e10vkza

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 þ No o

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. o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes þ No o

As of June 30, 2003, the aggregate market value of the approximately 28,931,279 shares of common stock of the Registrant issued and outstanding on such date, excluding approximately 2,044,013 shares held by affiliates of the Registrant, was approximately $119,917,206. This figure is based on the closing sales price of $4.46 per share of the Registrant’s common stock as reported on The NASDAQ® National Market on June 30, 2003.

As of April 7, 2004, approximately 33,932,111 shares of common stock of the Registrant were issued and outstanding.

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

We are filing this Amendment No. 1 to our annual report on Form 10-K for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on March 15, 2004. This amendment clarifies certain information in Part I, Item 1 relating to the description of our intellectual property rights, certain technology licensing agreements and our research and development expenses and updates certain information regarding our NAALADase program. Pursuant to this amendment we are also re-filing exhibit 10.22 to our Form 10-K to include all exhibits thereto.

Item 1. “Business” of Part I is amended by replacing it in its entirety with the following:

Guilford is a pharmaceutical company engaged in the research, development and commercialization of proprietary pharmaceutical products that target the hospital and neurology markets. We market and sell proprietary pharmaceutical products within our targeted markets, conduct clinical research to expand the labeled indications for our marketed products, and develop new product candidates. We also collaborate with other pharmaceutical companies to support the sales and marketing of our products and the clinical development of our products and product candidates.

During 2003, as part of our effort to implement our strategy, we were successful in expanding the approved uses of GLIADEL® Wafer to include use at the time of initial surgery for malignant glioma, acquired AGGRASTAT® Injection, a hospital-based, anti-platelet aggregation medication from Merck & Co., Inc., completed Phase II clinical trials for our AQUAVAN® Injection product candidate in conscious sedation and initiated a Phase II clinical trial of GPI 1485, our product candidate for Parkinson’s disease and peripheral nerve injury, for treatment of post-prostatectomy erectile dysfunction. We supported these activities, in part, through a number of capital raising activities, including the completion during the second and third quarters of 2003, of a $69.4 million convertible debt offering, a $42 million revenue interest agreement with Paul Royalty Fund, L.P. and Paul Royalty Fund II, L.P., and a $27.3 million private placement of our common stock to certain institutional investors.

We were incorporated in Delaware in July 1993. Our principal executive offices are located at 6611 Tributary Street, Baltimore, MD 21224. Our telephone number is (410) 631-6300, and our website address is http://www.guilfordpharm.com. We make our electronic filings with the Securities and Exchange Commission (SEC), including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports available on our website free of charge as soon as practicable after we file or furnish them with the SEC.

Financial information prepared in accordance with accounting principles generally accepted in the United States of America, including information about revenues from customers, measures of profit and loss and total assets, can be found in our consolidated statements included elsewhere in this report.

We currently have two marketed products: GLIADEL® Wafer and AGGRASTAT® Injection. GLIADEL® Wafer provides targeted, site specific chemotherapy for the treatment of malignant glioma at the time of initial surgery, and for recurrent glioblastoma multiforme. AGGRASTAT® Injection is an inhibitor of platelet aggregation approved for the treatment of acute coronary syndrome.


(1)	“Marketed” means that a product is being sold and marketed under applicable regulatory approval.

(2)	In November 2002, we withdrew an application submitted to the European Agency for the Evaluation of Medicinal Products, or the EMEA, to approve GLIADEL® Wafer for “first-line” therapy in Europe because we were waiting for the FDA to respond to a similar application filed in the United States. In February 2003, the FDA responded favorably to our application and, therefore, we resubmitted this application to the EMEA during September 2003, and we expect to be notified of the EMEA’s decision regarding expanding the label for GLIADEL® Wafer during 2004.

Our product pipeline consists of product candidates in various stages of clinical and preclinical development. AQUAVAN® Injection, a prodrug of propofol, is in Phase II clinical trials for procedural sedation during brief diagnostic or therapeutic procedures. GPI 1485, our lead neuroimmunophilin ligand compound, is in Phase II clinical trials for the treatment of Parkinson’s disease and peripheral nerve injury. DOPASCAN® Injection is in Phase III clinical trials as an imaging agent to diagnose and monitor the progression of Parkinson’s disease. Our preclinical research programs include the development of NAALADase inhibitor compounds for neuropathic pain and for prostate cancer, drug addiction and traumatic brain and spinal cord injury and the development of PARP inhibitor compounds for cancer chemosensitization and radiosensitization.

The following table summarizes our clinical development programs for our products and product candidates:


(1)	“Clinical Development” means that the product is being used in clinical trials.

(2)	MAP Medical Technologies Oy, or MAP, our corporate partner in Europe for this technology, has informed us that it submitted an application to receive regulatory approval in Finland for DOPASCAN® Injection in April 2002. It expects the Finnish regulatory authorities to respond to this application during


	2004. Daiichi Radioisotope Laboratories, Ltd., or DRL, our corporate partner in Japan for this technology, has informed us that it applied for marketing approval in Japan with the Japanese Health Authority in 2003, and it expects this agency to respond to its application during 2004.


(3)	Currently, AGGRASTAT® Injection does not have a label indication for immediate use in a cardiac catheterization laboratory in percutaneous coronary intervention, or PCI, settings. In order to expand AGGRASTAT® Injection’s label to include PCI, we expect to initiate a Phase III clinical trial of AGGRASTAT® Injection in the PCI setting in 2004.


(1)	“Pre-clinical” means testing in vitro and in animal models, pharmacology and toxicology testing, product formulation and process development. “Research” means initial research related to specific molecular targets, synthesis of new chemical entities and assay development for the identification of lead compounds.

GLIADEL® Wafer is a proprietary cancer chemotherapy product approved for the treatment of malignant glioma (brain cancer) at the time of initial surgery, as an adjunct to surgery and radiation, and for the treatment of recurrent glioblastoma multiforme, a rapidly fatal form of malignant brain cancer. It is a biodegradable polymer containing BCNU (carmustine), a cancer chemotherapeutic drug, and is designed to provide targeted, site specific chemotherapy. We estimate that there are 11,000 cases of malignant glioma in the United States each year. After a surgeon resects a brain tumor, up to eight wafers are implanted in the cavity that remains. Once implanted, the wafers gradually dissolve, delivering high concentrations of BCNU directly to the tumor site for an extended period of time. By inserting the wafer directly at the site of the tumor, the physician can minimize exposure to BCNU throughout the body and reduce or alleviate many of the side effects associated with intravenous chemotherapy.

In 1996, the U.S. Food and Drug Administration (FDA) approved GLIADEL® Wafer for use as an adjunct to surgery to prolong survival in patients with recurrent glioblastoma multiforme, or GBM. Also in 1996, we entered into agreements with Aventis (then Rhône-Poulenc Rorer) granting it marketing rights to GLIADEL® Wafer in the U.S. and clinical development and marketing rights in the rest of the world (excluding Scandinavia, where the product is distributed and marketed by Orion Pharma under an agreement with us entered into in 1995, and later, Japan). Between 1996 and October 2000, Aventis obtained regulatory

In October 2000, we reacquired Aventis’ marketing rights to GLIADEL® Wafer for 300,000 shares of our common stock then valued at approximately $8 million. Aventis continued to market GLIADEL®Wafer for a transition period ending December 31, 2000, after which we have been solely responsible for the marketing, sale and distribution of GLIADEL® Wafer except in Scandinavia, where the product continues to be sold by Orion Pharma.

In April 2001, we submitted a supplemental New Drug Application (sNDA) for GLIADEL® Wafer, seeking to expand the label for the product to include use in initial surgery for malignant glioma. In March 2002, the FDA sent us a not approvable letter indicating concerns regarding the survival benefit associated with GLIADEL® Wafer treatment during initial surgery. In response to the FDA’s letter, we agreed with the FDA on the protocol and methods for collecting and analyzing long-term follow up data for the purpose of reapplying for a first surgery approval. On September 19, 2002, we presented the results of this analysis to the FDA. On February 25, 2003, the FDA approved our amended sNDA.

We pay a royalty to Massachusetts Institute of Technology (MIT) on sales of GLIADEL® Wafer pursuant to the license agreement under which we acquired the underlying technology for the product. During 2003, we recognized approximately $0.8 million in royalty expense to MIT.

We currently manufacture GLIADEL® Wafer using a proprietary process at our 18,000 square foot facility in Baltimore, Maryland, which includes areas designated for packaging, quality assurance, laboratory and warehousing. This facility was initially inspected by the FDA in October 1995, and it was re-inspected by the FDA in February 1999 and in September 2002. Also, in October 1999, we were inspected by the Medicines Control Agency, the United Kingdom’s regulatory authority. The facilities we are currently using for manufacturing enable us to produce up to 8,000 GLIADEL® Wafer treatments (each consisting of eight wafers) annually. We have a second clean room facility, which we expect would allow us to increase our GLIADEL® Wafer manufacturing capacity to 20,000 treatments annually. We are currently manufacturing GLIADEL® Wafer at 15% of capacity per year; and therefore, we believe that our capacity to manufacture GLIADEL® Wafer will satisfy patient demand for the product.

We believe that the various materials used in GLIADEL® Wafer are readily available and will continue to be available at reasonable prices. We have an adequate supply of BCNU, the active chemotherapeutic ingredient in GLIADEL® Wafer, to meet our expected demand for the product. Nevertheless, failure of any supplier to provide sufficient quantities of raw material for GLIADEL® Wafer in accordance with the FDA’s current Good Manufacturing Practice (cGMP) regulations could cause delays in our ability to sell the product.

AGGRASTAT® Injection is a glycoprotein GP IIb/ IIIa receptor antagonist, indicated for the treatment of acute coronary syndrome (ACS) including patients who are to be medically managed and those undergoing percutaneuous transluminal coronary angioplasty (PTCA) or atherectomy. ACS includes unstable angina, which is characterized by chest pain when one is at rest, and non-ST elevation myocardial infarction (NSTEMI). GP IIb/ IIIa receptor antagonists, including AGGRASTAT® Injection, block the ability of platelets to aggregate, thereby inhibiting the formation of blood clots and reducing the potential for cardiac ischemia.

AGGRASTAT® Injection was developed by Merck & Co., Inc. (Merck) and was approved by the FDA in May 1998. We acquired the rights to AGGRASTAT® Injection in the United States and its territories from Merck in October 2003, for $84 million plus certain royalty payments to Merck, based on our net sales of the product. We financed $42 million of the purchase price through a revenue interest agreement with Paul

We have entered into an exclusive supply agreement with Merck for the manufacture and supply of the active pharmaceutical ingredient (API) of AGGRASTAT® Injection. AGGRASTAT® Injection finished product is sold in 100 ml and 250 ml pre-mixed bags and 50 ml vials. Merck has agreed to supply us with the finished product of AGGRASTAT®Injection, through its contract manufacturers, Baxter (for bags) until August 2007 and Ben Venue (for vials) and through the end of 2004, or earlier, if we negotiate direct contractual relationships with those manufacturers.

Our commercial operations are comprised of 63 full time sales and marketing specialists, encompassing medical affairs, sales operations, sales training and marketing personnel. This function includes a 49 member United States field sales force, 3 marketing specialists, 5 medical affairs specialists, and 6 people dedicated to additional sales and marketing related functions. They are responsible for the direct sales and marketing of GLIADEL® Wafer and AGGRASTAT® Injection throughout the United States and the sales and marketing of GLIADEL® Wafer outside the United States, through a network of specialty pharmaceutical distributors. We established our commercial operations capabilities in connection with our reacquisition of commercial rights to GLIADEL®Wafer, during the fourth quarter of 2000 and the first quarter of 2001. In order to assist in the distribution of GLIADEL® Wafer in the United States, we engaged Cord Logistics Inc., in November 2000, to handle fulfillment of customer orders.

In Europe, we have an agreement with IDIS Limited, based in the U.K., for the distribution of GLIADEL® Wafer to our network of European distributors and on a named hospital basis in countries where we have not engaged a third-party distributor. To date, we have entered into agreements for the marketing, sale and distribution of GLIADEL® Wafer in Italy, Portugal, Spain, the United Kingdom, Greece, South Africa, Australia, Israel, Hong Kong and the People’s Republic of China, as well as in other international markets.

Through our acquisition of AGGRASTAT® Injection, we have leveraged our commercial operations capabilities across two marketed products. We also expect our experience in commercial operations to benefit us when product candidates in our pipeline, such as AQUAVAN® Injection, are able to be marketed following FDA approval.

In 2003, 2002 and 2001, sales of GLIADEL® Wafer generated revenues of $19.2 million, $14.5 million, and $20.4 million, respectively, which represented 70%, 99%, and 99% of our total revenues, respectively. Approximately 69% of our sales of GLIADEL® Wafer in 2002 and approximately 76% in 2003 were made to Specialty Pharmaceuticals Distribution (SPD), a division of Cardinal Health, Inc. (formerly known as National Specialty Services, Inc.) under a distribution agreement with SPD. Because we acquired AGGRASTAT® Injection in October 2003, we only generated revenues from this product for November and December 2003. For those two months, AGGRASTAT® Injection generated revenues of $2.5 million, representing 9% of our total revenues for 2003.

AQUAVAN® Injection is a novel sedative/hypnotic. We are currently studying AQUAVAN® Injection for procedural sedation during brief diagnostic and therapeutic medical procedures. Procedural sedation is “mild to moderate” sedation in which patients are lethargic, but responsive to stimulation and are able to

Our clinical trials with AQUAVAN® Injection have studied its use in connection with elective colonoscopy. In November 2003, we announced that we had completed a preliminary analysis from a Phase II, open label, multi-center adaptive dose ranging study of AQUAVAN® Injection, used in combination with fentanyl citrate, to provide mild sedation in healthy patients aged 18-60 undergoing elective colonoscopy. The analysis we submitted to the FDA suggests that AQUAVAN® Injection provides rapid onset and rapid recovery from sedation/anesthesia in a convenient dosing regimen and without serious adverse effects. We also conducted a confirmatory Phase II study of AQUAVAN® Injection to evaluate the fixed dose identified in our dose ranging study. Pending agreement with the FDA, we expect to begin a Phase III clinical trial program studying AQUAVAN® Injection for procedural sedation during 2004, in as many as four separate indications.

We licensed the rights to AQUAVAN® Injection from ProQuest Pharmaceuticals Inc. (ProQuest) during the first quarter of 2000. AQUAVAN® Injection is a prodrug of a widely-used anesthetic, propofol. A prodrug is a compound that is converted in the body into an active drug. AQUAVAN® Injection, is water-soluble and converts to propofol in the body upon intravenous administration. As a result of the body’s conversion of AQUAVAN® Injection into propofol, low, therapeutically effective levels of propofol are released while avoiding the high levels of propofol seen after injection with the FDA approved propofol lipid emulsion. In addition, the administration of propofol lipid emulsion can cause other complications.

Since we licensed AQUAVAN® Injection from ProQuest, we have also conducted four Phase I clinical studies in Europe in healthy volunteers, one Phase I clinical study in the United States and a Phase II clinical trial of AQUAVAN® Injection in patients undergoing coronary artery surgery. This second Phase II study, took place in Europe and was the first use of AQUAVAN® Injection in surgical patients. The purpose of the study was to evaluate the safety, tolerability and efficacy of AQUAVAN® Injection, compared to DIPRIVAN® Injectable Emulsion (i.e., the branded formulation of propofol), for use in pre-operative sedation, anesthesia induction and maintenance, and post-operative ICU sedation in patients undergoing coronary artery bypass surgery. We announced the results of this clinical trial in November 2003. These results suggest that AQUAVAN® Injection could be used to provide total intravenous anesthesia for complex medical and surgical procedures in high risk patients. There were no drug-related serious adverse events in either the AQUAVAN® Injection or DIPRIVAN® Injectable Emulsion treatment groups.

We have exclusive rights in the U.S. to a composition of matter patent covering AQUAVAN® Injection.

GPI 1485 is our investigational new drug that belongs to a class of small molecule compounds called neuroimmunophilin ligands. It is orally administered and, in preclinical experiments, has been shown to repair and regenerate damaged nerves without affecting normal healthy nerves. GPI 1485 and other neuroimmunophilin ligands may have application in the treatment of a broad range of diseases and conditions, including Parkinson’s disease, spinal cord injury, brain trauma, and peripheral nerve injuries. We are currently studying GPI 1485 for use in connection with the treatment of Parkinson’s disease and post-prostatectomy erectile dysfunction, a condition caused by peripheral nerve injury at the time of surgery.

Parkinson’s disease is a chronic, progressive degenerative disorder that affects over one million people in the United States. While the exact cause of the disease is not known, physicians have observed that patients with the disease experience a progressive deterioration of dopamine nerve cells located in a specific region of the brain. The loss of these nerve cells is believed to contribute to the symptoms of Parkinson’s disease, which include the loss of muscle tone and coordination, tremors, and non-motor symptoms, such as changes in appetite, cognition, sleep and mood. In October 2003, we announced that we completed enrollment in a Phase II clinical trial studying GPI 1485, compared to placebo, in slowing the rate of decline of dopamine transporters. This trial is a multi-center, randomized, double-blind, placebo-controlled evaluation of the safety, pharmacokinetics and efficacy of GPI 1485 in 212 patients with mild to moderate Parkinson’s disease. Clinical endpoints in the trial include changes in the daily amount of anti-Parkinsonian medication

In November 2003, we announced that we had initiated a Phase II clinical trial with GPI 1485 for the treatment of post-prostatectomy erectile dysfunction (PPED). In PPED, sexual dysfunction occurs as a result of compression or stretch injury to nerve fibers that surround the prostate and which are responsible for trapping blood flow to sustain a penile erection. Unfortunately, a high proportion of men undergoing radical prostate surgery may experience side effects from their surgery including urinary incontinence and sexual dysfunction, which is frequently unresponsive to currently available drug therapies, including VIAGRA®. GPI 1485 represents a novel approach to the treatment of PPED by potentially promoting the protection and regeneration of peripheral nerves that may sustain injury during radical prostate surgery.

Our neuroimmunophilin ligand program, originated from observations first made in the laboratory of Dr. Solomon Snyder, Director of the Department of Neuroscience at Johns Hopkins and one of our directors and founders, that certain proteins that exist within a cell, known as “immunophilins,” 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 this research 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. As a result of this basic research, Guilford scientists discovered GPI 1485 and many other proprietary neuroimmunophilin ligands, which are neurotrophic, i.e., regenerate nerves, 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 have resulted from the collaboration, for all human therapeutic and diagnostic applications. During 1998, Amgen nominated GPI 1485, which it called “NIL-A,” as the lead compound in the program, initially targeting Parkinson’s disease. During 1999, Amgen filed an Investigational New Drug, or IND, application with the FDA and commenced human trials with NIL-A, focusing on safety, tolerability and pharmacokinetic study in healthy subjects. NIL-A entered Phase II testing in patients with Parkinson’s disease during 2000. In July 2001, we announced results of this six-month Phase II, randomized, double blind, placebo-controlled evaluation of the safety, pharmacokinetics and efficacy of NIL-A in patients with mild to moderate Parkinson’s disease. The results of the evaluation suggest that NIL-A at doses of up to 1,000 mg taken orally four times a day for six months is well tolerated, but does not produce a significant reversal of the motor symptoms of Parkinson’s disease.

In September 2001, Amgen terminated the collaboration and, thereafter, returned all rights to the neuroimmunophilin technology to us, including certain clinical trial supplies for which we paid $0.2 million. After we regained the rights to this technology, we continued to analyze the results of Amgen’s Phase II trial and determined that the trial suggested that oral administration of GPI 1485 may retard the loss of dopamine transporters.

We have more than 60 U.S. patents protecting our Neuroimmunophilin ligand technology.

DOPASCAN® Injection is our product candidate for the diagnosis and monitoring of Parkinson’s disease to which we obtained exclusive patent rights from the Research Triangle Institute (RTI) in Research Triangle Park, North Carolina, where it was invented. DOPASCAN® Injection is administered intravenously in trace quantities and allows physicians to obtain images and measure the density of dopamine neurons in the brain. Dopamine neurons are highly concentrated in a specialized area of the brain. These neurons degenerate

We have entered into an agreement with Daiichi Radioisotope Laboratories, Ltd., or DRL, a leading Japanese radiopharmaceutical company, to develop and commercialize DOPASCAN® Injection in Japan, Korea and Taiwan. DRL has informed us that it completed a Phase III clinical trial with the product in July 2002, filed an application for regulatory approval in June 2003, with the Japanese Health Authority, and expects to be informed about the status of that application during 2004. In January 2002, we sublicensed European rights for the development and commercialization of DOPASCAN® Injection to MAP, a division of Schering AG located in Finland. MAP has informed us that it submitted an application to receive regulatory approval in Finland for DOPASCAN® Injection in April 2002. It expects the Finnish regulatory authorities to respond to this application during 2004.

In May 2002, we sublicensed DOPASCAN® Injection for research purposes to Molecular Neuroimaging LLC, or MNI, a privately held company based in New Haven, Connecticut that specializes in the use of brain imaging technologies for, among other purposes, the analysis of clinical trials of pharmaceutical product candidates targeting neurodegenerative diseases. During the term of our agreement, MNI has also agreed to provide us with favorable pricing for its services (including the administration of DOPASCAN® Injection) for any clinical trials for our product candidates. Presently, we have engaged MNI to provide its services for our clinical trial of GPI 1485 for Parkinson’s disease.

We currently do not have a clinical development program for DOPASCAN® Injection in the United States; and therefore, do not expect to be applying to the FDA to market and sell DOPASCAN®Injection.

In October 2003, we acquired rights to AGGRASTAT® Injection in the U.S. and its territories from Merck. Between 1999 and 2001 Merck conducted a Phase III clinical trial in order to obtain a label for immediate percutaneous coronary intervention in a cardiac catheterization laboratory, or PCI. In that trial, called TARGET, Merck attempted to show AGGRASTAT® Injection was not inferior to ReoPro (abciximab), the drug believed to be most effective in the PCI setting, but failed to do so. Based on several other trials that have been conducted since TARGET, it is now believed that the dose of AGGRASTAT® Injection used in TARGET was not sufficient. Based on these data, we plan to conduct a clinical study with AGGRASTAT® Injection using an appropriately higher dose, for the purpose of expanding the label to include use in the PCI setting. We expect to begin this trial by the third quarter of 2004.

NAALADase, or N-Acetylated-Alpha-Linked-Acid-Dipeptidase, is a membrane-bound enzyme found in the central and peripheral nervous system. NAALADase is believed to play a role in modulating the release of glutamate in the nervous system. Glutamate is one of the brain’s most common chemical messengers. Under normal conditions, glutamate is released into a microscopic space, called the synapse, that exists between neurons in the brain. There, it stimulates post-synaptic glutamate receptors, an action that is critical to such functions as learning, memory and motor control. However, during conditions of acute injury or chronic disease, there may be a large increase in glutamate release that incites a cascade of biochemical events, ultimately leading to cell injury or death. Our NAALADase inhibitor program is aimed at developing a commercial drug to block excessive glutamate release.

In several animal models of diabetic neuropathy and neuropathic pain, our NAALADase inhibitors appear to normalize pain sensitivity, increase nerve conduction velocity and prevent nerve degeneration. Initially, we selected GPI 5693 as a lead NAALADase inhibitor compound and commenced Phase I clinical studies with this compound in early 2001 for the treatment of neuropathic pain and the underlying disease process associated with diabetic peripheral neuropathy. This Phase I Study, conducted in Europe, evaluated the safety, tolerability and pharmacokinetics of the compound in healthy subjects and suggested that it may be

In May 2003, we entered into an agreement granting Pfizer the exclusive right to develop NAALADase inhibitors worldwide, for which Pfizer paid us $5 million upon the execution of the agreement, and was to pay us $10 million on or before March 31, 2004. In March 2004, Pfizer informed us that the milestone payment would not be made and that Pfizer was terminating the agreement. As a result of Pfizer’s termination, all rights to develop and commercialize the NAALADase inhibitor technology granted to Pfizer reverted to us and no further milestone payments or royalties are to be received from Pfizer.

We are currently pursuing the development of GPI 5693 for prostate cancer and drug addiction.

We have 38 U.S. patents and corresponding foreign counterparts protecting our NAALADase technology.

Poly(ADP-ribose) polymerase, or PARP, is an abundant nuclear enzyme found in most eukaryotic tissues. Upon activation by DNA damage, PARP synthesizes poly(ADP-ribose) from nicotinamide adenine dinucleotide (NAD). As a component of the DNA base excision repair system, PARP plays a major role in facilitating DNA repair and maintaining genomic integrity. In cancer treatment, high PARP activity is believed to enable tumor cells to counteract the chemotherapy and radiation therapy by repairing DNA damage. In animal testing, PARP inhibition enhances the activity of radiotherapy, as well as a wide spectrum of chemotherapeutic agents. In ischemia, over-activation of PARP mediates necrosis by depleting NAD and ATP. In animal testing, PARP inhibition provides neuroprotection in stroke and myocardial ischemia models.

Our scientists have synthesized several families of potent orally bioavailable small molecule PARP inhibitors that are efficacious in rodent models of cancer and ischemia. Our lead compound, GPI 15427, is highly brain penetrable and has shown robust chemo- and radio-sensitization in several brain cancer and ischemia models. We are currently conducting preclinical toxicology and pharmacokinetic characterization of GPI 15427 for clinical development.

Neuroimmunophilin ligands and other neurotrophic and cytoprotective small molecules

In September 2003, the NIH awarded a $5.5 million four-year program project grant to the Johns Hopkins University and us to study the effects of GPI 1485 in HIV neuropathy and dementia. These studies include cell culture neurotoxicity assays, animal experiments, and culminate in a human clinical study, which we expect will begin in 2005. Additional GPI 1485 preclinical studies including protection from sensorineural hearing loss, stimulation of hair growth, and neuroprotective and neuroregenerative mechanistic studies are ongoing.

Our scientists have also developed potent, novel, orally-active small molecule ligands of cyclophilin that may be neuroprotective and neuroregenerative. These compounds have shown neuroprotection and neurite

We have several promising early stage programs in the neuroprotection and cancer therapeutic areas. Our scientists are pursuing two strategies for inhibition of neuronal death in neurodegenerative diseases. One strategy targets enzymes, such as serine racemase, involved in regulating the activity of the neurotransmitter glutamic acid. Glutamate is a major neurotransmitter in the nervous system, but is neurotoxic in excessive amounts, and elevated levels of glutamate have been implicated in a variety of nervous system disease states. In a second approach, our scientists are developing compounds that inhibit cell death caused by signals from the mitochondria in cells. Mitochondria are the “batteries” that produce energy in the form of ATP in cells, and are important mediators of neuronal death in neurodegenerative diseases. Our scientists have discovered novel series of potent compounds that inhibit mitochondrial death signaling, and are pursuing the development of drug-like small molecules based on these discoveries. In the cancer area, we have discovered novel compounds that modulate the activity of the protein p53, a major protector of cells against cancer. By increasing p53 activity, these compounds inhibit cancer cell growth in a variety of cancer cell lines. Our scientists are also engaged in structure-based drug design targeting a class of proteins called molecular chaperones whose activity is increased in cancer cells.

On July 30, 2002, we announced a reorganization of our research and development programs, which included a workforce reduction of 58 employees, most of whom worked in the areas of research and development. In connection with this reorganization, we discontinued further development of our polyphosphoester biopolymer drug delivery program, or PPE Program. The PPE Program included our PACLIMER® Microspheres and LIDOCAINE-PE Microspheres (formerly known as LIDOMER Microspheres) development programs. PACLIMER® Microspheres is a product candidate for investigating controlled, site-specific administration and release of paclitaxel (brand name TAXOL®) for ovarian cancer and non-small cell lung cancer. LIDOCAINE-PE Microspheres is a product candidate for controlled, site-specific administration and release of LIDOCAINE, a commonly used analgesic, for post-operative pain.

In order to further develop the programs that were affected by this reorganization, we are pursuing corporate partnerships and other similar licensing transactions.

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 inspection, registration, 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-approval 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 spend time, money and effort in production, recordkeep-

The steps required before a drug may be commercially distributed in the United States include: (i) conducting appropriate pre-clinical 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. 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 pre-clinical, 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 pre-clinical 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. Pre-clinical tests to support an FDA application must be conducted in accordance with the FDA regulations concerning Good Laboratory Practices (GLPs). The results of the pre-clinical 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 becomes 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 trials may be placed on hold at any time for a variety of reasons, particularly if safety concerns arise, or regulatory requirements are not met.

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 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 our product candidates.

Reports of results of the pre-clinical 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.

The median FDA approval time for an NDA is currently about 15 months for new drugs, 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.

The full NDA process for newly marketed non-biological drugs, such as GPI 1485, NAALADase Inhibitors and AQUAVAN® Injection those being developed by us, including neuroimmunophilin ligand products and inhibitors of NAALADase, 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.

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.

We are also governed by other federal, state and local laws. 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

As of December 31, 2003, we owned or had licensed rights to more than 160 U.S. patents and more than 150 foreign patents. In addition, we owned or had licensed more than 600 pending applications worldwide. We also own registered trademarks to AGGRASTAT®, AQUAVAN®, DOPASCAN®, GLIADEL® and PACLIMER®. The following charts identify the number of patents and patent applications that protect or relate to our marketed products, product candidates and key research programs, and whether those patents or patent applications are issued (or filed) in the United States or internationally.

The patents covering GLIADEL® Wafer are licensed and expire in the United States in August 2006. The international patents covering GLIADEL® Wafer expire no earlier than 2006 and continue through 2011. The patents covering AGGRASTAT® Injection are licensed and expire no earlier than 2012. The patents covering AQUAVAN® Injection are both licensed and owned and expire no earlier than 2018. The patents covering GPI 1485 are both licensed and owned and expire no earlier than 2015. The patents covering DOPASCAN® Injection are licensed and expire no earlier than 2009. Because we have not yet selected clinical candidates for the remainder of our technologies, information regarding whether patents relating to these technologies are owned or licensed and the dates when these patents expire may not be relevant to the

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 this opposition, and the subject patent was revoked. However, the patentee has appealed the initial determination, and the patent could be reinstated.

We have entered into a number of technology licensing agreements through which we have obtained development and commercialization rights to various marketed products, product candidates and research programs.

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 under this license by two U.S. patents and certain related international patents and patent applications. The patent rights in the U.S. will expire in 2006. In April 1994, Scios assigned all of its rights and obligations under the GLIADEL® Wafer Agreement to MIT. We have exclusive worldwide rights to the technology for brain cancer therapeutics, subject to certain conditions, including a requirement to

Under the GLIADEL® Wafer Agreement, we are obligated to pay a royalty of 4% on all net sales of products incorporating the technology covered by the agreement, as well as 25% of all proceeds from sublicensees and 4% of proceeds from corporate partners. Additionally, we were required to pay MIT $8,000 annually as advanced royalty payments under the license agreement until the first commercial sale of GLIADEL and were subject to a minimum annual royalty payment requirement of $15,000, $24,000 and $24,000, for the first three years of commercial sales of the product. For a particular country, our obligation to pay a royalty on net sales expires upon the later to occur of (i) the expiration of the relevant patent rights in such country or (ii) 15 years after the first sale of a commercial product derived from the licensed technology in such country. We also are obligated to meet certain development milestones. As of December 31, 2003, we had paid a total of approximately $3 million in royalty payments to Scios and MIT under this license agreement.

Each party may terminate the agreement if the other party materially breaches the agreement, subject to prior notice to and an opportunity to cure by the offending party. Additionally, we may terminate the agreement at any time with six months prior written notice to MIT. Upon termination of the agreement (other than because of a material breach by MIT) all license rights revert to MIT, subject to our limited right to use the licensed technology for a 90-day transition period following termination of the agreement. Although we believe that we can comply with our obligations, our failure to perform these obligations could result in losing our rights to new polymer-based products.

In addition to the GLIADEL® Wafer Agreement, we have entered into an agreement with Orion Pharma for the distribution and marketing of GLIADEL® Wafer in Scandinavia, the existence and terms of which we do not believe are material to our business.

In March 2000, we entered into a license agreement with ProQuest Pharmaceuticals Inc., or ProQuest, which granted us exclusive worldwide development and commercialization rights to AQUAVAN® Injection. Under the terms of the license agreement, we made an upfront payment of $1 million to ProQuest, of which $250,000 was used to acquire an equity position in the company. In addition, we are required to make the following payments to ProQuest based on the achievement of certain development milestones: $250,000 following the dosing of the first human patient; $750,000 following the dosing of the first human patient in a Phase II clinical trial; $1 million following the dosing of the first human patient in a Phase III clinical trial; $2 million following submission of an NDA that would enable the general marketing of AQUAVAN® in a particular country; and $5 million upon receipt of clearance to market and sell AQUAVAN® in the United States ($3 million for the first European country to permit the marketing and sale of AQUAVAN® and $1 million upon the receipt of approval to market and sell AQUAVAN® in Japan). As of December 31, 2003, we had paid a total of $2 million in milestone payments to ProQuest under this license agreement.

We are also required to pay ProQuest royalties ranging from 5% to 9% of net sales of AQUAVAN®, based on our achievement of certain net sales thresholds. Royalties are payable upon a country by country basis until the last to expire of the patent or patents covering AQUAVAN® in such country, or in the case of countries in which no patents have been issued, until the last to expire of the patents for AQUAVAN® in the United States, France, Germany and the United Kingdom.

The license agreement may be terminated by us at any time upon 60 days prior written notice to ProQuest and by ProQuest upon, among other events, a material breach by us of the terms of the license agreement (subject to prior notice and an opportunity to cure) or upon our failure to achieve certain development and commercialization milestones. Upon termination of the license agreement (other than because of a material breach by ProQuest), all licensed rights to AQUAVAN® revert to ProQuest, subject to our limited right to use the licensed technology for a six month transition period following termination of the license agreement.

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 expire in 2009, as well as certain related international patents and patent applications. Under the RTI Agreement, we have paid RTI a total of $800,000 as reimbursement for certain past, patent-related expenses and as annual payments pursuant to an agreement to support mutually agreed-upon research that was conducted at RTI through March 1999. In addition, we are obligated to pay RTI a royalty of 6.5% of gross revenues we receive from products derived from the licensed technology and from sublicensee proceeds and to make the following minimum royalty payments following the first commercial sale of such products: $15,000, $30,000 and $60,000 during each of the first, second and each successive year thereafter, respectively. We must use commercially reasonable efforts to develop products related to the licensed technology and to meet certain performance milestones. No payments to RTI are required in connection with meeting these performance milestones.

The license agreement expires on the date of expiration of the last patent licensed under the agreement or upon 120 days written notice by either party to the other. The parties also may terminate the license agreement for cause upon a material breach or default by the other party, subject to prior notice to and an opportunity to cure by the offending party. Upon termination of the license agreement by RTI for cause, all licensed rights revert to RTI, subject to our limited right to use the licensed technology for a six-month transition period following termination of the license agreement. Accordingly, our failure to perform our obligations under the RTI Agreement in the future could result in termination of the license, and loss of our right to use this technology.

We do not currently plan to commercialize DOPASCAN® Injection in the United States.

In addition to the RTI Agreement, we have entered into sublicense agreements with MAP and DRL for the development and commercialization of DOPASCAN® Injection in Europe and Japan, respectively, and with MNI for the use of DOPASCAN® Injection for research purposes, the existence and terms of which for each sublicense agreement we do not believe are material to our business.

We have entered into exclusive worldwide license agreements with Johns Hopkins, to patents covering the neurotrophic use of neuroimmunophilin ligands. These agreements require us to reimburse Johns Hopkins for costs associated with preparing, filing, maintaining and prosecuting their patents. The agreements also required us to make approximately $70,000 in an up-front payment and an annual maintenance fee of $5,000. In addition, we are required to make the following milestone payments under these agreements: $100,000 upon the first U.S. IND for a licensed product and $200,000 upon the first FDA approval for commercial sale of a licensed product. We are also required to pay a royalty of 3% on net sales on licensed products and of 2% on any proceeds we receive from sublicenses of licensed products. Further, we are required to expend at least $100,000 per year to develop the licensed products. No milestone payments have been paid by us to Johns Hopkins under this license agreement. Amgen, our former corporate partner under this license agreement, paid a milestone payment of $100,000 to Johns Hopkins upon receipt of the first U.S. IND for a licensed product.

For a particular country, the license agreements expire on the date of expiration of the last patent licensed in that country, or if no patents have been issued in that country, in 2018. The parties also may terminate the license agreements for cause upon a material breach or default by the other party, subject to prior notice to and an opportunity to cure by the offending party. In the event of termination of these licenses, we would lose our rights to use the licensed technology.

In June 1996, we entered into a license agreement with MIT and Johns Hopkins regarding a patent application covering biodegradable polymers for use in connection with the controlled local delivery of certain chemotherapeutic agents (including paclitaxel (TAXOL®) and camptothecin). 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, including filing a New Drug Application for this technology by June 25, 2006. Our failure to perform these obligations could result in losing our rights to such technology. In addition, the underlying patents are subject to “march-in rights” of the U.S. government described below.

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 patent applications for additional PPEs. 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 yearly amounts for, and meet deadlines regarding development of this technology, including filing a New Drug Application for this technology by July 18, 2006. If we fail to meet these requirements, the agreement could be terminated. In the event of termination of these licenses, we would lose our rights to the use of the licensed technology. In addition, the underlying patents are subject to march-in rights of the U.S. government.

As previously mentioned, we have discontinued our PPE Program and are not pursuing further the development and commercialization of the patent rights granted to us under the foregoing license agreements. Accordingly, our only on-going obligation under these licenses is for the payment of certain de minimis patent maintenance costs.

Aspects of the technology licensed by us under agreements with third party licensors may be subject to certain government rights (sometimes referred to as “march-in 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 require us to grant licenses which shall 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. Some of our principal technology license agreements contain provisions recognizing these government rights.

We compete with other pharmaceutical companies to provide pharmaceutical products to the hospital and neurology markets. We are involved in 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 and experience and greater manufacturing, marketing, financial and managerial resources than we

We are aware of several competing approaches 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. Furthermore, our patent protection for GLIADEL® Wafer ends in 2006. At that time, others may try to copy the wafer and enter the market as a generic drug through applicable FDA procedures.

There are two other GP IIb/IIIa inhibitors that compete with AGGRASTAT® Injection: INTEGRELIN® Injection; and ReoPro®. ReoPro®, which is marketed by Eli Lilly, was the first to come to market and is used predominantly at the time of percuteaneous coronary intervention (PCI). Currently, ReoPro has about a 30% dollar share of the IIb/IIIa market. INTEGRELIN® Injection, which is marketed through a co-promotion between Millennium and Schering, has a broader indication than ReoPro® allowing the product to be used both at the time of PCI, as well as prior to PCI. INTEGRELIN®Injection is currently the market leader in the IIb/IIIa market with approximately 60% of the dollar share. In some medical institutions, Angiomax® is being used as a replacement for IIb/IIIa inhibitors in PCI but that use is generally limited to low-risk and elective PCI patients.

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. Most of these activities have focused on naturally occurring growth factors. These factors contain large molecules that generally cannot cross the blood-brain barrier and thus present problems in administration and delivery. We are aware of several companies that are investigating small molecule neurotrophic compounds for peripheral neuropathy in the clinic.

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.

The anesthesia/sedation field is concentrated in the United States mainly among four major companies (Baxter International Inc., Abbott Laboratories, AstraZeneca PLC, and Jones Pharma Inc.), 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. In addition, we are aware of several companies that are seeking to develop water soluble formulations of propofol. 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 are able to market AQUAVAN® Injection, the commercial prospects for it will depend heavily on its safety and efficacy profile relative to alternatives then available in the market.

Although our PACLIMER® Microspheres and Lidocaine-PE Microspheres are based on a proprietary polymer system, this technology could compete with other developing and existing drug delivery technologies. We are aware of several other companies that are seeking to develop sustained release injectable products for pain, including post-surgical pain. Additionally, other companies are engaged in the development of improved formulations of paclitaxel.

We believe that at least 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.

Our research and development expenses were $33.6 million, $46.1 million, and $54.3 million for the years ended December 31, 2003, 2002 and 2001, respectively. These expenses were divided between our research and development platforms in the following manner:

Beginning in fiscal year 1999, we began recording research and development costs under two platforms, pharmaceutical technologies and biopolymer technologies. From January 1, 1999, through December 31, 2003, we incurred, in the aggregate, costs of $104.9 million for our pharmaceutical technologies platform, $34.1 million for our biopolymer technologies platform, and $83.8 million of indirect expenses. From our inception in July 1993 through December 31, 1998, we incurred a total of $100.4 million in direct and indirect research and development costs relating to pharmaceutical and biopolymer technologies.

Our pharmaceutical technologies research and development costs increased in 2003 compared to 2002 due to increased expenditures of $3.8 million in connection with further clinical development of GPI 1485, our lead neuroimmunophilin ligand compound. This increased spending was partially offset by reduced expenditures of $2.2 million in our AQUAVAN® project as we incurred preparation and initiation costs in 2002 which related to the Phase II colonoscopy clinical trial in progress during fiscal year 2003. Additionally, in 2002, we made a $0.8 million milestone payment to ProQuest, the licensor of the AQUAVAN® technology.

Our pharmaceutical technology research and development expenses decreased in 2002, compared to 2001, primarily due to a decrease in expenses in our NAALADase inhibitor program resulting from the completion of our Phase I clinical trials of GPI 5693 (a lead NAALADase inhibitor compound). The decrease in spending on our NAALADase inhibitors was partially offset by an increase in spending on our FKBP neuroimmunophilin ligand technology and our AQUAVAN® Injection program.

Our biopolymer technology research and development expenses decreased in 2003 compared to 2002 due to a decision made as part of the corporate restructuring in the third quarter of 2002 to focus our research and development activities on our pharmaceutical technologies. Currently, we do not plan to conduct additional research or clinical testing on our biopolymer technologies; instead we are pursuing strategic alternatives to further develop these technologies.

Our biopolymer technology research and development expenses decreased in 2002, compared to 2001, due to a decrease in expenses incurred in connection with the clinical development of both PACLIMER®

Our indirect research and development expenses decreased in the year ended 2003 compared to 2002 primarily as a result of the full year impact of the restructuring efforts taken in the third quarter of 2002. Of this decrease, $4.3 million related to the reduction in employee costs, $4.1 million in facility and equipment expenses, and the remainder related to certain non-core project and other indirect costs. Our indirect research and development expenses decreased for the year ended 2002 compared to 2001 as a result of the reduced workforce and the associated overhead costs.

Product liability risk is inherent in the testing, manufacture, marketing and sale of GLIADEL® Wafer, AGGRASTAT® Injection and our product candidates, and there can be no assurance that we will be able to avoid significant product liability exposure. We have primary product liability coverage of $5 million and excess coverage of $5 million for a total of $10 million in liability insurance coverage, 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, 2003, we employed 266 individuals. Of these 266 employees, 144 were employed in the areas of research and product development, the quality control of AGGRASTAT® Injection and in the manufacturing and quality control of GLIADEL® Wafer. The remaining 122 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.

Hiring and retaining qualified personnel are important factors for our future success. 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.

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.
	Chairman, President and Chief Executive Officer

This Wholesale Distribution Agreement (this “Agreement”) is made as of this 27th day of September 2001, between Guilford Pharmaceuticals Inc., a Delaware corporation (“GPI’) and National Specialty Services, Inc., a Tennessee corporation (“Wholesale Specialty Distributor”).

GPI is a manufacturer of pharmaceutical products, including, without limitation, the products set forth on Exhibit A attached hereto (as amended from time to time, the “Products”).

Wholesale Specialty Distributor is a wholesale distributor of specialty pharmaceutical products.

GPI wants to engage Wholesale Specialty Distributor and Wholesale Specialty Distributor wants to be engaged by GPI to distribute the Products in the territory set forth on Exhibit B (the “Territory”) on the terms and subject to the conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the forgoing, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

GPI appoints Wholesale Specialty Distributor as a non-exclusive distributor of the Products in the Territory on the terms and subject to the conditions set forth in this Agreement.

2.01. PURCHASE OF PRODUCTS. GPI shall sell to Wholesale Specialty Distributor the Products indicated on any purchase order provided by Wholesale Specialty Distributor to GPI at the price or prices indicated on Exhibit A.

2.02. TAXES. The parties acknowledge that the per unit prices indicated on Exhibit A are exclusive of federal, state, and local excise, sales, use and other taxes now or hereafter levied or imposed on the Products, the shipment, delivery, ownership, possession, or resale of the Products, on this Agreement, or on any activities hereunder (collectively, “Taxes”). GPI shall not have any obligation to pay or collect Taxes on account of sales of the Products by Wholesale Specialty

Distributor (except to the extent such Taxes are on account of the net income of GPO. The collection and payment of Taxes (except as set forth in the preceding sentence) shall be the obligation of Wholesale Specialty Distributor in accordance with the terms of Section 7.03.

2.03. SHIPMENT OF PRODUCTS. GPI shall ship the Products purchased by the Wholesale Specialty Distributor pursuant to any purchase order to Wholesale Specialty Distributor at the following address: 556 Metroplex Drive, Nashville, Tennessee 37211, or such other address as Wholesaler shall indicate on the purchase order.

2.04. TRANSFER OF TITLE; RISK OF LOSS. Shipment of Products shall be F.O.B. Wholesaler Specialty Distributor’s facility. Risk of loss and title to the Products purchased by Wholesale Specialty Distributor under any purchase order shall pass to the Wholesale Specialty Distributor upon delivery to Wholesale Specialty Distributor at Wholesaler Specialty Distributor’s facility.

2.05. DROP SHIPMENTS. If at any time Wholesale Specialty Distributor does not have sufficient inventory of the Products to fill orders for the Products from its customers or Wholesale Specialty Distributor otherwise determines that it is in the best interests of its customers, Wholesale Specialty Distributor may request that GPI ship the Products purchased by Wholesale Specialty Distributor pursuant to a purchase order directly from GPI’s distribution facility to Wholesale Specialty Distributor’s customers (each a “Drop Shipment”). GPI may honor requests to make a Drop Shipment in its sole and absolute discretion. Risk of loss and title to the Products in each Drop Shipment shall remain with GPI until delivery to Wholesale Specialty Distributor’s customers.

2.06. SHIPMENT INSTRUCTIONS. The method of transportation and routing of all shipments, including Drop Shipments shall be in accordance with Exhibit C.

2.07. INVOICES. GPI shall invoice Wholesale Specialty Distributor for the Products purchased pursuant to any applicable purchase order on the shipment date for such Products. Delivery of all quantities of Products referred to in GPI’ s invoice shall be deemed to have been made in full, unless within seven (7) days from the date of receipt of the Product Wholesale Specialty Distributor notifies GPI that it has not received the ordered quantities of the Products.

3.01. SALES BY WHOLESALE SPECIALTY DISTRIBUTOR. Wholesale Specialty Distributor shall not knowingly sell any Products to customers that sell or intend to sell the Products outside of the Territory. Unless Wholesale Specialty

Distributor has obtained the prior written authorization of GPI, Wholesale Specialty Distributor shall not knowingly sell any Products to customers who sell or intend to sell the Products on a wholesale or distribution basis.

3.02. PROMOTION BY WHOLESALE SPECIALTY DISTRIBUTOR. Wholesale Specialty Distributor shall actively promote the sale and use of the Products to its customers through methods customarily employed by Wholesale Specialty Distributor with regard to the other products carried by Wholesale Specialty Distributor. Wholesale Specialty Distributor shall include each new Product and any new sizes and/or dosage forms of existing Products in any routine distribution plan operated by Wholesale Specialty Distributor during the term of this Agreement.

3.03. PAYMENT BY WHOLESALE SPECIALTY DISTRIBUTOR. Wholesale Specialty Distributor shall pay for all regular orders purchased by Wholesale Specialty Distributor in accordance with the payment terms set forth on Exhibit D. Drop Shipments shall be deemed to be purchases of the Products by the Wholesale Specialty Distributor and Wholesale Specialty Distributor shall be responsible for the payment of any invoices with respect to any Drop Shipment. All invoices must be paid in full under the terms specified on Exhibit D.

3.04. FINANCIAL AND CREDIT POSITION. Wholesale Specialty Distributor shall maintain a financial condition reasonably satisfactory to GPI, and shall substantiate such condition with annual audited consolidated financial statements or with other documentation as reasonably requested by GPI from time to time. If, in GPI’ s sole determination, at any time during the term of this Agreement, the financial condition of the Wholesale Specialty Distributor becomes impaired or unsatisfactory, GPI may require that Wholesale Specialty Distributor pay for its purchases of Products in advance by cash payment or require Wholesale Specialty Distributor to provide other assurances for the payment or such Products.

3.05. ORDERING. Wholesale Specialty Distributor shall transmit purchase orders for the Products to GPI either direct via EDT, facsimile, or telephone. If orders for products are placed by facsimile or telephone, they shall be placed to the following numbers: (615) 287-2355 (facsimile); and (866) 405-9038 (telephone).

3.06. PURCHASE OF PRODUCTS. Wholesale Specialty Distributor shall purchase the Products exclusively from GPI according to the terms of this Agreement. Wholesale Specialty Distributor shall not be permitted to purchase the Products from sources other than GPI (including, but not limited to, other wholesalers) without GPI’s prior written consent. Wholesale Specialty Distributor shall not knowingly purchase or attempt to purchase Products that have previously been exported or are designated for non-United States sales.

3.07. MAINTENANCE OF INVENTORY. If requested by GPI, Wholesale Specialty Distributor shall use commercially reasonable efforts to, from and after the date of such request, maintain sufficient inventory of the Products to promptly and adequately supply the demand of its customers, subject in all cases to the manufacturing capabilities of GPI.

3.08. SALES SUPPORT SERVICES. Wholesale Specialty Distributor shall provide sales support services for the Products as well as the order-taking and delivery services sufficient to meet the reasonable needs of customers for the Products.

3.09. SALES REPORTS. ON A MONTHLY BASIS, WHOLESALE SPECIALTY. Distributor shall report to GPI information regarding its sales of the Products in the form set forth on Exhibit B.

3.10. SPECIAL CONTRACT PRICING. Wholesale Specialty Distributor shall honor any pricing arrangements agreed to between GPI and GPI Marketed Customers (“Special Contract Pricing”), subject to the continued validity of such Special Contract Pricing in accordance with applicable law. Wholesale Specialty Distributor’s Standard Policy on Chargebacks (a copy of which is incorporated herein as Exhibit H (the “Chargeback Policy”)) will govern the administration of the Special Contract Pricing under this Agreement.

3.11. COMPLIANCE WITH LAWS. Wholesale Specialty Distributor shall take all necessary precautions to prevent the Products from being possessed, used, handled, distributed or sold by those who may not lawfully possess, use, handle, distribute or sell the Products, and Wholesale Specialty Distributor will fully comply with local, state, and federal laws regarding possession, use, distribution, sale and safe handling of the Products. Wholesale Specialty Distributor shall maintain all federal, state and local registrations necessary for the lawful handling of the Products and shall promptly notify GPI of any denial, revocation or suspension of any such registration.

3.12. PROPER HANDLING AND STORAGE. Wholesale Specialty Distributor shall handle and store the Products in a clean and orderly location, in a manner which will assure that the proper rotation and quality of the Products are maintained, and in compliance with all federal, state and local laws and regulations. Wholesale Specialty Distributor shall comply with GPI criteria on storing and shipping the Products that require special handling, as provided to Wholesale Specialty Distributor from time to time. Wholesale Specialty Distributor shall allow GPI TO inspect its storage facilities during normal business hours, upon GPI providing at least seven (7) days advance notice to Wholesaler. Wholesale Specialty Distributor shall in no way or manner be permitted to repackage the Products.

Wholesale Specialty Distributor shall notify GPI promptly of any changes in the appearance of any of the Products or the packaging of the Products.

3.13. NO SUBSTITUTIONS. Wholesale Specialty Distributor shall fill orders for the Products only with the Products. Wholesale Specialty Distributor shall not substitute any orders for the Products with products other than the Products.

3.14. CHANGE OF CONTROL. Wholesale Specialty Distributor shall notify GPI of any change in address, at least thirty (30) days prior to the date on which such change in address is to occur.

3.15. ADVERSE EVENT AND PRODUCT COMPLAINT REPORTING. Wholesale Specialty Distributor shall forward to GPI any information the Wholesale Specialty Distributor obtains from a customer regarding Adverse Events or Product Complaints (as each term is defined below). The customer reporting the Adverse Event or Product Complaint shall be instructed to call a GPI representative by calling GPI’s toll free hot line at (877) 691-6020, or such other number or numbers provided to Wholesale Specialty Distributor by GPI. For the purposes of this Agreement, “Adverse Event” means any adverse reaction associated with the use of a Product in humans, whether or not considered product related and whether or not confirmed by a health professional. The term “associated with the use of product” is not limited to a causal relationship of the reported event to the Product, and may include (i) an Adverse Event occurring in the course of the use of a Product in professional practice, (ii) an adverse event occurring from abuse of a Product, (iii) an adverse event occurring from the withdrawal of a Product, (iv) any significant failure of expected pharmacological action. For the purposes of this Agreement, a “Product Complaint” means a claim or expression of displeasure, dissatisfaction or annoyance with a Product, Product related materials or Product related information. A Product Complaint may or may not involve a formal charge or accusation. A Product Complaint may be related to, among other things, identity, purity, potency, safety or quality of the product. Notwithstanding the definition of Product Compliant, if the complaint involves a medical event in a patient, it is regarded as an Adverse Event.

4. SPECIAL CONTRACT PRICING. From time to time, GPI may request that Wholesale Specialty Distributor fulfill orders of the Products from its inventory to customers for which GPI was the sole marketer of the Products (“GPI Marketed Customers”). If GPI has quoted a GPI Marketed Customer a price for any Product that is lower than the price for such Product set forth on Exhibit A (for such Products), then GPI shall reimburse to Wholesale Specialty Distributor the difference between the price quoted to the GPI Marketed Customer and the price paid by the Wholesale Specialty Distributor for the Product, if the Wholesale Specialty Distributor fulfills the GPI Marketed Customer’s order for the Product out

of its inventory. Such reimbursement may, at the election of GPI, be in the form of credits to Wholesale Specialty Distributor against future purchases of products.

5. RECALLS. GPI shall reimburse Wholesale Specialty Distributor, consistent with HDMA standards, for the full amount of all reasonable costs and expenses incurred by Wholesaler in connection with Wholesale Specialty Distributor’s performance of any recall services or assistance relating to the Products; provided that, such recall is not due to Wholesale Specialty Distributor’s gross negligence, willful misconduct or illegal conduct. Wholesale Specialty Distributor will be credited for Products returned to GPI due to recalls of the Products at the Wholesale Specialty Distributor’s purchase price for the Products, calculated on a first-in, first-out basis. All shipping expenses for recalled Product, both for shipments from Wholesale Specialty Distributor’s customers to Wholesale Specialty Distributor and for shipments from Wholesale Specialty Distributor to GPI, shall be the sole responsibility of GPI, unless such recall is due to Wholesale Specialty Distributor’s gross negligence, willful misconduct or illegal conduct.

6.01. WARRANTY; DISCLAIMER OF IMPLIED WARRANTIES. GPI warrants that the Products are manufactured and distributed in accordance with the Food, Drug and Cosmetic Act, as amended (the “Act”) and in accordance with Exhibit F. EXCEPT AS SET FORTH IN THE PRECEDING SENTENCE, GPI MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIM1TATION, WARRANTIES AS TO MERCHANTABILITY OR Fitness FOR A PARTICULAR PURPOSE, With RESPECT TO ANY OF THE PRODUCTS.

6.02. INDEMNIFICATION. GPI shall defend, indemnify, and hold harmless Wholesale Specialty Distributor and its parent, affiliates, directors, officers, employees and representatives from and against any and all claims, liabilities, losses, damages, costs, and expenses (including without limitation reasonable attorneys’ fees) arising directly or indirectly out of:

a. injury or death to person or property alleged to have been caused by any defect in the Products (exclusive of defects shown to be attributable to Wholesale Specialty Distributor’s negligence or gross misconduct (but only to the extent of such negligence or gross misconduct) or breach of this Agreement); or

b. the manufacture, marketing, testing, shipping, sale, possession or use of the Products, unless such claim, liability, loss, damage, cost or expense is shown to be attributable to Buyer’s negligence (but only to the extent of such negligence) or breach of this Agreement; or

c. “class of trade” pricing, if any, maintained by GPI from and after the effective date of this Agreement, including without limitation those arising out of Wholesale Specialty Distributor’s administration of Special Contract Pricing or GPI Marketed Customer pricing; or

d. any intellectual property infringement actions (including patent, trademark, service mark, copyright trade dress, trade secret and other proprietary rights) brought by a third party in connection with Wholesale Specialty Distributor’s distribution and sale of Products hereunder (except to the extent caused by Wholesale Specialty Distributor’s breach of this Agreement, negligence or other intentional conduct) or in connection with any marketing materials or information provided to Wholesale Specialty Distributor by GPI. provided that, in all cases that GPI has promptly been notified in writing of such suit, claim, or proceeding and is given full and complete authority (including settlement authority), by Wholesale Specialty Distributor or its directors, employees or agents, information and assistance by Wholesale Specialty Distributor for such defense; further provided, that no admission is made by either party without the consent of the other party and its insurers. GPI shall not be liable for legal expenses Wholesale Specialty Distributor incurs prior to GPI’s receipt of written notice of a claim for indemnification by Wholesale Specialty Distributor and the express acknowledgement by Wholesale Specialty Distributor of GPI’s authority to defend such claim, suit or proceeding. GPI shall not be liable for legal expenses Wholesale Specialty Distributor incurs once GPI has received notice of a claim for indemnification and GPI has assumed the defense thereof.

6.03. LIMITATION OF LIABILITY. EXCEPT WITH REGARD TO CLAIMS MADE BY THIRD PARTIES, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOST PROFITS OR LOST OPPORTUNITY COSTS, AS A RESULT OF ANY CLAIM ASSERTED BY SUCH OTHER PARTY, WHETHER IN CONTRACT OR IN TORT, ARISING OUT OF OR RELATED TO THIS AGREEMENT.

(A) During the term of this Agreement and thereafter as may be necessary to cover claims associated with Products purchased by Wholesale Specialty Distributor (whether before, during or after such term), GPI shall obtain, pay for, and keep in full force and effect commercial general liability insurance, with one or more reputable insurance carriers with a minimal rating by AM Best of A- or its equivalent, (including coverage for product liability and personal injury damages) with a per occurrence limit of not less than $10 million. “National Specialty Services, Inc.” shall be designated as an additional insured” under all such insurance policies,

and GPI shall deliver to Wholesale Specialty Distributor certificates evidencing the existence and continuation of such insurance at the execution of this Agreement and upon GPI’s periodic renewal of such policy. Such insurance shall include a provision for at least thirty (30) days prior written notice in Wholesale Specialty Distributor in the event of cancellation or material reduction of coverage.

(B) During the term of this Agreement and thereafter as may be necessary to cover claims associated with the distribution of products supplied by GPI to Wholesale Specialty Distributor (whether before, during, or after such term), Wholesale Specialty Distributor shall obtain, pay for, and keep in full force and effect commercial general liability insurance, with one or more reputable insurance carriers with a minimal rating by AM Best of A- or its equivalent, (including coverage for product liability and personal injury damages) with a per occurrence limit of not less than $10 million. “Guilford Pharmaceuticals Inc. “shall be designated as an “additional insured” under all such insurance policies, and Wholesale Specialty Distributor, shall deliver to GPI certificates evidencing the existence and continuation of such insurance at the execution of this Agreement and upon wholesale specialty distributor’s periodic renewal of such policy. Such insurance shall include a provision for at least thirty (30) days prior written notice to GPI in the event of cancellation or material reduction of coverage.

7.01. RETURNS AND CREDITS. GPI will accept returns of the Products and, where appropriate, credit Wholesale Specialty Distributor’s account, in accordance with Exhibit G.

7.02. TAXES. The collection and payment of all Taxes owed as a result of the sale of any Products by Wholesale Specialty Distributor shall be the responsibility of Wholesale Specialty Distributor.

7.03 INVENTORY. If at any time during the term of this Agreement, GPI’s published wholesale price for any Product is decreased, then GPI shall issue a credit to Wholesale Specialty Distributor in an amount equal to the difference between (a) the published wholesale acquisition price of Wholesale Specialty Distributor’s then-current inventory of that Product as of the date Wholesaler purchased that Product, and (b) the value of Wholesale Specialty Distributor’s then-current inventory of that Product, determined using the decreased price for all such inventory. For purposes of this section, “Wholesale Specialty Distributor’s then-current inventory” shall include all inventory held in Wholesale Specialty Distributor’s distribution centers, all Products owned by Wholesale Specialty Distributor at any store owned or operated by a customer of Wholesale Specialty Distributor and held by such customer on consignment, and all Product “in transit” to or from such distribution centers on the effective date of such price decrease. For Product owned by Wholesale

Specialty Distributor and held by customer on consignment, the amount is calculated as the difference between (a) the lesser of the published wholesale acquisition price or a customer chargeback contract price of Wholesale Specialty Distributor’s then-current inventory of that Product at the customer location and (b) the value of Wholesale Specialty Distributor’s then current inventory of that Product at the customer’s location, determined using the new decreased published wholesale acquisition price or customer chargeback contract price, as applicable. Wholesale Specialty Distributor will use good-faith efforts to notify GPI of the amount of any credit due pursuant to this section within one hundred twenty (120) days following the effective date of such price decrease.

8.01. TERM. The term of this Agreement shall commence on the date of this Agreement and shall continue for a period of one (1) year from the date hereof (the “Initial Term”). At the expiration of the Initial Term and each anniversary thereafter, this Agreement shall renew automatically for successive one-year terms (each a “Renewal Term”), unless either party notifies the other party of its intention to terminate this Agreement at least thirty (30) days prior to the expiration of the Initial Term or a Renewal Term, as the case may be.

8.02. TERMINATION. This Agreement may be terminated by the parties in the following manner:

a. Either party may terminate this Agreement immediately upon breach of this Agreement by the other party if such breach remains uncured for fifteen (15) days after written notice thereof, or the breaching party fails to diligently pursue a cure if the breach is of a nature that it cannot be cured in fifteen (15) days.

b. Either party may terminate this Agreement without cause upon sixty (60) days prior written notice thereof to the other party.

8.03. EFFECT OF TERMINATION. Upon the termination or expiration of this Agreement:

a. Each party shall within thirty (30) days pay the other party all amounts due under any invoice or credit memo; and

b. Wholesale Specialty Distributor shall immediately return to GPI, in accordance with any requirements of GPI, all Products in the possession of the Wholesale Specialty Distributor and GPI shall credit the purchase price for such Products to the amounts owed by Wholesale Specialty Distributor to GPI, if any. The parties shall be permitted to offset amounts owed to each other pursuant to this Section 8.03b.

c. Section 8.03 and Sections 6 and 9.d shall survive the termination or expiration of this Agreement until the obligations of the parties under these Sections have been fully performed.

b. Neither GPI nor Wholesale Specialty Distributor shall be liable to the other for failing to carry out the terms of this Agreement where such failure is the result of a strike or other labor disturbance, fire, flood, earthquake, storm, governmental action, or other reason beyond its control.

c. In the event there is a shortage of the Products, GPI shall have the right and sole discretion to allocate the available Products among its customers in a commercially reasonable manner which does not place Wholesale Specialty Distributor at a competitive disadvantage.

d. During the term of the Agreement, each party may find it necessary to disclose confidential and proprietary information to the other (hereinafter “Confidential Information”). The Confidential Information may include but is not limited to pricing generally, Special Contract Pricing, Price quotations for the Products by Wholesale Specialty Distributor or GPI, delivery schedules, manufacturing schedules, sales amounts and sales figures. During the term of this Agreement and for three (3) years thereafter, regardless of any termination earlier than the expiration of the term of this Agreement, each party shall maintain the Confidential Information in confidentiality and shall not reveal the Confidential Information to third parties without the written consent of the disclosing party, except as required by law. Each party shall use the Confidential Information only for the purposes of this Agreement. These restrictions shall not apply to Confidential Information that:

	(1)		is in the public domain at the time of disclosure;

	(2)		after receipt, becomes part of the public domain by publication or otherwise, except by breach of this Agreement by the party receiving the Confidential Information;

	(3)		the party receiving the Confidential Information can establish by documenting evidence that it was in its possession at the time of disclosure by the other party;

	(4)		the Confidential Information is in the possession of the receiving party from third parties not under an obligation to maintain its confidentiality;

	(5)		is independently developed by or for the party receiving the Confidential Information hereunder who have had no access to such Confidential Information as shown by documenting evidence; or

	(6)		is required to be disclosed by law, by a judicial or administrative order, or by a regulatory agency with appropriate jurisdiction.

e. This Agreement is the entire and only understanding between the parties as to the subject matter hereof and supersedes all prior promises, agreements or understandings between the parties. This Agreement may be changed or amended only in a writing signed by duly authorized representatives of GPI and Wholesale Specialty Distributor. All attachments and addenda to this Agreement are hereby incorporated by reference.

f. This Agreement, and any rights or obligations hereunder, shall not be assigned by either party without the written consent of the other party, except that either party may otherwise assign its respective rights and transfer its respective duties to any assignee of all or substantially all of its business (or that portion thereof to which this Agreement relates) or in the event of its merger or consolidation or similar transaction. Either party may also sell or assign any payments due hereunder.

g. All notices, claims, certificates, requests, demands and other communications hereunder shall be in writing and shall be delivered personally or sent by facsimile transmission, nationally-recognized express courier, or United States registered or certified mail, return receipt requested, addressed as follows:

h. This Agreement shall be construed in accordance with, and governed by, the laws of the State of Delaware without regard to the conflicts of laws provisions thereof.

i. The parties shall be permitted to offset amounts owed to each other pursuant to this Agreement.

j. Each party shall comply with all federal, state and local laws and regulations applicable to its operations, including but not limited to, those dealing with employment opportunity and affirmative action including Executive Order 11246 (Equal Opportunity), 38 U.S.C. Section 4212(a) (Affirmative Action for Disabled Veterans and Veterans of the Vietnam Era), and 29 U.S.C. Section 793 (Affirmative Action for Workers with Disabilities), and any amendment and applicable regulations pertaining thereto. In addition, each party shall comply with all terms of 48 C.F.R. Section 52.244-6 (Subcontracts for Commercial Items and Commercial Components) (including the requirement of including this provision in subcontracts awarded under this contract), 15 U.S.C. Section 637 (d) (2) and (3) (Utilization of Small Business Concerns), and such provision is hereby incorporated into this Agreement as if fully set forth herein. In accordance with the provisions of 48 C.F.R. Section 52.209-6, each party certifies that neither it nor its principals was or is debarred, suspended, or proposed for debarment by the Federal Government. In addition, each party represents and warrants that it complies with all federal, state, local and other applicable laws, regulations, conventions or treaties prohibiting any form of child labor or other exploitation of children in the manufacturing and delivery of such party’s products or services.

k. During the term of this Agreement, upon reasonable prior notice and during normal business hours, either party shall be entitled to audit and inspect those relevant records which are maintained by the other party in direct connection with its performance under this Agreement; provided, however, the audit or inspection shall be performed by bona tide, full-time employees of the party conducting such audit or inspection and in no event shall any such audit or inspection relate to any transaction or event which occurred more than twelve months prior to the date of such audit or inspection. GPI chargeback audits shall be governed by the additional terms and conditions contained in the Chargeback Policy.

l. The relationship among the parties is and shall be that of independent contractors. This Agreement does not establish or create a partnership or joint venture among the parties.

m. If any part of this Agreement is determined to be invalid or declared null and void by any court of competent jurisdiction, then such part will be reformed, if possible, to conform to the law and, in any event, the remaining part of this Agreement will remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have executed this Wholesaler AGREEMENT as of the date set forth above.

EXHIBIT C — HANDLING AND SHIPPING

GLIADEL® Wafer Specifications (NDC 61379-0100-1)

GLIADEL® is available in a single dose treatment box containing eight individually pouched wafers. Each wafer contains 7.7 mg of carraustine and is packaged in two aluminum foil laminate packages. The inner pouch is sterile and is designed to maintain product sterility and protect the product from moisture. The outer pouch is a peelable overlap. The outside surface of the outer pouch is not sterile.

The single dose treatment box dimensions L x W x Thickness are 6” x 53” x 1.5”.

GLIADEL® must be stored at or below - -20° C (-4° F).

A shipping container that is appropriate for dry ice and the safe transportation of GLIADEL® Wafer such as Part No. 68-4LB manufactured by Polyfoam Packers should be used. GPI MAKES NO REPRESENTATION OR WARRANTY REGARDING ANY SHIPPING CONTAINER WHETHER MANUFACTURED BY POLYFOAM PACKERS OR OTHERWISE.

GLIADEL® Wafer is fragile and must be handled with care.

EXHIBIT G

GUILFORD
PHARMACEUT1CALS

Credit & Return Policy GLADEL^® Wafer Treatments

• Guilford Pharmaceuticals Inc. (“GPI”) will accept for return GLIADEL® Wafer Treatment(s) from a licensed pharmacy, authorized distributor and /or wholesaler on the following conditions: GPI will only accept returns of complete GLIADEL^® Wafer Treatments which are in their original packaging with the lot number visible.

• GPI will credit to a customer’s account amounts charged for In-dated GLIADEL® Wafer Treatments that have been sent to a customer in error, provided that the customer notifies GPI within 48 hours of receiving the treatment(s), that the treatment(s) were received in error, the "cold chain" has been maintained by the customer and the treatment(s) are shipped back to GPI the same day in which the "return packet" has been provided to the customer account by GPI. A return packet contains instructions, packaging materials and a cold chain maintenance verification letter.

• GPI will replace any GLIADEL® Wafer Treatment(s) that were damaged in shipment, or found to have wafers broken in more than 2 pieces, provided that, the customer notifies GPI’s Customer Service Department (1-866-405-9038) within 48 hours of opening the treatment box(es) that the Treatment(s) were damaged and identifies the number of damaged treatments and the lot numbers thereof.

• GPI will replace GLIADEL® Wafer Treatment(s) that are expired, provided that, the treatment(s) are in their sealed original packaging with lot number visible, the expiration date is within 12 months of the date that the treatments are returned to GPI, and GPI’s Customer Service Department is notified before the treatments are returned to GPI.

A GLIADEL® Wafer Treatment consists of eight GLIADEL® Wafers. All returns must be approved by GPI’s Customer Service Department Except as set forth above, upon receipt by GPI of a returned GLIADEL® Wafer Treatment, GPI will, at GPI’s sole discretion, either send the customer a new GLIADEL® Wafer Treatment or credit the customer the amount of the purchase price for the returned treatment.

EXHIBIT H — WHOLESALER’S CHARGEBACK POLICY

NATIONAL SPECIALTY SERVICES, INC.

STANDARD POLICY ON CHARGEBACKS

The following represents the standard policy of National Specialty Services, Inc. (“NSS”) pertaining to the sale of product under contract (“chargebacks”) between NSS’ customers and supplier (“Supplier”) and the processing and audits of chargebacks, as well as certain related matters. Depending upon the individual facts and circumstances associated with a Supplier’s administrative procedures for chargeback related matters (e.g. the extent of use of EDI, electronic funds transfer, and other factors that contribute to or detract from NSS’s ability to efficiently deal with chargeback matters), NSS reserves the right to modify any or all of the following terms and conditions.

I. Chargeback Processing

NSS will recognize and administer contracts between Suppliers and customers pursuant to which prices at which the customer may purchase certain products have been established, subject to the continued validity of such contracts in accordance with applicable law and Supplier’s compliance with NSS’s standard policy and credit considerations deemed relevant to NSS. Amounts owed to NSS by Suppliers relating to chargebacks shall be calculated based upon the wholesale acquisition price of Supplier’s product at date of sale, and shall be paid, or credited, as appropriate, to NSS. within seven (7) days following NSS’s submission of a request for such amounts. In the event that NSS notifies Supplier that chargeback amounts owed by Supplier to NSS exceed amounts owed by NSS to Supplier (a “Debit Balance”) Supplier will remit payment for chargebacks to NSS by check or wire transfer until such time that NSS notifies Supplier that it is no longer in a Debit Balance. Chargeback reconciliation issues shall be resolved as soon as practicable with each party responding to the other within sixty (60) days following receipt of documentation supporting those issues.

II. Supplier Chargeback Audits

The Supplier shall have the right to audit NSS’ compliance with the respective contracts in force and related chargeback matters subject to the following terms and conditions:

A. Chargeback audits will be limited to twelve (12) months of historical information as of the date such audit begins.

B. NSS shall have a reciprocal twelve (12) month period to reconcile any differences that may arise with Supplier related to chargeback issues (including submission and other errors and regardless of whether such issues arise as part of a Supplier chargeback audit).

C. Supplier shall notify NSS’ Controller of an intent to perform an audit at least thirty (30) days prior to beginning the audit, specifying the location to be audited and the time period to be covered. In the event that such timing is expected to create undue disruption in NSS’ business, NSS shall have the right to delay the start of the audit for up to thirty (30) additional days.

D. Audits must be performed by bona fide, permanent employees of Supplier, subject to a confidentiality agreement to be prepared by NSS and signed by the Supplier and such employee(s), prior to beginning the audit.

E. Audits shall be performed at the NSS site that is being audited, or such alternate sites where appropriate records are located, as NSS may designate.

F. Audits shall be performed during the normal, customary office hours of the NSS site that is being audited.

G. The existing accounting records of the NSS site being audited will be made available for audit, subject to the following limitations:

1. Electronic data will not be specially created.

2. NSS reserves the right to summarize and/or retract the contents of all records containing sensitive or competitive information.

H. NSS will bill Supplier for any direct out-of-pocket costs incurred in conjunction with a Supplier-requested audit, unless such audit reflects a deficiency of five percent (5.0%) or greater of the actual amount of the invoice submitted over the audit period. Amounts billed will be deducted from NSS’ next payment for current purchases, after completion of the audit.

I. Any Supplier claims arising from an audit must be supported by specific audit results related to specific transactions. Extrapolation of results from one period to another will not be accepted.

J. Any Supplier claims arising from an audit must be submitted to NSS’ Controller within thirty (30) days of completing the audit. All claims must be accompanied by specific supporting details of the transactions that comprise such claim. NSS shall then have forty-five (45) days to review the claim and advise Supplier of its acceptance or disagreement.

IV. Related Matters

A. NSS shall be entitled to cash discounts based on the gross invoice price of all goods purchased from Supplier, regardless of whether a chargeback is ultimately claimed by NSS.

B. Supplier shall provide NSS with a chargeback advance to cover credit exposure of unsecured credit granted to Supplier by NSS for chargeback claims and to help effect the carrying costs involved in the chargeback process, subject to the following terms and conditions:

1. The chargeback advance shall be not less than an amount equal to one (1) month of chargeback billings based on an average of the most recent six- (6) months of billings.

2. On a quarterly basis, NSS will reconcile the amount of the advance against the six- (6) month average billings. If the amount of the advance exceeds the six- (6) month average billings, NSS shall include the amount of such excess in the next payment made to Supplier. If the amount of the advance is less than the six- (6) month average, NSS will deduct the amount of such shortfall from the next payment for current purchases.

EXHIBIT I MARKETING FEE

GPI will pay Wholesale Specialty Distributor a quarterly marketing fee equal to 1.25% of purchases by Wholesale Specialty Distributor. The marketing fee will be furnished to Wholesale Specialty Distributor for conducting three (3) marketing services campaigns per calendar year. Marketing Fee to be paid by check within thirty (30) days from the end of then current quarter.

In order for Wholesale Specialty Distributor to conduct such telemarketing and direct mail campaigns, GPI shall provide to Wholesale Specialty Distributor marketing materials and/or information regarding the Products for Wholesale Specialty Distributor’s use. Wholesale Specialty Distributor will use the marketing material only in the form provided by GPI. GPI hereby grants to Wholesale Specialty Distributor permission and a license to use such marketing materials and/or information and all trademarks, copyrights or other intellectual property rights included in such marketing materials and/or information for such purposes.

GPI warrants and represents that all marketing materials and/or other information provided to Wholesale Specialty Distributor complies with the Federal Food, Drug and Cosmetic Act, as amended, and all other applicable laws, rules and regulations and does not infringe on any third party’s intellectual property right (including, but not limited to, patent, trademark, service mark, copyright, trade dress, trade secret). GPI further warrants and represents and shall ensure that all marketing materials and other information submitted to Wholesale Specialty Distributor shall comply with FDA promotional and advertising regulations and guidance documents including but limited to the fact that said material shall be fair balanced, accurate and complete. Furthermore, said marketing materials and information shall not contain any claims for a product other than those specifically approved by the FDA (or other applicable agency) or included in the Product’s approved labeling. For prescription drug products, full prescribing information shall be provided and be included with all promotion and advertising where claims are being made. Also, GPI shall inform Wholesale Specialty Distributor if any changes occur in such marketing material and/or other information so that said marketing material(s) and other information continue to remain compliant with applicable laws and regulations. To the extent that there is a requirement to make submissions of promotional and marketing material to the FDA or other applicable agencies, GPI shall provide said material to those agency(ies).

GPI shall defend, indemnify and hold harmless Wholesale Specialty Distributor and its parent, affiliates, directors, officers, employees and representatives from and against any and all claims, liabilities, losses, damages, costs, and expenses (including without limitation, reasonable attorneys’ fees) brought by a third party and arising directly or indirectly out of any marketing materials or other information provided by GPI hereunder.






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


Marketed Product(1)	Indication/Condition	Status

GLIADEL® Wafer	Recurrent glioblastoma multiforme	Currently approved for sale in the United States and in 25 other countries throughout the world.
	Newly diagnosed malignant glioma as an adjunct to surgery and radiation (also referred to as “first-line therapy”)	Currently approved for sale in the United States and Canada.(2)
AGGRASTAT® Injection	Acute coronary syndrome	Marketed by Guilford in the United States and by Merck & Co., Inc. in the rest of the world.


Clinical Development
Programs(1)	Indication/Condition	Status

AQUAVAN® Injection	Procedural sedation for patients undergoing colonoscopy or other brief diagnostic or therapeutic procedures	Phase II
GPI 1485 (our lead neuroimmunophilin ligand)	Parkinson’s disease; peripheral nerve injury	Phase II
DOPASCAN® Injection	Imaging agent to diagnose and monitor Parkinson’s disease.	Phase III(2)
AGGRASTAT® Injection	Percutaneous Coronary Intervention	Phase III(3)


Pre-Clinical and Research			Collaborative
Programs(1)	Indication	Status	Partner

NAALADase inhibitors	Neuropathic pain	Research	—
	Prostate cancer	Preclinical	—
	Drug addiction	Preclinical	National Institute of Drug Abuse
PARP inhibitors	Head and spinal cord injury	Preclinical	—
	Cancer chemosensitization and radiosensitization	Research	—
GPI 1485	HIV-related dementia and neuropathy	Preclinical	—
Cyclophilin ligands	Ischemia, HIV and age-related macular degeneration and multiple sclerosis	Research	—



	Years ended December 31

	2003		2002		2001


	($ in millions)




Pharmaceutical technologies	$	21.8	$	20.8	$	24.5




Biopolymer technologies		1.4		5.0		8.6




Indirect expenses		10.4		20.3		21.2

	$	33.6	$	46.1	$	54.3


			# of pending patent
Technology	# of Patents		applications

GLIADEL® Wafer		3		—




AGGRASTAT® Injection		10		1




AQUAVAN® Injection		1		2




GPI 1485		4		9




DOPASCAN® Injection		10		5




NAALADase Inhibitors		38		10




PARP Inhibitors		18		11




Cyclophilins		4		7


Item 15.	*Exhibits, Financial Statement Schedules, and Reports on Form 8-K*


Exhibit
Number		Description

	10.22	Distribution Agreement, dated September 27, 2001, between the Company and National Specialty Services, Inc, including exhibits (filed herewith)
	31.01	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
	31.02	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)


		If to GPI, to:

		Guilford Pharmaceuticals Inc.
		6611 Tributary Street
		Baltimore, Maryland 21224
		A1TN: Kevin Conley
		Assistant Manager, Distribution & Customer Service
		Fax: 410-631-5020

		If to Wholesale Specialty Distributor:

		National Specialty Services, Inc.
		556 Metroplex Drive


		GUILFORD PHARMACEUTICALS INC.

		By: /s/ David P. Wright

		Name: David P. Wright

		Title: EVP, Commercial Operations


		NATIONAL SPECIALTY SERVICES, INC.

		By: /s/ David J. Canniff

		Name: David J. Canniff

		Title: Vice President

•		Guilford Pharmaceuticals Inc. (“GPI”) will accept for return GLIADEL® Wafer Treatment(s) from a licensed pharmacy, authorized distributor and /or wholesaler on the following conditions: GPI will only accept returns of complete GLIADEL^® Wafer Treatments which are in their original packaging with the lot number visible.

•		GPI will credit to a customer’s account amounts charged for In-dated GLIADEL® Wafer Treatments that have been sent to a customer in error, provided that the customer notifies GPI within 48 hours of receiving the treatment(s), that the treatment(s) were received in error, the "cold chain" has been maintained by the customer and the treatment(s) are shipped back to GPI the same day in which the "return packet" has been provided to the customer account by GPI. A return packet contains instructions, packaging materials and a cold chain maintenance verification letter.

•		GPI will replace any GLIADEL® Wafer Treatment(s) that were damaged in shipment, or found to have wafers broken in more than 2 pieces, provided that, the customer notifies GPI’s Customer Service Department (1-866-405-9038) within 48 hours of opening the treatment box(es) that the Treatment(s) were damaged and identifies the number of damaged treatments and the lot numbers thereof.

•		GPI will replace GLIADEL® Wafer Treatment(s) that are expired, provided that, the treatment(s) are in their sealed original packaging with lot number visible, the expiration date is within 12 months of the date that the treatments are returned to GPI, and GPI’s Customer Service Department is notified before the treatments are returned to GPI.

A.		Chargeback audits will be limited to twelve (12) months of historical information as of the date such audit begins.

B.		NSS shall have a reciprocal twelve (12) month period to reconcile any differences that may arise with Supplier related to chargeback issues (including submission and other errors and regardless of whether such issues arise as part of a Supplier chargeback audit).

C.		Supplier shall notify NSS’ Controller of an intent to perform an audit at least thirty (30) days prior to beginning the audit, specifying the location to be audited and the time period to be covered. In the event that such timing is expected to create undue disruption in NSS’ business, NSS shall have the right to delay the start of the audit for up to thirty (30) additional days.

D.		Audits must be performed by bona fide, permanent employees of Supplier, subject to a confidentiality agreement to be prepared by NSS and signed by the Supplier and such employee(s), prior to beginning the audit.

E.		Audits shall be performed at the NSS site that is being audited, or such alternate sites where appropriate records are located, as NSS may designate.

F.		Audits shall be performed during the normal, customary office hours of the NSS site that is being audited.

G.		The existing accounting records of the NSS site being audited will be made available for audit, subject to the following limitations:

1.		Electronic data will not be specially created.

2.		NSS reserves the right to summarize and/or retract the contents of all records containing sensitive or competitive information.

H.		NSS will bill Supplier for any direct out-of-pocket costs incurred in conjunction with a Supplier-requested audit, unless such audit reflects a deficiency of five percent (5.0%) or greater of the actual amount of the invoice submitted over the audit period. Amounts billed will be deducted from NSS’ next payment for current purchases, after completion of the audit.

I.		Any Supplier claims arising from an audit must be supported by specific audit results related to specific transactions. Extrapolation of results from one period to another will not be accepted.

J.		Any Supplier claims arising from an audit must be submitted to NSS’ Controller within thirty (30) days of completing the audit. All claims must be accompanied by specific supporting details of the transactions that comprise such claim. NSS shall then have forty-five (45) days to review the claim and advise Supplier of its acceptance or disagreement.


		Nashville, Tennessee 37211
		ATT’N:

		Fax: 615-


Product		Price

GLlADEL® Wafer		$10,583.04 per unit


/s/ ANDREW R. JORDAN

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

A.		NSS shall be entitled to cash discounts based on the gross invoice price of all goods purchased from Supplier, regardless of whether a chargeback is ultimately claimed by NSS.

B.		Supplier shall provide NSS with a chargeback advance to cover credit exposure of unsecured credit granted to Supplier by NSS for chargeback claims and to help effect the carrying costs involved in the chargeback process, subject to the following terms and conditions:

1.		The chargeback advance shall be not less than an amount equal to one (1) month of chargeback billings based on an average of the most recent six- (6) months of billings.

2.		On a quarterly basis, NSS will reconcile the amount of the advance against the six- (6) month average billings. If the amount of the advance exceeds the six- (6) month average billings, NSS shall include the amount of such excess in the next payment made to Supplier. If the amount of the advance is less than the six- (6) month average, NSS will deduct the amount of such shortfall from the next payment for current purchases.