Guilford as Vice President of Human Resources in November 2000. Prior to joining Guilford, from March 1998 to January 1999, Ms. Contessa was Vice President, Human Resources of Witco Corporation, a 6,000-person, multibillion-dollar manufacturer of specialty chemicals located in Greenwich, Connecticut. From 1986 through 1998, she was employed by Engelhard Corporation as Director, Human Resources, and prior to that held various human resources positions with Schering Plough and BASF. Ms. Contessa received her B.S. in Management Science at Fairleigh Dickinson University in 1977 and received training at Harvard and Columbia University.

In August 1994, we entered into a master lease for an approximately 83,000 square foot building in Baltimore, Maryland that currently serves as our headquarters. We currently occupy 23,000 square feet for office space, 18,000 square feet for manufacturing space for GLIADEL® Wafer and potentially other polymer-based products, and 42,000 square feet of research and development laboratories. The master lease expires in July 2005. Two five-year renewal options are available to us or we may exercise a purchase option any time after the ninth year of the lease for the then-current fair market value.

In February 1998, we entered into an operating lease with a trust affiliated with First Union National Bank respecting the construction and occupancy of a new laboratory and office facility, consisting of approximately 73,000 square feet. We began moving personnel into this facility in June 1999 and consolidated all of our operations into our current headquarters and the new facility during the third quarter of 1999. The lease expires in February 2005, at which time we have an option (i) to purchase the property or (ii) to sell the property on behalf of the trust (subject to certain limitations and related obligations). In addition, we may, with the consent of First Union, enter into a new lease arrangement. See “Management’s Discussion of Financial Condition and Results of Operations — Liquidity and Capital Resources” for a more complete description of the Company’s arrangements with First Union.

An investment in our stock is very speculative and involves a high degree of risk. You should consider the following important factors, as well as the other information in this report and our SEC filings, carefully before purchasing our stock.

We may not be able to achieve or sustain significant revenues or earn a profit in the future. We founded Guilford in July 1993, and since that time, with the sole exception of 1996, we have not earned a profit in any year. Our losses result mainly from the significant amount of money that we have spent on research and development. As of December 31, 2000, we had an accumulated deficit of approximately $130 million. We expect to have significant additional losses over the next several years.

Most of our product candidates are in research or early stages of pre-clinical and clinical development. Except for GLIADEL® Wafer, none of our products or product candidates has been sold to the public. Up to this point in this time, nearly all of our revenues have come from:


	•	payments from Aventis from the sale and distribution of GLIADEL® Wafer,

	•	one-time, non-refundable signing fees from our corporate partners under agreements supporting the research, development and commercialization of our product candidates,

	•	one-time payments from our corporate partners when we achieve regulatory or development milestones, and

	•	research funding under our agreement with Amgen.

We recently reacquired from Aventis the right to market, sell and distribute GLIADEL® Wafer so we will not receive any future payments from Aventis for GLIADEL® Wafer. We do not expect revenues from GLIADEL® Wafer to be sufficient to support all our anticipated future activities. Whether we will ever be able to generate significant revenues from GLIADEL® Wafer continues to be uncertain, especially in light of our inexperience in the marketing, sales and distribution area. In addition, we do not expect to generate revenues from the sale of our product candidates for the next several years, if ever.

We may never recognize significant additional revenues from Amgen because of significant risks. These risks are part of each of the following activities:


	•	new product development,

	•	the conduct of pre-clinical animal studies and human clinical trials,

	•	applying for and obtaining regulatory approval to market and sell product candidates,

	•	expanding the processes for making product candidates from the relatively small quantities and qualities needed for research and development purposes to the commercial scale manufacture needed to support marketing and sales of new products, and

	•	commercialization of new products.

We discuss these and other risks in greater detail below in this “Risk Factors” section.

Many factors will dictate our ability to achieve sustained profitability in the future, including:


	•	receipt of regulatory clearance to market and sell GLIADEL® Wafer for patients undergoing initial surgery for malignant glioma in the United States as well as in Europe and other countries,


	•	receipt of regulatory clearance to market and sell GLIADEL® Wafer for the recurrent indication in Europe and other countries,

	•	the successful development and commercialization of product candidates on our own, or that result from our collaboration with Amgen, and

	•	our ability to enter into additional collaborative arrangements and license agreements with other corporate partners for our product candidates and earlier stage technologies as we develop them.

We will need to conduct substantial additional research, development and clinical trials. We will also need to receive necessary regulatory clearances both in the United States and foreign countries. We expect that these research, development and clinical trial activities, and regulatory clearances, together with future general and administrative activities, will result in significant expenses for the foreseeable future.

Our short-term prospects depend to a large extent on sales of GLIADEL® Wafer, our only commercial product. We commercially launched GLIADEL® Wafer in the United States in February 1997. We currently do not know whether the product will ever gain broad market acceptance or the extent of the marketing efforts necessary to achieve broad market acceptance. If GLIADEL® Wafer fails to gain market acceptance, the revenues we receive from sales of GLIADEL® Wafer would be unlikely to increase.

On October 23, 2000, we reacquired from Aventis the right to market, sell and distribute GLIADEL® Wafer. Until then, Aventis held exclusive worldwide (excluding Scandinavia and Japan) marketing, sales and distribution rights for GLIADEL® Wafer. Under that arrangement, Aventis paid us royalties and also made designated milestone payments upon achieving specified domestic and international regulatory approvals. For example, Aventis made a $1.0 million payment to us in each of March and September 2000. After the reacquisition, Aventis is no longer obligated to make any payments to us.

We have approval from the FDA to market GLIADEL® Wafer in the United States for only a limited subset of patients who suffer from brain cancer. Our approval is for those patients for whom surgical tumor removal, commonly referred to as “resection,” is called for and who have “recurrent” forms of a type of brain cancer called glioblastoma multiforme. A recurrent form of glioblastoma multiforme is one in which the cancer has returned after initial surgery to remove a brain tumor. The number of patients undergoing recurrent surgery for glioblastoma multiforme is very limited, and we believe the total number of patients on an annual basis who have glioblastoma multiforme in the United States is approximately 10,000.

In order to expand the medical uses, commonly referred to as “indications,” for which we may market GLIADEL® Wafer, we must successfully complete additional lengthy clinical trials. In November 2000, we reported results of a multicenter, randomized, double-blind, placebo-controlled, 240-person trial investigating GLIADEL® Wafer for patients undergoing initial surgery for brain cancer. We are currently preparing a supplemental New Drug Application for filing with the FDA for first surgery, and expect to file similar applications in other countries. We may not receive the desired regulatory clearances for the first line indication on the basis of these clinical data. If GLIADEL® Wafer fails to receive regulatory clearance, that failure would limit our ability to market GLIADEL® Wafer for use in patients beyond the current narrow indication and reduces the likelihood of increasing the revenues that we receive from sales of GLIADEL® Wafer.

In addition, applications for marketing approval for the current indication for GLIADEL® Wafer have been made in a number of foreign countries, and as of the date of this annual report, GLIADEL® Wafer is approved for the market in only 21 countries, including France, Spain, Germany and the U.K. We have been working to transfer these international regulatory approvals to us. If we are not able to successfully transfer existing approvals or obtain additional approvals, the geographic market for GLIADEL® Wafer would remain limited, which reduces the likelihood of increasing the revenues that we receive from sales of GLIADEL® Wafer. Regardless of the number of foreign regulatory approvals that we have received, international sales to date comprise a small percentage of total sales of GLIADEL® Wafer.

GLIADEL® Wafer is also a very fragile product and can easily break into many pieces if it is not handled with great care. Product recalls due to excessive breakage of the GLIADEL® Wafers or for other reasons could also have a negative effect on our business, financial condition and results of operations.

We have never marketed or sold our products directly before and we may not be successful in our efforts to market, sell and distribute GLIADEL® Wafer. Additionally, we expect to incur significant expense in marketing, selling and distributing GLIADEL® Wafer.

From GLIADEL® Wafer’s commercial launch until December 31, 2000, Aventis marketed, sold and distributed GLIADEL® Wafer. Our recent reacquisition of the right to market, sell and distribute GLIADEL® Wafer marks an important change in our business. Only recently did we acquire direct sales capability. We have never engaged in significant marketing and sales efforts. Our limited experience in developing, maintaining and expanding a direct specialty marketing and sales force may restrict our success in selling GLIADEL® Wafer. The launch of our marketing and sales efforts may distract management’s attention from our core business.

Alternatively, we may contract with third parties for the marketing, sale and distribution of GLIADEL® Wafer. We entered into an agreement with Cardinal Health to hire and train sales representatives to sell GLIADEL® Wafer.

Our operating results are likely to fluctuate from quarter to quarter, which could cause the price of our common stock to decline.

Our revenues and expenses have fluctuated significantly in the past. This fluctuation has in turn caused our operating results to vary significantly from quarter to quarter and year to year. We expect the fluctuations in our revenues and expenses to continue and thus our operating results should also continue to vary significantly. These fluctuations are due to a variety of factors, including:


	•	the timing and amount of sales of GLIADEL® Wafer,

	•	the timing and realization of milestone and other payments from our corporate partners,

	•	the timing and amount of expenses relating to our research and development, product development, and manufacturing activities, and

	•	the extent and timing of costs related to our activities to obtain patents on our inventions and to extend, enforce and/ or defend our patent and other rights to our intellectual property.

Because of these fluctuations, it is possible that our operating results for a particular quarter or quarters will not meet the expectations of public market analysts and investors, causing the market price of our common stock to decline. We believe that period-to-period comparisons of our operating results are not a good indication of our future performance and you should not rely on those comparisons to predict our future operating or share price performance.

The market price of our stock may be negatively affected by market volatility.

The market price of our stock has been and is likely to continue to be highly volatile. Furthermore, the stock market generally and the market for stocks of companies with lower market capitalizations and small biopharmaceutical companies, like us, have from time to time experienced and likely will again experience significant price and volume fluctuations that are unrelated to the operating performance of a particular company.

From time to time, stock market professionals publish research reports covering our business and our future prospects. For a number of factors, we may be unable to meet the expectations of securities analysts or investors and our stock price may decline. These factors include:


	•	announcements by us or our competitors of clinical results, technological innovations, product sales, new products or product candidates,

	•	developments or disputes concerning patent or proprietary rights,

	•	regulatory developments affecting our products,

	•	period-to-period fluctuations in the results of our operations,

	•	market conditions for emerging growth companies and biopharmaceutical companies,

	•	revenues received from GLIADEL® Wafer, and

	•	our expenditures.

In the past, following periods of volatility in the market price of the securities of companies in our industry, securities class action litigation has often been instituted against those companies. If we face such litigation in the future, it would result in substantial costs and a diversion of management’s attention and resources, which would negatively impact our business.

Our collaboration with Amgen may be a significant source of future revenue for us. The success of this collaboration depends on a number of factors, most of which are outside of our control.

The achievement of the milestones that trigger payments by Amgen to us depend on a number of factors. We do not control many of these factors, including:


	•	the selection of one or more appropriate lead compounds,

	•	successful design and completion of pre-clinical and clinical development activities,

	•	application for and obtaining regulatory clearances to market potential products,

	•	commercialization of products, and

	•	the successful preservation and extension of the patent and other intellectual property rights licensed to Amgen.

Moreover, under the terms of our collaboration with Amgen, we have no control over the development activities regarding the FKBP neuroimmunophilin ligand technology, which are within the sole discretion of Amgen. Our agreement with Amgen also does not specify a binding timetable for achieving development and commercialization goals with respect to the FKBP neuroimmunophilin ligand technology. Even if Amgen determines to conduct clinical trials on a product candidate resulting from our collaboration, Amgen still may not be able to complete those clinical trials successfully and then receive approval from the FDA or foreign regulatory authorities to market and sell any such products.

The FKBP neuroimmunophilin ligand technology we have licensed to Amgen represents a new approach to the treatment of certain types of neurological and other diseases and conditions. We and Amgen have very limited experience in taking the kinds of compounds likely to result from our work and formulating them into final drug products appropriate for sale to the public. In addition, both of us have limited experience with the transition of these compounds from the quantity and quality needed to support research and development efforts to the quantities needed to support commercial scale distribution. Also, both we and Amgen have limited experience with the manufacture of compounds of this type for commercial sale. Amgen may not be successful in scaling-up and manufacturing adequate quantities needed for commercial sale. For a more complete description of the kinds of risks associated with product manufacture, you should read the section entitled “Our manufacturing capabilities are limited...” below.

Even if Amgen is able to obtain all regulatory approvals necessary to market a product resulting from our collaboration, our agreement does not specify any minimum sales requirements for Amgen. Thus, any royalty amounts that Amgen pays us in the future will depend entirely on the sales and marketing efforts of Amgen, an activity over which we will have no control. In addition, our agreement with Amgen does not prevent Amgen from pursuing technologies for product candidates that compete with the FKBP neuroimmunophilin ligand technology in the future.

Our manufacturing capabilities are limited by the size of our facilities, our inexperience manufacturing large quantities of product and the potential inability to locate a third party manufacturer for our product candidates.

To commercialize GLIADEL® Wafer, we must be able to manufacture it in sufficient quantities, in compliance with regulatory requirements, and at acceptable costs. We manufacture GLIADEL® Wafer at one of our two manufacturing facilities in Baltimore, Maryland, which consists of production laboratories and redundant cleanrooms. We estimate that the facility currently has the capacity to manufacture approximately 8,000 GLIADEL® Wafer treatments per year.

We have manufactured only limited quantities of GLIADEL® Wafer in our facilities. We cannot be sure that we will be able to continue to satisfy applicable regulatory standards, including FDA requirements, and other requirements relating to the manufacture of GLIADEL® Wafer in the facilities.

We also face risks inherent in the operation of a facility for manufacture of GLIADEL® Wafer. These risks include:


	•	unforeseen plant shutdowns due to personnel, equipment or other factors, and

	•	the possible inability of the facilities to produce GLIADEL® Wafer in quantities sufficient to meet demand.

Any delay in the manufacture of GLIADEL® Wafer could result in delays in product shipment. Delays in product shipment would have a negative effect on our business and operating results.

Currently, we have no manufacturing capabilities for any of our product candidates. Consequently, in order to complete the commercialization process of any of our product candidates, we must either acquire, build or expand our internal manufacturing capabilities or rely on third parties to manufacture these product candidates. We cannot be sure that we or our corporate partners, including Amgen, will be able to (1) acquire, build or expand facilities that will meet quality, quantity and timing requirements or (2) enter into manufacturing contracts with others on acceptable terms. If we or our corporate partners are unable to accomplish these tasks, it would impede our efforts to bring our product candidates to market, which would adversely affect our business. Moreover, if we decide to manufacture one or more of our product candidates ourselves, we would incur substantial start-up expenses and need to expand our facilities and hire additional personnel.

Third-party manufacturers must also comply with FDA, Drug Enforcement Administration, and other regulatory requirements for their facilities. In addition, manufacture of product candidates on a limited basis for investigational use in animal studies or human clinical trials does not guarantee that large-scale, commercial production is viable. Small changes in methods of manufacture can affect the safety, efficacy, controlled release or other characteristics of a product. Changes in methods of manufacture, including commercial scale-up, can, among other things, require the performance of new clinical studies.

Revenues from our products, specifically GLIADEL® Wafer, depend in part on reimbursement from health care payors, which is uncertain.

The continuing efforts of government and insurance companies, health maintenance organizations and other payors of health care costs to contain or reduce costs of health care may affect our future revenues and profitability. These efforts may also affect the future revenues and profitability of our potential customers, suppliers and collaborative partners, in turn affecting demand for our products. For example, in certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to government control. In the United States, given recent federal and state government initiatives directed at lowering the total cost of health care, the U.S. Congress and state legislatures will likely continue to focus on health care reform, the cost of prescription pharmaceuticals and on the reform of the Medicare and Medicaid systems. While we cannot predict whether any such legislative or regulatory proposals will be adopted, the announcement or adoption of such proposals could have a negative effect on our business and operating results.

Our ability to commercialize our products successfully will depend in part on the extent to which private health insurers, organizations such as HMOs and governmental authorities can obtain appropriate reimbursement levels for the cost of our products and related treatment. Third-party payors are increasingly challenging the prices charged for medical products and services. Also, the trend toward managed health care in the United States and the concurrent growth of organizations such as HMOs, which could control or significantly influence the purchase of health care services and products, as well as legislative proposals to reform health care or reduce government insurance programs, may all result in lower prices for or rejection of our products. The cost containment measures that health care payors and providers are instituting and the effect of any health care reform could materially and adversely affect our ability to operate profitably.

Furthermore, even if reimbursement is available, we cannot be sure that it will be available at price levels sufficient to realize an appropriate return on our investment in GLIADEL® Wafer or our other product candidates.

We face technological uncertainties in connection with the research, development and commercialization of new products.

The research, development and commercialization of pharmaceutical drugs inherently involve significant risk. Before we or our corporate partners can be in a position to market, sell and distribute a new product, each of us will have to:


	•	expend substantial capital and effort to develop our product candidates further, which includes conducting extensive and expensive pre-clinical animal studies and human clinical trials,

	•	apply for and obtain regulatory approval to market and sell such product candidates, and

	•	conduct other costly activities related to preparation for product launch, among many other activities.

In some of our research programs, we are using compounds that we consider to be “prototype” compounds in the research phase of our work. By prototype compounds we mean compounds that we

are using primarily to establish that a relevant scientific mechanism of biological or chemical action could have commercial application in diagnosing, treating or preventing disease. We generally do not consider our prototype compounds to be lead compounds acceptable for further development into a product(s) because of factors that render them unsuitable as drug candidates. These factors include the ability for the compound to be absorbed, metabolized, distributed and excreted from the body. In order to develop commercial products, we will need to conduct research using other compounds that share the key aspects of the prototype compounds but do not have the unsuitable characteristics. This may not always be possible.

In addition, our product candidates are subject to the risks of failure inherent in the development of products based on new and unproved technologies. These risks include the possibility that:


	•	our new approaches will not result in any products that gain market acceptance,

	•	a product candidate will prove to be unsafe or ineffective, or will otherwise fail to receive and maintain regulatory clearances necessary for marketing,

	•	a product, even if found to be safe and effective, could still be difficult to manufacture on the large scale necessary for commercialization or otherwise not be economical to market,

	•	a product will unfavorably interact with other types of commonly used medications, thus restricting the circumstances in which it may be used,

	•	proprietary rights of third parties will preclude us from manufacturing or marketing a new product, or

	•	third parties will market superior or more cost-effective products.

As a result, our activities, either directly or through corporate partners, may not result in any commercially viable products.

We depend on collaborations with third parties for the development and commercialization of our products.

Our resources are limited, particularly because we are developing our technologies for a variety of different diseases. Our business strategy requires that we enter into various arrangements with:


	•	corporate partners, such as Amgen,

	•	academic investigators at universities, such as Johns Hopkins and others,

	•	licensors of technologies, such as Johns Hopkins, MIT and RTI, and

	•	licensees of our technologies, such as DRL and others.

Our success depends in large part upon the efforts of our third party collaborators.

Our business strategy includes finding larger pharmaceutical companies to collaborate with us to support the research, development and commercialization of our product candidates. In trying to attract corporate partners to collaborate with us in the research, development and commercialization process, we face serious competition from other small biopharmaceutical companies and the in-house research and development staffs of the larger pharmaceutical companies. If we are unable to enter into such arrangements with corporate partners, our ability to proceed with the research, development, manufacture or sale of product candidates may be severely limited. For example, we are actively seeking corporate partners to assist in the development of DOPASCAN® Injection as well as our NAALADase and PARP inhibitor neuroprotective drug programs, but we may not find suitable corporate partners for these programs. It is common in many corporate partnerships in our industry for the larger partner to have responsibility for conducting pre-clinical studies and human clinical

trials and/or preparing and submitting applications for regulatory approval of potential pharmaceutical or other products. That is the case with our collaboration with Amgen. It is possible that this will also be the case with future arrangements into which we may enter. If one of our collaborative partners fails to develop or commercialize successfully any of our product candidates, we would not be able to remedy this failure and it could negatively affect our business.

Furthermore, larger pharmaceutical companies often explore multiple technologies and products for the same medical conditions. Therefore, they are likely to enter into collaborations with our competitors for products addressing the same medical conditions targeted by our technologies. Thus our collaborators, including Amgen, may pursue alternative technologies or product candidates in order to develop treatments for the diseases or disorders targeted by our collaborative arrangements. Our collaborators may pursue these alternatives either on their own or in collaboration with others, including our competitors. Depending on how other product candidates advance, a corporate partner may slow down or abandon its work on our product candidates or terminate its collaborative arrangement with us in order to focus on these other prospects.

We may be unable to obtain the additional capital needed to operate and grow our business.

We will require substantial funds in order to cover the costs of setting up a commercial operations function to take over the commercialization of GLIADEL® Wafer from Aventis, continue our research and development programs and pre-clinical and clinical testing, and to manufacture and market our products. We may be unable to obtain any future funds that we may require on acceptable terms, or at all. Under our operating lease with a trust affiliated with First Union National Bank for our new research and development facility, we are required to hold, in the aggregate, unrestricted cash, cash equivalents and investments of $40 million at all times during the term of the lease. In addition, we are required to maintain specified amounts of cash, $18.3 million restricted at December 31, 2000, as collateral at First Union under this arrangement and other loan agreements with First Union. These requirements may limit our ability to access our capital in the future.


	•	the progress of our research and development programs,

	•	the progress of pre-clinical and clinical testing,

	•	the time and costs involved in obtaining regulatory approvals,

	•	the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights,

	•	competing technological and market developments,

	•	changes in our existing research relationships with universities and others,

	•	our ability to establish collaborative arrangements with large pharmaceutical companies and others,

	•	the requirements and timing of entering into technology licensing agreements and other similar arrangements, and

	•	the progress of efforts to scale-up manufacturing processes.

We may use our existing resources before we may otherwise expect because of changes in our research and development and commercialization plans or other factors affecting our operating expenses or capital expenditures, including potential acquisitions of other businesses, assets or technologies.

Our ability to raise future capital on acceptable terms depends on conditions in the public and private equity markets and our performance, as well as the overall performance of other companies in the biopharmaceutical and biotechnology sectors.

We may be unable to protect our proprietary rights, permitting competitors to duplicate our products and services.


	•	obtain, maintain and enforce intellectual property protection for our products and processes,

	•	license rights to patents from third parties,

	•	maintain trade secret protection, and

	•	operate without infringing upon the proprietary rights of others.

Intellectual property for our technologies and products will be a crucial factor in our ability to develop and commercialize our products. Large pharmaceutical companies consider a strong patent estate critical when they evaluate whether to enter into a collaborative arrangement to support the research, development and commercialization of a technology. Without the prospect of reasonable intellectual property protection, it would be difficult for a corporate partner to justify the time and money that is necessary to complete the development of a product.

The rules and criteria for receiving and enforcing a patent for pharmaceutical and biotechnological inventions are in flux and are unclear in many respects. The range of protection given these types of patents is uncertain, and a number of our product candidates are subject to this uncertainty.

Many others, including companies, universities and other research organizations, work in the areas of our business, and we cannot be sure that the claims contained in our issued patents will be interpreted as broadly as we would like in light of the inventions of these other parties. In addition, we cannot be sure that the claims set forth in our pending patent applications will issue in the form submitted. These claims may be narrowed or stricken, and the applications may not ever ultimately result in valid and enforceable patents. Thus, we cannot be sure that our patents and patent applications will adequately protect our product candidates.

We are aware of at least one company, which has asserted publicly that it has submitted patent applications claiming the use of certain of its immunosuppressive compounds and multidrug resistance compounds for nerve growth applications. That company has also stated that it has issued U.S. patents and pending U.S. applications that it states claim compounds that are useful in nerve growth applications. We cannot give any assurance as to the ability of our patents and patent applications to adequately protect our neurotrophic product candidates. Also, our neurotrophic product candidates may infringe or be dominated by patents that have issued or may issue in the future to third parties.

In order to protect our intellectual property position with respect to our neuroimmunophilin ligands, we filed an opposition in 1998 in an effort to prevent the final issuance of a European patent to the company we discuss in the above paragraph. In 2000, we won the opposition and the subject patent was revoked. However, the patentee has appealed the initial determination and the patent could be reinstated. If the patent is reinstated, litigation could result.

Furthermore, any or all of the patent applications assigned or licensed to us from third parties may not be granted. We may not develop additional products or processes that are patentable. Any patents issued to us, or licensed by us, may not provide us with any competitive advantages or adequate protection for our products. Others may successfully challenge, circumvent or invalidate any of our existing or future patents or intellectual property.

Our policy is to control the disclosure and use of our know-how and trade secrets by entering into confidentiality agreements with our employees, consultants and third parties. There is a risk, however, that:


	•	these parties will not honor our confidentiality agreements,

	•	others will independently develop equivalent or competing technology,

	•	disputes will arise concerning the ownership of intellectual property or the applicability of confidentiality obligations, or

	•	disclosure of our trade secrets will occur regardless of these contractual protections.

In our business, we often work with consultants and research collaborators at universities and other research organizations. To the extent that any of these consultants or research collaborators uses intellectual property owned by others as part of their work with us, disputes may arise between us and these other parties as to which one of us has the rights to intellectual property related to or resulting from the work done.

We support and collaborate in research conducted in universities, such as Johns Hopkins, and in governmental research organizations, such as the National Institutes of Health. We may not be able to acquire exclusive rights to the inventions or technical information that result from work performed by university personnel or at these organizations. Also, disputes may arise as to which party should have rights in research programs that we conduct on our own or in collaboration with others that are derived from or related to the work performed at the university or governmental research organization. In addition, in the event of a contractual breach by us, some of our collaborative research contracts provide that we must return the technology rights, including any patents or patent applications, to the contracting university or governmental research organization.

Questions of infringement of intellectual property rights, including patent rights, may involve highly technical and subjective analyses. Some or all of our existing or future products or technologies may now or in the future infringe the rights of other parties. These other parties might initiate legal action against us to enforce their claims, and our defense of the claims might not be successful.

We may incur substantial costs if we must defend against charges of infringement of patent or proprietary rights of third parties. We may also incur substantial costs if we find it necessary to protect our own patent or proprietary rights by bringing suit against third parties, including suits involving our neurotrophic product candidates. We could also lose rights to develop or market products or be required to pay monetary damages or royalties to license proprietary rights from third parties. In response to actual or threatened litigation, we may seek licenses from third parties or attempt to redesign our products or processes to avoid infringement. We may not be able to obtain licenses on acceptable terms, or at all, or successfully redesign our products or processes.

In addition to the risk that we could be a party to patent infringement litigation, the U.S. Patent and Trademark Office, or its foreign counterparts, could require us to participate in patent interference proceedings that it declares. These proceedings are often expensive and time-consuming, even if we were to prevail in such a proceeding. We may also be forced to initiate legal proceedings to protect our patent position or other proprietary rights. These proceedings typically are costly, protracted, and offer no assurance of success.

Under our collaboration, Amgen is responsible for preparing, filing, prosecuting, maintaining and defending patent applications and patents relating to the FKBP neuroimmunophilin ligand technology. We cannot be sure that Amgen will pursue these activities in the same manner or as vigorously as we would if we had that responsibility. Furthermore, Amgen has the option to take the lead in bringing actions to enforce patent rights relating to the FKBP neuroimmunophilin ligand technology and to defend against third party infringement suits regarding that technology. While Amgen and Guilford

We rely on licensed intellectual property for GLIADEL® Wafer and our other product candidates.

We have licensed intellectual property, including patents, patent applications and know-how, from universities and others, including intellectual property underlying GLIADEL® Wafer, DOPASCAN® Injection, AQUAVAN™ Injection and the neuroimmunophilin ligand technology. Some of our product development programs depend on our ability to maintain rights under these licenses. Under the terms of our license agreements, we are generally obligated to:


	•	exercise diligence in the research and development of these technologies,

	•	achieve specified development and regulatory milestones,

	•	expend minimum amounts of resources in bringing potential products to market,

	•	make specified royalty and milestone payments to the party from which we have licensed the technology, and

	•	reimburse patent costs to these parties.

In addition, these license agreements require us to abide by record-keeping and periodic reporting obligations. Each licensor has the power to terminate its agreement if we fail to meet our obligations under that license. We may not be able to meet our obligations under these license agreements, which could deprive us of access to key technology. Furthermore, these obligations may conflict with our obligations under other agreements that we have.

If we default under any of these license agreements, we may lose our right to market and sell any products based on the licensed technology. Losing our marketing and sales rights would have a significant negative effect on our business, financial condition and results of operations. Our license agreements require that we pay a royalty on sales of GLIADEL® Wafer to the university that licensed us the technology underlying that product. In addition, we will have to pay milestone and/or royalty payments in connection with the successful development and commercialization of DOPASCAN® Injection, AQUAVAN™ Injection and any products that result from the NIL and PARP technologies.

In the future, to support our product development efforts, we may need research materials or scientific information that researchers at universities or other organizations generate. We may not be able to obtain this scientific information or research materials in a timely manner or at all.

We depend on a single source of supply for several of our key product components.

Currently, we can only purchase some of the key components for GLIADEL® Wafer and our product candidates from single source suppliers. These vendors are subject to many strict regulatory requirements regarding the supply of these components. We cannot be sure that these suppliers will comply, or have complied, with applicable regulatory requirements or that they will otherwise continue to supply us with the key components we require. If suppliers are unable or refuse to supply us, or will supply us only at a prohibitive cost, we may not be able to access additional sources at acceptable prices, on a timely basis, if ever.

The current formulation of GLIADEL® Wafer utilizes the chemotherapeutic agent BCNU, which is also known as “carmustine.” Currently we have the option to procure BCNU from only two sources in the United States, and we are not aware of any supplier outside of the United States. We currently obtain BCNU from one of these two U.S. suppliers on a purchase order basis and not through any long-term supply agreement. If we fail to receive key supplies necessary for the

manufacture of GLIADEL on a timely basis at a reasonable cost, delays in product shipment could result. Delays of this type would have a negative effect on our business.

The manufacture of DOPASCAN® Injection requires that a precursor compound be labeled with a radioactive isotope of iodine, known as Iodine-123, to form the final product. Only a limited number of companies worldwide are capable of performing the necessary “radioiodination” of the precursor and distribution of the final product. Currently, we do not have any arrangement for the manufacture and supply of DOPASCAN® Injection nor do we have the internal capability to manufacture DOPASCAN® Injection ourselves. Consequently, we will not be in a position to commence Phase III or other clinical trials for DOPASCAN® Injection until we locate a qualified supplier.

We have assessed the companies that we believe are currently capable of manufacturing a product like DOPASCAN® Injection. Based on this assessment, we believe a significant risk exists that we may not be able to find a manufacturer who can meet the quality and cost requirements required to conduct the Phase III clinical trials that will be necessary to support application to the FDA for regulatory approval. Our inability to contract with a suitable manufacturer for the clinical and commercial supply of DOPASCAN® Injection on acceptable terms would prevent us from developing this product candidate further.

The U.S. government holds rights which may permit it to license to third parties technology we currently hold the exclusive right to use.

The U.S. government holds rights that govern aspects of specific technologies licensed to us by third party licensors. These government rights in inventions conceived or reduced to practice under a government-funded program may include a non-exclusive, royalty-free, worldwide license for the government to practice or have practiced resulting inventions for any governmental purpose. In addition, the U.S. government has the right to grant to others licenses that may be exclusive under any of these inventions if the government determines that:


	•	adequate steps have not been taken to commercialize such inventions,

	•	the grant is necessary to meet public health or safety needs, or

	•	the grant is necessary to meet requirements for public use under federal regulations.

The U.S. government also has the right to take title to a subject invention if we fail to disclose the invention, and may elect to take title within specified time limits. The U.S. government may acquire title in any country in which we do not file a patent application within specified time limits.

Federal law requires any licensor of an invention partially funded by the federal government to obtain a commitment from any exclusive licensee, such as us, to manufacture products using the invention substantially in the United States. Further, these rights include the right of the government to use and disclose technical data relating to licensed technology that was developed in whole or in part at government expense. Our principal technology license agreements contain provisions recognizing these rights.

Pre-clinical and clinical trial results for our products may not be favorable.

In order to obtain regulatory approval for the commercial sale of any of our product candidates, we must conduct both pre-clinical studies and human clinical trials. These studies and trials must demonstrate that the product is safe and effective for the clinical use for which we are seeking approval. The results of clinical trials we conduct may not be successful. Adverse results from any clinical trials would have a negative effect on our business.

We also face the risk that we will not be permitted to undertake or continue clinical trials for any of our product candidates in the future. Even if we are able to conduct such trials, we may not be able to demonstrate satisfactorily that the products are safe and effective and thus qualify for the regulatory approvals needed to market and sell them. Results from pre-clinical studies and early clinical trials are often not accurate indicators of results of later-stage clinical trials that involve larger human populations.

We are subject to extensive governmental regulation, which may change and harm our business.

Our research, pre-clinical development and clinical trials, and the manufacturing and marketing of our product candidates, are subject to extensive regulation by numerous governmental authorities in the United States and other countries, including the FDA and the DEA. Controlled drugs such as GLIADEL® Wafer and radiolabeled drugs such as DOPASCAN® Injection are subject to additional requirements. Except for GLIADEL® Wafer, none of our product candidates has received marketing clearance from the FDA. In addition, none of our product candidates has received clearance from any foreign regulatory authority for commercial sale, except for GLIADEL® Wafer, which has received marketing clearance in a limited number of foreign countries.

As a condition to approval of our product candidates under development, the FDA could require additional pre-clinical, clinical or other studies. Any requirement that we perform additional pre-clinical, clinical or other studies, or purchase clinical or other data from other companies could delay, or increase the expense of, approval of our product candidates, which could have a negative effect on our business.

In order to obtain FDA approval of a new drug product for a specific clinical use, we must demonstrate to the satisfaction of the FDA that the product is safe and effective for its intended use. We must also demonstrate that the product is capable of being manufactured in accordance with applicable regulatory standards. Significant risks exist that:


	•	we will not be able to satisfy the FDA’s requirements with respect to any of our drug product candidates or with respect to the proposed expanded labeling for GLIADEL® Wafer for patients undergoing initial surgery for malignant glioma, or

	•	even if the FDA does approve our product candidates or expanded labeling, the FDA will approve less than the full scope of uses or labeling that we seek.

Failure to obtain regulatory drug approvals on a timely basis could have a material adverse effect on our business.

Even if we are able to obtain necessary FDA approval, the FDA may nevertheless require post-marketing testing and surveillance to monitor the approved product and continued compliance with regulatory requirements. The FDA may withdraw product approvals if we or our corporate partners do not maintain compliance with regulatory requirements. The FDA may also withdraw product approvals if problems concerning safety or efficacy of the product occur following approval.

The process of obtaining FDA and other required approvals or licenses and of meeting other regulatory requirements to test and market drugs, including controlled substances and radiolabeled drugs, is rigorous and lengthy. We have expended, and will continue to expend, substantial resources. We will need to conduct clinical trials and other studies on all of our product candidates before we are in a position to file a new drug application for marketing and sales approval. Unsatisfactory clinical trial results and other delays in obtaining regulatory approvals or licenses would prevent the marketing of the products we are developing. Until we receive the necessary approvals or licenses and meet other regulatory requirements, we will not receive revenues or royalties related to product sales.

In addition to the requirements for product approval, before a pharmaceutical product may be marketed and sold in some foreign countries, the proposed pricing for the product must be approved as well. Products may be subject to price controls or limits on reimbursement. The requirements governing product pricing and reimbursement vary widely from country to country and can be implemented disparately at the national level. We cannot guarantee that any country which has price controls or reimbursement limitations for pharmaceuticals will allow favorable reimbursement and pricing arrangements for our products or those of our corporate partners.

Where applicable, we hope to capitalize on current FDA regulations and the new provisions of the FDA Modernization Act of 1997. These regulations or provisions permit “fast track,” expedited or accelerated approval or more limited “treatment use” of, and cost recovery for, certain experimental drugs under limited circumstances. The fast track and treatment provisions, and FDA’s accelerated, expedited and treatment regulations apply generally only to:


	•	drug products intended to treat severely debilitating or serious or life-threatening diseases, and

	•	drug products that provide meaningful therapeutic benefit to patients over existing treatments, that potentially address an unmet medical need, or that are for diseases for which no satisfactory or comparable therapy exists.

The FDA Modernization Act contains provisions patterned after the accelerated approval regulations and other provisions pertaining to expanded access, i.e., treatment uses. Because some of the new statutory provisions and current FDA regulations are different from one another, we are uncertain as to how they will apply, if at all, to our drug candidates. Our drug candidates may not qualify for fast track, accelerated or expedited approvals or for treatment use and cost recovery.

Because controlled drug products and radiolabeled drugs are subject to special regulations in addition to those applicable to other drugs, the DEA and the Nuclear Regulatory Commission may regulate some of our products and product candidates, including DOPASCAN® Injection, as controlled substances and as radiolabeled drugs. The NRC licenses persons who use nuclear materials and establishes standards for radiological health and safety. The DEA is responsible for the manufacture, distribution and dispensing of controlled substances, including the equipment and raw materials used in their manufacture and packaging in order to prevent such articles from being diverted into illicit channels of commerce. Registration is required and other activities involving controlled substances are subject to a variety of record keeping and security requirements, and to permits and authorizations and other requirements. States often have requirements for controlled substances as well. The DEA grants certain exceptions from the requirements for permits and authorizations to export or import materials related to or involving controlled substances. Our potential future inability to obtain exceptions from the DEA for shipment abroad or other activities could have a negative effect on us.

We have obtained registrations for our facilities from the DEA. We have also obtained exceptions from the DEA with respect to several of our activities involving DOPASCAN® Injection, including the shipment of specified quantities of a precursor of this product candidate to an overseas collaborative partner. However, we cannot be sure that these exceptions will be sufficient to cover our future activities or that the DEA will not revoke the exceptions. We also cannot be sure that we will be able to meet the other requirements to test, manufacture and market controlled substances or radiolabeled drugs, or that we will be able to obtain additional necessary approvals, permits, authorizations, registrations or licenses to meet state, federal and international regulatory requirements to manufacture and distribute these products. The FDA Modernization Act required the FDA to issue and finalize within one and one-half years regulations governing the approval of radiolabeled drugs. The FDA issued final regulations in May 1999. These cover general factors relevant to safety and effectiveness, possible indications for radiopharmaceuticals, and the evaluation criteria for safety and effectiveness. We do not know and cannot predict how these and other provisions may affect the potential for approval of DOPASCAN® Injection.

Our competitors are pursuing alternative approaches to the same issues we are working on. Our products use novel alternative technologies and therapeutic approaches which have not been widely studied.

Many of our product development efforts focus on novel alternative therapeutic approaches and new technologies that have not been widely studied. Applications for these approaches and technologies include, among other things, the treatment of brain cancer, the diagnosis and monitoring of Parkinson’s disease, the promotion of nerve growth and the prevention of neuronal damage. These approaches and technologies may not be successful. We are applying these approaches and technologies in our attempt to discover new treatments for conditions that are also the subject of research and development efforts of many other companies. Our competitors may succeed in developing technologies or products that are more effective or economical than those we are developing. Rapid technological change or developments by others may result in our technology or product candidates becoming obsolete or noncompetitive.

Our business is dependent on our ability to keep pace with the latest technological changes.

The technological areas in which we work continue to evolve at a rapid pace. Our future success depends upon maintaining our ability to compete in the research, development and commercialization of products and technologies in our areas of focus. Competition from pharmaceutical, chemical and biotechnology companies, universities and research institutions is intense and expected to increase. Many of these competitors have substantially greater research and development capabilities and experience and manufacturing, marketing, financial and managerial resources than we do.

Acquisitions of competing companies by large pharmaceutical companies or other companies could enhance the financial, marketing and other resources available to these competitors. These competitors may develop products that are superior to those we are developing. We are aware of the development by other companies and research scientists of alternative approaches to:


	•	the treatment of malignant glioma,

	•	the diagnosis of Parkinson’s disease,

	•	the promotion of nerve growth and repair, and

	•	the treatment and prevention of neuronal damage.

Our competitors may develop products that render our products or technologies noncompetitive or obsolete. In addition, we may not be able to keep pace with technological developments.

Any product candidate that we develop and for which we gain regulatory approval, including GLIADEL® Wafer, must then compete for market acceptance and market share. An important factor will be the timing of market introduction of competitive products. Accordingly, the relative speed with which we and competing companies can develop products, complete the clinical testing and approval processes, and supply commercial quantities of the products to the market will be an important element of market success.


	•	capabilities of our collaborators,

	•	product efficacy and safety,

	•	timing and scope of regulatory approval,


	•	product availability,

	•	marketing and sale capabilities,

	•	reimbursement coverage from insurance companies and others,

	•	the amount of clinical benefit of our product candidates relative to their cost,

	•	the method of administering a product,

	•	price, and

	•	patent protection.

Our competitors may develop more effective or more affordable products or achieve earlier product development completion, patent protection, regulatory approval or product commercialization than we do. Our competitors’ achievement of any of these goals could have a material adverse effect on our business.

We have limited resources in the areas of product testing and regulatory compliance. Consequently, in order to carry our products through the necessary regulatory approvals and prepare our product candidates for commercialization and marketing, we will have to:


	•	expend capital to acquire and expand such capabilities,

	•	reach collaborative arrangements with third parties to provide these capabilities, or

	•	contract with third parties to provide these capabilities.

We are subject to risks of product liability both because of our product line and our limited insurance coverage.

We may potentially become subject to large liability claims and significant defense costs as a result of the design, manufacture or marketing of our products, including GLIADEL® Wafer, or the conduct of clinical trials involving these products. A product liability-related claim or recall could have a negative effect on us. We currently maintain only $15 million of product liability insurance covering clinical trials and product sales. This existing coverage or any future insurance coverage we obtain may not be adequate. Furthermore, our insurance may not cover a claim made against us.

Product liability insurance varies in cost. It can be difficult to obtain, and we may not be able to purchase it in the future on terms acceptable to us, or at all. We also may not be able to otherwise protect against potential product liability claims. If this occurs, it could prevent or inhibit the clinical development and/or commercialization of any products we are developing.

We depend on qualified personnel and consultants, especially Craig R. Smith, M.D. and Solomon H. Snyder, M.D.

We depend heavily on the principal members of our management and scientific staff, including Craig R. Smith, M.D., our Chief Executive Officer, and Solomon H. Snyder, M.D., who is a member of our Board of Directors and a consultant to our company. Both Dr. Smith and Dr. Snyder have extensive experience in the biotechnology industry and provide us with unique access to their contacts in the scientific community. The loss of the services of either of these individuals or other members of our senior management team could have a negative effect on our business.

We have entered into a consulting agreement with Dr. Snyder and an employment agreement with Dr. Smith, each of which provides protection for our proprietary rights. Nevertheless, either Dr. Snyder or Dr. Smith may terminate his relationship with us at any time. Accordingly, we cannot be sure that either of these individuals or any of our other employees or consultants will remain with

us. In the future they may take jobs or consulting positions with our competitors. These employees or consultants may also choose to organize competing companies or ventures.

Our planned activities will require individuals with expertise in many areas including:


	•	medicinal chemistry and other research specialties,

	•	pre-clinical testing,

	•	clinical trial management,

	•	regulatory affairs,

	•	sales and marketing,

	•	manufacturing, and

	•	business development.

These planned activities will require additional personnel, including management personnel, and will also require existing management personnel to develop added expertise. Recruiting and retaining qualified personnel, collaborators, advisors and consultants will be critical to our activities. We may not be able to attract and retain the personnel necessary for the development of our business. Furthermore, many pharmaceutical, biotechnology and health care companies and academic and other research institutions compete intensely for experienced scientists. If we are not able to hire the necessary experienced scientists or develop the necessary expertise, this inability could have a negative effect on us. In addition, we also depend on the support of our collaborators at research institutions and our consultants.

Our business involves using hazardous and radioactive materials and animal testing, all of which may result in environmental liability.

Our research and development processes involve the controlled use of hazardous and radioactive materials. We and our collaborative partners are subject to extensive laws governing the use, manufacture, storage, handling and disposal of hazardous and radioactive materials. There is a risk of accidental contamination or injury from these materials. Also, we cannot control whether our collaborative partners comply with the governing standards. If we or our collaborative partners do not comply with the governing laws and regulations, we could face significant fines and penalties that could have a negative effect on our business, operations or finances. In addition, we and/or our collaborative partners could be held liable for damages, fines or other liabilities, which could exceed our resources.

However, we may have to incur significant costs to comply with environmental laws and regulations in the future. In addition, future environmental laws or regulations may have a negative effect on our operations, business or assets.

Many of the research and development efforts we sponsor involve the use of laboratory animals. Changes in laws, regulations or accepted clinical procedures may adversely affect these research and development efforts. Social pressures that would restrict the use of animals in testing or actions against us or our collaborators by groups or individuals opposed to testing using animals could also adversely affect these research and development efforts.

Effecting a change of control of Guilford would be difficult, which may discourage offers for shares of our common stock.

Our certificate of incorporation and the Delaware General Corporation Law contain provisions that may delay or prevent an attempt by a third party to acquire control of us. These provisions

include the requirements of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits designated types of business combinations, including mergers, for a period of three years between us and any third party who owns 15% or more of our common stock. This provision does not apply if:


	•	our Board of Directors approves of the transaction before the third party acquires 15% of our stock,

	•	the third party acquires at least 85% of our stock at the time its ownership goes past the 15% level, or

	•	our Board of Directors and two-thirds of the shares of our common stock not held by the third party vote in favor of the transaction.

We have also adopted a stockholder rights plan intended to deter hostile or coercive attempts to acquire us. Under the plan, if any person or group acquires more than 20% of our common stock without approval of the Board of Directors under specified circumstances, our other stockholders have the right to purchase shares of our common stock, or shares of the acquiring company, at a substantial discount to the public market price. The plan makes an acquisition much more costly to a potential acquirer.

Our certificate of incorporation also authorizes us to issue up to 4,700,000 shares of preferred stock in one or more different series with terms fixed by the Board of Directors. Stockholder approval is not necessary to issue preferred stock in this manner. Issuance of these shares of preferred stock could have the effect of making it more difficult for a person or group to acquire control of us. No shares of our preferred stock are currently outstanding. While our Board of Directors has no current intentions or plans to issue any preferred stock, issuance of these shares could also be used as an anti-takeover device.

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

The information set forth under the caption “Stock Description and Form 10-K” on the inside back cover of our 2000 Annual Report to Stockholders is included herein as Exhibit 13.01, and that portion is incorporated by reference into Part II of this report.

We have never declared or paid any cash dividends and do not intend to do so for the foreseeable future. Under our various loan and lease agreements with certain financial institutions, we may not declare, during the term of these agreements, any cash dividends on our common stock without the prior written consent of these financial institutions and, in certain cases, the Maryland Industrial Development Financing Authority.

The information set forth under the caption “Selected Financial Data” set forth in the 2000 Annual Report to Stockholders is included herein as Exhibit 13.01, and that portion is incorporated by reference into Part II of this report. Such information should be read in conjunction with our consolidated financial statements and notes thereto.

Item 7. Management’s Discussion and Analysis of Results of Operations
and Financial Condition

The information set forth under the caption “Management’s Discussion and Analysis of Results of Operations and Financial Condition” set forth in the 2000 Annual Report to Stockholders is included herein as Exhibit 13.01, and that portion is incorporated by reference into Part II of this report.

A substantial portion of our assets are investment grade debt instruments such as direct obligations of the U.S. Treasury, securities of federal agencies which carry the direct or implied guarantee of the U.S. government, bank certificates of deposit and corporate securities, including commercial paper and corporate debt instruments. The market value of such investments fluctuates with current market interest rates. In general, as rates increase, the market value of a debt instrument would be expected to decrease. The opposite is also true. To minimize such market risk, we have in the past and, to the extent possible, will continue in the future to hold such debt instruments to maturity at which time the debt instrument will be redeemed at its stated or face value. Due to the short duration and nature of these instruments, we do not believe that we have a material exposure to interest rate risk related to our investment portfolio. The investment portfolio at December 31, 2000 was $76.6 million and the weighted-average interest rate was approximately six percent (6%).

Substantially all of our financial obligations were established with interest rates which fluctuate with market conditions. As a hedge against such fluctuations in interest rates, we have entered into certain interest rate swap agreements with a commercial bank (“counter party”), to exchange substantially all of our variable rates of interest on certain financial obligations for fixed rates. Our borrowings under our bond and term loans and financial obligations under certain lease arrangements are approximately $25.8 million. Pursuant to these borrowing arrangements, we are obligated to pay variable interest rates on substantially all of these obligations of LIBOR plus between 5/8% and 3/4%. The interest rate swap agreements have a total notional principal amount of approximately $26.6 million as of December 31, 2000. Pursuant to these interest rate swap agreements, we pay a fixed rate of interest to the counter party of approximately 6% and receive from the counter party a variable rate of interest of LIBOR plus 5/8%. The differential to be paid or received as interest rates

change is charged or credited, as appropriate, to operations. Accordingly, we have effectively “swapped” or exchanged floating interest rates for “fixed” interest rates on our financial obligations at a blended annual rate of approximately 6% in the aggregate. These interest rate swap agreements have approximately the same maturity dates as the financial obligations and expire on various dates through February 2005. The commercial bank has the right to terminate certain of the agreements having a total notional principal amount of $20.0 million during February 2003. We do not speculate on the future direction of interest rates nor do we use these derivative financial instruments for trading purposes. In the event of non-performance by the counter party, we could be exposed to market risk related to interest rates.

The aggregate fair value of these interest rate swap agreements was approximately $83,000 at December 31, 2000. Current market pricing models were used to estimate these fair values.

We describe our exposure to interest rate risk in Notes 4 and 8, “Interest Rate Swap Agreements” and “Indebtedness,” respectively, to the footnotes to our consolidated financial statements, which we have included as Exhibit 13.01 to our annual report on 2000 Form 10-K.

Our 2000 Consolidated Financial Statements, Independent Auditors’ Report by KPMG LLP and Supplementary Data set forth in our 2000 Annual Report to Stockholders, is included herein as Exhibit 13.01, and those portions are incorporated by reference into Part II of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

The information concerning our executive officers is contained in Item 1A of Part I. The information concerning our directors and with regard to Item 405 of Regulation S-K is to be contained under the caption “Board of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s 2001 Proxy Statement, which will be filed no later than 120 days following December 31, 2000, and such information is hereby incorporated herein by reference.

The directors and executive officers of the Company as of March 28, 2001 are as follows:

The information required by this item is hereby incorporated by reference from the information to be contained under the caption “Executive Compensation” in the Company’s 2001 Proxy Statement, which will be filed no later than 120 days following December 31, 2000.

The information required by this item is hereby incorporated by reference from the information to be contained under the caption “Beneficial Ownership of Common Stock” in the Company’s 2001 Proxy Statement, which will be filed no later than 120 days following December 31, 2000.

The information required by this item is hereby incorporated by reference from the information to be contained under the caption “Beneficial Ownership of Common Stock” and “Certain Relationships and Related Party Transactions” in the Company’s 2001 Proxy Statement, which will be filed no later than 120 days following December 31, 2000.

The following Consolidated Financial Statements and Independent Auditors’ Report set forth on the pages indicated in our 2000 Annual Report to Stockholders are included in Exhibit 13.01 to this report and are incorporated into Item 8 of this report:

Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998.

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2000, 1999 and 1998.

Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998.

Under date of February 9, 2001, we reported on the consolidated balance sheets of Guilford Pharmaceuticals Inc. and subsidiaries (the “Company”) as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2000, which are included in the Form 10-K. Our report refers to a change in the Company’s revenue recognition policy for non-refundable up front fees in 2000. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.


(1)	Established a reserve for potential product returns due to the reacquisition of GLIADEL® Wafer and was considered part of the cost of acquisition (see Note 15 to the footnotes to our consolidated financial statements).

All other schedules are omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.

The following exhibits are filed with this Form 10-K or incorporated herein by reference to the document set forth next to the exhibit listed below:


†	Confidential treatment of certain portions of these agreements has been granted by the Securities and Exchange Commission.

(1) On December 15, 2000, the Company filed a Current Report on Form 8-K, the purpose of which was to file the Placement Agent Letter Agreement engaging Ladenburg Thalman & Co., Inc. as placement agent for the sale of 150,000 shares of the Company’s common stock, registered on Form S-3 (No. 333-50210).

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.


	By:	/s/ CRAIG R. SMITH, M.D.


	Craig R. Smith, M.D.
	President and Chief Executive Officer

KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints, Craig R. Smith, M.D., Andrew R. Jordan, Thomas C. Seoh, Asher M. Rubin and Michael J. Silver, and each of them, his or her true and lawful attorney-in-fact and agents, with full power of substitution and resubstitution, from such person and in each person’s name, place and stead, in any and all capacities, to sign the report and any and all amendments to this report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons in the capacities and on the date indicated.

52 EX-3.02 2 w47017ex3-02.txt EX-3.02 AMENDED AND RESTATED BYLAWS 1 Exhibit 3.02 AMENDED AND RESTATED BYLAWS OF GUILFORD PHARMACEUTICALS INC. 1. Offices. 1.1 Registered Office. The registered office of the Corporation shall be in the City of Dover, County of Kent, State of Delaware, and the registered agent in charge thereof shall be the Prentice Hall Corporation Systems, Inc., 32 Loockerman Square, Suite L-100, Dover, Delaware 19901. 1.2 Other Offices. The Corporation may also have offices at such other places, both within and without the State of Delaware, as the board of directors may from time to time determine or the business of the Corporation may require. 2. Meetings of Stockholders. 2.1 Place of Meetings. All meetings of the stockholders for the election of directors shall be held in Baltimore, Maryland, at such place as may be fixed from time to time by the board of directors, or at such other place, within or without the State of Delaware, as shall be designated from time to time by the board of directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. 2.2 Annual Meetings. Annual meetings of stockholders, shall be held at such date, time and place as shall be designated from time to time by the board of directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof, at which stockholders shall elect a board of directors and transact such other business as may properly be brought before the meeting. 2.3 Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may only be called by a majority of the Board of Directors or by the Chairman of the Board of Directors. Such request shall include a statement of the purpose or purposes of the proposed meeting. 2.4 Notice of Meetings. Written notice of the annual meeting, stating the place, date and hour of the meeting, shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. 1 2 Written notice of a special meeting of stockholders, stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. 2.5 Business at Special Meetings. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. 2.6 List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. 2.7 Quorum at Meetings. Except as otherwise provided by statute or by the certificate of incorporation, the holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any such meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time to another time and place, without notice other than announcement at the meeting of such other time and place. At the adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.8 Voting and Proxies. Unless otherwise provided in the certificate of incorporation, and subject to the provisions of Section 6.4 of these bylaws, each stockholder shall be entitled to one vote on each matter, in person or by proxy, for each share of the Corporation's capital stock having voting power which is held by such stockholder. No proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable 2 3 regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. 2.9 Required Vote. When a quorum is present at any meeting of stockholders, all matters shall be determined, adopted and approved by the vote (which need not be by ballot) of the holders of a majority of the stock having voting power, present in person or represented by proxy, unless the proposed action is one upon which, by express provision of statutes or of the certificate of incorporation, a different vote is specified and required, in which case such express provision shall govern and control the decision of such question. Notwithstanding the foregoing, candidates for election as members of the board of directors who receive the highest number of votes, up to the number of directors to be chosen, shall stand elected, and an absolute majority of the votes cast shall not be a prerequisite to the election of any candidate to the board of directors. 2.10. Stockholder Actions. Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken by the stockholders may be taken without a meeting without prior vote, if consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize to take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. 2.11. Nominating Committee. Only persons who are nominated in accordance with the procedures set forth in this Section 2.11 shall be eligible for election as directors. Nominations of persons for election to the Board of directors of the Corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.11. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation at least 45 days before the date on which the Corporation mailed its notice of the annual meeting of stockholder and proxy materials for the previous year's annual meeting of stockholders; provided, however, that if the Corporation did not hold an annual meeting of stockholders the previous year, or if the date of the current year's meeting has changed more than 30 days from the prior year, the stockholder's notice must be received not later than the close of business on the 10th day following the day on which notice of the date of the meeting is mailed or public disclosure of the date of the meeting is made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Corporation which are beneficially owned by such person, and (iv) any other information relating to such person that is required to be disclosed in 3 4 solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such stockholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No later than the tenth day following the date of receipt of a stockholder nomination submitted pursuant to this Section 2.11, the Chairman of the Board of Directors of the Corporation shall, if the facts warrant, determine and notify in writing the stockholder making such nomination that such nomination was not made in accordance with the time limits and/or other procedures prescribed by the Bylaws. If no such notification is mailed to such stockholder within such ten-day period, such nomination shall be deemed to have been made in accordance with the provisions of this Section 2.11. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2.11. 2.12. Business at Annual Meeting. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation at least 45 days before the date on which the Corporation mailed its notice of the annual meeting of stockholder and proxy materials for the previous year's annual meeting of stockholders; provided, however, that if the Corporation did not hold an annual meeting of stockholders the previous year, or if the date of the current year's meeting has changed more than 30 days from the prior year, the stockholder's notice must be received not later than the close of business on the 10th day following the day on which notice of the date of the meeting is mailed or public disclosure of the date of the meeting is made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. No later than the tenth day following the date of receipt of a shareholder notice pursuant to this Section 2.12, the Chairman of the Board of Directors of the 4 5 Corporation shall, if the facts warrant, determine and notify in writing the stockholder submitting such notice that such notice was not made in accordance with the time limits and/or other procedures prescribed by the Bylaws. If no such notification is mailed to such shareholder within such ten-day period, such stockholder notice containing a matter of business shall be deemed to have been made in accordance with the provisions of this Section 2.12. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 2.12. 3. Directors. 3.1 Powers. The business and affairs of the Corporation shall be managed by or under the direction of the board of directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these bylaws directed or required to be exercised or done by the stockholders. 3.2 Number and Election. The number of directors which shall constitute the whole board shall be eight (8). 3.3 Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors shall be filled in the manner specified in the certificate of incorporation of the Corporation as in effect from time to time. 3.4 Place of Meetings. The board of directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. 3.5 First Meeting of Each Board. The first meeting of each newly elected board of directors shall be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver of notice signed by all of the directors. 3.6 Regular Meetings. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board of directors. 3.7 Special Meetings. Special meetings of the board may be called by the Chairman on one day's notice to each director, personally, or by telephone, mail, facsimile, electronic mail, or telegram; special meetings shall be called by the Chairman or Secretary in like manner on like notice on the written request of one-half of the total number of directors. 3.8 Quorum and Vote at Meeting. At all meetings of the board, one director if a board of one director is authorized, or such greater number of directors as is not less than a majority of the total number of directors, shall constitute a quorum for the 5 6 transaction of business. The vote of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting to another time and place, without notice other than announcement at the meeting of such other time and place. 3.9 Telephone Meetings. Members of the board of directors or any committee designated by the board may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this section shall constitute presence in person at such meeting. 3.10 Action Without Meeting. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board of directors or committee. 3.11 Committees of Directors. The board of directors may designate 1 or more committees, each committee to consist of 1 or more directors of the Corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee of the Corporation, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the General Corporation Law of the State of Delaware, as amended, to be submitted to stockholders for approval or (ii) adopting, amending or repealing any bylaw of the Corporation. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Unless otherwise specified in the resolution of the board of directors designating the committee or in these bylaws, at all meetings of each such committee of directors, a majority of the total number members of the committee shall constitute a quorum for the transaction of business, and the vote of a majority of the members of the committee present at any meeting at which there is a quorum shall be the act of the committee. Each committee shall keep regular minutes of its meeting and report the same to the board of directors, when required. 6 7 3.12 Compensation of Directors. Unless otherwise restricted by the certificate of incorporation, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be paid like compensation for attending committee meetings. 4. Notices of Meetings. 4.1 Notice Procedure. Whenever, whether under the provisions of any statute or of the certificate of incorporation or of these bylaws, notice is required to be given to any director or stockholder, such requirement shall not be construed to require the giving of personal notice. Such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same is deposited in the United States mail. Notice to directors may also be given by facsimile, electronic mail, telegram, or telephone. 4.2 Waivers of Notice. Whenever the giving of any notice is required by statute, the certificate of incorporation or these bylaws, a waiver thereof, in writing, signed by the person or persons entitled to said notice, whether before or after the event as to which such notice is required, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice, unless so required by the certificate of incorporation, by statute or by these bylaws. 5. Officers. 5.1 Positions. The officers of the Corporation shall be a chairman and a secretary, and such other officers as the board of directors or the chairman may appoint, including one or more vice chairmen, a president, one or more vice presidents (all of the foregoing, "Executive Officers"), a treasurer, assistant secretaries and assistant treasurers, who shall exercise such powers and perform such duties as shall be determined from time to time by the board or by the chairman. Any number of offices may be held by the same person, unless the certificate of incorporation or these bylaws otherwise provide; provided, however, that in no event shall the chairman and the secretary be the same person. 7 8 5.2 Appointment. The Executive Officers of the Corporation shall be chosen by the board of directors at its first meeting after each annual meeting of stockholders. 5.3 Compensation. The compensation of all Executive Officers of the Corporation shall be fixed by the board of directors or a duly appointed committee thereof. 5.4 Term of Office. The chairman shall hold office until his or her successor is chosen and qualifies or until his or her earlier resignation, death or removal. Any officer may resign at any time upon written notice to the Corporation. Any officer elected or appointed by the board of directors or by the chairman may be removed at any time, with or without cause, either by the affirmative vote of a majority of the board of directors, or by the chairman in his or her discretion. Any vacancy occurring in any office of the Corporation shall be filled either by the board of directors or (in the case of all officers other than the chairman) by the chairman. 5.5 Fidelity Bonds. The Corporation may secure the fidelity of any or all of its officers or agents by bond or otherwise. 5.6 Chairman. The chairman shall be the chief executive officer of the Corporation, shall be ex officio a member of all standing committees, shall have general and active management of the business of the Corporation, shall ensure that all orders and resolutions of the board of directors are carried into effect, and, unless otherwise provided by the board of directors, shall preside at all meetings of the stockholders and the board of directors. The chairman shall have the authority to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the Corporation. 5.7 President. The president shall be the chief operating officer of the Corporation, shall have general management of the day-to-day operations of the business of the Corporation, subject to the authority of the chairman. In the absence of the chairman or in the event of the chairman's inability or refusal to act, the president shall perform the duties of the chairman (except to the extent that the vice chairman is authorized to perform such duties), and when so acting shall have all the powers of, and be subject to all the restrictions upon, the chairman. The president shall have the authority to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the Corporation. 5.8 Vice Chairman or Vice Presidents. If the directors shall appoint a vice chairman or one or more vice presidents, such vice chairman or vice presidents shall perform such duties and have such powers as may be vested in such vice chairman or vice 8 9 presidents by the board of directors or by the chairman. In the absence of the chairman, the vice chairman shall preside at all meetings of stockholders and the board of directors, and the vice chairman shall report to the chairman and be subject to his authority and direction. 5.9 Secretary. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders, and shall record all the proceedings of the meetings of the stockholders and of the board of directors in a book to be kept for that purpose, and shall perform like duties for the standing committees, when required. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or by the president, under whose supervision the secretary shall be. The secretary shall have custody of the corporate seal of the Corporation, and the secretary, or an assistant secretary, shall have the authority to affix the same to any instrument requiring it, and when so affixed it may be attested by the signature of the secretary or by the signature of such assistant secretary. The board of directors or the chairman may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by such officer's signature. The secretary or an assistant secretary may also attest all instruments signed by the chairman, the president or any vice president. 5.10 Assistant Secretary. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors or by the chairman (or if there shall have been no such determination, then in the order of their election), shall, in the absence of the secretary or in the event of the secretary's inability or refusal to act, perform the duties and exercise the powers of the secretary, and shall perform such other duties and have such other powers as the board of directors or the chairman may from time to time prescribe. 5.11 Treasurer. 5.11.1 Duties. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the board of directors or by the chairman. The treasurer shall disburse the funds of the Corporation as ordered by the board of directors or by the chairman, taking proper vouchers for such disbursements, and shall render to the chairman, and to the board of directors at its regular meetings, or when the board of directors so requires, an account of all transactions as treasurer and of the financial condition of the Corporation. 5.11.2 Bond. If required by the board of directors or by the chairman, the treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of the treasurer's office and for the restoration to the Corporation, in case of the 9 10 treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind, in the treasurer's possession or under the treasurer's control and belonging to the Corporation. 5.12 Assistant Treasurer. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors or by the chairman (or if there shall have been no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of the treasurer's inability or refusal to act, perform the duties and exercise the powers of the treasurer, and shall perform such other duties and have such other powers as the board of directors or the chairman may from time to time prescribe. 6. Capital Stock. 6.1 Certificates of Stock: Uncertificated Shares. The shares of the Corporation shall be represented by certificates, provided that the board of directors may provide by resolution or resolutions that some or all of any or all classes or series of the Corporation's stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation by the chairman or vice chairman, or the president or vice president, and by the treasurer and/or assistant treasurer, or the secretary or an assistant secretary of such Corporation representing the number of shares registered in certificate form. Any or all the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar whose signature or facsimile signature appears on a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. 6.2 Lost Certificates. The board of directors may direct a new certificate or certificates of stock or uncertificated shares to be issued in place of any certificate or certificates theretofore issued by the Corporation and alleged to have been lost, stolen or destroyed. When authorizing such issuance of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance bound to thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or such owner's legal representative, to advertise the same in such manner as the board shall require and/or to give the Corporation a bond, in such sum as the board may direct, as indemnity against any claim that may be made against the Corporation on account of the issuance of such new certificate or uncertificated shares. 6.3 Transfers. The transfer of stock and certificates that represent the stock and the transfer of uncertificated shares shall be effected in accordance with the laws of 10 11 the State of Delaware. Any restriction on the transfer of a security imposed by the corporation shall be noted conspicuously on the security. 6.4 Fixing Record Date. In order that the Corporation may determine State of 1 the stockholders entitled to notice of, or to vote at, any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting; nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of, or to vote at, a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 6.5 Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, to receive notifications, to vote as such owner, and to exercise all the rights and powers of an owner; and the Corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware. 7. Indemnification. Indemnification of certain person by the Corporation shall be as specified in or determined pursuant to the Certificate of incorporation of the Corporation as is in effect from time to time. 8. General Provisions. 8.1 Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the certificate of incorporation and the laws of the Sate of Delaware, may be declared by the board of directors at any regular or special meeting. Subject to the provisions of the General Corporation Law of the State of Delaware, such dividends may be paid either out of surplus, as defined in he General Corporation Law of the State of Delaware, or in the event that there shall be no such surplus, out of the net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Dividends may be paid in cash, in property, or in shares of the Corporation's capital stock, subject to the provisions, if any, of the certificate of incorporation. 8.2 Reserves. The directors of the Corporation may set apart, out of the funds of the Corporation available for dividends, a reserve or reserves for any proper purpose and may abolish any such reserve. 11 12 8.3 Execution of Instruments. All checks or demands for money and notes of the Corporation shall be signed by such officer of officers or such other person or persons as the board of directors may from time to time designate. 8.4 Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the board of directors. 8.5 Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. Section 9. Amendments. These Bylaws may be altered, amended or repealed and new bylaws may be adopted by a majority of the Board of Directors. * * * * The foregoing Amended and Restated Bylaws were adopted by the board of directors on March 14, 1994 and became effective on June 24, 1994 and were further amended by the board of directors at meetings held on December 2, 1996 and November 17, 1998, by unanimous written consent, effective August 1, 1998 and by unanimous written consent, effective April 13, 2000. 12 EX-10.63 3 w47017ex10-63.txt EX-10.63 EMPLOYMENT LETTER AGREEMENT 1 November 13, 2000 David Wright 1760 Holly Beach Farm Road Annapolis, MD 21401 Dear David: I am pleased to offer you employment with Guilford Pharmaceuticals Inc. on the following terms: 1. Your title will be Executive Vice President, Commercial Operations. In this capacity you will serve as an officer of the Company and will report to and serve at the discretion of the President and Chief Executive Officer. 2. In consideration of your services, the Company will provide the following compensation: a. Salary: Your salary will be $26,666.66 per month (an annual rate of $320,000), payable semi-monthly. Your performance and salary will be reviewed annually. b. Bonus: As an officer of the Company, you will be eligible to participate in any bonus plan the Board of Directors may adopt from time to time for executive officers of the Company. c. Joining Bonus: To assist you in the transition to your new position, the Company will pay you a joining bonus of $30,000. This payment will be made within 30 days of commencement of your employment, provided you remain an employee of the Company at the time of such payment, and will be subject to all deductions required by law. d. Stock Options: The Company will award you, as of the later of the date this award is approved by the Board of Directors or the date you commence employment with the Company (the "Grant Date"), options to purchase 175,000 shares of its common stock, subject to the specific terms and conditions of a Share Option Agreement containing terms similar to those offered to other executive officers of the Company. The exercise price of the options will be the closing price of Guilford's stock on the trading date immediately preceding the Grant Date. 2 David Wright November 13, 2000 Page 2 Subject to the specific terms of the Share Option Agreement: (i) vesting of options relating to 25,000 shares shall occur immediately upon the Grant Date; (ii) vesting of options relating to 100,000 shares shall occur 25% per year over four years from the Grant Date; (ii) vesting of options relating to 50,000 shares shall occur on March 1 following the first calendar year during which the Company has received at least $40 million in annual net sales from the Company's sale of GLIADEL(R) Wafer. You will additionally be eligible to participate in any stock option plan the Board of Directors may adopt from time to time for executive officers of the Company. 3. In addition to the compensation described above, you will be eligible for the following benefits: a. Insurance: The Company will offer medical, dental, and vision benefits under the Company's existing plans. Additional coverage for life, disability, officer and other insurance will also be provided, including $3 million worth of split dollar life insurance coverage on terms similar to those available to other executive officers of the Company, subject to passage of an eligibility period and commercially reasonable underwriting. b. Vacation: You will accrue up to 20 vacation days during your first year of employment. In addition, you will be eligible for 11 paid Company Holidays. c. 401(k) Match: Once you meet the employment eligibility requirements to participate in the company's 401(k) Plan, you will be eligible to receive the Company match subject to the terms and conditions of such plan as may be in effect from time to time. Guilford currently matches 50% of the first 6% of employee salary deferral in the form of Guilford stock. In the event your employment is terminated by the Company other than for cause, you would be entitled to severance in the form of a continuation of your then-current base salary, as follows: 1. Six (6) months salary if the termination occurs in the first twelve months of your employment; and 2. Twelve (12) months salary if the termination occurs thereafter. 3 David Wright November 13, 2000 Page 3 Such payments (except those resulting from a change in control, see below) would cease upon your commencement of paid employment or consultancy during the severance period. During the severance period, the Company would also reimburse you for the cost of continuation of any health, life and disability insurance coverage available at the time of the termination of employment, provided that the Company reserves the right to provide substantially equivalent alternative life and disability coverage to the extent reasonably available upon conversion from full-time employment. Such continuing coverage is conditioned upon your reasonable cooperation in complying with any necessary application procedures. Remaining benefits of employment, including your eligibility for any bonus program and the vesting of unvested options would cease at termination and not continue to accrue during the severance period. The Company offers certain terms in the event of a change in control of the Company, including acceleration of vesting of unvested stock options, indemnity for certain excise tax obligations and increased and modified severance arrangements, pursuant to standard agreements generally available to Vice Presidents of the Company. These terms will be extended to you upon commencement of your hire. In accordance with the Immigration Reform Act of 1986, on your first day of work, and from time to time thereafter, you will be required to present documentation that proves your identity and legal right to work in the United States. Employment with the company is contingent on your being able to meet this requirement. This offer of employment at will is further conditioned on: (i) your signing a Patent and Confidentiality Agreement in connection with your employment by the Company; (ii) successful completion of a background investigation; and (iii) your taking a pre-employment physical, and successfully passing the included drug screen, which can be scheduled at your convenience and our expense (given that your start date is in a few days, this requirement will be a post-commencement condition to your employment - please schedule your physical examination as soon as possible). You have agreed to commence your employment at Guilford on November 15, 2000. Please return a copy of this letter signed by you upon or before your commencement of employment with the Company. 4 David Wright November 13, 2000 Page 4 All of us at Guilford are very enthusiastic about your joining our team. We believe you will be one of the keys to our success. Sincerely, Craig R. Smith, M.D. President and Chief Executive Officer Guilford Pharmaceuticals Inc. I accept this offer and agree to comply with all Guilford Pharmaceuticals Inc. corporate policies and procedures, which may be in effect from time to time. My physical has been scheduled for _________________. Agreed to and accepted: ------------------------------ David Wright ------------------------------ Date Enclosures: Physical scheduling information and Questionnaire List of Acceptable Documents for I-9 Invesco Form, Please complete, sign and return Returned Stamped Envelope EX-10.64 4 w47017ex10-64.txt EX-10.64 EMPLOYMENT LETTER AGREEMENT 1 March 23, 2001 Margaret M. Contessa 34 Old West Mountain Road Ridgefield, Connecticut 06877 Dear Marge: I am delighted to offer you employment with Guilford Pharmaceuticals Inc. on the following terms: 1. Your title will be Vice President, Human Resources. In this capacity you will report to and serve at the discretion of the Senior Vice President and Chief Financial Officer, Andrew R. Jordan. 2. In consideration of your services, the Company will provide the following compensation: a. Salary: Your salary will be set at $17,500.00 per month (for an annualized salary of $210,000.00) payable semi-monthly. Your performance and salary will be reviewed according to our annual review program. b. Bonus: You will be eligible to receive such bonuses, if any, as are payable pursuant to any employee bonus plans the Board of Directors may have adopted from time to time. c. Signing Bonus: We recognize you have alternative employment opportunities. As an inducement to demonstrate our commitment to have you as part of our senior management team, we are offering you a 10% signing bonus, equivalent to $21,000. d. Stock Options: The Company will award you options to purchase 25,000 shares of its common stock, subject to approval of this award by the Board of Directors and subject to the terms and condition of the Company's standard stock option agreement. The price of the options will be the closing price of Guilford's stock on the trading date immediately preceding the date such options are approved by the Board of Directors (or your date of 2 Margaret M. Contessa March 23, 2001 Page 2 employment if after the Board's approval). These options will vest 50% after two years, 75% after three years, and 100% after four years from the date of the grant. You will be eligible to receive further stock options, if any, as may be granted pursuant to any stock option plan the Board of Directors may have adopted from time to time. e. Equity Offering: The Company will offer you 2,500 shares of its common stock, subject to approval of this award by the Board of Directors and further subject to the terms and conditions of the Company's standard restricted share agreement on the following basis: i) These shares will vest 25% per year over four years. ii) In the event your employment with the Company is terminated for any reason, or you are unable to perform your duties for any reason, the unvested shares will immediately revert to the Company. All taxes related to such grants/awards under (d) and (e) will be your responsibility. 3. In addition to the aforementioned, the company will assist in your relocation to the Baltimore area. Our policy and the subsequent discussions we had, provide guidelines for the sale of your Connecticut residence and the purchase of a residence in this area and the transition to Maryland. To assist you in the transition to Guilford and to defray at least some of your incidental moving and start up expenses associated with your new residence in Baltimore, we are pleased to provide to you an additional one month salary as a supplemental relocation bonus for joining our team. Should you terminate your employment with the Company within one year of your date of hire, you will be responsible for a pro rata reimbursement to the Company of the supplemental bonus. Should you voluntarily terminate your employment with the company within one year of your date of hire, you will be responsible for reimbursement to the Company of the relocation expenses, prorated for the term of your employment. 3 Margaret M. Contessa March 23, 2001 Page 3 4. Additionally, you will be eligible for the following benefits: a. Insurance: The Company will offer you medical, dental, vision, life, short-term, long-term disability and accidental death and dismemberment insurance as is generally available to its employees. You will also be eligible to participate in the split dollar life insurance program generally available to Vice President's after one year of continued employment. b. 401(k) Plan: Once you meet the employment eligibility requirements to participate in the Company's 401(k) Plan, you will receive certain matching rights, subject to the terms and conditions of such plan as may be in effect from time to time. Guilford currently matches 50% of the first 6% of employee salary deferral in the form of newly issued Guilford Stock. c. Vacation: You will be entitled to vacation in accordance with our corporate vacation policy as in effect from time to time (based on current rate of accrual, you will accrue at an annualized rate of 20 days of Company designated and discretionary vacation days, not counting Company-observed holidays, during your first year of employment). In the event your employment is terminated by the Company other than for cause, you would be entitled to severance in the form of a continuation of your then-current base salary for a period not to exceed twelve months. Such payments (except those resulting from a change in control, see below) would cease upon your commencement of paid employment or consultancy during the severance period. During the severance period, the Company would also reimburse you for the cost of continuation of any health, life and disability insurance coverage available at the time of the termination of employment, provided that the Company reserves the right to provide substantially equivalent alternative life and disability coverage to the extent reasonably available upon conversion from full-time employment. Such continuing coverage is conditioned upon your reasonable cooperation in complying with any necessary application procedures. Remaining benefits of employment, including your eligibility for any bonus program and the vesting of unvested options would cease at termination and not continue to accrue during the severance period. The Company offers certain terms in the event of a change in control of the Company, including acceleration of vesting of unvested stock options, indemnity for certain excise tax obligations and increased and modified severance arrangements, pursuant to standard agreements generally available to Vice Presidents of the Company. These terms will be extended to you upon commencement of your hire. 4 Margaret M. Contessa March 23, 2001 Page 4 This offer of employment at will is conditioned among other things on: (i) continuing compliance with relevant requirements under the Immigration Reform Act of 1986, including presentation of documentation that proves your identity and legal right to work in the United States; (ii) your signing a Patent and Confidentiality Agreement in connection with your employment by the Company; and (iii) successful completion of a background investigation and pre-employment physical (Including drug screen). 5 Margaret M. Contessa March 23, 2001 Page 5 You may accept this offer by signing below and returning the original letter to me in the enclosed envelope. All of us at Guilford very much look forward to welcoming you to the Guilford team! Sincerely, Andrew R. Jordan Senior Vice President and Chief Financial Officer I accept this offer and agree to comply with all Guilford Pharmaceuticals Inc. corporate policies and procedures, which may be in effect from time to time. Signature Date Guilford Pharmaceuticals Inc. Copy EX-13.01 5 w47017ex13-01.txt EX-13.01 PORTIONS OF COMPANY'S 2000 ANNUAL REPORT 1 EXHIBIT 13.01 SELECTED FINANCIAL DATA The following selected consolidated financial data for each of the years in the five-year period ended December 31, 2000 have been derived from our consolidated financial statements, which have been audited by KPMG LLP, our independent auditors. Our consolidated financial statements as of December 31, 2000 and 1999, and for each of the years in the three-year period ended December 31, 2000, including the footnotes to these financial statements, are included elsewhere in this annual report, beginning on page 34. The information set forth below should be read in conjunction with our consolidated financial statements and the related footnotes, as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations," beginning on page 24 of this annual report.

1 2

(1) For information concerning the calculation of earnings (loss) per share, see Note 17, "Earnings (Loss) Per Share", to the footnotes to our consolidated financial statements on page 48. (2) Includes restricted investments of $10.1 million, $12.1 million, $16.5 million, $21.4 million and $18.3 million at December 31, 1996, 1997, 1998, 1999 and 2000, respectively. See Note 8, "Indebtedness" and Note 9, "Leases" on pages 42 and 43, respectively, to the footnotes to our consolidated financial statements. - ----------- 2 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY NOTE From time to time in this annual report we may make statements that reflect our current expectations regarding our future results of operations, economic performance, and financial condition, as well as other matters that may affect our business. In general, we try to identify these forward-looking statements by using words such as: - - "anticipate," - - "believe," - - "expect," - - "estimate," and similar expressions. While these statements reflect our current plans and expectations, and we base the statements on information currently available to us, we cannot be sure that we will be able to implement these plans successfully. We may not realize our expectations in whole, or in part, in the future. The forward-looking statements contained in this annual report may cover, but are not necessarily limited to, the following topics: - the consequences of our reacquisition from Aventis Pharmaceuticals Products Inc. ("Aventis") of the worldwide marketing, sale and distribution rights to GLIADEL(R) Wafer; - our efforts to market, sell and distribute GLIADEL(R) Wafer in the United States and internationally; - our efforts to expand the labeled uses for GLIADEL(R) Wafer, including our efforts to obtain additional United States and international regulatory clearances for such uses; - our efforts to develop polymer drug delivery product line extensions and new polymer drug delivery products; - our research programs related to our FKBP neuroimmunophilin ligand technology partnered with Amgen Inc. ("Amgen"), as well as our NAALADase inhibition, PARP inhibition, polymer drug delivery (including LIDOMER(TM) Microspheres) and other technologies; - our clinical development activities, including the commencement, conduct and results of clinical trials, related to our polymer-based drug delivery products and product candidates (including GLIADEL(R) Wafer and PACLIMER(R) Microspheres) and our pharmaceutical product candidates, including NIL-A (partnered with Amgen), GPI-5693 (our lead NAALADase inhibitor), AQUAVAN(TM) Injection (our novel prodrug of propofol) and any future lead compounds in our PARP program; - our efforts to scale-up product candidates from laboratory bench quantities to commercial quantities; - our efforts to secure adequate supply of the active pharmaceutical ingredients for clinical development and commercialization; - our efforts to manufacture drug candidates for clinical development and eventual commercial supply; - our strategic plans; - anticipated expenditures and the potential need for additional funds; and - specific guidance we give in the section titled "Outlook," regarding our current expectations of our future operating results. 3 4 All of these items involve significant risks and uncertainties. Any of the statements we make in this annual report that are forward-looking are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We wish to caution you that our actual results may differ significantly from the results we discuss in the forward-looking statements. We discuss factors that could cause or contribute to such differences elsewhere in this annual report, as well as in our filings with the Securities and Exchange Commission ("SEC"). Our SEC filings include the section titled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2000. For convenience we refer to this document as the "2000 Form 10-K" in the discussion set forth below. In addition, any forward-looking statements we make in this document speak only as of the date of this document, and we do not intend to update any such forward-looking statements to reflect events or circumstances that occur after that date. INTRODUCTION In the following sections of this Management's Discussion and Analysis of Financial Condition and Results of Operations ("Management's Discussion and Analysis"), we explain the general financial condition and the results of operations for Guilford and its subsidiaries, including: - what factors affect our business; - what our revenues and expenses were in 2000, 1999, and 1998; - why revenues and expenses changed from the year before; - where our revenues came from; - how all of the foregoing affect our overall financial condition; and - what our expenditures for capital projects were in 2000, 1999 and 1998 and a description of our capital requirements. As you read this Management's Discussion and Analysis, you may find it helpful to refer to our consolidated financial statements beginning on page 34 of this annual report. These consolidated financial statements present the results of our operations for 2000, 1999, and 1998 as well as our financial position at December 31, 2000 and 1999. We analyze and explain the annual changes in the specific line items set forth in the section of our consolidated financial statements titled "Consolidated Statements of Operations." Our analysis may be important to you in making decisions about your investment in Guilford. In 1998 the SEC adopted new rules requiring public companies like us to write certain documents in plain English. Even though the SEC does not require us to present our Management's Discussion and Analysis in plain English, we have decided voluntarily to apply these rules to the following discussion. Our goal is to describe and analyze our results of operation and financial condition in language that may be easier for our stockholders to understand. GENERAL Guilford is a biopharmaceutical company located in Baltimore, Maryland, engaged in the development and commercialization of novel products in two principal areas: - targeted and controlled drug delivery products using proprietary biodegradable polymers for the treatment of cancer and other diseases or conditions; and - therapeutic and diagnostic products for neurological diseases and conditions. In February 1997, we commercially launched our first product, GLIADEL(R) Wafer, in the United States through Aventis. GLIADEL(R) Wafer is a proprietary polymer product for the treatment of certain types of brain cancer. This product dissolves over time 4 5 and releases an anti-cancer drug known as "BCNU" (or carmustine) directly to the tumor site. Until October 23, 2000, Aventis was our exclusive, worldwide marketing partner for GLIADEL(R) Wafer, except in Japan and Scandinavia. On October 23, 2000, we reacquired from Aventis its marketing, sales and distribution rights to GLIADEL(R) Wafer in consideration for the issuance to Aventis of 300,000 shares of our common stock. Aventis continued to market, sell and distribute GLIADEL(R) Wafer until December 31, 2000. On January 1, 2001, we assumed full responsibility for all aspects of marketing, sales and the distribution of GLIADEL(R) Wafer worldwide (except in Scandinavia, where our Scandinavian distributor and marketing partner, Orion Corporation Pharma will continue to distribute the product). We have also licensed from others and internally developed on our own: - technologies that may be useful in preventing and treating certain neurological diseases and conditions; - AQUAVAN(TM) Injection; a novel prodrug of propofol, a widely-used anesthetic; and - a new class of biodegradable polymers different from the type used in GLIADEL(R) Wafer, including PACLIMER(R) Microspheres and LIDOMER(TM) Microspheres, which we are developing for the targeted and controlled delivery of cancer chemotherapeutics and other drugs, including drugs for pain management. As we discuss in greater detail below, if compounds, which are the subject of our collaboration with Amgen, attain certain regulatory and/or development objectives, we are eligible to receive certain milestone and other payments from Amgen. We view these potential payments as significant future revenue and/or capital raising opportunities. As we discuss in the 2000 Form 10-K, we cannot be sure that Amgen will achieve the designated milestones and that we will receive any or all of the milestone payments for which we are eligible under our existing collaboration with Amgen. We also cannot be sure that we will be able to enter into collaborations in the future with others for the research, development, and/or commercialization of our technologies. Additionally, prior to the reacquisition of GLIADEL(R) Wafer, we had received milestone and other payments from Aventis; for example, in March and September 2000, we earned non-refundable milestone payments of $1.0 million each from Aventis upon receipt of approval to market and sell GLIADEL(R) Wafer for the recurrent surgery indication in Spain and the U.K. As a result of the reacquisition of GLIADEL(R) Wafer, we will not be receiving such payments from Aventis. We have not marketed, sold and distributed a drug before; therefore, we cannot be certain of the level of revenue we will be able to achieve from our commercialization of GLIADEL(R) Wafer following our assumption of these activities as of January 1, 2001. In order to assist us in selling GLIADEL(R) Wafer, we have entered into an agreement with Cardinal Health Sales and Marketing Services, a division of Redkey, Inc. ("Cardinal"). Additionally, we have begun to establish on our own certain aspects of a commercial operations function, including medical affairs, reimbursement and marketing. Since the commercial launch of GLIADEL(R) Wafer in the United States in February 1997 through December 31, 2000, we have recognized an aggregate of $24.5 million in product sales and royalties. Of this amount, $15.5 million represents revenues from sales of GLIADEL(R) Wafer to both Aventis and Orion Corporation Pharma. The additional $9.0 million are royalties paid to us from Aventis on its sales of GLIADEL(R) Wafer to third parties, such as hospitals. As we discuss below and in greater detail in the 2000 Form 10-K, a number of factors subject our future sales of GLIADEL(R) Wafer to significant risk and uncertainty. We cannot be sure that our sales of GLIADEL(R) Wafer will increase over time or at all. Prior to the reacquisition of GLIADEL(R) Wafer, we have not had responsibility for the marketing, sales and distribution of GLIADEL(R) Wafer. Increasing sales of GLIADEL(R) Wafer are contingent upon, among other things, the following: - developing a marketing, sales and distribution network for GLIADEL(R) Wafer; - making certain international regulatory filings and obtaining clearances to market GLIADEL(R) Wafer for the recurrent surgery indication or the first surgery indication; - obtaining authorization from the U.S. Food and Drug Administration ("FDA") and international health regulatory authorities to expand the labeled indications for GLIADEL(R) Wafer; - obtaining permission to sell GLIADEL(R) Wafer in those countries that require pricing approval at prices that are acceptable to those countries and to us; and 5 6 - the ability of patients to receive reimbursement for the cost of GLIADEL(R) Wafer from insurance carriers and governmental authorities. Additionally, we cannot control the timing and extent of governmental clearances, nor can we be sure that we will attain any of these regulatory objectives. We also cannot be certain of the degree of acceptance of GLIADEL(R) Wafer by neurosurgeons, payors and patients in the United States and internationally, based on previously available clinical data, data from the Phase III first surgery trial announced in November 2000 and actual clinical experience with the marketed drug. Even if the market were to increasingly accept the product, we cannot be certain that our marketing, sales and distribution efforts will be successful. In August 1997, we entered into a collaboration with Amgen to research, develop, and commercialize our FKBP neuroimmunophilin ligand technology. Under our agreement with Amgen, Amgen paid us $35 million in 1997. Of this amount, Amgen paid $15 million in the form of a one-time, non-refundable signing fee upon signing the agreement. Amgen paid us the remaining $20 million for the purchase of 640,095 shares of our common stock and warrants to purchase up to an additional 700,000 shares of our common stock. These warrants are exercisable for five years and have an exercise price of $35.15 per share. We also granted to Amgen certain rights to register shares of our common stock with the SEC for sale in the public markets. As part of this collaboration, Amgen agreed to fund up to a total of $13.5 million to support our research relating to the FKBP neuroimmunophilin ligand technology. This research funding began on October 1, 1997 and was payable quarterly over three years. The last quarterly payment was made on July 1, 2000. Since the inception of the agreement through December 31, 2000, we had recognized an aggregate of $13.5 million in research support from Amgen under our collaboration arrangement. Our agreement also requires that Amgen make milestone payments to us if Amgen achieves specified regulatory and product development milestones. If Amgen is able to meet all of these milestones for each of ten different specified clinical indications (i.e., uses), then these payments could total up to $392 million in the aggregate. As of December 31, 2000, we had recognized an aggregate of $6.0 million in milestone payments from Amgen. Amgen is also required to pay us royalties on its sales to third parties of any product(s) that result from our collaboration. As we discuss below and in greater detail in the 2000 Form 10-K, we cannot be sure that Amgen will be successful in its efforts to develop one or more FKBP neuroimmunophilin compounds (including NIL-A) into products that the FDA and international regulatory authorities will approve as safe and effective drugs for neurological or other uses. Consequently, we cannot be sure that we will earn any of the milestone payments related to these regulatory and product development activities. In addition to revenues related to net product sales and royalties from GLIADEL(R) Wafer, the only other significant revenues we recognized in 2000 consisted of: - $8.6 million in non-cash contract revenues under the Aventis and Amgen agreements pursuant to adoption of SEC Staff Accounting Bulletin No. 101 ("SAB 101"); - $2.0 million in milestone payments from Aventis; and - $3.4 million in research support from Amgen relating to the FKBP neuroimmunophilin ligand technology. As a result of our recent reacquisition of the marketing, sales and distribution rights for GLIADEL(R) Wafer, we will not be receiving any future milestone payments from Aventis. As we discuss below and in greater detail in the 2000 Form 10-K, whether Amgen will ever make milestone or royalty payments to us in the future is subject to significant risk and uncertainty. We cannot be sure that we will recognize any significant revenues from Amgen in the future. For the year ended December 31, 2000, we incurred a net loss of $47.1 million. Since inception through December 31, 2000, we had an accumulated deficit of $130.0 million. Our accumulated deficit is equal to the sum of our cumulative profits and losses since inception in July 1993. We do not expect 2001 to be profitable. We cannot be sure that we will ever achieve or sustain profitability in the future. Furthermore, our revenues and expenses have fluctuated significantly in the past because of the nature and timing of their sources. We expect fluctuations in our revenues and expenses to continue, and thus our operating results should also vary significantly from 6 7 quarter-to-quarter and year-to-year. A variety of factors cause these fluctuations, including: - the timing and amount of sales of GLIADEL(R) Wafer; - the timing and recognition of upfront and milestone payments from corporate partners; - the timing and amount of expenses relating to our research and development, product development, and manufacturing activities; - the extent and timing of costs related to our activities to obtain, extend, enforce and/or defend our patent and other rights to our intellectual property; and - the cost of developing a marketing, sales and distribution network for our GLIADEL(R) Wafer product. We expect that expenses in all areas of our business will continue to increase. These areas include research and product development, pre-clinical testing, human clinical trials, regulatory affairs, operations, manufacturing, selling, and general and administrative activities. In addition, we expect the number of employees working at our Company to continue to increase. At December 31, 2000, we had 254 full-time employees, which compares to 228 and 218 full-time employees at December 31, 1999 and 1998, respectively. Our ability to achieve or sustain profitability in the future will depend on many factors, including: - the level of future sales of GLIADEL(R) Wafer; - our ability to arrange for marketing, sales and distribution of GLIADEL(R) Wafer in the U.S. and internationally, either by ourselves or through outsourcing such activities to third party vendors such as Cardinal; - the ability, either alone or with others, to develop our product candidates successfully, including NIL-A with Amgen, AQUAVAN(TM) Injection, GPI-5693, PACLIMER(R) Microspheres, LIDOMER(TM) Microspheres and any other product candidates; - the extent of any human clinical trials and related costs necessary to develop our product candidates; - our ability, either alone or with others, to obtain required regulatory approvals to market our product candidates; - our ability and that of our corporate partners to manufacture products at reasonable cost; - our ability and that of our collaborators to market, sell and distribute and be reimbursed or otherwise paid for products successfully; - our ability to enter into acceptable collaborative arrangements for our technologies; - our ability to invent or acquire new technologies and/or in-license new technologies from others; and - our ability to obtain, acquire, defend, and/or enforce patents on new and existing technologies. Future product sales of GLIADEL(R) Wafer are subject to certain risks and uncertainties including the following: - we have never marketed or sold our products directly before and we may not be successful in our efforts to market, sell and distribute GLIADEL(R) Wafer through Cardinal, or otherwise; - neurosurgeons and their patients may not accept GLIADEL(R) Wafer for a number of reasons; - we may not be successful in our attempts to obtain any additional regulatory and marketing approvals to market GLIADEL(R) 7 8 Wafer (including approval for GLIADEL(R) Wafer to be used at the time of initial surgery) and sell GLIADEL(R) Wafer at acceptable prices; - patients may not be able to receive reimbursement for the cost of GLIADEL(R) Wafer from their insurance carriers or from governmental authorities; - BCNU, the chemotherapeutic agent we use in GLIADEL(R) Wafer, is currently only available from two suppliers, and thus this material may not be available for GLIADEL(R) Wafer manufacture; and - our current manufacturing plants for GLIADEL(R) Wafer are located in close proximity to each other in Baltimore, Maryland, and thus, are subject to the risk that natural disasters or other factors may adversely affect their operation and interrupt GLIADEL(R) Wafer manufacturing. As we note in the section captioned "Risk Factors" in the 2000 Form 10-K there is no guarantee that we or Amgen will be able to successfully develop any FKBP neuroimmunophilin compounds, including NIL-A, or other product candidates into safe and effective drug(s) for neurological or other uses. Consequently, we may not earn additional milestone payments related to Amgen's development activities or revenues related to product sales. In particular, the research, development, and commercialization of early-stage technology, like the FKBP neuroimmunophilin ligand technology, are subject to significant risks and uncertainty. These risks involve those relating to, among other things: - selection of appropriate lead compounds; - successful completion of pre-clinical and clinical development activities; - the need to obtain regulatory clearances in the U. S. and elsewhere to market and sell drug products; - formulation of final product dosage forms; - scale-up from laboratory bench quantities to commercial quantities at a reasonable cost; - successful manufacture of drug products at an acceptable cost; - successful commercialization of such products at an acceptable price; and - the successful prosecution, enforcement, and defense of patent and other intellectual property rights. RESULTS OF OPERATIONS In this section we discuss our 2000, 1999, and 1998 revenues, costs and expenses, and other income and expenses, as well as the factors affecting each of them. REVENUES In 2000, 1999, and 1998 our revenues primarily came from the following sources: - net product sales of GLIADEL(R) Wafer to our marketing, sales and distribution partners; - royalty payments from Aventis on its sales of GLIADEL(R) Wafer to others, primarily hospitals; - one-time rights or milestone payments from Aventis and Amgen; - non-cash contract revenues under the Aventis and Amgen agreements pursuant to adoption of SAB 101; - quarterly research funding from Amgen; and 8 9 - amounts Aventis reimbursed to us for costs related to our efforts to develop a high-dose GLIADEL(R) Wafer product. In 2000, 1999, and 1998, we recognized net revenues of $18.1 million, $21.6 million, and $12.5 million, respectively. These revenues consisted primarily of the following:

GLIADEL(R) WAFER PRODUCT SALES We earned $1.5 million, $4.4 million and $3.9 million for the years ended December 31, 2000, 1999, and 1998, respectively, from the net product sales of GLIADEL(R) Wafer to our marketing, sales and distribution partners, Aventis (for the entire world, except Scandinavia and Japan) and Orion Corporation Pharma (for Scandinavia only). The decrease in revenues attributable to sales of GLIADEL(R) Wafer to Aventis in 2000 compared to 1999 is the result of Aventis managing existing inventory to meet their current sales requirement. ROYALTIES ON GLIADEL(R) WAFER SALES TO THIRD PARTIES Net royalty revenues on Aventis' sales of GLIADEL(R) Wafer to third parties were $2.4 million, $2.4 million, and $2.6 million for the years ended December 31, 2000, 1999, and 1998, respectively. These royalty payments are a function of the demand for the product in the market. Net royalty revenues generated from Aventis's sales of GLIADEL(R) Wafer to third parties remained constant in 2000 compared to 1999. We believe Aventis' sales of GLIADEL(R) Wafer to third parties decreased in 1999 as compared to 1998 because the sales force at Aventis was restructured in 1999. A number of factors subject our future sales of GLIADEL(R) Wafer to significant risk and uncertainty. Additional factors such as, our ability to market, sell and distribute the GLIADEL(R) Wafer through Cardinal and on our own may also affect GLIADEL(R) Wafer sales. We cannot be sure that GLIADEL(R) Wafer sales will increase from, or even remain at, current levels or will ever generate significant revenues for us in the future. CONTRACT REVENUES Contract revenues were $10.6 million, $9.5 million and $1.0 million for the years ended December 31, 2000, 1999 and 1998, respectively. The increase in contract revenues in 2000 compared to 1999 is due to the adoption of SAB 101, in the fourth quarter of 2000, effective January 1, 2000. Generally accepted accounting principles previously allowed us to recognize as revenue certain non-refundable upfront fees at the inception of the arrangement. Under SAB 101, collaborative arrangements that include a non-refundable upfront fee and contain an element of continuing involvement must be deferred and recognized as revenue over the involvement period. For the year ended December 31, 2000, we recognized $8.6 million of contract revenues that were deferred upon adoption of SAB 101. COST OF SALES Our cost of sales for the years ended December 31, 2000, 1999, and 1998 were $1.4 million, $2.3 million, and $2.0 million, respectively, including unabsorbed manufacturing overhead of $0.6 million for the year ended December 31, 2000. Cost of sales as a percentage of net product sales revenue were approximately 53% for the years ended December 31, 2000, 1999 and 1998, excluding 9 10 the aforementioned unabsorbed manufacturing overhead. The cost to manufacture GLIADEL(R) Wafer at current market levels can vary materially with production volume. Production volume in turn is dependent upon purchase orders. As a result of the reacquisition of GLIADEL(R) Wafer, we did not manufacture GLIADEL(R) Wafer during the three-month period ended September 30, 2000. Therefore, the fixed overhead costs associated with our manufacturing capabilities (unabsorbed manufacturing overhead) are included in cost of sales. To the extent that GLIADEL(R) Wafer production levels increase in the future, we anticipate that the unit cost to manufacture GLIADEL(R) Wafer may decrease, although we cannot be sure that GLIADEL(R) Wafer product sales will ever reach levels necessary for us to realize such a reduction in the per unit cost of manufacturing GLIADEL(R) Wafer. To the extent that GLIADEL(R) Wafer production levels decrease, we anticipate that the unit cost to manufacture GLIADEL(R) Wafer will increase. Based on our experience to date, we would expect the cost of net product sales of GLIADEL(R) Wafer to fluctuate from quarter to quarter. RESEARCH AND DEVELOPMENT EXPENSES Our research and development expenses were $46.9 million, $41.9 million, and $37.7 million for the years ended December 31, 2000, 1999, and 1998, respectively. Our research and development expenses increased in 2000 compared to 1999 due primarily to the acceleration in the development of AQUAVAN(TM) Injection , which we in-licensed during 2000. Our research and development expenses increased in 1999 compared to 1998 as a result of research and product development activity with respect to our NAALADase inhibitor and PARP inhibitor neuroprotectant programs, our FKBP neuroimmunophilin compound program, and our polymer development program, including our polymer oncology candidate, PACLIMER(R) Microspheres. At December 31, 2000, we employed 211 individuals on a full-time basis in the areas of research, development, and manufacturing. We employed 193 individuals and 185 individuals in these areas at December 31, 1999 and 1998, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Our selling, general and administrative ("SG&A") expenses were $14.1 million, $11.3 million, and $10.5 million for the years ended December 31, 2000, 1999, and 1998, respectively. Our SG&A expenses increased in 2000 compared to 1999 due to the following: - $1.8 million in costs associated with the reacquisition and re-launch of GLIADEL(R) Wafer; and - higher personnel costs as we increased staff in certain administrative departments. Our SG&A expenses increased in 1999 compared to 1998, due to increase in personnel costs and other costs to support our research, product development, and commercialization efforts. We include the costs to prepare, file, and prosecute domestic and international patent applications and for other activities to establish and preserve our intellectual property rights in our selling, general and administrative expenses. These costs also increased from 1998 through 2000. We anticipate that our SG&A expenses will continue to increase in future periods as we build the infrastructure to support the marketing, sales and distribution of GLIADEL(R) Wafer. At December 31, 2000, we employed 43 individuals on a full-time basis in selling, general and administrative areas compared to 35 and 33 at December 31, 1999 and 1998, respectively. MERGER COSTS On August 28, 2000, we terminated the Agreement and Plan of Merger previously entered into on May 29, 2000 with Gliatech, Inc. We incurred costs related to the proposed merger transaction of $1.4 million for the year ended December 31, 2000. OTHER INCOME AND EXPENSE Other income and expense consists primarily of investment income on our monetary investments and interest expense on our debt and other financial obligations. Our investment income was $7.7 million, $7.7 million, and $8.9 million for the years ended December 31, 2000, 1999, and 1998, respectively. Investment income in 2000 compared with 1999 remained the same. Average cash balances 10 11 available for investment during 2000 were comparable to 1999. The decrease in 1999 compared to 1998 was primarily due to lower average amounts invested during the course of the year. We incurred interest expense of $0.5 million, $0.6 million and $0.8 million for the years ended December 31, 2000, 1999, and 1998, respectively. These expenses resulted primarily from loans from a commercial bank that helped fund the construction of our manufacturing, administrative, and research and development facilities and the purchase of certain furniture and equipment. Because we continued to repay these loans, resulting in a lower average principal balance during 2000, interest expense decreased in 2000 as compared to 1999 and 1998. We describe these interest expenses in Notes 4 and 8, "Interest Rate Swap Agreements" and "Indebtedness," on pages 41 and 42, respectively, to the footnotes to our consolidated financial statements. CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCPLE We recorded a non-cash charge to 2000 earnings of $8.6 million as the cumulative effect of a change in accounting principle for the implementation of SAB 101. Generally accepted accounting principles previously allowed us to recognize as revenue certain non-refundable upfront fees at the inception of a collaborative arrangement. Under SAB 101, non-refundable upfront fee arrangements that contain an element of continuing involvement must be deferred and recognized as revenue over the period of involvement. As of December 31, 2000, the Company has recognized as revenue the full amount of non-refundable upfront fee payments subject to deferral under SAB 101. LIQUIDITY AND CAPITAL RESOURCES Our cash, cash equivalents, and investments were approximately $109.5 million at December 31, 2000. Of this amount, we pledged $18.3 million as collateral for certain of our loans and other financial lease obligations. In addition to these restricted investments, the Company is required to maintain, in the aggregate, unrestricted cash, cash equivalents, and investments of $40 million at all times under the terms of certain of its financial obligations. In January 2001, we received an additional $42.6 million, as a result of the sale of 2.5 million shares of our common stock under a shelf registration statement. Our total debt decreased to $7.6 million at December 31, 2000, compared to $9.4 million at December 31, 1999. This decrease resulted primarily because of our continued repayment of principal under our loans with a commercial bank offset by the increase for capitalized leases. We have funded our capital expenditures by either leasing the equipment pursuant to our equipment lease arrangements or purchasing the equipment utilizing our existing cash. We funded capital expenditures of $3.5 million, $4.1 million and $8.6 million for the years ended December 31, 2000, 1999 and 1998, respectively. Of the capital expenditures funded during the year ended December 31, 2000, $3.0 million were funded pursuant to equipment lease arrangements and $0.5 million were acquired through the use of our cash. Subsequent to December 31, 2000, we agreed in principle to a master lease arrangement with an equipment leasing company that permits us to lease up to $7.2 million in eligible equipment, including computer hardware and software, and furniture and fixtures. The term of any lease under this arrangement will be three years. Our ability to draw on this master lease arrangement expires on December 31, 2002. We expect our existing financing arrangements, our internal capital resources, and potential external sources of funds to provide for our current equipment needs at least through the end of 2001. If we decide to expand our research and development programs beyond current expectations or if we engage in acquisitions, our capital equipment requirements could increase, and thus, we may require additional capital funding. In 1997, in order to meet our anticipated future facilities needs, we initiated a project to design, construct, and lease a research and development facility. To accomplish this task, in February 1998 we entered into an operating lease and other related agreements with a commercial bank and related entities in connection with such a facility. This facility, which was substantially completed in June 1999, was constructed adjacent to our current headquarters in Baltimore, Maryland. This facility is owned by a trust affiliated with a commercial bank (the "Trust") and provides approximately 73,000 square feet of research and development capacity. The initial lease term expires in February 2005. At the end of the initial lease term, the Company may lease the facility, purchase the building, or arrange for the sale of the building to a third party. In the event the building is sold to a third party, the Company will be obligated to 11 12 to pay the lessor any shortfall between the sales price and 83% of the lessor's net investment in the facility. We describe these arrangements with the Trust in Note 9, "Leases," to the footnotes to our consolidated financial statements on page 43. We anticipate that this research and development facility, along with our headquarters, will support our research, development, commercialization, and administrative activities through at least the end of 2001. During 1998 and 1999, we entered into a series of interest rate swap transactions with a commercial bank covering $20 million in financial obligations under our lease with the Trust and $10 million with the commercial bank covering our bond and term loans. As a result, we fixed the interest rates on our financial lease obligations and debt at approximately 6% in the aggregate. Certain of the interest rate swap agreements provide the commercial bank with a call provision exercisable during 2003. We describe these interest rate swap transactions with the commercial bank in Note 4, "Interest Rate Swap Agreements," to the footnotes to our consolidated financial statements on page 41. During 1998, we established an unsecured, revolving line of credit for $5 million with a commercial bank. Borrowings under this line of credit are payable on demand at an interest rate of LIBOR plus 0.55%. We may draw on this line of credit from time to time to meet our short-term working capital needs. No amounts were drawn under this line of credit in 2000, 1999 or 1998. In 1998, our Board of Directors approved a program to purchase up to 1,000,000 shares of our common stock in the open market from time to time at our discretion. In August 1999, the Company terminated this share repurchase program. We repurchased a total of 252,500 of our shares under this program for an aggregate cash outlay of $2.7 million. We expect to need significantly greater capital to continue our research and product development programs and pre-clinical and clinical testing and to manufacture and market, sell and distribute our products. We will also need additional funds to meet our future facility expansion needs if necessary. Our capital requirements depend on a number of factors, including: - the progress of our research and development programs; - the progress of pre-clinical and clinical testing; - the time and costs involved in obtaining regulatory approvals; - the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; - competing technological and market developments; - changes in our existing research relationships; - our ability to establish collaborative arrangements; - our ability to enter into licensing agreements and contractual arrangements with others; and - the progress of efforts to scale-up manufacturing processes. We believe that our existing resources will be sufficient to fund our activities through at least December 31, 2001. However, we expect to need significantly greater capital in the near future to: - cover the costs of our commercial operations function for marketing, selling, and distributing GLIADEL(R) Wafer; and - increase pre-clinical and clinical development activities for development candidates such as: - PACLIMER(R) Microspheres (for ovarian and other cancers); - GPI-5693 (our lead NAALADase inhibitor initially targeting neuropathic pain and disease modifications of diabetic neuropathy); - AQUAVAN(TM) Injection (our propofol prodrug for sedation); - LIDOMER(TM) Microspheres (our delayed release lidocaine analgesic product candidate targeting post-surgical pain); and - PARP inhibitors. 12 13 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133") as amended by SFAS 137 and SFAS 138. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires companies to recognize all derivatives as either assets or liabilities on the balance sheet at their respective fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. As required under SFAS 137, the Company will adopt SFAS 133, as amended, in the first quarter of 2001. Management has evaluated the impact of SFAS 133 in connection with the Company's use of derivatives in managing interest rate risks. The Company's exposure to derivatives is limited to interest rate swap agreements that are highly effective in managing the Company's interest rate exposure. Consequently, the implementation of SFAS 133 is not expected to have a material impact on the financial position and results of operation of the Company. OUTLOOK During the year 2001, we expect sales of GLIADEL(R) Wafer to be between $17.0 million and $22.0 million (the result of recording the full value of sales of GLIADEL (R) Wafer). Sales from GLIADEL(R) Wafer may be greater if we receive a first surgery label in the United States and internationally, especially if GLIADEL(R) Wafer were to achieve "standard of care" acceptance by the neurosurgical community. We plan to seek additional revenues from partnering activities in 2001. From time to time, we are in discussions with potential partners regarding international rights to our products and product candidates, including GLIADEL(R) Wafer and GPI 5693. As a result of SAB 101, we are currently not able to define the extent to which any payments received in 2001 from partnering activities would be recorded as revenue. We expect that our total expenses for 2001, will increase over 2000, primarily due to costs related to establishing and supporting our commercial operations and increased research and development costs as we advance our product candidates (PACLIMER(R) Microspheres, GPI-5693, AQUAVAN(TM) Injection and LIDOMER(TM) Microspheres) through clinical development. We currently anticipate that research and development expenses in 2001 will increase by approximately $10.0 million when compared to 2000. As we stated above, most of this increase will be related to increased clinical development costs. We anticipate that general and administrative costs will be consistent with 2000. Marketing, sales and distribution costs will be part of the operating statement for the full year in 2001. We would expect such costs to be between $12 million to $14 million for 2001. Cost of sales as a percentage of net sales will range from 10% to 15% (the result of recording the full value of sales of GLIADEL(R) Wafer). During 2001, we expect to file and hope to obtain a supplemental New Drug Application for GLIADEL(R) Wafer for first surgery indication from the FDA, and to re-launch GLIADEL(R) Wafer directly though our own marketing and sales organization. We also expect to report results from our Phase I clinical trials of GPI 5693, AQUAVAN (TM) Injection, and PACLIMER(R) Microspheres and our neuroimmunophilin Phase II clinical trial. In January 2001, we sold approximately 2.5 million shares of our common stock under a shelf registration, which generated net proceeds of approximately $42.6 million. We expect that our cash burn rate will be in the range of $30 million to $35 million for 2001. We expect our capital expenditures in 2001 will be between $2.0 million and $2.5 million. 13 14 Independent Auditors' Report The Board of Directors and Stockholders of Guilford Pharmaceuticals Inc.: We have audited the accompanying consolidated balance sheets of Guilford Pharmaceuticals Inc. and subsidiaries (the "Company") as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standard generally accepted in the United States of America. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Guilford Pharmaceuticals Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 2 to the consolidated financial statements, the Company changed its revenue recognition policy for non-refundable upfront fees in 2000. /s/ KPMG LLP Philadelphia, Pennsylvania February 9, 2001 15 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31 (IN THOUSANDS, EXCEPT SHARE DATA)

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 16 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31 (IN THOUSANDS, EXCEPT PER SHARE DATA)

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 17 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)

See accompanying notes to consolidated financial statements. 18 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31 (IN THOUSANDS, EXCEPT SHARE DATA)

See accompanying notes to consolidated financial statements. 19 GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) ORGANIZATION AND DESCRIPTION OF BUSINESS Guilford Pharmaceuticals Inc. (together with its subsidiaries, "Guilford" or the "Company") is a biopharmaceutical company located in Baltimore, Maryland engaged in the development and commercialization of novel products in two principal areas: (i) targeted and controlled drug delivery systems using proprietary biodegradable polymers for the treatment of cancer and other diseases or conditions; and (ii) therapeutic and diagnostic products for neurological diseases and conditions. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES Principles of Consolidation The consolidated financial statements include the financial statements of Guilford Pharmaceuticals Inc. and its subsidiaries, all of which are wholly owned. All intercompany balances and transactions have been eliminated in consolidation. Segment Information The Company operates primarily in one industry segment, which includes research, development, and commercialization of novel products for the healthcare industry. The Company is managed and operated as one business. A single management team that reports to the Chief Executive Officer comprehensively manages the entire business. The Company does not operate separate lines of business or separate business entities with respect to its product or product candidates. In addition, the Company operates primarily from its corporate headquarters located within the United States. Accordingly, the Company does not prepare discrete financial information with respect to separate product areas and does not have separately reportable segments as defined by Standard of Financial Accounting Standards ("SFAS") SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information. Cash Equivalents Cash equivalents of $30.3 million and $10.4 million at December 31, 2000 and 1999, respectively, consist of 1 20 overnight investments and money market funds. The Company classifies all highly liquid investments with an original maturity of three months or less at the time of purchase as cash equivalents. Investments Investment securities at December 31, 2000 and 1999 consist of direct obligations of the U.S. government and U.S. government agencies, asset backed securities and corporate debt securities. The Company classifies investments at the time of purchase as either available-for-sale or held-to-maturity. Investments in securities that are classified as available-for-sale are carried at their fair values. Unrealized holding gains and losses on available-for-sale securities are excluded from current earnings (loss) and are reported as a separate component of stockholders' equity as "Accumulated other comprehensive (loss)". Realized gains and losses on available-for-sale securities are determined on a specific identification basis. Held-to-maturity securities are those securities in which the Company has the ability and intent to hold the security until maturity. Held-to-maturity securities are carried at cost, adjusted for the amortized discount or premium. Dividends and interest income are recognized when earned. A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed to be other than temporary is an impairment that would result in a reduction in the carrying amount to fair value. Such impairment, if any, is charged to current earnings, and an adjusted cost basis for the security is established. Investment in Equity Securities - Cost Method Equity investments that are less than 20% of an investee company's voting stock and where the Company lacks the ability to significantly influence the investee company are accounted for under the cost method of accounting. Under this method, the Company's share of the earnings or losses of the investee company is not included in the Consolidated Statements of Operations. A decline in market value below cost that is deemed to be other than temporary is an impairment that would result in a reduction in the carrying amount to fair value. Such impairment, if any, is charged to current earnings, and an adjusted cost basis for the security is established. Interest Rate Swap Agreements As a hedge against fluctuations in interest rates, the Company entered into interest rate swap agreements to exchange a portion of its variable interest rate financial obligations for fixed rates. The Company does not speculate on the future direction of interest rates nor does the Company use these derivative financial instruments for trading purposes. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of interest expense related to the financial obligation. If an interest rate swap agreement is terminated prior to its maturity, the gain or loss is recognized over the remaining original life of the interest rate swap agreement if the item hedged remains outstanding, or immediately, if the item hedged does not remain outstanding. If the interest rate swap agreement is not terminated prior to maturity, but the underlying hedged item is no longer outstanding, the interest rate swap agreement is marked to market and any unrealized gain or loss is recognized immediately in income. 2 21 Inventories Inventories are stated at the lower of cost or market. Cost is determined using a weighted-average approach, which approximates the first-in, first-out method. Inventories are net of applicable reserves and allowances. Inventories include finished goods and raw materials that may be either available for sale, consumed in production, or consumed internally in the Company's development activities. Inventories identified for development activities are expensed in the period in which such inventories are designated for such use. In periods when production volume is less than planned, manufacturing overhead not capitalized as inventory is expensed in the period incurred and is included as part of cost of sales. Property and Equipment Property and equipment are stated at cost. Depreciation and amortization are calculated on the straight-line method over the estimated useful lives of the assets, generally three to seven years for furniture and equipment, and over the shorter of the estimated useful life of leasehold improvements or the related lease term for such improvements. Upon the disposition of assets, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the Consolidated Statements of Operations. Expenditures for repairs and maintenance are expensed as incurred. Intangible Asset The intangible asset, net of accumulated amortization, represents the cost to reacquire the rights to market, sell and distribute GLIADEL (R) Wafer from Aventis S.A. ("Aventis") (See Note 15). The Company is amortizing this intangible asset over a period of 10 years using the straight-line method. Impairment of Long-Lived Assets The Company reviews its long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. 3 22 Accounting Change In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), which summarizes the views of the SEC in applying generally accepted accounting principles to revenue recognition in financial statements. The Company adopted SAB 101 in the fourth quarter of 2000 effective January 1, 2000 resulting in a non-cash charge of $8.6 million or $0.36 per basic and diluted share. In accordance with SAB 101, the charge has been reflected on a separate line entitled "Cumulative effect of an accounting change" on the Consolidated Statements of Operations. Under SAB 101, non-refundable upfront fee arrangements that contain an element of continuing involvement must be deferred and recognized as revenue over the involvement period. See Note 15 for a description of the past agreements impacted by SAB 101. For the year ended December 31, 2000, the Company recognized $8.6 million of contract revenues, which were deferred upon adoption of SAB 101. The effect of the adoption of SAB 101 on the pre-change interim periods is disclosed in Note 20. Pro forma amounts assuming the change in application of accounting principle applied retroactively was as follows (in thousands except for per share data):

Revenue Recognition Product sales are recognized at the time the product has received a "certificate of analysis", has been shipped and title has passed. Sales are reported net of estimated discounts, rebates, charge backs and product returns. Royalty revenue is recognized at such time as the Company's marketing, sales and distribution partner sells the product. Collaborative research revenue is recognized, up to the contractual limits, when the Company meets its performance obligations under the respective agreements. Payments received that relate to future performance are deferred and recognized as revenue at the time such future performance has been accomplished. Commencing with the adoption of SAB 101 in 2000, non-refundable upfront fee arrangements that contain an element of continuing involvement are deferred and recognized as revenue over the involvement period. Prior to the adoption of SAB 101, non-refundable upfront fee arrangements for which no further performance obligation existed were recognized when payment was received. Milestone payments which represent a substantive step in the development process or significant achievement for the product are recognized when earned. Research and Development, Patent and Royalty Costs 4 23 Research and development, patent, and royalty costs are expensed as incurred. Royalty expense related to product sales is recognized concurrently with the recognition of product revenue and included as part of cost of sales. Royalty expense from third-party sales is expensed as incurred and is offset against royalty revenue related to third-party sales. Accounting for Income Taxes Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that such tax rate changes are enacted. Stock-Based Compensation The Company discloses information relating to stock-based compensation awards in accordance with SFAS No.123, Accounting for Stock-Based Compensation, ("SFAS 123"), and has elected to apply the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, ("APB 25"),to such compensation awards. Under the Company's employee share option plans, the Company grants employee stock options at an exercise price equal to the fair market value at the date of grant. No compensation expense is recorded with respect to such stock option grants. Compensation expense for options granted to non-employees is determined in accordance with SFAS 123 as the fair value of the consideration received or the fair value of the equity instruments issued whichever is more reliably measured. Compensation expense for options granted to non-employees is periodically re-measured as the underlying options vest. Comprehensive Income (Loss) Under SFAS 130, Reporting Comprehensive Income, the Company is required to display comprehensive income (loss) and its components as part of the Company's full set of financial statements. The purpose of reporting comprehensive income (loss) is to report a measure of all changes in equity of an enterprise that result from recognized transactions and other economic events of the period, except those resulting from investments by owners and distributions to owners. The measurement and presentation of net income (loss) did not change. Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes certain changes in equity of the Company that are excluded from net income (loss). Comprehensive income (loss) for years ended December 31, 2000, 1999 and 1998 has been reflected in the Consolidated Statements of Changes in Stockholders' Equity. 5 24 Earnings (Loss) per Share Basic earnings (loss) per share ("EPS") is computed by dividing earnings (loss) by the weighted-average number of shares outstanding for the period. The computation of Diluted EPS is similar to Basic EPS except that the weighted-average number of shares outstanding for the period is increased to include the number of additional shares that would have been outstanding if the dilutive potential common shares had been issued. Potential common shares are excluded if the effect on earnings (loss) per share is antidilutive. Fair Value of Financial Instruments The fair values of the Company's financial instruments, including long-term debt and interest rate swaps, are obtained from independent quotation services as monitored by the Company's investment advisors. These fair values may be based on closing prices, the mean between the bid and the asking price or a matrix based on interest rates for similar securities. For financial instruments trading less frequently, the Company's investment advisors may rely on outside pricing services or computerized pricing models. The carrying amounts approximate fair value for cash and cash equivalents, accounts receivable, other assets, accounts payable and accrued expenses because of the short term duration of these instruments. Concentration of Credit Risk The Company invests excess cash in accordance with a policy objective that seeks to preserve both liquidity and safety of principal. The policy limits investments to certain instruments issued by institutions with strong investment grade credit ratings (as defined) at the time of purchase and places restrictions on their term to maturity and concentrations by type and issuer. Uncertainties The Company is subject to various risks common to companies within the biotechnology industry. These include, but are not limited to, development by competitors of new technological innovations; dependence on key personnel; dependence on a limited number of products; risks inherent in the research and development of biotechnology products; protection of proprietary technology; estimation by the Company of the size and characteristics of the market for the Company's product(s); acceptance of the Company's product(s) by the country's regulatory agencies in which the Company may choose to sell its products, as well as the end customer; health care cost containment initiatives; and product liability and compliance with government regulations and agencies, including the U.S. Food and Drug Administration ("FDA"). Use of Estimates 6 25 The preparation of the Company's financial statements, in conformity with accounting principles generally accepted in the United Sates of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and disclosures of contingent assets and liabilities at the date of the financial statements. Actual results will likely differ from those estimates. Significant Customer and Product The Company sells only one product, GLIADEL (R)(R)Wafer, a novel treatment for recurrent malignant glioblastoma multiforme, the most fatal form of brain cancer. The Company formerly marketed, sold and distributed its product through one of its partners, Aventis. Substantially all net product sales and license fees and royalties were from Aventis for years ended December 31, 2000, 1999 and 1998. As described in Note 15, the Company reacquired the rights to market, sell and distribute GLIADEL (R) Wafer during 2000. The Company will begin selling GLIADEL (R) Wafer directly to wholesalers and hospitals on January 1, 2001. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. New Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133") as amended by SFAS 137 and SFAS 138. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires companies to recognize all derivatives as either assets or liabilities on the balance sheet at their respective fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. As required under SFAS 137, the Company will adopt SFAS 133, as amended, in the first quarter of 2001. Management has evaluated the impact of SFAS 133 in connection with the Company's use of derivatives in managing interest rate risks. The Company's exposure to derivatives is limited to interest rate swap agreements that are highly effective in managing the Company's interest rate exposure. Consequently, the implementation of SFAS 133 is not expected to have a material impact on the financial position and results of operation of the Company. In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation - an Interpretation of APB 25, ("FIN 44") which clarifies certain issues relating to stock compensation. FIN 44 is effective July 1, 2000; however, certain conclusions cover specific events that occurred prior to July 1, 2000. The adoption of FIN 44 on July 1, 2000 does not have any impact on the Company's historical financial statements. 7 26 (3) INVESTMENTS Investments in marketable securities as of December 31, 2000 and 1999 are as follows:

At December 31, 2000 and 1999, investments of $18.3 million and $21.4 million, respectively are classified as "Investments-restricted" in the accompanying consolidated balance sheets (see Notes 8 and 9). Maturities of investments in marketable securities classified as available-for-sale as of December 31, 2000 were as follows:

8 27 (4) INTEREST RATE SWAP AGREEMENTS During 1998 and 1999, the Company entered into interest rate swap agreements with a commercial bank ("counter party") to reduce the impact of changes in interest rates on certain financial obligations (see Notes 8 and 9). These agreements have a total notional principal amount of approximately $26.6 million at December 31, 2000. The Company has effectively fixed its floating rate debt and certain financial lease obligations to an annual rate of approximately 6%. These interest rate swap agreements have approximately the same maturity dates as the financial obligations and expire on various dates through February 2005. Certain of the interest rate swap agreements provide the commercial bank with a call provision exercisable during 2003. In the event of non-performance by the counter party, the Company could be exposed to market risk related to interest rates. The fair value of the interest rate swap agreements were approximately $0.1 million and $1.0 million at December 31, 2000 and 1999, respectively. Current market pricing models were used to estimate fair values of interest rate swap agreements. (5) INVENTORIES Inventories consist of the following:

(6) PROPERTY AND EQUIPMENT Property and equipment consist of the following:

9 28 (7) INTANGIBLE ASSET Intangible asset consists of the following:

As described in note 15, the Company reacquired the rights to market, sell and distribute GLIADEL (R) Wafer during 2000. This intangible asset is being amortized over ten years. (8) INDEBTEDNESS Long-term debt consists of the following:

10 29 * See Note 4- "Interest Rate Swap Agreements" ** Secured by equipment and leasehold improvements *** See Note 9 - "Leases" Aggregate maturities of long-term debt for each of the five years subsequent to December 31,2000, and thereafter are approximately: 2001, $2.5 million; 2002, $2.4 million; 2003, $1.4 million; 2004, $1.0 million; 2005, $0.1 million; and thereafter, $0.2 million. The fair value of long-term debt is $7.1 million at December 31, 2000. Bond financing arrangement In 1994, the Company entered into an $8.0 million bond financing arrangement with a commercial bank. The bond was issued by the Maryland Economic Development Corporation with 50% of the outstanding borrowings guaranteed by the Maryland Industrial Development Financing Authority ("MIDFA"). Effective June 1998, MIDFA increased its guarantee from 50% to 82% of the outstanding borrowings. Restrictive covenants The aforementioned debt agreements contain restrictions that require the Company to meet certain financial covenants. Under the bond financing arrangement, the Company maintained $0.6 million and $0.7 million at December 31, 2000 and 1999, respectively, as cash collateral (approximately 18.27% of the outstanding principal balance less $100,000). In accordance with the term loan agreement, the Company maintained as cash collateral $2.8 million and $4.1 million at December 31, 2000 and 1999, respectively (equal to 100% of the outstanding principal balance). Total collateral is included in the accompanying Consolidated Balance Sheets as "Investments-restricted." Other covenants preclude the Company from declaring any cash dividends on its common stock without prior written consent. Revolving Line of Credit In 1998, the Company entered into a revolving line of credit agreement renewable annually with a commercial bank for $5.0 million. Borrowings under the line of credit, if any, require interest at LIBOR plus 0.55% and are payable on demand. The commercial bank requires the Company to maintain unrestricted cash, cash equivelants and investments in the aggregate equal to $40.0 million. This requirement is met in conjunction with a similar requirement related to our financial obligations associated with our research and development facility (see Note 9). There were no amounts drawn under the line of credit during 2000 or 1999. (9) LEASES In February 1998, the Company entered into a Real Estate Development Agreement and an operating lease agreement in connection with the construction of a research and development facility. The facility, which is approximately 73,000 square feet, is located adjacent to the Company's corporate headquarters in Baltimore, Maryland. Construction of this facility was completed during 1999 for a total cost of approximately $19.5 million. The initial lease term is for a period of 84 months (including the construction period) and expires in February 2005. The Company has the option to purchase the facility beginning in February 2001 and annually thereafter. In addition, 11 30 the Company has an option to sell the facility to a third party during the third and fourth year or at the expiration date of the initial term. In the event the building is sold to a third party, the Company will be obligated to pay the lessor any shortfall between the sales price and 83% of the lessor's net investment in the facility. Annual lease payments under this operating lease agreement are approximately $1.4 million during the initial lease term. The Company is required to maintain collateral equal to 83% of the remaining balance of the lessor's net investment in the facility less guarantees. The Company maintained collateral of $14.3 million as of December 31, 2000 and 1999. The collateral is included in the accompanying Consolidated Balance Sheets as "Investments-restricted". In addition to its collateral requirements, the Company is subject to certain financial covenants, the most restrictive of which requires that the Company maintain unrestricted cash, cash equivalents, and investments in the aggregate equal to $40 million. In March 1998, the Company entered into certain Master Lease Agreements, as amended, to provide up to $10.8 million for computer and equipment financing. At December 31, 2000, $1.0 million remains unexpired and was available under these arrangements to lease additional equipment. The Company's ability to draw on these Master Lease Agreements expires on March 31, 2001. The term of each operating lease may vary from 24 to 48 months based upon the type of equipment being leased. As of December 31, 2000, the Company had leased approximately $8.8 million in computer and equipment under these agreements. The Company entered into a Master Lease Arrangement related to the land and building which it occupies as its corporate headquarters. The term of the lease is for ten years and expires July 2004 with options to renew for two five-year periods. The Company has the option to purchase the building after the ninth year for its then current fair market value (excluding improvements). The Company's future minimum lease payments under these non-cancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments for years subsequent to December 31, 2000 are as follows (in thousands):

Rent expense for operating leases was approximately $4.8 million, $4.2 million, and $2.7 million for the years 12 31 ended December 31, 2000, 1999 and 1998, respectively. The amount of computer equipment and related accumulated depreciation recorded under capital leases at December 31, 2000 was $543,000 and $93,000, respectively. (10) INCOME TAXES As of December 31, 2000, the Company had net operating loss ("NOL") carryforwards available for federal income tax purposes of approximately $123.8 million, which expire at various dates between 2010 to 2020. NOL carryforwards are subject to ownership change limitations and may also be subject to various other limitations on the amounts to be utilized. As of December 31, 2000, the Company had tax credit carryforwards of approximately $7.3 million expiring between 2008 and 2020. Actual income tax expense differs from the expected income tax expense computed at the effective federal rate as follows:

Realization of net deferred tax assets related to the Company's NOL carryforwards and other items is dependent on future earnings, which are uncertain. Accordingly, a valuation allowance has been established equal to net deferred tax assets that may not be realized in the future. The change in the valuation allowance was an increase of approximately $21.2 million in 2000 and an increase of approximately $12.6 million in 1999. Significant components of the Company's deferred tax assets and liabilities are shown below.

13 32 Other 1,318 1,269 --------- --------- 62,143 40,748 Deferred tax liabilities: Prepaid expenses and deferred compensation (753) (530) --------- --------- Net deferred tax assets 61,390 40,218 Valuation allowance (61,252) (40,080) --------- --------- Net deferred tax assets $ 138 $ 138 ========= =========

(11) CAPITAL TRANSACTIONS In December 2000, the Company sold 150,000 shares of its common stock to institutional investors, as part of the shelf registration filed in November 2000, providing net proceeds of approximately $3.0 million. In October 2000, the Company issued 300,000 shares of its common stock, valued at approximately $8.0 million to Aventis in consideration for the reacquisition of the rights to market, sell and distribute GLIADEL (R) Wafer (see Note 15). In September 1999, the Company completed a private placement of approximately 3.4 million shares of its common stock to certain institutional and other accredited investors, resulting in net proceeds to the Company of approximately $42.4 million. In June 1999, the Company issued 312,993 shares of common stock upon exercise of a warrant by Bear, Stearns Securities Corp. as partial compensation for underwriting services. In exchange, the Company received approximately $2.25 million. The Company repurchased 8,285, 224,150 and 41,677 shares of its common stock at an aggregate cost of approximately $0.2 million, $2.2 million and $0.5 million during the years ended December 31, 2000, 1999 and 1998, respectively, of which 212,900 and 39,600 shares were purchased during the years ended December 31, 1999 and 1998, respectively, pursuant to the stock repurchase program approved by the Company's Board of Directors in September 1998. In August 1999, this stock repurchase program was terminated. On October 1, 1997, the Company sold 640,095 shares of common stock to Amgen Inc. ("Amgen") for $15 million. In addition, the Company received $5 million for warrants, exercisable for five years, to purchase up to 700,000 shares of the Company's common stock at an exercise price of $35.15 per share (see Note 15). The Company is authorized to issue up to 4,700,000 shares of preferred stock in one or more different series with terms fixed by the Board of Directors. Stockholder approval is not required to issue this preferred stock. There were no shares of this preferred stock outstanding at December 31, 2000 or 1999. (12) STOCKHOLDER RIGHTS PLAN In September 1995, the Board of Directors adopted a Stockholder Rights Plan in which preferred stock purchase 14 33 rights ("Rights") were granted at the rate of one Right for each share of common stock. All Rights expire on October 10, 2005. At December 31, 2000, the Rights were neither exercisable nor traded separately from the Company's common stock, and become exercisable only if a person or group becomes the beneficial owner of 20% or more of the Company's common stock or announces a tender or exchange offer that would result in its ownership of 20% or more of the Company's common stock without the approval of the Board of Directors. Each holder of a Right, other than the acquiring person, would be entitled to purchase $120 worth of common stock of the Company for each Right at the exercise price of $60 per Right, which would effectively enable such Rights holders to purchase common stock at one-half of the then current price. If the Company is acquired in a merger, or if 50% or more of the Company's assets are sold in one or more related transactions, then each Right would entitle the holder thereof to purchase $120 worth of common stock of the acquiring company at the exercise price of $60 per Right. At any time after a person or group of persons becomes the beneficial owner of 20% or more of the common stock, the Board of Directors, on behalf of all stockholders, may exchange one share of common stock for each Right, other than Rights held by the acquiring person. (13) SHARE OPTION AND RESTRICTED SHARE PLANS Employee Share Option and Restricted Share Plans The Company adopted Employee Share Option and Restricted Share Plans in 1993 (the "1993 Plan") and 1998 (the "1998 Plan" and together with the 1993 Plan, the "Plans"). The Plans were established to provide eligible individuals with an opportunity to acquire or increase an equity interest in the Company and to encourage such individuals to continue in the employment of the Company. Eligible individuals include any full-time employee of the Company and other individuals (including some consultants) whose participation in the Plans is determined by the board of directors to be in the Company's best interest. The 1993 Plan allows the Company to issue incentive stock options to eligible individuals while the 1998 Plan does not. Share options are granted under both Plans at the fair market value of the stock on the day immediately preceding the date of grant or date of initial employment, if later. The Plans permit employees to pay for shares purchased pursuant to the exercise of options through the tender to the Company of shares of the Company's common stock that have been held by the employee for at least six months. Share options are exercisable under both Plans for a period not to exceed 10 years from the date of grant. Share option grants to new hires under both Plans vest at 50% of the award on the second anniversary date of the grant date and 25% on each of the third and fourth anniversary dates. Share option grants that are part of the Company's bonus program vest at 25% per year. The Company has granted, pursuant to the Plans, restricted shares to some of its executive officers in connection with the commencement of their employment with the Company. Shares awarded under the restricted share provisions of the Plans are valued at the fair market value of the stock on the day immediately preceding the date of award (date of grant, if later) and require a vesting period determined by the board of directors. Restricted share awards generally vest at 25% of the award on each of the first four anniversary dates of the employee's date of employment with the Company. Should an individual leave the employment of the Company for any reason (other than by reason of death or 15 34 permanent disability) the award recipient would forfeit their ownership rights for all share options and restricted shares not otherwise fully vested. All unvested options and restricted shares held by the Company's employees vest in full upon certain events constituting a change in control of the Company. At December 31, 2000, the maximum share options issuable under the Plans were 4,535,000, of which up to 400,000 shares may be issued under the restricted share provisions. At December 31, 2000, there were 522,752 share options or restricted shares (subject to the above limitation) available for grant under the Plans. Pursuant to the 1993 and 1998 Employee Share Option and Restricted Share Plans, certain executive officers have received awards of restricted common stock. To the extent that the award does not provide the executive officer to pay for such stock, unearned compensation is recorded at the time an award of restricted stock is made to the executive officer. Unearned compensation is calculated as the product of multiplying the number of shares awarded by the fair market value of the Company's common stock. Unearned compensation is amortized over the vesting period of the restricted shares. The Directors' Plan The Director's Stock Option Plan (the "Directors' Plan") was established to provide non-employee directors an opportunity to acquire or increase an equity interest in the Company. Under the Directors' Plan, 300,000 shares of common stock are reserved for issuance at an exercise price not less than fair value of the Company's common stock on the day immediately preceding the date of grant. Such share options vest 50% at the end of year one and 100% at the end of year two. Under the Directors' Plan 52,500, 22,500 and 52,500 share options were granted during the years ended December 31, 2000, 1999 and 1998, respectively. As of December 31, 2000, 247,500 share options were outstanding under the Directors' Plan, of which 183,750 are exercisable as of December 31, 2000. At December 31, 2000, there were 52,500 share options available for grant under the Directors' Plan. If the above Director's Plan has reached its limit of grants per individual director, those non-employee directors eligible to receive annual share option grants under the above Director's Plan may instead receive annual grants of non-qualified stock options to purchase 7,500 shares under the terms of the Company's 1998 Employee Share Option and Restricted Share Plan, as amended. Such options are to be for a term of 10 years and are exercisable 50% at the end of year one and 100% at the end of year two. Two non-employee directors were each granted 15,000 share options in the aggregate in 2000 and 1999, with an exercise price equal to fair value at date of grant. At December 31, 2000, 7,500 share options were exercisable. Consultants Prior to 1997, the Company granted share options to each of two consultants to purchase up to 225,000 shares of the Company's common stock, valid for 10 years from issuance, with varying exercise prices. Vesting periods are based on either the passage of time or upon the achievement of certain milestones. Of these share options, 142,800 were exercisable as of December 31, 2000. The Company recognized $257,000, $439,000 and $439,000 in non-cash compensation expense, in accordance with SFAS 123, relating to the value of such share options (as determined using the Black-Scholes pricing model) for the years ended December 31, 2000, 1999 and 1998, respectively. The 16 35 Company expects to charge up to an additional $54,000 of non-cash compensation expense to operations during the year ending December 31, 2001 relating to such agreements. The following is a summary of the Company's share option activity and balances as of and for the years ended December 31, 2000, 1999 and 1998:
Weighted - Share Average Options Exercise Price ------- -------------- Balance, January 1, 1998 2,421,489 $ 14.38 Granted 867,403 19.31 Exercised (178,678) 5.91 Canceled ( 197,984) 20.62 -------------- ---------- Balance, December 31, 1998 2,912,230 15.94 Granted 752,719 12.89 Exercised (61,064) 5.81 Canceled (378,231) 18.84 -------------- ---------- Balance, December 31, 1999 3,225,654 15.08 Granted 1,173,277 27.17 Exercised (525,643) 12.47 Canceled (222,192) 20.98 -------------- ---------- Balance, December 31, 2000 3,651,096 $ 18.98 ============== ==========
Share options outstanding and exercisable by price range are as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE OUTSTANDING AS OF WEIGHTED-AVERAGE WEIGHTED-AVERAGE EXERCISABLE AS OF WEIGHTED-AVERAGE RANGE OF DECEMBER 31, 2000 REMAINING EXERCISE PRICE DECEMBER 31, 2000 EXERCISE PRICE EXERCISE PRICES ----------------- CONTRACTUAL LIFE -------------- ----------------- -------------- - --------------- ---------------- $0 - $10.00 228,346 4.6 $5.88 228,346 $5.88 $10.01 - $20.00 2,278,873 6.9 $15.89 1,348,356 $16.28 $20.01 - $30.00 1,133,627 8.9 $27.73 140,475 $23.79 $30.01 - $40.00 10,250 7.4 $32.16 7,500 $30.63 ---------- --- ---------- 3,651,096 7.4 $18.98 1,724,677 $15.58 ========== ==========
17 36 Pro forma option information Using the Black-Scholes option pricing model, the per share weighted-average fair value of all share options granted during 2000, 1999 and 1998 was $8.61, $7.76 and $10.00, respectively, on the date of grant with the following weighted-average assumptions.
2000 1999 1998 ---- ---- ---- Expected dividend yield 0% 0% 0% Risk-free interest rate 5.1% 5.9% 4.7% Volatility 66.7% 57.3% 62.5% Expected life in years 4 4 4
The Company applies APB 25 in accounting for share options granted to employees and, accordingly, no compensation expense has been recognized related to such share options to the extent that such share options were granted at an exercise price that equaled the fair market value at the grant date. Had the Company determined compensation cost based on the fair value at the grant date for its share options under SFAS 123, (using the Black-Scholes pricing model), the Company's net loss would have been increased to the pro forma amounts indicated below:
Years Ended December 31, ------------------------ 2000 1999 1998 ---- ---- ---- (in thousands, except per share data) Net loss As reported ($47,127) ($26,868) ($29,698) Pro forma ($53,892) ($32,903) ($32,827) Basic and diluted loss per share As reported ($2.00) ($1.31) ($1.52) Pro forma ($2.29) ($1.61) ($1.69)
(14) 401(k) PROFIT SHARING PLAN The Company's 401(k) Profit Sharing Plan (the "401(k) Plan") is available to all employees meeting certain eligibility criteria and permits participants to contribute up to certain limits as established by the Internal Revenue Code. The Company may make contributions equal to a percentage of a participant's contribution or may contribute a discretionary amount to the 401 (k) Plan. Effective January 1997, the Company elected to make contributions of the Company's common stock equal to 50% of the first 6% of an employee's salary contributed to such employees 401(k) Plan account. Such amounts vest 25% per year, based on a participant's years of service with the Company. The Company has made contributions of 18 37 approximately $390,000, $348,000 and $308,000 for the years ended December 31, 2000, 1999 and 1998, respectively. (15) SIGNIFICANT CONTRACTS AND LICENSING AGREEMENTS Amgen Inc. In August 1997, the Company entered into an agreement with Amgen (the "Agreement") relating to the research, development and commercialization of the Company's FKBP neuroimmunophilin ligand technology for all human therapeutic and diagnostic applications. Pursuant to the terms of the Agreement, the Company received an aggregate of $35 million, consisting of a one-time non-refundable payment of $15 million upon the signing of the Agreement and $20 million for 640,095 shares of the Company's common stock and warrants, exercisable for five years, to purchase up to an additional 700,000 shares of the Company's common stock at $35.15 per share. In connection with the sale of these securities, the Company granted Amgen certain demand and "piggyback" registration rights under applicable securities laws. Under the terms of the Agreement, Amgen agreed to provide the Company up to $13.5 million over three years in the aggregate to support research activities relating to the FKBP neuroimmunophilin ligand technology. The Company recognized $3.4 million, $4.5 million, and $4.5 million in research support for the years ended December 31, 2000, 1999 and 1998, respectively. Commencing with the adoption of SAB 101 in 2000, the one-time non-refundable payment of $15.0 million was required to be deferred and amortized over the continuing involvement period, pursuant to the three years of research funding. As a result, the Company recorded a cumulative effect of an accounting change of approximately $3.7 million as of January 1, 2000 for the unamortized portion. Since the continuing involvement ended during 2000, this remaining deferred amount was recognized as contract revenue during 2000. Additionally, the Agreement provides for certain milestone payments to the Company, in up to ten different specified clinical indications, in the event Amgen achieves certain development milestones. In addition, the Company will receive royalties on product sales, if any, related to the FKBP neuroimmunophilin ligand technology. Since the inception of the agreement through December 31, 2000, the Company has received $6.0 million in milestone payments related to development milestones. Aventis In June 1996, the Company entered into a Marketing, Sales and Distribution Agreement (together with related agreements, the "Aventis Agreements") with Aventis. Under the Aventis Agreements, Aventis had worldwide marketing rights (except in Scandinavia and Japan) for GLIADEL(R) Wafer. The Company received $15.0 million upon the signing of these agreements ($7.5 million as an equity investment and $7.5 million as a one-time non-refundable rights payment). During September 1996, the Company obtained clearance from the FDA to market GLIADEL (R)Wafer for recurrent glioblastoma multiforme and, accordingly, received a $20.0 million non-refundable milestone payment from Aventis. During 2000 and 1999, the Company received $2.0 million and $4.5 million, respectively, in milestone payments for obtaining certain international regulatory approvals. Through December 31, 19 38 2000, the Company manufactured and supplied GLIADEL (R) Wafer to Aventis and received revenues from net product sales and royalties based on sales. Commencing with the adoption of SAB 101 in 2000, the non-refundable upfront payment of $7.5 million was required to be deferred and amortized over the continuing involvement period, pursuant to the manufacturing agreement. As a result, the Company recorded a cumulative effect of an accounting change of approximately $4.9 million as of January 1, 2000 for the unamortized portion. As a result of the termination of the Aventis Agreements as described below, this remaining deferred amount was recognized as contract revenue during 2000. On October 23, 2000, the Company entered into a Rights Reversion Agreement (the "Rights Reversion Agreement") with Aventis, pursuant to which the Company reacquired the rights to market, sell and distribute GLIADEL(R) Wafer held by Aventis. In consideration for the reacquisition of these rights, the Company issued to Aventis 300,000 shares of its common stock, valued at approximately $8.0 million, assumed the obligations for product returns subsequent to December 31, 2000, and granted Aventis certain registration rights with respect to such stock. The Company has recorded a liability for estimated product returns of approximately $0.5 million at December 31, 2000. In accordance with the terms of the Rights Reversion Agreement, effective January 1, 2001, the Company will be responsible for all aspects of the worldwide marketing, sales and distribution of GLIADEL(R) Wafer (except in Scandinavia where GLIADEL(R) Wafer will continue to be distributed by Orion Corporation Pharma). The Company intends to market, sell and distribute GLIADEL(R) Wafer in the United States and Europe (except for Scandinavia) and in other countries to the extent permitted by local laws. ProQuest Pharmaceuticals Inc. In March 2000, the Company acquired from ProQuest Pharmaceuticals Inc. ("ProQuest") an exclusive worldwide license to a prodrug of propofol, a widely used anesthetic. Pursuant to this transaction, the Company paid approximately $0.7 million for 133,333 shares of common stock of ProQuest and approximately $0.3 million for in-process research and development that was charged to earnings. Under the terms of the agreement, the Company is obligated to make milestone payments based on clinical development and royalties on any product sales. ProQuest is a privately held pharmaceutical company based in Lawrence, Kansas. The investment in ProQuest is accounted for under the cost method and is included in the accompanying Consolidated Balance Sheets as "Other Assets". (16) RELATED PARTY TRANSACTIONS A note receivable on common stock of $60,000 at December 31, 2000 and December 31, 1999, represents an amount due from an officer of Guilford related to the officer's purchase of shares of the Company's common stock. The note bears interest at the rate of 5.34% per annum with principal and accrued interest due in February 2002. Scios Inc., a significant stockholder until February 1999, billed the Company for facility rents related to the Company's research and development activities, aggregating approximately $334,000 and $883,000 in 1999 and 1998, respectively. 20 39 (17) EARNINGS (LOSS) PER SHARE The following table presents the computations of basic and diluted EPS:
2000 1999 1998 ---- ---- ---- (in thousands, except per share data) Loss before the cumulative effect of an accounting change $(38,502) $(26,868) $(29,698) Net loss $(47,127) $(26,868) $(29,698) Weighted-average shares outstanding 23,517 20,475 19,479 Total weighted-average diluted shares (1) 23,517 20,475 19,479 Basic and diluted EPS: Loss before the cumulative effect of an accounting change $ (1.64) $ (1.31) $ (1.52) ======== ======== ======== Net loss applicable to common stockholders $ (2.00) $ (1.31) $ (1.52) ======== ======== ========
(1) At December 31, 2000, 1999 and 1998, there were approximately 889,000, 246,000 and 652,000 instruments, respectively, that were considered antidilutive and accordingly excluded in the above calculation. (18) TERMINATION OF PROPOSED MERGER WITH GLIATECH, INC. On August 28, 2000, the Company terminated the Agreement and Plan of Merger previously entered into on May 29, 2000 with Gliatech, Inc. The Company incurred costs related to the proposed merger transaction of $1.4 million, for the year ended December 31, 2000. (19) COMMITMENTS AND CONTINGENCIES The Company has entered into various licensing, technology transfer and research and development agreements which commit the Company to fund certain mutually agreed-upon research and development projects, either on a best efforts basis or upon attainment of certain performance milestones, as defined, or both, for various periods unless canceled by the respective parties. Such future amounts to be paid are approximately $6.9 million through 2005 and $0.8 million per year from 2006 through 2016. In addition, the Company will be required to pay a royalty on future net sales of all licensed products, if any, as well as a percentage of all payments received by the Company from sublicensees, if any. 21 40 The Company from time to time is involved in routine legal matters and contractual disputes incidental to its normal operations. In management's opinion, the resolution of such matters will not have a material adverse effect on the Company's consolidated financial condition, results of operations or liquidity. (20) QUARTERLY FINANCIAL DATA (UNAUDITED) Revenues for each the first three quarters of 2000 have been restated to give effect for the implementation of a change in accounting pursuant to the adoption of SAB 101 in the fourth quarter, retroactively to January 1, 2000. The impact of the change resulted in an increase in contract revenue of $1.4 million in each of the quarters ended March 31, 2000, June 30, 2000 and September 30, 2000. For the quarter ended December 31, 2000, the impact of the change resulted in an increase in contract revenue of $4.4 million.
MARCH 31, JUNE 30, SEPTEMBER 30, December 31, --------- -------- ------------- 2000 Quarter Ended AS REPORTED AS RESTATED AS REPORTED AS RESTATED AS REPORTED AS RESTATED AS REPORTED ----------- ----------- ----------- ----------- ----------- ----------- ----------- (in thousands, except for per share data) Revenues $ 3,267 $ 4,704 $ 2,291 $ 3,728 $ 2,978 $ 4,416 $ 5,208 Gross margin (1) (2) 240 240 310 310 (310) (310) (106) Loss before the cumulative effect of an accounting change (7,919) (6,482) (11,761) (10,324) (11,559) (10,121) (11,575) Net loss $ (7,919) $ (15,107) $ (11,761) $(10,324) $(11,559) $ (10,121) $ (11,575) Loss per common share before the cumulative effect of an accounting change $ (0.34) $ (0.28) $ (0.50) $ (0.44) $ (0.49) $ (0.43) $ (0.49) Net loss per common share $ ( 0.34) $ (0.65) $ (0.50) $ (0.44) $ (0.49) $ (0.43) $ (0.49)

1999 QUARTER ENDED MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, ---------- --------- ------------- ------------ (in thousands, except for per share data) Revenues $ 2,876 $ 3,647 $ 6,876 $ 8,162 Gross margin (1) 562 861 262 378 Net loss (8,497) (8,614) (5,209) (4,548) Net loss per common share $(0.44) $(0.44) $(0.26) $(0.20)
(1) Gross margin is calculated as net product sales less cost of sales. (2) During the third and fourth quarters of 2000, production volume was less than planned, as a result manufacturing overhead not capitalized as inventory was expensed as part of cost of sales. (21) SUBSEQUENT EVENTS In January 2001, the Company sold 2,506,000 shares of its common stock to certain institutional investors under its shelf registration statement on Form S-3, resulting in net proceeds to the Company of approximately $42.6 million. 22 41 Stock Description and Form 10-K Our common stock is listed on the Nasdaq(R) National Market under the symbol "GLFD". As of March 27, 2001, we had approximately 188 holders of record of our common stock and in excess of 8,100 beneficial holders. We have never declared or paid any cash dividends and do not intend to do so for the foreseeable future. The following table sets forth the range of high and low sale prices for our common stock as reported on the Nasdaq(R) National Market for the periods indicated below.
High Low 1998 First Quarter $ 24.88 $ 17.50 Second Quarter 24.00 17.00 Third Quarter 18.25 11.63 Fourth Quarter 18.88 11.19 1999 First Quarter $ 15.13 $ 9.75 Second Quarter 13.00 9.63 Third Quarter 17.50 12.00 Fourth Quarter 17.50 13.13 2000 First Quarter $ 38.25 $ 16.25 Second Quarter 23.25 13.31 Third Quarter 29.25 14.69 Fourth Quarter 29.13 15.75 2001 First Quarter $ 22.88 $ 12.38 (through 3/27/01)
Shareholder Inquiries: Information about the Company can be obtained by contacting Guilford's investor relations department at (410) 631-5022 or through our website at www.guilfordpharm.com. Stockholders may obtain, at no charge, a copy of the Guilford Pharmaceuticals Inc. Form 10-K, filed with the Securities and Exchange Commission, by writing to: Guilford Pharmaceuticals Inc. Attn: Investor Relations 6611 Tributary Street Baltimore, Maryland 21224 EX-23.01 6 w47017ex23-01.txt CONSENT OF KPMG LLP 1 Consent of Independent Auditors The Board of Directors of Guilford Pharmaceuticals Inc.: We consent to incorporation by reference in the registration statements (No. 333-56092, No. 333-30814, No. 333-72319, No. 333-17833) on Form S-8 of Guilford Pharmaceuticals Inc. of our report dated February 9, 2001, relating to the consolidated balance sheets of Guilford Pharmaceuticals Inc. and subsidiaries (the "Company") as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000, and the related financial statement schedule, which report appears in the December 31, 2000 annual report on Form 10-K of Guilford Pharmaceuticals Inc. Our report refers to a change in the Company's revenue recognition policy for non-refundable upfront fees in 2000. /s/ KPMG LLP Philadelphia, Pennsylvania March 26, 2001 GRAPHIC 7 w47017pi5-178.gif GRAPHIC begin 644 w47017pi5-178.gif M1TE&.#EA#``,`/?^``````$!`0("`@,#`P0$!`4%!08&!@<'!P@("`D)"0H* M"@L+"PP,#`T-#0X.#@\/#Q`0$!$1$1(2$A,3$Q04%!45%186%A<7%Q@8&!D9 M&1H:&AL;&QP<'!T='1X>'A\?'R`@("$A(2(B(B,C(R0D)"4E)28F)B7IZ>GM[>WQ\?'U]?7Y^?G]_?X"`@(&!@8*" M@H.#@X2$A(6%A8:&AH>'AXB(B(F)B8J*BHN+BXR,C(V-C8Z.CH^/CY"0D)&1 MD9*2DI.3DY24E)65E9:6EI>7EYB8F)F9F9J:FIN;FYRGI^?GZ"@ MH*&AH:*BHJ.CHZ2DI*6EI::FIJ>GIZBHJ*FIJ:JJJJNKJZRLK*VMK:ZNKJ^O MK["PL+&QL;*RLK.SL[2TM+6UM;:VMK>WM[BXN+FYN;JZNKN[N[R\O+V]O;Z^ MOK^_O\#`P,'!P<+"PL/#P\3$Q,7%Q<;&QL?'Q\C(R,G)RWM_?W^#@X.'AX>+BXN/CX^3DY.7EY>;FYN?GY^CHZ.GIZ>KJZNOK MZ^SL[.WM[>[N[N_O[_#P\/'Q\?+R\O/S\_3T]/7U]?;V]O?W]_CX^/GY^?KZ M^OO[^_S\_/W]_?[^_O___R'Y!`$``/X`+``````,``P`!PA>`/]%8T:PH,%_ M&0`H7,@0(3UF_R)&C*8N`T)P"O1(1"4@F$6+UB@0^H=*P2V$*/]94\!$P$F4 J%B/^`1!%XL>('#-EC'BSY,F0(S]& GRAPHIC 8 w47017pi5-110.gif GRAPHIC begin 644 w47017pi5-110.gif M1TE&.#EA#``,`/?^``````$!`0("`@,#`P0$!`4%!08&!@<'!P@("`D)"0H* M"@L+"PP,#`T-#0X.#@\/#Q`0$!$1$1(2$A,3$Q04%!45%186%A<7%Q@8&!D9 M&1H:&AL;&QP<'!T='1X>'A\?'R`@("$A(2(B(B,C(R0D)"4E)28F)B7IZ>GM[>WQ\?'U]?7Y^?G]_?X"`@(&!@8*" M@H.#@X2$A(6%A8:&AH>'AXB(B(F)B8J*BHN+BXR,C(V-C8Z.CH^/CY"0D)&1 MD9*2DI.3DY24E)65E9:6EI>7EYB8F)F9F9J:FIN;FYRGI^?GZ"@ MH*&AH:*BHJ.CHZ2DI*6EI::FIJ>GIZBHJ*FIJ:JJJJNKJZRLK*VMK:ZNKJ^O MK["PL+&QL;*RLK.SL[2TM+6UM;:VMK>WM[BXN+FYN;JZNKN[N[R\O+V]O;Z^ MOK^_O\#`P,'!P<+"PL/#P\3$Q,7%Q<;&QL?'Q\C(R,G)RWM_?W^#@X.'AX>+BXN/CX^3DY.7EY>;FYN?GY^CHZ.GIZ>KJZNOK MZ^SL[.WM[>[N[N_O[_#P\/'Q\?+R\O/S\_3T]/7U]?;V]O?W]_CX^/GY^?KZ M^OO[^_S\_/W]_?[^_O___R'Y!`$``/X`+``````,``P`!P@Z`/\)'$APX)L? M"!,J_/<#F;B'$!\:8"BNX,`#%"T*Q/BCHD:.'BV"U/AOY,>,)SN2Y&C@@,N7 &+@$$!``[ ` end -----END PRIVACY-ENHANCED MESSAGE-----






Delaware		52-1841960
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)


PART I
	Item 1. Business
	Item 1A. Executive Officers and Other Significant Employees of Registrant
	Item 2. Properties.
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 4A. Risk Factors
PART II
	Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
	Item 6. Selected Consolidated Financial Data
	Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 13. Certain Relationships and Related Transactions
	PART IV
	Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
EX-3.02 Amended and Restated Bylaws
EX-10.63 Employment Letter Agreement
EX-10.64 Employment Letter Agreement
EX-13.01 Portions of Company's 2000 Annual Report
Consent of KPMG LLP




Program/ Product Candidates	Disease Indications/
Drug Delivery Business	Conditions	Status(1)	Corporate Partner

GLIADEL® Wafer (3.85% BCNU)	Recurrent glioblastoma multiforme	Market	Orion Corporation Pharma(2)

	Malignant glioma at time of initial surgery	Market approval to be considered by FDA(3)	Orion Corporation Pharma(2)

PACLIMER® Microspheres (paclitaxel in PPE microspheres)	Ovarian cancer	Phase I/II	—

PACLIMER® Microspheres (paclitaxel in PPE microspheres)	Lung, prostate and head & neck cancer	Pre-clinical	—

LIDOMER^TMMicrospheres	Post-surgical pain	Pre-clinical	—

Neurological Products Program

*Neurotrophic Drugs*

NIL-A	Parkinson’s disease	Phase II	Amgen

Other FKBP neuroimmunophilin ligands	Alzheimer’s disease, traumatic brain injury, traumatic spinal cord injury, multiple sclerosis, neuropathy, stroke and others	Pre-clinical	Amgen

Other neurotrophic and cytoprotective small molecules	Alzheimer’s disease, traumatic brain injury, traumatic spinal cord injury, multiple sclerosis, neuropathy, stroke and other ischemic damage	Research	—

*Neuroprotective Drugs*

GPI-5693	Neuropathic pain and disease modification for diabetic neuropathy	Phase I	—

Other NAALADase inhibitors	Other neuroprotective indications (such as ALS, glaucoma and stroke)	Research	—

PARP inhibitors	Stroke, peripheral ischemia, septic shock, inflammation	Pre-clinical	—

*Anesthetic/Sedation Agent*

AQUAVAN^TMInjection	Surgical anesthesia/ sedation	Phase I	—

*Diagnostic Imaging Agent*

DOPASCAN® Injection	Imaging agent to diagnose and monitor Parkinson’s disease	Phase III	Daiichi Radioisotope Laboratories, Ltd.(4)


	Balance						Balance
Classification	@ 12/31/97		Additions		Deductions		@ 12/31/98

Inventory Reserve	$	257	$	—		—	$	257




Product Returns	$	—					$	—


	Balance					Balance
Classification	@ 12/31/98		Additions	Deductions		@ 12/31/99

Inventory Reserve	$	257	$		—	$	257




Product Returns	$	—				$	—


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

For the fiscal year ended December 31, 2000

Commission File Number: 0-23736


	•	our ability to successfully market, sell and distribute GLIADEL® Wafer,


Name	Age		Position

Directors:




Craig R. Smith, M.D.		55	Chairman of the Board, President, and Chief Executive Officer




George L. Bunting, Jr.		60	Director




Richard L. Casey		54	Director




Elizabeth M. Greetham		51	Director




Joseph Klein, III		40	Director




Ronald M. Nordmann		59	Director




Solomon H. Snyder, M.D.		62	Director




W. Leigh Thompson, M.D., Ph.D.		62	Director




Executive Officers:




David P. Wright		53	Executive Vice President Commercial Operations




John P. Brennan		58	Senior Vice President, Technical Operations and General Manager, Drug Delivery Business




Andrew R. Jordan		53	Senior Vice President, Chief Financial Officer and Treasurer




Peter D. Suzdak, Ph.D.		42	Senior Vice President, Research & Development




Thomas C. Seoh		43	Senior Vice President, Corporate Development, General Counsel and Secretary




Nancy J. Linck, Ph.D., J.D.		59	Senior Vice President, Intellectual Property and Deputy General Counsel




William C. Vincek, Ph.D.		53	Vice President, Pharmaceutical & Chemical Development




Denise Battles		46	Vice President, Corporate Quality




Dana C. Hilt, M.D.		48	Vice President, Clinical Research and Drug Metabolism




Margaret M. Contessa		52	Vice President, Human Resources


Exhibit
Number*		Description

	3.01A	Amended and Restated Certificate of Incorporation of the Company.
	3.01B	Certificate of Amendment to Amended and Restated Certificate of Incorporation.
	3.02	Amended and Restated By-laws of the Company (filed herewith).
	4.01	Specimen Stock Certificate.
	4.02A	Stockholder Rights Agreement dated September 26, 1995.
	4.02B	Form of Amendment No. 1 to Stockholder Rights Agreement (incorporated by reference to Form 8-K, filed October 20, 1998)
	10.01A	1993 Employee Share Option and Restricted Share Plan (“1993 Option Plan”).
	10.01B	Amendments to 1993 Option Plan.
	10.01C	1998 Employee Share Option and Restricted Share Plan (“1998 Option Plan”) (incorporated by reference to Form S-8, filed on February 12, 1999).
	10.01D	Amendment to 1998 Option Plan (incorporated by reference to Form 10-K filed on March 30, 1999).
	10.02A	Series A Preferred Stock Purchase Agreement, dated September 30, 1993, as amended between the Company and holders of its Series A Preferred Stock (“Series A Agreement”).
	10.02B	Amendment, dated August 25, 1994, to Series A Agreement.
	10.02C	Amendment, dated February 15, 1995, to Series A Agreement.
	10.03A†	License Agreement, effective March 18, 1994, between the Company and Research Triangle Institute, a not-for-profit Corporation existing under the laws of North Carolina.
	10.03B	Appendix A to Exhibit 10.04.
	10.04†	License Agreement, dated March 15, 1994, between the Company and Scios Nova.
	10.05	Employment Agreement between the Company and Craig R. Smith, M.D.
	10.06	Employment Agreement between the Company and Andrew R. Jordan.
	10.07	Employment Agreement between the Company and John P. Brennan.
	10.08	(Intentionally Omitted)
	10.09	Employment Agreement between the Company and William C. Vincek, Ph.D.
	10.10	Employment Agreement between the Company and Peter D. Suzdak.
	10.11	(Intentionally Omitted)
	10.12	Employment Agreement between the Company and Thomas C. Seoh.
	10.13A	Amendments to certain executive officer employment letter Agreements.
	10.13B	Form of Change in Control Severance Agreement (incorporated be reference to the Form 10-Q for the quarter ended September 30, 1998).
	10.13C	Severance Provisions from Employment Letter Agreement, effective September 21, 1998, with Nancy J. Linck (incorporated by reference to the Form 10-Q for the quarter ended September 30, 1998).
	10.14	(Intentionally Omitted)
	10.15A	Consulting Agreement, dated August 1, 1993, as amended on February 28, 1994, between the Company and Solomon H. Snyder, M.D. (the “Snyder Consulting Agreement”).
	10.15B	September 1, 1995 amendment to Snyder Consulting Agreement.
	10.15C	November 19, 1997 amendment to Snyder Consulting Agreement.
	10.15D	September 1, 1998 and January 1, 1999 amendments to Snyder Consulting Agreement (incorporated by reference to Form 10-K filed March 30, 1999).


*	Unless otherwise noted above, all exhibits referenced above are incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1997.


Signature	Title	Date

/s/ CRAIG R. SMITH Craig R. Smith, M.D.	Chief Executive Officer, President and Director (Principal Executive Officer)	March 29, 2001
/s/ ANDREW R. JORDAN Andrew R. Jordan	Sr. Vice President, Chief Financial Officer, and Treasurer (Principal Financial Officer and Principal Accounting Officer)	March 29, 2001
/s/ SOLOMON H. SNYDER Solomon H. Snyder, M.D.	Director	March 29, 2001
/s/ RICHARD L. CASEY Richard L. Casey	Director	March 29, 2001
/s/ GEORGE L. BUNTING, JR. George L. Bunting, Jr.	Director	March 29, 2001
/s/ W. LEIGH THOMPSON W. Leigh Thompson, M.D., Ph.D.	Director	March 29, 2001
/s/ ELIZABETH M. GREETHAM Elizabeth M. Greetham	Director	March 29, 2001
/s/ JOSEPH KLEIN, III Joseph Klein, III	Director	March 29, 2001
/s/ RONALD M. NORDMANN Ronald M. Nordmann	Director	March 29, 2001