10-Q

________________________________________________________________________________

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 1999

Commission File Number 000-23736

GUILFORD PHARMACEUTICALS INC.

(Exact name of registrant as specified in its charter)

DELAWARE	52-1841960
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
6611 Tributary Street, Baltimore, Maryland	21224
(Address of principal executive offices)	(Zip Code)

410-631-6300

(Registrant’s telephone number, including area code)

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

Yes   X         No      

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at August 13, 1999
Common Stock, $.01 par value	19,654,685

INDEX

			Page(s)
Part  I.	Financial Information (Unaudited)
	Item  1.	Financial Statements
		Consolidated Balance Sheets June 30, 1999 and December 31, 1998		3
		Consolidated Statements of Operations Three and Six months ended June 30, 1999 and 1998		4
		Consolidated Statements of Changes in Stockholders’ Equity Six months ended June 30, 1999		5
		Consolidated Statements of Cash Flows Three and Six months ended June 30, 1999 and 1998		6
		Notes to Consolidated Financial Statements		7
	Item  2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
	Item  3.	Quantitative and Qualitative Disclosures About Market Risk		24
Part  II.	Other Information			25
	Signatures			27

2

GUILFORD PHARMACEUTICALS INC.

AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share data)

			June 30, 1999
			(Unaudited)			December 31, 1998
Assets
Current assets:
	Cash and cash equivalents		$	2,550		$	8,480
	Investments			80,515			103,281
	Accounts receivable			1,669			1,241
	Inventories			1,143			1,291
	Other current assets			836			709
		Total current assets		86,713			115,002
Investments — restricted				24,769			16,500
Property and equipment, net				18,526			18,790
Other assets				511			736
			$	130,519		$	151,028
Liabilities and Stockholders’ Equity
Current liabilities:
	Accounts payable		$	2,529		$	3,265
	Current portion of long-term debt			2,159			2,159
	Accrued payroll related costs			2,329			2,279
	Accrued outside services			2,919			2,095
	Accrued expenses and other current liabilities			1,151			960
	Deferred income			—			1,125
		Total current liabilities		11,087			11,883
Long-term liabilities:
	Long-term debt, net of current portion			7,687			8,766
		Total liabilities		18,774			20,649
Stockholders’ equity:
	Preferred stock, par value $.01 per share
		Authorized 4,700,000 shares, none issued		—			—
	Series A junior participating preferred stock, par value $.01 per share. Authorized 300,000 shares, none issued			—			—
	Common stock, par value $.01 per share
		Authorized 75,000,000 shares 19,939,075 and 19,594,316 issued at June 30, 1999 and December 31, 1998, respectively		199			196
	Additional paid-in capital			189,635			187,139
	Accumulated deficit			(73,120	)		(56,009	)
	Accumulated other comprehensive income (loss)			(1,273	)		876
	Notes receivable on common stock			(60	)		(60	)
	Treasury stock, at cost: 284,390 and 77,224 shares at June 30, 1999 and December 31, 1998, respectively			(3,430	)		(1,399	)
	Deferred compensation			(206	)		(364	)
		Total stockholders’ equity		111,745			130,379
			$	130,519		$	151,028

See accompanying notes to consolidated financial statements

3

GUILFORD PHARMACEUTICALS INC.

AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share data)

			Three Months Ended						Six Months Ended
			June 30,						June 30,
			1999			1998			1999			1998
Revenues:
	Product sales		$	1,674		$	997		$	2,866		$	1,655
	License fees and royalties			697			730			1,244			1,310
	Revenues under collaborative agreements			1,276			1,183			2,413			2,327
		Total revenues		3,647			2,910			6,523			5,292
Costs and Expenses:
	Cost of sales			813			505			1,443			844
	Research and development			10,012			9,310			19,139			17,965
	General and administrative			3,125			2,532			6,646			5,049
		Total costs and expenses		13,950			12,347			27,228			23,858
Operating loss				(10,303	)		(9,437	)		(20,705	)		(18,566	)
Other income (expense):
	Investment and other income			1,873			2,546			3,942			4,804
	Interest expense			(184	)		(196	)		(348	)		(399	)
		Net loss	$	(8,614	)	$	(7,087	)	$	(17,111	)	$	(14,161	)
Basic and diluted loss per common share			$	(0.44	)	$	(0.36	)	$	(0.88	)	$	(0.73	)
Weighted average common shares outstanding				19,392			19,466			19,441			19,439

See accompanying notes to consolidated financial statements

4

GUILFORD PHARMACEUTICALS INC.

AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

Six Months Ended June 30, 1999

(Unaudited)

(in thousands, except share data)

			Common stock										Accumulated			Note
							Additional						other			receivable
			Number of		Dollar		paid-in			Accumulated			comprehensive			on common
			shares issued		Amount		capital			deficit			income (loss)			stock
Balance, December 31, 1998				19,594,316	$	196	$	187,139		$	(56,009	)	$	876		$	(60	)
Comprehensive loss:
	Net loss for the period										(17,111	)
		Unrealized loss on available-for-sale securities												(2,149	)
Total comprehensive loss
Issuances of common stock				344,759		3		2,387
Purchase of 220,400 shares of common stock
Distribution of 13,234 shares of treasury stock to 401(k) plan
Stock option compensation								219
Amortization of deferred compensation
Forfeiture of unvested restricted stock								(110	)
Balance, June 30, 1999				19,939,075	$	199	$	189,635		$	(73,120	)	$	(1,273	)	$	(60	)

[Additional columns below]

[Continued from above table, first column(s) repeated]

									Total
			Treasury			Deferred			stockholders’
			stock, at cost			compensation			equity
Balance, December 31, 1998			$	(1,399	)	$	(364	)	$	130,379
Comprehensive loss:
	Net loss for the period									(17,111	)
		Unrealized loss on available-for-sale securities								(2,149	)
Total comprehensive loss										(19,260	)
Issuances of common stock										2,390
Purchase of 220,400 shares of common stock				(2,209	)					(2,209	)
Distribution of 13,234 shares of treasury stock to 401(k) plan				178						178
Stock option compensation										219
Amortization of deferred compensation							48			48
Forfeiture of unvested restricted stock							110			—
Balance, June 30, 1999			$	(3,430	)	$	(206	)	$	111,745

See accompanying notes to consolidated financial statements.

5

GUILFORD PHARMACEUTICALS INC.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

				Three Months Ended						Six Months Ended
				June 30,						June 30,
				1999			1998			1999			1998
Cash Flows From Operating Activities:				$	(8,614	)	$	(7,087	)	$	(17,111	)	$	(14,161	)
	Net loss Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization			1,596			921			2,649			1,751
		Noncash compensation expense			219			139			357			270
	Changes in assets and liabilities:
		Accounts receivable, other current assets and other assets			(300	)		42			(395	)		(1,083	)
		Inventories			173			176			148			(116	)
		Accounts payable			394			1,242			(736	)		726
		Accrued expenses and other current liabilities			(329	)		1,559			1,047			2,339
		Deferred income			(1,125	)		—			(1,125	)		158
			Net cash used in operating activities		(7,986	)		(3,008	)		(15,166	)		(10,116	)
Cash Flows From Investing Activities:
	Purchases of property and equipment, net				(1,654	)		(3,592	)		(2,214	)		(5,725	)
	Sale and maturities of investments				6,065			32,602			85,771			44,632
	Purchases of investments				(2,901	)		(29,888	)		(73,422	)		(45,754	)
			Net cash (used in) provided by investing activities		1,510			(878	)		10,135			(6,847	)
Cash Flows From Financing Activities:
	Net proceeds from issuances of common stock				2,373			54			2,390			494
	Purchase of treasury stock				(932	)		—			(2,209	)		(46	)
	Principal payments on bond and term loan payable				(540	)		(540	)		(1,080	)		(1,080	)
			Net cash (used in) provided by financing activities		901			(486	)		(899	)		(632	)
	Net decrease in cash and cash equivalents				(5,575	)		(4,372	)		(5,930	)		(17,595	)
Cash and cash equivalents at the beginning of period					8,125			11,757			8,480			24,980
Cash and cash equivalents at the end of period				$	2,550		$	7,385		$	2,550		$	7,385
Supplemental disclosures of cash flow information:
	Net interest paid			$	170		$	201		$	342		$	413
	Distribution of treasury stock to 401(k) plan			$	98		$	—		$	178		$	—

See accompanying notes to consolidated financial statements

6

Guilford Pharmaceuticals Inc.

Notes to Consolidated Financial Statements

June 30, 1999

(Unaudited)

1.   Organization and Basis of presentation

      Guilford Pharmaceuticals Inc. (together with its subsidiaries, “Guilford” or the “Company”) is a biopharmaceutical company, located in Baltimore, Maryland, engaged in the development and commercialization of novel products in two principal areas: (i) targeted and controlled drug delivery systems using proprietary biodegradable polymers for the treatment of cancer and other diseases; and (ii) therapeutic and diagnostic products for neurological diseases and conditions.

      The consolidated financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 1998.

      In the opinion of the Company’s management, any adjustments contained in the accompanying unaudited consolidated financial statements are of a normal recurring nature, necessary to present fairly its financial position, results of operations, changes in stockholders’ equity and cash flows for the three and six month periods ended June 30, 1999 as set forth in the Index. Interim results are not necessarily indicative of results for the full fiscal year.

2.   Accounting policies

  Principles of Consolidation

      The consolidated financial statements include the accounts of Guilford Pharmaceuticals Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

  Earnings (loss) per common share

      Basic earnings (loss) per share (“EPS”) is computed by dividing earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed by increasing the weighted-average number of shares outstanding for the period by the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. Potential common shares are excluded if the effect on earnings (loss) per share is antidilutive.

      The following table sets forth the computation of the Company’s basic and diluted net earnings (loss) per share:

	Three Months ended
	June 30,
	1999			1998
	(in thousands, except
	per share amounts)
Net loss	$	(8,614	)	$	(7,087	)
Weighted-average common shares outstanding		19,392			19,466
Basic and diluted (loss) per common share	$	(0.44	)	$	(0.36	)

7

Guilford Pharmaceuticals Inc.

Notes to Consolidated Financial Statements — (Continued)

	Six Months ended June 30,
	1999			1998
	(in thousands, except per
	share amounts)
Net loss	$	(17,111	)	$	(14,161	)
Weighted-average common shares outstanding		19,441			19,439
Basic and diluted (loss) per common share	$	(0.88	)	$	(0.73	)

3.   Inventories

      Inventories at June 30, 1999 and December 31, 1998 consist of the following:

	June 30, 1999		December 31, 1998
	(in thousands)
Raw materials	$	300	$	283
Work in process		495		371
Finished goods		348		637
	$	1,143	$	1,291

      Inventories are net of applicable reserves and allowances. Inventories include finished goods and raw materials that may be either available for sale, consumed in production or consumed internally in the Company’s development activities. Inventories identified for development activities are expensed in the period in which such inventories are designated for such use.

4.   Lease — Research and Development Facility

      In February 1998, the Company entered into a Real Estate Development Agreement and an operating lease agreement in connection with the construction of a new research and development facility. The facility is located adjacent to the Company’s corporate headquarters in Baltimore, Maryland and was substantially complete in June 1999. Construction costs are estimated not to exceed $20 million in the aggregate. The lease term is for a maximum of 84 months, which includes a construction period of up to 24 months. The Company will not make rental payments during the construction period, which is expected to end in August 1999 and following which the Company expects to begin making rental payments. The Company also has the option to purchase the facility at the end of the lease term in February 2005. The Company anticipates that the annual lease payments will not exceed $1.5 million. In the event the Company chooses not to exercise its purchase option, the Company is obligated to arrange for the sale of the facility and is required to pay the lessor any difference between the net sales proceeds and the lessor’s net investment in the facility. If the sales proceeds are less than the lessor’s net investment in the Facility, the Company has to pay an amount equal to the difference between 83% of the lessor’s net investment in the facility and the shortfall. During the construction period, the Company must maintain cash collateral equal to 100% of the cost of construction not to exceed $20 million. Upon completion of construction, the Company may reduce the amount of aggregate cash collateral by approximately $5.1 million. As of June 30, 1999, the Company had established cash collateral of approximately $17.0 million related to this transaction. The cash collateral is included in the accompanying consolidated balance sheets as “Investments-restricted”. In addition the Company is subject to certain financial covenants the most restrictive of which requires that the Company maintain unrestricted cash, cash equivalents and investments in the aggregate equal to $40 million.

8

Guilford Pharmaceuticals Inc.

Notes to Consolidated Financial Statements — (Continued)

5.   Subsequent Events

      In July and August 1999, the Company received an aggregate of $4.5 million in non-refundable milestone payments from Rhône-Poulenc Rorer Pharmaceuticals Inc. (“RPR”). These milestone payments became payable upon RPR’s receipt of specified regulatory approvals to market and sell GLIADEL® Wafer for the recurrent surgery indication in France and Germany.

9

GUILFORD PHARMACEUTICALS INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Cautionary Note

      From time to time in this quarterly report we may make statements which reflect our current expectations regarding our future results of operations, economic performance, and financial condition as well as other matters that may affect our business. In general, we try to identify these forward-looking statements by using words such as:

•   "anticipate”,

•   "believe”,

• “expect”,

• “estimate” and similar expressions

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

      The forward-looking statements contained in this quarterly report may cover, but are not necessarily limited to, the following topics:

• our efforts in conjunction with Rhône-Poulenc Rorer Pharmaceuticals Inc. (or “RPR”) to obtain international regulatory clearances to market and sell GLIADEL® Wafer (“GLIADEL”),

• our efforts in conjunction with RPR to increase end-user sales of GLIADEL,

• our efforts in conjunction with RPR to expand the labeled uses for GLIADEL,

• our efforts to develop product line extensions using biodegradable polymers for drug delivery,

• conducting and completing research programs related to our FKBP neuroimmunophilin ligand, NAALADase inhibition, PARP inhibition, polymer drug delivery and other technologies,

• clinical development activities, including commencing and conducting clinical trials, related to our polymer-based drug delivery products and product candidates (including GLIADEL) and our pharmaceutical product candidates (including lead compounds in our FKBP neuroimmunophilin ligand program and any future lead compounds in our NAALADase and PARP programs),

• our efforts to scale-up product candidates from laboratory bench quantities to commercial quantities,

• our efforts to secure supply of the active pharmaceutical ingredient for the clinical development and commercialization of our polymer-based and other drug candidates,

• our efforts to manufacture drug candidates for clinical development and eventual commercial supply,

• our strategic plans,

• anticipated expenditures and the potential need for additional funds, and

• plans to assess and implement solutions, if necessary, to the Year 2000 issue.

      All of these items involve significant risks and uncertainties.

      Any of the statements we make in this quarterly report that are forward-looking are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We wish to caution you

10

that our actual results may differ significantly from the results we discuss in the forward-looking statements.

      We discuss factors that could cause or contribute to such differences elsewhere in this quarterly report as well as in our filings with the Securities and Exchange Commission. Our SEC filings include our Annual Report on Form 10-K for the year ended December 31, 1998 and our registration statement on Form S-3 (SEC file no. 333-82397) we filed on July 7, 1999. For convenience we refer to these documents as the “1998 Form 10-K” and the “July 1999 Form S-3” in the discussion set forth below. In addition, any forward-looking statement we make in this document speaks only as of the date of this document, and we do not intend to update any such forward-looking statement to reflect events or circumstances that occur after that date.

Introduction

      In the following section, called “Management’s Discussion and Analysis”, we explain the general financial condition and the results of operations for Guilford and its subsidiaries, including:

• what factors affect our business,

• what our revenues and expenses were in the periods presented,

• why such revenues and expenses changed between periods,

• where our revenues came from,

• how all of the foregoing affect our overall financial condition, and

• what our expenditures for capital projects were in the periods presented.

      As you read Management’s Discussion and Analysis, you may find it helpful to refer to our Consolidated Financial Statements beginning on page 3 of this quarterly report. These consolidated financial statements present the results of our operations for the second quarter and first six months of 1999 and 1998 as well as our financial position at June 30, 1999 and December 31, 1998. In Management’s Discussion and Analysis, we analyze and explain the changes in the specific line items set forth in the section of our Consolidated Financial Statements entitled “Consolidated Statements of Operations”.

      You will notice some changes in this year’s discussion compared to prior years. In 1998 the SEC adopted new rules requiring public companies like Guilford to write certain documents in “plain English”. Even though the SEC does not require us to present our Management’s Discussion and Analysis in plain English, we have decided voluntarily to apply these rules to the following discussion. Our goal is to describe and analyze our financial condition in language that may be easier for our stockholders to understand.

General

      Guilford is a biopharmaceutical company engaged in the development and commercialization of novel products in two principal areas:

• targeted and controlled drug delivery products using proprietary biodegradable polymers for the treatment of cancer and other diseases or conditions, and

• therapeutic and diagnostic products for neurological diseases and conditions.

      In February 1997, we commercially launched our first product, GLIADEL, in the United States through RPR. GLIADEL is a proprietary polymer product for the treatment of certain types of brain cancer. This product erodes over time and releases an anti-cancer drug known as “BCNU” (or carmustine) directly to the tumor site. RPR is our exclusive worldwide marketing partner for GLIADEL, except in Japan and Scandinavia. Orion Corporation Pharma (formerly Orion Corporation Farmos) is our marketing partner for GLIADEL in Scandinavia.

11

      We have also licensed from others and internally developed on our own:

• technologies that may be useful in preventing and treating certain neurological diseases and conditions, and

• a new class of biodegradable polymers different from the type used in GLIADEL, which we are using for the targeted and controlled delivery of cancer chemotherapeutics.

      In addition, in the second quarter of 1999, we continued to increase our investment in research and development activities with respect to certain of these technologies.

      We anticipate that our future revenues will come primarily from the following sources:

• sales of those products we manufacture to our marketing partners, which currently consists of sales of GLIADEL to our marketing partners. We may sometimes refer to these amounts as “transfer payments” or “product sales”,

• royalties from our marketing partners related to the sale of products to third parties, such as RPR’s sales of GLIADEL to hospitals, and any sales of other products we may develop in the future, and/or

• one-time rights, milestone, and other payments from corporate partners under our current collaborative agreements and new ones we may enter into with others in the future.

      As we discuss in greater detail below, if we or our corporate collaborators, RPR and Amgen Inc., attain certain regulatory and/or development objectives, we are eligible to receive certain milestone and other payments from these companies. We view these potential payments as significant future revenue and/or capital raising opportunities. As we discuss in the 1998 Form 10-K, we cannot be sure that our corporate partners will achieve the designated milestones and that we will receive any or all of the milestone payments for which we are eligible under our existing or any future collaborations. We also cannot be sure that we will be able to enter into collaborations in the future with others for the research, development and/or commercialization of our technologies.

      Since the commercial launch of GLIADEL in the United States in February 1997 through June 30, 1999, we have recognized an aggregate of $17.7 million in product sales and royalties. Of this amount, $12.2 million represent revenues from sales of GLIADEL to both RPR and Orion Corporation Pharma. The additional $5.5 million are royalties paid to us from RPR on its sales of GLIADEL to third parties, such as hospitals.

      Under the terms of our agreements with RPR, if RPR is able to achieve certain specified regulatory objectives, RPR is obligated to pay us up to an additional $30.5 million in milestone payments and payments for the purchase of shares of our stock. These regulatory objectives include obtaining approvals to market GLIADEL in certain foreign countries. This $30.5 million amount is exclusive of previous milestone payments we have received from RPR through August 12, 1999, including the two milestone payments we recently received with regard to specified regulatory approvals for GLIADEL in France and Germany. Readers are directed to the discussion under the heading “Subsequent Events” below in this Management’s Discussion and Analysis for a description of milestone payments made by RPR to us in July and August 1999 related to regulatory approvals for GLIADEL in France and Germany.

      As we discuss below and in greater detail in the 1998 Form 10-K and the July 1999 Form S-3, a number of factors subject our future sales of GLIADEL to significant risk and uncertainty. We cannot be sure that our sales of GLIADEL to RPR and RPR’s sales of GLIADEL to third parties will increase over time or even continue at the current rate. The milestone payments and other amounts payable by RPR are contingent on:

• making certain U.S. and international regulatory filings and obtaining clearances to market GLIADEL for the recurrent surgery indication pursuant to such filings,

12

• obtaining authorization from the FDA and international health regulatory authorities to expand the description of the clinical uses for GLIADEL that we can put on its label to include use of the product in first surgeries, and

• obtaining permission to sell GLIADEL in certain countries at prices that are acceptable to RPR and us.

      We cannot control the timing and extent of governmental clearances. We also cannot be sure that we and RPR will attain any of these regulatory objectives. Except for GLIADEL, we do not expect to sell other products for at least the next several years, if ever.

      In August 1997, we entered into a collaboration with Amgen to research, develop and commercialize our FKBP neuroimmunophilin compound technology. Under our agreement with Amgen, Amgen paid us $35 million in 1997. Of this amount, Amgen paid $15 million in the form of a one-time, non-refundable rights fee upon signing the agreement. Amgen paid us the remaining $20 million for the purchase of 640,095 shares of our common stock and warrants to purchase up to an additional 700,000 shares of our common stock. These warrants are exercisable for five years and have an exercise price of $35.15 per share. We also granted to Amgen certain rights to register shares of our common stock with the SEC for sale in the public markets.

      As part of this collaboration, Amgen agreed to fund up to a total of $13.5 million to support Guilford’s research relating to the FKBP neuroimmunophilin ligand technology. This research funding began on October 1, 1997 and is payable quarterly over three years, with the last quarterly payment due July 1, 2000. As of June 30, 1999, we had recognized an aggregate of approximately $8.0 million in research support from Amgen under this arrangement. Amgen also has the option to fund a fourth year of research.

      Our agreement also requires that Amgen make milestone payments to us if Amgen achieves specified regulatory and product development milestones. If Amgen is able to meet all of these milestones for each of 10 different specified clinical indications (i.e., medical uses), these payments could total up to $392 million in the aggregate. Amgen is also required to pay us royalties on its sales to third parties of any product(s) that results from our collaboration. So long as it funds two years of research, Amgen may elect at any time to discontinue all development and commercialization for the FKBP neuroimmunophilin compound technology.

      As we discuss below and in greater detail in the 1998 Form 10-K and the July 1999 Form S-3, we cannot be sure that Amgen will be successful in its efforts to develop one or more FKBP neuroimmunophilin compounds into products that the FDA and foreign regulatory authorities will approve as safe and effective drugs for neurological or other uses. Consequently, we cannot be sure that we will earn any of the milestone payments related to these regulatory and product development activities.

      In addition to revenues related to GLIADEL, the only other significant revenues we recognized for the first six months of 1999 consist of approximately $2.25 million in research payments from Amgen. As described above, we expect Amgen to pay us an additional $2.25 million in 1999 to support our research on the FKBP neuroimmunophilin ligand technology.

      With the sole exception of 1996, we have not earned a net profit in any year since our inception in July 1993. Our net profit in 1996 was $5.1 million. This net profit was primarily due to two, one-time rights payments from RPR which totaled $27.5 million as follows:

• a $7.5 million payment in June 1996 upon the signing of our agreements with RPR for the sales, marketing and distribution of GLIADEL, and

• a $20 million payment following FDA approval of the New Drug Application to market GLIADEL in September 1996.

      For the three and six months ended June 30, 1999, we incurred a net loss of $8.6 million and $17.1 million, respectively. Since inception through June 30, 1999, we have an accumulated deficit of

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$73.1 million. Our accumulated deficit is equal to the sum of our cumulative profits and losses since inception in July 1993.

      We do not expect 1999 to be profitable. We cannot be sure that we will ever achieve or sustain profitability in the future. Furthermore, our revenues and expenses have fluctuated significantly in the past because of the nature and timing of their sources. We expect fluctuations in our revenues and expenses to continue, and thus our operating results should also vary significantly from quarter-to-quarter and year-to-year. A variety of factors cause these fluctuations, including:

• the timing and amount of sales of GLIADEL to RPR and RPR’s sales to others,

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

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

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

      We expect that expenses in all areas of our business will continue to increase. These areas include research and product development, pre-clinical testing, human clinical trials, regulatory affairs, operations, manufacturing and general and administrative activities. In addition, we expect the number of employees working at our company to continue to increase. At June 30, 1999, we had 230 full-time employees. This compares to 212 full-time employees at June 30, 1998.

      Our ability to achieve consistent profitability in the future will depend on many factors, including:

• the level of future sales of GLIADEL,

• our ability, either alone or with others, to develop our product candidates successfully, including NIL-A and any other product candidates identified pursuant to our collaboration with Amgen,

• the extent of any human clinical trials and related costs necessary to develop our product candidates,

• our ability, either alone or with others, to obtain required regulatory approvals to market our product candidates,

• our ability and that of our corporate partners to manufacture products at reasonable cost,

• our ability and that of our collaborators to market and distribute products successfully,

• our ability to enter into acceptable collaborative arrangements for our technologies and license agreements for new technologies of others in the future, and

• our ability to invent new technologies and/or in-license new technologies from others and to obtain, defend and/or enforce patents on new and existing technologies.

      For a discussion of these and other risks, you should read the “Risk Factors” section of the July1999 Form S-3, particularly those paragraphs specifically addressing the risks we note above.

      Future sales of GLIADEL are subject to certain risks and uncertainties. These risks include the following, among others:

• RPR is not obligated to purchase any minimum amounts of GLIADEL from us, and so our revenues from the sale and distribution of GLIADEL are entirely dependent on the level of RPR’s sales to end-users.

• RPR may not be successful in its efforts to market and sell GLIADEL.

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• Neurosurgeons and their patients may not accept GLIADEL for a number of reasons, including the fact that GLIADEL represents a new and unfamiliar approach to the treatment of brain cancer and their assessment that benefits of this therapy do not outweigh its costs.

• RPR may not be successful in its attempts to obtain any additional regulatory and marketing approvals to market GLIADEL and sell GLIADEL at acceptable prices.

• BCNU, the chemotherapeutic agent we use in GLIADEL, is currently only available from two suppliers, and thus this material may not be available for GLIADEL manufacture.

• The Company’s current manufacturing plant for GLIADEL and a recently completed second manufacturing facility are both located in the same building at our headquarters in Baltimore, Maryland, and thus are subject to the risk that natural disasters or other factors may adversely affect their operation and interrupt GLIADEL manufacture.

      As we noted in the section captioned “Risk Factors” in the July 1999 Form S-3, there is no guarantee that we or Amgen will be able to successfully develop any FKBP neuroimmunophilin compounds or other product candidates into safe and effective drug(s) for neurological or other uses. Consequently, we may not earn additional milestone payments related to Amgen’s development activities or revenues related to product sales. In particular, the research, development and commercialization of early-stage technology like the FKBP neuroimmunophilin ligand technology is subject to significant risks and uncertainty. These risks involve those relating to, among other things:

• selection of an appropriate lead compound,

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

• the need to obtain regulatory clearances to market and sell drug products,

• formulation of final product dosage forms,

• scale-up from laboratory bench quantities to commercial quantities,

• manufacture of drug products,

• commercialization of such products, and

• the successful prosecution, enforcement and defense of patent and other intellectual property rights.

      For discussion of these and other risks, you should see the section captioned “Risk Factors” in the July 1999 Form S-3.

Results of Operations

      In this section we discuss our revenues, costs and expenses, and other income and expenses for the three and six month periods ended June 30, 1999 and 1998 as well as the factors affecting each of them.

  Three and Six Months Ended June 30, 1999 and 1998

      For the three month periods ended June 30, 1999 and 1998, we recognized revenues of $3.6 million and $2.9 million, respectively. For the six month periods ended June 30, 1999 and 1998, we recognized revenues of $6.5 million and $5.3 million, respectively. Our revenues for the second quarter and first half of 1999 and 1998 consisted primarily of revenues from product sales and royalties relating to GLIADEL and $1.1 million in quarterly research funding from Amgen for each of the first two quarters of 1999 and 1998.

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      Revenues from the sale and distribution of GLIADEL consist primarily of:

• revenues from our marketing and distribution partners, RPR (for the entire world except Scandinavia and Japan) and Orion Corporation Pharma (for Scandinavia only), from our sales of GLIADEL to them, and

• royalty payments from RPR based on its sales of GLIADEL to others, primarily hospitals.

  GLIADEL Product Sales

      We earned $1.7 million in the second quarter of 1999 from the sale of GLIADEL to our marketing partners compared to $1.0 million in the same period in 1998. This represents a 68% increase in net product sales in the 1999 period as compared to the same period in 1998. We earned $2.9 million in the first six months of 1999 from the sale of GLIADEL to our marketing partners compared to $1.7 million in 1998. This represents a 73% increase in net product sales in the first half of 1999 compared to the same period in 1998.

      We believe that part of the increase in the number of units of GLIADEL sold to RPR in the second quarter and first half of 1999 primarily reflects RPR’s build-up of inventory of the product to support anticipated launch in France and other countries in Europe and elsewhere around the world. We cannot guarantee, however, that RPR will obtain all necessary regulatory approvals to launch the product in additional European countries or elsewhere to market and sell GLIADEL. In addition, we cannot be sure that, even if RPR does obtain these approvals in one or more European or other countries, GLIADEL will be launched in these countries in 1999 or thereafter, or that sales in those countries, if any, including France and Germany, will be significant.

  Royalties on GLIADEL Sales to Third Parties

      Our net royalty revenue on RPR’s sales of GLIADEL to third parties was $697,000 in the second quarter of 1999 as compared to $730,000 in the second quarter of 1998. This represents a 5% decrease in net royalty revenue in the 1999 period compared to the same period in 1998. Our net royalty revenue on RPR’s sales of GLIADEL to third parties was $1.2 million in the first six months of 1999 compared to $1.3 million in the second quarter of 1998. This represents a 5% decrease in net royalty revenue in the first half of 1999 as compared to the same period in 1998. A modest decrease in the net number of units sold by RPR to third parties caused the decrease in royalty revenue during the 1999 periods. Based solely on discussions with RPR, we believe these decreases in RPR’s sales of GLIADEL to third parties were primarily due to a reorganization in RPR’s oncology sales force which was completed during the first half of 1999 and that GLIADEL royalties for calendar year 1999 will either remain at the same levels as 1998 or show a modest increase over 1998 amounts.

      As we discuss in greater detail in the 1998 Form 10-K and July 1999 Form S-3, a number of factors subject our future sales of GLIADEL to significant risk and uncertainty. We cannot guarantee that GLIADEL sales will increase from, or even remain at, current levels or will ever generate significant revenues for us in the future.

  Cost of Sales

      Our cost of sales for the three months ended June 30, 1999 and 1998 was $813,000 and $505,000, respectively. Our cost of sales for the six months ended June 30, 1999 and 1998 was $1.4 million and $844,000, respectively. The increase in the cost of sales for the second quarter and first half of 1999 compared to the corresponding periods in 1998 primarily reflects an increase in the number of units of GLIADEL sold to our marketing partners in the 1999 periods. In the second quarter and first half of 1999, cost of product sales represented 49% and 50%, respectively, of total product sales revenues compared to 51% in the comparable periods in 1998. To the extent GLIADEL production levels increase in future periods, the Company expects that per unit product costs may decrease as greater economies of

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scale are achieved. We cannot be sure, however, that GLIADEL product sales will ever reach levels necessary for us to realize significant costs savings related to manufacturing economies of scale.

  Research and Development Expenses

      Our research and development expenses increased to $10.0 million for the second quarter of 1999. This amount was $9.3 million in the second quarter of 1998. Our research and development expenses increased to $19.1 million for the first six months of 1999. This amount was $18.0 million in the first half of 1998. The increase in research and development expenses of $702,000 from the second quarter of 1998 to the second quarter of 1999 and of $1.1 million from the first six months of 1998 to the first half of 1999 were primarily attributable to increased costs related to:

• outside services such as contracted research and consulting services, and

• increased personnel.

      The increase in our research and development expenses for the first six months of 1999 was partially offset by a decrease in certain costs we incurred in the first half of 1998 that were not repeated in first half of 1999, including amounts paid to a university licensor expensed in the first quarter of 1998 relating to certain neuroimmunophilin ligand technology.

      At June 30, 1999, we employed 195 individuals on a full-time basis in the areas of research, development and manufacturing. We employed 182 individuals in these areas at June 30, 1998.

      In the second quarter of 1999, we continued to increase our research and product development efforts generally, particularly with respect to our PARP inhibitor neuroprotectant and polymer development technologies. We also continued to provide financial support for RPR’s Phase III clinical trial program in support of a first surgery indication for GLIADEL.

      In the second quarter and first six months of 1999 and 1998, our research and development expenses included charges relating to certain consulting agreements related to GLIADEL and the polymer drug delivery business which we entered into in April 1996. These charges consisted of:

• non-cash compensation expense of approximately $110,000 for the second quarter of both 1999 and 1998, respectively, and approximately $219,000 for the first half of both 1999 and 1998, respectively; and

• cash compensation expense of approximately $22,500 and $21,000 for the second quarter of 1999 and 1998, respectively, and approximately $90,000 and $83,000 for the first six months of 1999 and 1998, respectively.

      We entered into these agreements to assist in the commercialization of GLIADEL, including our efforts to expand the labeling for this product and to generate product line extensions, and to enhance our ability to develop new polymer technologies and products for the delivery of anti-cancer agents for those diseases or conditions where local tumor recurrence is likely and controlled release may be more effective than current therapies. We expect to record up to an additional $530,000, in total, of non-cash compensation charges in our research and development expenses quarterly through 2001 because of these agreements. We also anticipate that our research and development expenses will continue to increase in future periods.

  General and Administrative Expenses

      Our general and administrative expenses increased to $3.1 million in second quarter of 1999. This amount was $2.5 million in the second quarter of 1998. Our general and administrative expenses increased to $6.6 million in first six months of 1999 compared to $5.0 million in the first half of 1998. We attribute the increases in general and administrative expenses of $593,000 from the second quarter of 1998 to the second quarter of 1999 and $1.6 million from the first six months of 1998 to the first half of 1999 to higher legal fees, patent and professional contract services costs and costs for professional, advisory and

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related services. These costs increased, in part, because of an increase in the activities necessary to support our research, product development and commercialization efforts.

      At June 30, 1999 and 1998, we employed 35 individuals and 30 individuals, respectively, on a full-time basis in general and administrative areas. Our general and administrative expenses, particularly those related to establishing, preserving and enforcing our intellectual property rights, may continue to increase in future periods depending upon the level of activity in these areas.

  Other Income and Expense

      Other income and expense consists primarily of interest income on our monetary investments and interest expense on our debt and other financial obligations. Our investment and other income decreased to $1.9 million in the second quarter of 1999 compared to $2.5 million in the second quarter of 1998. Our investment and other income decreased to $3.9 million in the first six months of 1999 compared to $4.8 million in the first half of 1998. The decrease between these periods was primarily due to a decrease in the average investment balance during the second quarter and first half of 1999 as compared to the same periods in 1998.

      For the second quarter of 1999 and 1998, we incurred interest expense of $184,000 and $196,000, respectively. For the first six months of 1999 and 1998, we incurred interest expense of $348,000 and $399,000, respectively. These interest charges resulted from loans we have with First Union National Bank. These loans helped fund the construction of our manufacturing, administrative, and research and development facilities and the purchase of certain furniture and equipment. Because we continue to repay these loans, our average principal balance outstanding under these loans was lower during the second quarter and first half of 1999 compared to the same periods in 1998. As a consequence, interest expense decreased during the 1999 periods as compared to the same periods in 1998.

Liquidity and Capital Resources

      Our cash, cash equivalents and investments were approximately $107.8 million at June 30, 1999. Of this amount, we pledged $24.8 million as collateral for certain of our loans and financial lease obligations. We have recorded this amount under “Investments – restricted” on our Consolidated Balance Sheets.

      The increase of $8.3 million in the amount of restricted investments at June 30, 1999 as compared to December 31, 1998 resulted from an increase during the first half of 1999 in the amount of cash collateral related to our design and construction of a new research and development facility. We describe the financing for this facility below. This increase in cash collateral was partially offset by our continued repayment of our loans from First Union National Bank, which resulted in a decrease in the cash collateral amounts related to these loans. In addition, under the agreements relating to the new research and development facility, upon completion of that facility, our cash collateral requirements will be reduced by up to approximately $5 million.

      In 1998, the Board of Directors approved a program to purchase up to 1,000,000 shares of our common stock in the open market from time to time at our discretion. Through June 30, 1999, we had repurchased a total 252,500 of our shares under this program for an aggregate cash outlay of $2.7 million. Of this amount, we purchased 91,000 shares for a total of $932,000 during the second quarter of 1999. In August 1999, we publicly announced that we had terminated this share repurchase program. In addition, in the second quarter of 1999 we issued 312,933 shares of our common stock upon the exercise of certain warrants we originally granted upon the closing of our initial public offering in June 1994. In exchange for these shares, we received approximately $2.25 million.

      Our total debt decreased to $9.8 million at June 30, 1999 compared to $10.9 million at December 31, 1998. This decrease was a result of our continued repayment of principal under our loans with First Union National Bank.

      We incurred net capital expenditures of $1.7 million in the second quarter of 1999 compared to net capital expenditures of $3.6 million for the second quarter of 1998. We used these capital expenditures in

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the second quarter of 1999 to purchase certain laboratory and computer equipment. We used the amounts we spent in the second quarter of 1998 to fund the construction of our new GLIADEL and biodegradable polymer manufacturing facilities. We also used these monies to fund improvements to our research and development laboratories and administrative offices and to purchase research and development equipment.

      In March 1998, we entered into arrangements with certain equipment leasing companies that permit us to lease up to $10.8 million in equipment, including computer hardware and software, furniture and fixtures. As of June 30, 1999, we had leased a total of $4.4 million in equipment under these arrangements. Depending on the type of equipment covered and certain other factors, the term of any lease we enter under these arrangements may range from two to four years. At June 30, 1999, $6.4 million was available under these arrangements to lease additional equipment. In addition, during prior years, we had leased an additional $3.5 million in equipment under a prior lease arrangement.

      We expect our existing financing arrangements, our internal capital resources and potential external sources of funds to provide for our current equipment needs at least until the end of 2000. If we decide to expand our research and development programs beyond current expectations, our capital equipment requirements could increase, and thus we may require additional capital funding.

      In order to meet our anticipated future facilities needs, in 1997 we initiated a project to design and construct a new research and development facility. To accomplish this task, in February 1998 we entered into an operating lease and other related agreements with First Union National Bank and related entities in connection with such a facility. This new facility, which was substantially completed in June 1999, was constructed on a lot adjacent to our current headquarters in Baltimore, Maryland. The facility is owned by a trust affiliated with First Union National Bank and provides 73,000 square feet of research and development capacity. We anticipate that this new research and development facility, along with our current facility, will support our research, development, commercialization and administrative activities until at least the end of 2000.

      We began moving personnel into the facility in June 1999 and expect to consolidate all of our operations into our current headquarters and the new facility prior to the end of 1999. Our lease for the new facility expires in February 2005. We anticipate that the lease payments for this facility will not exceed $1.5 million annually. The elimination of certain rental expenses associated with two other research and development facilities we recently vacated should substantially offset this cost.

      At the expiration of the lease term, we may purchase the property for an amount equal to:

• all unamortized acquisition and construction costs,

plus

• all accrued but unpaid interest and similar costs that the First Union trust incurs as part of its acquisition and construction of the property.

      For convenience we refer to this amount as the “Termination Amount”.

      In the alternative, we may sell the property on behalf of the First Union trust. The First Union trust is then obligated to credit the proceeds from the sale against our repayment of the Termination Amount. If the sale proceeds are not enough to cover the entire Termination Amount, we then have to repay the shortfall so long as our total payments to the trust are not more than 83% of the Termination Amount. In addition, we may extend the lease term provided that First Union National Bank in its discretion agrees to such an extension.

      Under our agreements with First Union National Bank related to this new R&D facility, we are required to hold in the aggregate unrestricted cash, cash equivalents and investments of $40 million at all times during the term of the lease. This requirement is in addition to the cash collateral requirements we discuss above in this “Liquidity and Capital Resources” section.

      Under a loan agreement we executed with RPR in 1996, RPR has extended to us a $7.5 million line of credit to support expansion of our GLIADEL and polymer manufacturing capacity, of which,

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$4.0 million is currently available to us. The remaining $3.5 million becomes available no earlier than 12 months nor later than 18 months following funding of the initial portion. Any principal amounts we borrow are due five years from the date borrowed. The agreement provides that loan amounts carry an interest rate equal to the lowest rate RPR pays from time to time on its most senior debt. While we had not borrowed any amounts under this credit facility as of June 30, 1999, we recently requested that RPR advance to us the initial $4.0 million tranche and are in discussions with RPR regarding the documentation of this transaction.

      During 1998, we entered into a series of interest rate swap transactions with First Union National Bank covering $20 million in financial obligations under our lease with the First Union trust. In January 1999, we entered into additional interest rate swap agreements with First Union National Bank covering $10 million in floating rate debt. As a result, we fixed the interest rates on these financial lease obligations and debt at approximately 6% in the aggregate.

      In the fourth quarter of 1998, we established an unsecured, revolving line of credit for $5 million with ALLFIRST (formerly First National Bank of Maryland). Borrowings under this line of credit carry an interest rate of LIBOR plus 0.55% and are payable on demand. We may draw on the line of credit from time to time to meet our short-term working capital needs. No amounts were outstanding under this facility at June 30, 1999.

      We expect to need significantly greater capital to continue our research and product development programs and pre-clinical and clinical testing and to manufacture and possibly market our products. We may also need additional funds to meet our future facility expansion needs if necessary. Our capital requirements depend on a number of factors, including:

• the progress of our research and development programs,

• the progress of pre-clinical and clinical testing,

• the time and costs involved in obtaining regulatory approvals,

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

• competing technological and market developments,

• changes in our existing research relationships,

• our ability to establish collaborative arrangements,

• our ability to enter into licensing agreements and contractual arrangements with others, and

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

      We believe that our existing capital resources will be sufficient to fund our activities until at least December 31, 2000. We may, however, expend these resources before that time for a number of reasons including, among others:

• changes in our research, product development and commercialization plans,

• other factors that increase our expenses or capital expenditures, including potential acquisitions of other companies, assets, products, drug candidates or technologies,

• repurchases of our stock under any stock repurchase program, and

• unanticipated capital expenditures.

Subsequent Events

      In July and August 1999 we received an aggregate of $4.5 million in non-refundable milestone payments from RPR. These milestone payments became payable upon RPR’s receipt of specified

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regulatory approvals to market and sell GLIADEL for the recurrent surgery indication in France and Germany.

The Year 2000 Issue

  Introduction

      The so-called “Year 2000 issue” results from computer programs that rely on two-digit date codes instead of four-digit date codes to indicate the year. For example, these types of computer systems, which include computer software for desktop computers, software used in scientific equipment, and software embedded in computer chips, indicate the year 1966 by the digits “66”. As the year 2000 approaches, these systems will have to process information involving the year 2000 and later years. Systems that only use two-date digit codes may confuse the year 2000 with the year 1900. As a result, these computer programs may not be able to perform computations and decision-making functions correctly. This inability could also cause computer systems or other equipment to malfunction or shutdown completely.

      We have developed a multi-phase program to address this potential problem. It consists of the following steps:

• assess those corporate systems and operations that the Year 2000 issue could adversely affect,

• fix or replace non-compliant systems and components, if any, and then

• test these systems and components to ensure proper functioning.

      We have focused our Year 2000 compliance assessment program on four principal areas:

• our internal information technology system, which includes our internal computer network and phone system,

• our internal, non-information technology facilities systems, which include software embedded in:

— environmental controls,

— security systems,

— fire protection systems,

— manufacturing hardware and monitoring controls, and

— public utility connections for gas, electric and telephone systems, which for convenience we refer to as “Facilities Systems”,

• software we use with our laboratory and other equipment, which may either be located outside of the equipment or embedded within it, and

• Year 2000 compliance of those third parties which we have defined as critical to our mission, including:

— our principal vendors of goods and services, including raw materials, laboratory and other equipment,

— our financial institutions such as banks and investment managers, and

— our corporate partners such as RPR and Amgen.

      For convenience, we refer to these institutions as our “Major Third Parties”.

  Assessment and Remediation of Internal Systems

      During the later part of 1998 and the beginning of 1999, we conducted an inventory of the internal information technology systems, Facilities Systems, and equipment (which together make up our internal

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company systems) that we believe could be adversely affected by the Year 2000 issue. As of June 30, 1999, we had taken the following actions to address the Year 2000 issue:

• repaired or replaced, as necessary, those internal company systems that we found not to be Year 2000 compliant,

• re-tested these internal company systems to verify Year 2000 compliance, and

• engaged an independent outside consultant to review our approach to Year 2000 compliance and its conformity with industry best practices.

      While we substantially completed these actions by June 30, 1999, we expect to continue to test our systems intermittently through the end of 1999 for Year 2000 compliance.

      Our information technology personnel have discussed whether our enterprise-wide software systems are Year 2000 compliant with the vendors of those systems. We have also tested those systems for Year 2000 compliance. Based on these activities, we believe that such systems are Year 2000 compliant. We will continue to stay in contact with these vendors in order to obtain any additional revisions or upgrades the vendors issue to ensure that such enterprise-wide software remains Year 2000 compliant.

  Inquiries of Third Parties

      We have also been examining the Year 2000 readiness of our Major Third Parties. We consider these institutions, either together as a group or in certain cases on an individual basis, to pose the greatest Year 2000 risk to our business. Their failure to become Year 2000 compliant could:

• limit our ability to obtain raw materials, equipment and supplies in a timely manner,

• limit or prevent us from getting:

— our cash and other financial assets, and

— timely and accurate information about our financial assets,

• significantly disrupt our financial transactions, and

• interfere with the efforts of our corporate partners to continue their research, development and/or commercialization activities with respect to GLIADEL and the FKBP neuroimmunophilin compound technology.

      We have mailed Year 2000 compliance inquiry letters to, or have otherwise contacted, our Major Third Parties, to ask that they give us information about their Year 2000 compliance status, and are following up as necessary.

      Except for asking these third parties about their Year 2000 compliance and assessing their responses, we cannot independently verify whether these institutions are or will be Year 2000 compliant. In most cases we have limited or no ability to influence directly the Year 2000 compliance activities of these Major Third Parties. If any or all of these institutions fail to achieve substantial Year 2000 compliance, this failure could have a material adverse effect on our business, financial condition and results of operations.

      Furthermore, most of RPR’s sales of GLIADEL are to hospitals. The failure of these hospitals, or of any of RPR’s other customers for GLIADEL, to pay for their GLIADEL purchases because of a Year 2000 problem could materially and adversely affect our business. In addition, sales of GLIADEL are dependent, in part, on the availability of reimbursements from third-party healthcare payors, such as government insurance plans like Medicare and Medicaid, and private insurance plans and managed-care plans. Again, the failure of these third-party healthcare payors to reimburse or pay for claims because of Year 2000 problems could materially and adversely affect our business.

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  Remediation Costs

      As of June 30, 1999, the total costs for our Year 2000 compliance program have not been significant. Most of our costs relative to the Year 2000 issue have been internal personnel costs, which we have not tracked. We estimate that our costs did not exceed $100,000 in 1998, and that such costs for the second quarter and first half of 1999 were approximately $30,400 and $55,400, respectively. We did not incur any external costs during 1998 related to the Year 2000 issue and incurred $18,000 and $27,000, respectively, in external costs in the second quarter and first half of 1999.

      Based on information currently available to us, we do not believe that the future costs associated with developing a Year 2000 compliance plan and bringing our internal computer systems into Year 2000 compliance will be material. We estimate that the total costs for our Year 2000 compliance efforts will not exceed $200,000 in the aggregate. As of June 30, 1999, we estimate that we have incurred approximately 78% of the total costs we anticipate that we will incur to address Year 2000 issues relating to our internal company systems. Further, as of June 30, 1999, we had not separately set aside funds specifically to address the Year 2000 issue, but rather are using funds allocated to our yearly information technology budget. However, as we note above, we will continue to spot check and test our internal computer systems for Year 2000 compliance problems. Depending on the actual outcome of these continuing Year 2000 compliance-testing activities, our remediation costs may be significantly greater than our current estimates.

      We also do not know whether the costs associated with our efforts to assess and address any Year 2000 compliance concerns regarding our Major Third Parties will be material. As we note above, with most Major Third Parties, we have little or no direct ability to influence the Year 2000 compliance efforts of these institutions.

      As of June 30, 1999, we had not decided to switch from any vendor because of a concern over Year 2000 compliance. We will continue to evaluate the Year 2000 readiness of our suppliers and will decide on a case-by-case basis whether to seek out alternatives. If we determine to seek out an alternative supplier in the future, we may not be able to find an adequate substitute. In certain cases, a vendor may represent the sole supplier for a good or service.

  Disaster Recovery Plans and Certain Mitigating Factors

      In addition to our Year 2000 compliance activities, we have worked with an outside consulting firm to implement a comprehensive disaster recovery plan. This plan will cover a variety of areas, including the Year 2000 issue. We do not anticipate that the external costs for putting such a plan in place will exceed $125,000 in the aggregate.

      We currently make complete back-up copies of all of the data generated on our computer systems on a weekly basis. We also track changes to such data on a daily basis. We believe this practice should limit the amount of computer system data that would be lost if our computer systems were to fail as a result of a Year 2000 issue or other disaster.

      Many of our Facilities Systems, including our environmental controls, security systems, and fire protection systems, have manual override functions. These will allow us to operate certain of our Facilities Systems even if their software malfunctions. In addition, while a single banking institution acts as custodian for most of our financial assets, we hold certain other financial assets at, and have established a $5 million line of credit with, another banking institution. This arrangement should allow us to meet our operating expenses in the short term in the event our primary banking relationship were to be interrupted because of a Year 2000 issue. With respect to GLIADEL, we maintain what we believe to be sufficient inventories of raw materials, package components and product to prevent a product supply interruption if a vendor should have a Year 2000 problem.

      Due to the nature of our business, even if (1) we were to fail to implement our Year 2000 compliance program successfully for our internal company systems or (2) the Year 2000 compliance provisions of our disaster recovery plan prove inadequate, we believe that these circumstances would not have a material adverse effect on our business, financial condition and results of operations over the long

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term. They would, however, disrupt our operations in the short-term. The failure of one or more of our Major Third Parties, particularly our banks, investment managers, corporate partners, and suppliers of key raw materials to be Year 2000 compliant could have a material adverse effect on our business, financial condition and results of operations in the short term and potentially over the long term.

  Risks

      We have based our estimate of the costs of our Year 2000 compliance program and disaster recovery plan on the information currently available to us. We have based these estimates on a number of assumptions regarding future events. These include the continued availability of certain resources and other factors. We cannot be sure that these costs will not exceed our expectations or that the Year 2000 issue will not substantially and adversely affect our business, financial condition or results of operations.

      Specific factors that might cause our estimates to be incorrect include:

• our ability to locate and correct all relevant computer codes, including software embedded in environmental controls and manufacturing and laboratory equipment,

• the ability of the Major Third Parties to identify and resolve their own Year  2000 issues,

• the availability and cost of personnel trained in the area of Year 2000 compliance, and

• unforeseen or unanticipated problems that we are unable to address or can only remedy at great cost.

      Furthermore, our current cost estimates do not include costs that we may incur as a result of the failure of Major Third Parties, including Amgen and RPR, to become Year 2000 compliant on a timely basis. Moreover, if a Year 2000 issue causes (1) hospitals and other of RPR’s customers for GLIADEL to fail to pay for their GLIADEL purchases or (2) third-party healthcare payors to fail to reimburse claims or pay for GLIADEL, such failures could materially and adversely affect our business.

      Finally, our ability to continue to manufacture GLIADEL, conduct our research and product development programs, and function as a viable business enterprise depends on the continued availability of various basic infrastructure systems. These include electric power, telecommunications and transportation systems. We cannot be sure that the Year 2000 issue will not disrupt these infrastructure systems. If such disruptions were to occur in the Baltimore, Maryland metropolitan region where our manufacturing facilities and research and development laboratories are located, or in the areas in which we or our Major Third Parties conduct business, these disruptions could very well have a material adverse effect on our business, financial condition, results of operations, or business prospects.

Quantitative and Qualitative Disclosures About Market Risk

      Not Applicable.

24

Part  II. — Other Information

Item 1.  Legal Proceedings:

      None

Item 2.  Changes In Securities:

      In June 1999, we issued 312,933 shares of our common stock upon exercise of a warrant issued in June 1994 to one holder as partial compensation for underwriting services. In exchange we received approximately $2.25 million, which we will use for working capital and general corporate purposes. These shares were issued to Bear, Stearns Securities Corp. without registration under the Securities Act of 1933 pursuant to the exemption from registration set forth in sections 4(2) and/or 3(b) of that act.

Item 3.  Defaults in Senior Securities:

      None

Item 4.  Submission of Matters to a Vote of Security Holders

      We held our Annual Meeting of Stockholders on May 18, 1999. The following individuals were elected to our Board of Directors to hold office for the ensuing year:

Name of Nominee	Votes FOR		Votes AGAINST
Craig R, Smith, M.D.		17,734,417		260,627
Richard L. Casey		17,733,630		261,414
Solomon H. Snyder, M.D.		17,734,417		260,627
W. Leigh Thompson, M.D., Ph.D.		17,734,417		260,627
Elizabeth M. Greetham		17,734,417		260,627
George L. Bunting, Jr.		17,734,417		260,627
Joseph “Skip” Klein, III		17,734,417		260,627

      The following two proposals were not approved:

			Votes
Proposal	Votes FOR		AGAINST		ABSTAIN		NON-VOTES
Amendment to our Certificate of Incorporation to require that official actions of stockholders may occur only at duly called and held meetings of stockholders and that this new provision can only be altered by a vote of at least eighty percent (80%) of the Corporation’s outstanding stock		6,952,888		6,949,944		49,911		5,446,152

			Votes
Proposal	Votes FOR		AGAINST		ABSTAIN		NON-VOTES
Amendment to our Certificate of Incorporation to require that members of the board of directors only be removed by stockholders for “cause” and by a vote of holders of at least eighty percent (80%) of our outstanding stock and that this new provision can only be altered by a vote of at least eighty percent (80%) of our outstanding stock		5,295,022		7,085,921		1,571,800		5,446,152

25

      The following proposal was approved as follows:

Proposal	Votes FOR		Votes AGAINST		ABSTAINED
Proposal to ratify the selection of KPMG LLP as our independent auditors for 1999		17,831,394		137,558		26,092

Item 5.  Other Information:

      None.

Item 6. Exhibits and Reports on Form 8-K:

A.   Exhibits

Exhibit No.		Description
	10.55	Amendment to Form of Directors Stock Option Agreement, effective May 18, 1999
	10.56	July 1, 1999 amendment to Consulting Agreement, dated August 1, 1993, as amended between the Company and Solomon H. Snyder, M.D.
	10.57	Consulting Agreement, dated July 23, 1999, between the Company and Solomon H. Snyder, M.D.
	27.3	Financial Data Schedule

B.   Report on Form 8-K:

      None

26

Signatures

      Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Guilford Pharmaceuticals Inc.

Date: August 13, 1999	/s/ Craig R. Smith, M.D. --------------------------------------------- Craig R. Smith, M.D. Chairman of the Board, President and Chief Executive Officer
Date: August 13, 1999	/s/ Andrew R. Jordan --------------------------------------------- Andrew R. Jordan Senior Vice President and Chief Financial Officer (Principal Accounting Officer)

27 EX-10.55 2 OPTION AGREEMENT EFFECTIVE MAY 18, 1999 1 EXHIBIT 10.55 Section 3.3 of all past and future option agreements issued under the Guilford Directors' Stock Option Plan is amended and restated effective May 18, 1999 to read in its entirety as follows: "3.3 TERMINATION OF OPTION. The Option shall terminate ten (10) years after the date of grant of the Option, as set forth in Section 13 below, unless previously terminated pursuant to this Section 3.3 or Section 7.3 below. If the Optionee ceases to be a member of the Board, any unexercised or partially exercised Option held by the Optionee shall terminate in accordance with the following provisions: (i) If termination of Board service is for any reason other than a termination due to (a) retirement from the Board upon reaching the age set by the Board for the retirement of Directors; (b) failure to stand for election to the board with the Board's consent; (c) resignation from the board with the Board's consent; (d) resignation or termination as a result of, or within two (2) years following, any Change in Control (as defined below); (e) death; or (f) "Cause" (as defined below), any unvested portion of the Option shall terminate immediately and the Option shall remain exercisable for six months following termination to the extent such Option was vested at the time of termination; (ii) If the termination of Board service is for any of the reasons "a" through "d" enumerated above, the Option shall become fully exercisable, continue in force, and continue to be exercisable for the remainder of the 10 year term of such Option, subject to the following regarding the Optionee's death; (iii) If termination of Board service is due to Optionee's death, or in the event of a former Director's death following a termination of Board service for any of the reasons "a" through "d" enumerated above, the Option shall become fully exercisable, continue in force, and continue to be exercisable for one year following the date of death, at which point such Option shall terminate; (iv) If the termination of Board service is due to Cause, the Option shall immediately terminate. For purposes of this Agreement, "Cause" means (i) gross negligence or willful misconduct in connection with the performance of duties; (ii) conviction of a criminal offense (other than minor traffic offenses); or (iii) material breach of any term of a material agreement, if any, between Optionee and the Corporation or any of its affiliates." - 1 - EX-10.56 3 AMENDMENT CONSULTING AGREEMENT 1 EXHIBIT 10.56 AMENDMENT NO. 4 TO CONSULTING AGREEMENT THIS AMENDMENT NO. 4 ("Amendment") is effective as of July 1, 1999 ("Effective Date"), by and between Guilford Pharmaceuticals Inc., a Delaware corporation (the "Company"), and Solomon H. Snyder, M.D., an individual residing in the State of Maryland (the "Consultant"). WHEREAS, the Company and the Consultant are parties to a Consulting Agreement dated September 1, 1995, as amended (the "Consulting Agreement"), pursuant to which the Consultant has provided consulting services to the Company; and WHEREAS, the parties desire to extend such consulting relationship on the terms and conditions contained herein; NOW THEREFORE, in consideration of the foregoing, the mutual promises of the parties hereunder, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Consultant and the Company hereby agree as follows: 1. The term of the Consulting Agreement is hereby extended for the period commencing July 1, 1999 through September 30, 1999 (the "Fourth Extension"). 2. In consideration of the performance of the Services by the Consultant during the Fourth Extension, the Company agrees to pay the Consultant at a rate of $14,166.67 per month, payable in arrears. 3. Except as explicitly set forth in paragraph 2 above and in the Consulting Agreement, Consultant shall receive no other compensation (whether in cash, stock options or otherwise) for his Services during the Fourth Extension. 4. The Consultant represents and warrants to the Company that the Consultant is, as of the Effective Date, under no contractual or other restriction or obligation, including agreements or understandings with third parties, which conflicts with the Consulting Agreement as amended hereby, the performance of his duties under the Consulting Agreement as amended hereby, or the other obligations of the Consultant to the Company. 5. The parties acknowledge that they may enter into a further amendment of the Consulting Agreement or a new superseding consulting agreement in the future, the effect of which may be to make retroactive modifications to the terms (including those regarding compensation) of the Consulting Agreement and/or this Amendment. 2 The foregoing notwithstanding, the parties agree that this Amendment and the Consulting Agreement shall not be amended or supplemented except by a written document executed and delivered by both parties hereto. The failure on the part of either party to enforce, or any delay in enforcing, any right, power or remedy that such party may have under this Amendment or the Consulting Agreement shall not constitute a waiver of any such right, power or remedy, or release the other party from any obligations under this Amendment or the Consulting Agreement, except by a written document signed by the party against whom such waiver or release is sought to be enforced. 6. Except as specifically set forth above in this Amendment, the terms of the Consulting Agreement remain unchanged and in full force and effect as set forth therein. 7. Capitalized terms used in this Amendment that have not been defined herein shall have the meanings ascribed in the Consulting Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment No. 4 as of the Effective Date. GUILFORD PHARMACEUTICALS INC. By: /s/ Craig R. Smith, M.D. ------------------------------------------ Name: Craig R. Smith, M.D. Title: President and Chief Executive Officer CONSULTANT /s/ Solomon H. Snyder, M.D. - --------------------------------------------- Solomon H. Snyder, M.D. Address: 3801 Canterbury Road, No. 1001 Baltimore, Maryland 21218 2 EX-10.57 4 CONSULTING AGREEMENT DATED JULY 23,1999 1 EXHIBIT 10.57 CONSULTING AGREEMENT THIS CONSULTING AGREEMENT is made as of July 23, 1999, by and between Guilford Pharmaceuticals Inc., a Delaware corporation (the "Company"), and Solomon H. Synder, M.D. (the "Consultant"). WHEREAS, the Company and the Consultant are parties to a Consulting Agreement dated September 1, 1995, as extended by amendments through September 30, 1999 (the "1995 Consulting Agreement"), pursuant to which the Consultant has provided consulting services to the Company; and WHEREAS, the parties desire to extend such consulting relationship on the terms and conditions contained herein; NOW THEREFORE, in consideration of the foregoing, of the mutual promises of the parties hereunder, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Consultant and the Company hereby agree as follows: 1. Services. The Company hereby retains the Consultant to perform, and the Consultant hereby agrees to render to the Company, consulting and advisory services as requested from time to time by the Company (the "Services"). Such Services may include, but shall not be limited to, the following: serving on the Board of Directors of the Company and any Committees thereof; serving as Chairman of the Company's Scientific Advisory Board or similar advisory body; assisting the Company in scientific matters, including assessment of programs, strategies for the Company's scientific research, recruitment of scientific staff and advising the Company with respect to equipping laboratories; advising the Company regarding the potential acquisition of new technologies and development by third parties of competing technologies; and participating in such meetings pertaining to the business of the Company, all as the Chief Executive Officer of the Company may reasonably request. Consultant agrees to use reasonable efforts to perform the Services and to make himself available to render the Services, for a minimum of 30 days and a maximum of 42 days per year during the term of this Agreement. 2. Consulting Fees. In consideration of the performance of the Services by the Consultant, the Company agrees to pay the Consultant the following compensation: (a) Cash retainer payable monthly on the first of each month as follows: (i) August 1999: $16,666.67 per month (annualized rate: $200,000 per annum); 2 (ii) September 1999 to August 2000: $17,500 per month (annualized rate: $210,000 per annum); (iii) September 2000 to August 2001: $18,333.33 per month (annualized rate: $220,000 per annum); (iv) September 2001 to August 2002: $19,166.67 per month (annualized rate: $230,000 per annum); and (v) September 2002 to August 2003: $20,000 per month (annualized rate: $240,000 per annum). (b) A one-time adjustment payment of $27,500 on August 1, 1999 representing the pro rata difference between the annualized rate of $200,000 per annum set forth in Section 2(a)(i) above and the annualized rate of $170,000 per annum which has been paid to Consulting during the extended term of the 1995 Consulting Agreement from September 1998 through July 1999. (c) The Company will also reimburse Consultant for reasonable expenses incurred by Consultant in the performance of his duties hereunder against reasonable documentation. Except as specifically provided in this Agreement, the Company shall not be obligated to pay Consultant any additional compensation, fees or expenses, including without limitation in connection with Consultant's service on the Board of Directors of the Company or any Committee thereof, or on the Company's Scientific Advisory Board or similar body or with Consultant's advisory services to the Company. 3. Split Dollar Life Insurance Policy. In consideration of the performance of the Services rendered by Consultant pursuant to this Agreement, the Company agrees to purchase a split dollar survivorship universal life insurance policy that contains terms and conditions substantially as set forth below (the "Policy"). The parties agree to cooperate and use their reasonable best efforts to have the policy in place no later than 120 days after the date of this Agreement. (a) The Policy. The parties have been examining two different policies, one underwritten by Pacific Life (the "Pacific Life Policy"), and the other by Southland Life (the "Southland Policy"), illustrative examples of which have been attached hereto as Exhibits 1 and 2, respectively. On or before August 31, 1999, Consultant will elect which of the Pacific Life Policy and the Southland Policy he wishes the Company to obtain by giving written notice to the Company. If no written election is made on or before August 31, 1999, Consultant will be deemed to have elected the Southland Policy. -2- 3 (b) Ownership. The Policy will be owned by the Company during the term of this Agreement, and as further detailed in Section 3(e) below. (c) Description. Subject to Section 3(g) below, the Policy will cover the second to die of Consultant and his spouse and, upon the death of the second to die of Consultant or his spouse, will pay the amount of $5,000,000 to a beneficiary or beneficiaries designated in writing by Consultant (the "death benefit"), as well as an additional amount to the Company to repay all premiums paid by the Company during its ownership of the Policy ("Company Paid Premiums"). (d) Premium Payments. The Policy will be kept in effect by the Company's payment of all premiums during the term of this Agreement. (e) Expiration or Termination of Agreement. Upon the expiration of this Agreement, or any early termination of this Agreement by the Company (other than termination of Consultant under Section 5(ii)(B) or (C) below), Consultant shall have the right (subject to the terms of the policy) to assume ownership of the Policy (or cause a party or entity nominated by Consultant and eligible under the Policy and applicable law) to assume ownership of the Policy by assuming the subsequent premium payment obligations therefor and making arrangements for the repayment of Company Paid Premiums as provided in Section 3(f) below. (f) Repayment of Company Paid Premiums. Upon any expiration of this Agreement or other termination of this Agreement, Consultant shall repay the Company the Company Paid Premiums no later than sixty (60) days following such expiration or termination, except as provided below. In the event Consultant or his designee assumes ownership of the Policy pursuant to Section 3(e) above, then: (i) in the event the Policy has a cash value at the time of such expiration or termination that is greater than or equal to the Company Paid Premiums as of such date (as is expected under the Southland Policy), Consultant shall pay the Company the amount of the Company Paid Premiums no later than 60 days following any expiration or termination of the Agreement; and (ii) in the event that the Policy has a cash value at the time of such expiration or termination that is less than the Company Paid Premiums (as is expected in the first years of the Pacific Life Policy), Consultant (or his designee or estate, as the case may be) will pay the Company the amount of the Company Paid Premiums no later than the earliest to occur of: (i) 60 days following the date upon which the cash value reaches the amount of Company Paid Premiums; or (ii) payment by the insurer of the proceeds of the Policy to the Policy's beneficiaries; or (iii) any date upon which the Policy has been renounced or otherwise permitted to lapse or terminated for any reason. Until repayment of all Company Paid Premiums, Consultant agrees not to draw down upon, borrow against or otherwise encumber the cash value of the Policy. -3- 4 (g) Commercial Availability and Premium Cap. The Company's obligation to purchase the Policy for Consultant shall be subject to the commercially reasonable availability of such insurance and the commercially reasonable insurability of Consultant and his spouse. In no event will the Company be obligated to pay more than $45,000 per year in premium, even if the amount of the death benefit must be decreased as a result. In the event that neither a Pacific Life Policy nor a Southland Policy is available for any reason, the parties agree to cooperate to seek to obtain a mutually acceptable substitute policy, subject however to the first two sentences of this Section 3(g). (h) Tax Consequences to Consultant. All tax consequences to Consultant or his estate that relate to the Policy, including those triggered by any premium payment, payment of death benefit, or repayment of premiums to the Company, shall be the responsibility of Consultant or his designee. (i) Charges in Addition to Premium Except in the Pacific Life Policy. Except in the case of the Pacific Life Policy, if the Company is charged any fees, charges or expenses in addition to the quoted premium for the on-going monitoring or servicing of a Policy, such fees, charges or expenses shall be paid or reimbursed to the Company by Consultant. 4. Eligibility to Receive Stock Option Awards Generally Granted to Directors. Notwithstanding Section 2(c) above, from and after this date for so long as Consultant serves as a member of the Board of Directors of the Company, Consultant shall be eligible to receive stock option awards generally granted by the Company to its outside directors. Decisions concerning the amount of any such stock option awards, the timing of any such awards generally, and the timing of any such awards to Consultant, as in the case of other outside directors, will be in the absolute discretion of the Board of Directors of the Company or its Compensation Committee. Nothing in this Agreement shall be deemed to entitle Consultant to be re-nominated, re-elected or re-appointed to the Board of Directors of the Company or any Committee thereof. 5. Term; Termination. The term of this Agreement shall commence on July 23, 1999 and shall continue until and including August 31, 2003, unless further extended by mutual written agreement of the parties hereto or unless earlier terminated as provided below (the "Term"). Any reference herein to the expiration of this Agreement shall mean expiration of any mutually agreed extension to the term of this Agreement. This Agreement shall terminate prior to the expiration of such term or any extended term in the event that: (i) Consultant shall die; or (ii) the Company shall determine that: (A) Consultant has become "disabled" (i.e., Consultant has failed, because of illness or incapacity, to render services of the character contemplated by this Agreement over a period -4- 5 aggregating six (6) months out of any twelve (12) consecutive month period); or (B) Consultant has breached this Agreement in any material respect, which breach is not cured by Consultant or is not capable of being cured by Consultant within ten (10) days after written notice of such breach is given to Consultant; or (C) Consultant has engaged in willful and material misconduct, which the Company determines, in its sole discretion, is or may be materially injurious to the Company's reputation or goodwill. Upon termination of this Agreement for any reasons, Consultant shall deliver promptly to the Company all records, manuals, books, blank forms, documents, letters, memoranda, notes, notebooks, reports, data, tables, calculations or copies thereof, which are the property of the Company or which relate in any way to the business, products, practices or techniques of the Company, and all other property, and Confidential Information of the Company, including, but not limited to, all documents which in whole or in part contain any Confidential Information of the Company, which in any of these cases are in his possession or under his control. Any and all personal property, inventions, data, written materials, findings, records and documents, information and Confidential Information made or obtained by the Consultant during his engagement by the Company concerning the business or affairs of the Company and its affiliates are and will remain property of the Company as "works made for hire," and upon termination of this Agreement or upon request of the Company during the term of this Agreement, shall be promptly delivered by the Consultant to the Company. 6. Independent Contractor Relationship. It is understood and agreed that Consultant's relationship with the Company is that of an independent contractor and that neither this Agreement nor the Services to be rendered hereunder shall for any purpose whatsoever or in any way or manner create any employer-employee relationship between the parties. The parties acknowledge that the Johns Hopkins University is not a party to this agreement, which is a private contract between Consultant and the Company. 7. Conflicting Agreements. (a) The Company understands that Consultant has entered into certain agreements and understandings to perform services for (a) The Johns Hopkins University; (b) NEN Life Sciences; and (c) Scios Inc. (solely in the capacity of a member of its Board of Directors) (collectively, the "Other Contractors"). Consultant represents and warrants to the Company that Consultant is, as of and including the date hereof, under no contractual or other restriction or obligation, including agreements or understandings with Other Contractors, which conflicts with this Agreement, the performance of his duties hereunder or the other obligations of Consultant to the Company. -5- 6 (b) Consultant will not at any time during the term of this Agreement and for a period of one year thereafter, engage in any business activity or occupation or enter into any agreement including entering into any consulting or research agreement with any organization, which is directly in competition with the business of the Company; provided, however, that Consultant may enter into any other consulting or research agreements with organizations that are not directly in competition with the business of the Company, with the prior written consult of the Company, which consent will not be unreasonably withheld. The Company understands and agrees that Consultant may, during the term of this Agreement, elect to renew one or more of the agreements or understandings enumerated in Section 7(a) above, provided that any such renewal is on substantially similar terms and scope as in existence on the date hereof. 8. Assignments; Inventions. Consultant hereby agrees to use his best efforts without further compensation to assign or to have assigned to the Company all his right, title and interest in and to, any and all inventions, processes, systems, improvements, modifications, secrets, designs or discoveries, etc., whether or not made, possessed, discovered or conceived by him, individually or jointly with any other person or persons, whether made in or out of working hours, free and clear of all liens, charges and encumbrances, created or conceived by him during the term of this Agreement and patented or reduced to practice within one year thereafter, which relate to the business of the Company and which are not owned by The Johns Hopkins University pursuant to the Johns Hopkins School of Medicine Intellectual Property Guidelines (dated January 1, 1995), a copy of which is attached hereto as Exhibit 3 and incorporated herein by reference (collectively, the "Inventions"). 9. Disclosure of Inventions. Consultant agrees to promptly disclose the Inventions to the Company. With respect to the Inventions, Consultant will, either during the term of or after the expiration or termination of this Agreement for any reason, at the request and at the sole cost of the Company, sign, execute, make and do all such deeds, documents, acts and things as the Company and its duly authorized agents may reasonably require, and further agrees to: (i) apply for, obtain and vest in the name of the Company alone (unless the Company otherwise directs) letters patent or other invention protection in any country throughout the world and when so obtained or vested to extend, renew and restore the same; (ii) defend any opposition proceedings in respect of such applications and any opposition proceedings or petitions or applications for revocation of such letters, patents or other analogous protection; and (iii) perform any other lawful acts which the Company may reasonably request to carry out the purpose of this Agreement. 10. Confidentiality. Consultant agrees that he will not at any time publish, reveal, sell, make accessible, give away or disclose to others or use for his own benefit, except -6- 7 for the benefit of the Company in the performance of Consultant's duties under this Agreement, any research, development, engineering and manufacturing data, plans, designs, formula, processes, specifications, techniques, trade secrets, financial information, customer or supplier lists or other information which are, or pursuant to the terms hereof become, the property or confidential information of the Company or any of its clients, customers, consultants, licensees or affiliates, or which are acquired by him directly as a result of his acting as consultant to the Company, except to such extent as may be required by law. Consultant agrees that he will not make any notes or memoranda relating to any matter that is a art of the trade, activities or business of the Company or concerning any of its dealings otherwise than for the benefit of the Company. Consultant shall return all tangible embodiments of such confidential information prior to or at the termination of this Agreement. 11. Publication of Information. Anything to the contrary herein notwithstanding, Consultant may publish information relating to the business of the Company if in each instance the proposed publication is first submitted to the Chief Executive Officer of the Company or his/her designate, and such person in his/her sole discretion consents in writing to such publication. 12. Breach of Agreement. Consultant and the Company agree that any material breach of this Agreement by either of them could cause irreparable damage to the other party, and that in the event of such material breach, in addition to any other remedies hereinbefore mentioned, the non-breaching party shall have the right to obtain injunctive relief, including, without limitation, specific performance or other equitable relief to prevent the violation of the breaching party's obligations hereunder. It is expressly understood and agreed that nothing herein contained shall be construed as prohibiting the non-breaching party from pursuing any other remedies available for such material breach including, without limitation, the recovery of damages by the non-breaching party. 13. No Assignment; No Other Planned Affiliations by Consultant. (a) The Services to be rendered by Consultant are personal in nature. Consultant may not assign or transfer this Agreement or any of his rights or obligations hereunder, except that Consultant may assign any or all of his rights under this Agreement to Neuroscience Consultants, Inc., a Maryland corporation. In no event shall Consultant assign or delegate responsibility for actual performance or Services or any other obligations hereunder. (b) Consultant hereby represents and warrants that he has no plans to terminate his present relationship with The Johns Hopkins University, whether to join any pharmaceutical company other than the Company or otherwise. 14. Indemnity; Insurance. The parties confirm that the Director Indemnification Agreement, dated as of March 24, 1994, between the Company and Consultant continues in full force and effect on the date of this Agreement. The Company confirms that Consultant is covered in his role as a director of the Company under the Company's Directors' and Officers' insurance policy generally in effect for the Company's directors and officers. The Company hereby further agrees to indemnify and hold Consultant harmless from all liabilities -7- 8 incurred by, or claims against, Consultant as a result of his performance of his obligations under this Agreement, other than liability incurred or claims against the Consultant caused by his gross negligence or willful misconduct. 15. Notices. All notices and other communications hereunder shall be delivered or sent by registered or certified mail, return receipt requested, addressed the Company at 6611 Tributary Street, Baltimore, Maryland 21224, Attn: Dr. Craig R. Smith, or to Consultant at the address set forth beneath his signature below, or to such address as either party may designate in writing to the other. 16. Binding on Successors and Assigns. Subject to Section 13 above, this Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, successors and permitted assigns. Consultant agrees that the Company may, with the prior written consent of Consultant, which consent shall not be unreasonably withheld, assign this Agreement to any person or entity controlled by, in control of, or under common control with, the Company. 17. Entire Agreement. This Agreement constitutes the entire agreement between the parties as to the subject matter hereof and supersedes and terminates as of this date any prior agreements between the parties for the Services engaged hereunder, including without limitation the 1995 Consulting Agreement. No provision of this Agreement shall be waived, altered or canceled except in writing signed by the party against whom such waiver, alteration or cancellation is asserted. Any such waiver shall be limited to the particular instance and time and shall not constitute a waiver of any subsequent instance without a specific waiver in writing by the party against whom such waiver is sought to be enforced. 18. Counterpart. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. 19. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland, without giving effect to conflict of laws. 20. Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. Moreover, if one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to scope, activity or subject so as to be unenforceable at law, such provision or provisions shall be construed by limiting or reducing it with the applicable law as it shall then appear. 21. Gender. Any use of the masculine gender herein shall apply equally to the feminine. 22. References to Johns Hopkins. With the limited exception of citing Consultant's faculty title and affiliation, the Company and its affiliates will not use the names, likenesses, or logos of the Johns Hopkins University, any of its Schools or Divisions, or the -8- 9 Johns Hopkins Hospital and Health System in any of their fundraising or investment documents, general publications, advertisements, or marketing and promotional materials without the prior written permission of the Johns Hopkins University. A request for such permission must be submitted by Consultant to the School of Medicine's Conflict of Interest Review Coordinator, who in appropriate circumstances, will have it reviewed by the School of Medicine's Office of Public Affairs. 23. Survival. Obligations accrued prior to the expiration or termination of this Agreement shall survive until discharged in full. In addition, Sections 3(e), (f) and (h), 5, 7(b), 8, 9, 10, 11, 12, 14 and this 23 shall survive any expiration or termination of this Agreement -9- 10 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date and year first above written. "COMPANY": GUILFORD PHARMACEUTICALS INC. By: /s/ Craig R. Smith, M.D. ------------------------------ Name: Craig R. Smith, M.D. Title: President and Chief Executive Officer "CONSULTANT": /s/ Solomon H. Snyder, M.D. - --------------------------------- Solomon H. Snyder, M.D. Address: 3801 Canterbury Road, No. 1001 Baltimore, Maryland 21218 -10- EX-27.3 5 FINANCIAL DATA SCHEDULE

<ARTICLE> 5

<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

<MULTIPLIER> 1,000 <PERIOD-TYPE> 6-MOS <FISCAL-YEAR-END> DEC-31-1999 <PERIOD-START> JAN-01-1999 <PERIOD-END> JUN-30-1999 <CASH> 2,550 <SECURITIES> 105,284 <RECEIVABLES> 1,669 <ALLOWANCES> 0 <INVENTORY> 1,143 <CURRENT-ASSETS> 836 <PP&E> 28,757 <DEPRECIATION> 10,231 <TOTAL-ASSETS> 130,519 <CURRENT-LIABILITIES> 11,087 <BONDS> 7,687 <PREFERRED-MANDATORY> 199 <PREFERRED> 0 <COMMON> 0 <OTHER-SE> 111,546 <TOTAL-LIABILITY-AND-EQUITY> 130,519 <SALES> 2,866 <TOTAL-REVENUES> 6,523 <CGS> 1,443 <TOTAL-COSTS> 27,228 <OTHER-EXPENSES> 0 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 348 <INCOME-PRETAX> (17,111) <INCOME-TAX> 0 <INCOME-CONTINUING> 0 <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> (17,111) <EPS-BASIC> (.88) <EPS-DILUTED> (.88) <F1>"EPS-PRIMARY" DENOTES BASIC EPS

-----END PRIVACY-ENHANCED MESSAGE-----

EX-10.55

   1


                                                                   EXHIBIT 10.55

              Section 3.3 of all past and future option agreements issued under
the Guilford Directors' Stock Option Plan is amended and restated effective May
18, 1999 to read in its entirety as follows:

              "3.3 TERMINATION OF OPTION.

              The Option shall terminate ten (10) years after the date of grant
of the Option, as set forth in Section 13 below, unless previously terminated
pursuant to this Section 3.3 or Section 7.3 below. If the Optionee ceases to be
a member of the Board, any unexercised or partially exercised Option held by
the Optionee shall terminate in accordance with the following provisions:

              (i)   If termination of Board service is for any reason other than
a termination due to (a) retirement from the Board upon reaching the age set by
the Board for the retirement of Directors; (b) failure to stand for election to
the board with the Board's consent; (c) resignation from the board with the
Board's consent; (d) resignation or termination as a result of, or within two
(2) years following, any Change in Control (as defined below); (e) death; or (f)
"Cause" (as defined below), any unvested portion of the Option shall terminate
immediately and the Option shall remain exercisable for six months following
termination to the extent such Option was vested at the time of termination;

              (ii)  If the termination of Board service is for any of the
reasons "a" through "d" enumerated above, the Option shall become fully
exercisable, continue in force, and continue to be exercisable for the remainder
of the 10 year term of such Option, subject to the following regarding the
Optionee's death;

              (iii) If termination of Board service is due to Optionee's death,
or in the event of a former Director's death following a termination of Board
service for any of the reasons "a" through "d" enumerated above, the Option
shall become fully exercisable, continue in force, and continue to be
exercisable for one year following the date of death, at which point such Option
shall terminate;

              (iv)  If the termination of Board service is due to Cause, the
Option shall immediately terminate. For purposes of this Agreement, "Cause"
means (i) gross negligence or willful misconduct in connection with the
performance of duties; (ii) conviction of a criminal offense (other than minor
traffic offenses); or (iii) material breach of any term of a material agreement,
if any, between Optionee and the Corporation or any of its affiliates."



                                      - 1 -

EX-10.56

   1
                                                                  EXHIBIT 10.56

                                 AMENDMENT NO. 4

                                       TO

                              CONSULTING AGREEMENT

              THIS AMENDMENT NO. 4 ("Amendment") is effective as of July 1, 1999
("Effective Date"), by and between Guilford Pharmaceuticals Inc., a Delaware
corporation (the "Company"), and Solomon H. Snyder, M.D., an individual residing
in the State of Maryland (the "Consultant").

              WHEREAS, the Company and the Consultant are parties to a
Consulting Agreement dated September 1, 1995, as amended (the "Consulting
Agreement"), pursuant to which the Consultant has provided consulting services
to the Company; and

              WHEREAS, the parties desire to extend such consulting relationship
on the terms and conditions contained herein;

              NOW THEREFORE, in consideration of the foregoing, the mutual
promises of the parties hereunder, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Consultant and
the Company hereby agree as follows:

              1.     The term of the Consulting Agreement is hereby extended for
                     the period commencing July 1, 1999 through September 30,
                     1999 (the "Fourth Extension").

              2.     In consideration of the performance of the Services by the
                     Consultant during the Fourth Extension, the Company agrees
                     to pay the Consultant at a rate of $14,166.67 per month,
                     payable in arrears.

              3.     Except as explicitly set forth in paragraph 2 above and in
                     the Consulting Agreement, Consultant shall receive no other
                     compensation (whether in cash, stock options or otherwise)
                     for his Services during the Fourth Extension.

              4.     The Consultant represents and warrants to the Company that
                     the Consultant is, as of the Effective Date, under no
                     contractual or other restriction or obligation, including
                     agreements or understandings with third parties, which
                     conflicts with the Consulting Agreement as amended hereby,
                     the performance of his duties under the Consulting
                     Agreement as amended hereby, or the other obligations of
                     the Consultant to the Company.

              5.     The parties acknowledge that they may enter into a further
                     amendment of the Consulting Agreement or a new superseding
                     consulting agreement in the future, the effect of which may
                     be to make retroactive modifications to the terms
                     (including those regarding compensation) of the Consulting
                     Agreement and/or this Amendment.
   2

                     The foregoing notwithstanding, the parties agree that this
                     Amendment and the Consulting Agreement shall not be amended
                     or supplemented except by a written document executed and
                     delivered by both parties hereto. The failure on the part
                     of either party to enforce, or any delay in enforcing, any
                     right, power or remedy that such party may have under this
                     Amendment or the Consulting Agreement shall not constitute
                     a waiver of any such right, power or remedy, or release the
                     other party from any obligations under this Amendment or
                     the Consulting Agreement, except by a written document
                     signed by the party against whom such waiver or release is
                     sought to be enforced.

              6.     Except as specifically set forth above in this Amendment,
                     the terms of the Consulting Agreement remain unchanged and
                     in full force and effect as set forth therein.

              7.     Capitalized terms used in this Amendment that have not been
                     defined herein shall have the meanings ascribed in the
                     Consulting Agreement.

              IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Amendment No. 4 as of the Effective Date.

GUILFORD PHARMACEUTICALS INC.

By:     /s/ Craig R. Smith, M.D.
   ------------------------------------------
Name:   Craig R. Smith, M.D.
Title:  President and Chief Executive Officer

CONSULTANT

     /s/ Solomon H. Snyder, M.D.
- ---------------------------------------------
     Solomon H. Snyder, M.D.

Address:  3801 Canterbury Road, No. 1001
          Baltimore, Maryland 21218

                                      2

EX-10.57

   1
                                                                   EXHIBIT 10.57

                              CONSULTING AGREEMENT

            THIS CONSULTING AGREEMENT is made as of July 23, 1999, by and
between Guilford Pharmaceuticals Inc., a Delaware corporation (the "Company"),
and Solomon H. Synder, M.D. (the "Consultant").

            WHEREAS, the Company and the Consultant are parties to a Consulting
Agreement dated September 1, 1995, as extended by amendments through September
30, 1999 (the "1995 Consulting Agreement"), pursuant to which the Consultant has
provided consulting services to the Company; and

            WHEREAS, the parties desire to extend such consulting
relationship on the terms and conditions contained herein;

            NOW THEREFORE, in consideration of the foregoing, of the mutual
promises of the parties hereunder, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Consultant and the Company hereby agree as follows:

            1.    Services. The Company hereby retains the Consultant to
perform, and the Consultant hereby agrees to render to the Company, consulting
and advisory services as requested from time to time by the Company (the
"Services"). Such Services may include, but shall not be limited to, the
following: serving on the Board of Directors of the Company and any Committees
thereof; serving as Chairman of the Company's Scientific Advisory Board or
similar advisory body; assisting the Company in scientific matters, including
assessment of programs, strategies for the Company's scientific research,
recruitment of scientific staff and advising the Company with respect to
equipping laboratories; advising the Company regarding the potential acquisition
of new technologies and development by third parties of competing technologies;
and participating in such meetings pertaining to the business of the Company,
all as the Chief Executive Officer of the Company may reasonably request.
Consultant agrees to use reasonable efforts to perform the Services and to make
himself available to render the Services, for a minimum of 30 days and a maximum
of 42 days per year during the term of this Agreement.

            2.    Consulting Fees.

            In consideration of the performance of the Services by the
Consultant, the Company agrees to pay the Consultant the following compensation:

            (a)   Cash retainer payable monthly on the first of each month as
                  follows:

                  (i)    August 1999: $16,666.67 per month (annualized rate:
                         $200,000 per annum);
   2

                  (ii)   September 1999 to August 2000: $17,500 per month
                         (annualized rate: $210,000 per annum);

                  (iii)  September 2000 to August 2001: $18,333.33 per month
                         (annualized rate: $220,000 per annum);

                  (iv)   September 2001 to August 2002: $19,166.67 per month
                         (annualized rate: $230,000 per annum); and

                  (v)    September 2002 to August 2003: $20,000 per month
                         (annualized rate: $240,000 per annum).

            (b)   A one-time adjustment payment of $27,500 on August 1, 1999
                  representing the pro rata difference between the annualized
                  rate of $200,000 per annum set forth in Section 2(a)(i) above
                  and the annualized rate of $170,000 per annum which has been
                  paid to Consulting during the extended term of the 1995
                  Consulting Agreement from September 1998 through July 1999.

            (c)   The Company will also reimburse Consultant for reasonable
                  expenses incurred by Consultant in the performance of his
                  duties hereunder against reasonable documentation.  Except
                  as specifically provided in this Agreement, the Company
                  shall not be obligated to pay Consultant any additional
                  compensation, fees or expenses, including without
                  limitation in connection with Consultant's service on the
                  Board of Directors of the Company or any Committee thereof,
                  or on the Company's Scientific Advisory Board or similar
                  body or with Consultant's advisory services to the Company.

            3.    Split Dollar Life Insurance Policy.  In consideration of
the performance of the Services rendered by Consultant pursuant to this
Agreement, the Company agrees to purchase a split dollar survivorship universal
life insurance policy that contains terms and conditions substantially as set
forth below (the "Policy"). The parties agree to cooperate and use their
reasonable best efforts to have the policy in place no later than 120 days after
the date of this Agreement.

                  (a) The Policy. The parties have been examining two different
            policies, one underwritten by Pacific Life (the "Pacific Life
            Policy"), and the other by Southland Life (the "Southland Policy"),
            illustrative examples of which have been attached hereto as Exhibits
            1 and 2, respectively. On or before August 31, 1999, Consultant will
            elect which of the Pacific Life Policy and the Southland Policy he
            wishes the Company to obtain by giving written notice to the
            Company. If no written election is made on or before August 31,
            1999, Consultant will be deemed to have elected the Southland
            Policy.


                                      -2-
   3

                  (b) Ownership. The Policy will be owned by the Company during
            the term of this Agreement, and as further detailed in Section 3(e)
            below.

                  (c) Description. Subject to Section 3(g) below, the Policy
            will cover the second to die of Consultant and his spouse and, upon
            the death of the second to die of Consultant or his spouse, will pay
            the amount of $5,000,000 to a beneficiary or beneficiaries
            designated in writing by Consultant (the "death benefit"), as well
            as an additional amount to the Company to repay all premiums paid by
            the Company during its ownership of the Policy ("Company Paid
            Premiums").

                  (d) Premium Payments. The Policy will be kept in effect by the
            Company's payment of all premiums during the term of this Agreement.

                  (e) Expiration or Termination of Agreement. Upon the
            expiration of this Agreement, or any early termination of this
            Agreement by the Company (other than termination of Consultant under
            Section 5(ii)(B) or (C) below), Consultant shall have the right
            (subject to the terms of the policy) to assume ownership of the
            Policy (or cause a party or entity nominated by Consultant and
            eligible under the Policy and applicable law) to assume ownership of
            the Policy by assuming the subsequent premium payment obligations
            therefor and making arrangements for the repayment of Company Paid
            Premiums as provided in Section 3(f) below.

                  (f) Repayment of Company Paid Premiums. Upon any expiration of
            this Agreement or other termination of this Agreement, Consultant
            shall repay the Company the Company Paid Premiums no later than
            sixty (60) days following such expiration or termination, except as
            provided below. In the event Consultant or his designee assumes
            ownership of the Policy pursuant to Section 3(e) above, then: (i) in
            the event the Policy has a cash value at the time of such expiration
            or termination that is greater than or equal to the Company Paid
            Premiums as of such date (as is expected under the Southland
            Policy), Consultant shall pay the Company the amount of the Company
            Paid Premiums no later than 60 days following any expiration or
            termination of the Agreement; and (ii) in the event that the Policy
            has a cash value at the time of such expiration or termination that
            is less than the Company Paid Premiums (as is expected in the first
            years of the Pacific Life Policy), Consultant (or his designee or
            estate, as the case may be) will pay the Company the amount of the
            Company Paid Premiums no later than the earliest to occur of: (i) 60
            days following the date upon which the cash value reaches the amount
            of Company Paid Premiums; or (ii) payment by the insurer of the
            proceeds of the Policy to the Policy's beneficiaries; or (iii) any
            date upon which the Policy has been renounced or otherwise permitted
            to lapse or terminated for any reason. Until repayment of all
            Company Paid Premiums, Consultant agrees not to draw down upon,
            borrow against or otherwise encumber the cash value of the Policy.


                                      -3-
   4

                  (g) Commercial Availability and Premium Cap. The Company's
            obligation to purchase the Policy for Consultant shall be subject to
            the commercially reasonable availability of such insurance and the
            commercially reasonable insurability of Consultant and his spouse.
            In no event will the Company be obligated to pay more than $45,000
            per year in premium, even if the amount of the death benefit must be
            decreased as a result. In the event that neither a Pacific Life
            Policy nor a Southland Policy is available for any reason, the
            parties agree to cooperate to seek to obtain a mutually acceptable
            substitute policy, subject however to the first two sentences of
            this Section 3(g).

                  (h) Tax Consequences to Consultant. All tax consequences to
            Consultant or his estate that relate to the Policy, including those
            triggered by any premium payment, payment of death benefit, or
            repayment of premiums to the Company, shall be the responsibility of
            Consultant or his designee.

                  (i) Charges in Addition to Premium Except in the Pacific Life
            Policy. Except in the case of the Pacific Life Policy, if the
            Company is charged any fees, charges or expenses in addition to the
            quoted premium for the on-going monitoring or servicing of a Policy,
            such fees, charges or expenses shall be paid or reimbursed to the
            Company by Consultant.

            4.    Eligibility to Receive Stock Option Awards Generally Granted
to Directors. Notwithstanding Section 2(c) above, from and after this date for
so long as Consultant serves as a member of the Board of Directors of the
Company, Consultant shall be eligible to receive stock option awards generally
granted by the Company to its outside directors. Decisions concerning the amount
of any such stock option awards, the timing of any such awards generally, and
the timing of any such awards to Consultant, as in the case of other outside
directors, will be in the absolute discretion of the Board of Directors of the
Company or its Compensation Committee. Nothing in this Agreement shall be deemed
to entitle Consultant to be re-nominated, re-elected or re-appointed to the
Board of Directors of the Company or any Committee thereof.

            5.    Term; Termination. The term of this Agreement shall commence
on July 23, 1999 and shall continue until and including August 31, 2003, unless
further extended by mutual written agreement of the parties hereto or unless
earlier terminated as provided below (the "Term"). Any reference herein to the
expiration of this Agreement shall mean expiration of any mutually agreed
extension to the term of this Agreement. This Agreement shall terminate prior to
the expiration of such term or any extended term in the event that:

                  (i)    Consultant shall die; or

                  (ii)   the Company shall determine that:

                         (A)  Consultant has become "disabled" (i.e., Consultant
                              has failed, because of illness or incapacity, to
                              render services of the character contemplated by
                              this Agreement over a period


                                      -4-
   5

                              aggregating six (6) months out of any twelve (12)
                              consecutive month period); or

                         (B)  Consultant has breached this Agreement in any
                              material respect, which breach is not cured by
                              Consultant or is not capable of being cured by
                              Consultant within ten (10) days after written
                              notice of such breach is given to Consultant; or

                         (C)  Consultant has engaged in willful and material
                              misconduct, which the Company determines, in its
                              sole discretion, is or may be materially injurious
                              to the Company's reputation or goodwill.

Upon termination of this Agreement for any reasons, Consultant shall deliver
promptly to the Company all records, manuals, books, blank forms, documents,
letters, memoranda, notes, notebooks, reports, data, tables, calculations or
copies thereof, which are the property of the Company or which relate in any way
to the business, products, practices or techniques of the Company, and all other
property, and Confidential Information of the Company, including, but not
limited to, all documents which in whole or in part contain any Confidential
Information of the Company, which in any of these cases are in his possession or
under his control. Any and all personal property, inventions, data, written
materials, findings, records and documents, information and Confidential
Information made or obtained by the Consultant during his engagement by the
Company concerning the business or affairs of the Company and its affiliates are
and will remain property of the Company as "works made for hire," and upon
termination of this Agreement or upon request of the Company during the term of
this Agreement, shall be promptly delivered by the Consultant to the Company.

            6.    Independent Contractor Relationship. It is understood and
agreed that Consultant's relationship with the Company is that of an independent
contractor and that neither this Agreement nor the Services to be rendered
hereunder shall for any purpose whatsoever or in any way or manner create any
employer-employee relationship between the parties. The parties acknowledge that
the Johns Hopkins University is not a party to this agreement, which is a
private contract between Consultant and the Company.

            7.    Conflicting Agreements.

                  (a) The Company understands that Consultant has entered into
certain agreements and understandings to perform services for (a) The Johns
Hopkins University; (b) NEN Life Sciences; and (c) Scios Inc. (solely in the
capacity of a member of its Board of Directors) (collectively, the "Other
Contractors"). Consultant represents and warrants to the Company that Consultant
is, as of and including the date hereof, under no contractual or other
restriction or obligation, including agreements or understandings with Other
Contractors, which conflicts with this Agreement, the performance of his duties
hereunder or the other obligations of Consultant to the Company.


                                      -5-
   6

                  (b) Consultant will not at any time during the term of this
Agreement and for a period of one year thereafter, engage in any business
activity or occupation or enter into any agreement including entering into any
consulting or research agreement with any organization, which is directly in
competition with the business of the Company; provided, however, that Consultant
may enter into any other consulting or research agreements with organizations
that are not directly in competition with the business of the Company, with the
prior written consult of the Company, which consent will not be unreasonably
withheld. The Company understands and agrees that Consultant may, during the
term of this Agreement, elect to renew one or more of the agreements or
understandings enumerated in Section 7(a) above, provided that any such renewal
is on substantially similar terms and scope as in existence on the date hereof.

            8.    Assignments; Inventions. Consultant hereby agrees to use his
best efforts without further compensation to assign or to have assigned to the
Company all his right, title and interest in and to, any and all inventions,
processes, systems, improvements, modifications, secrets, designs or
discoveries, etc., whether or not made, possessed, discovered or conceived by
him, individually or jointly with any other person or persons, whether made in
or out of working hours, free and clear of all liens, charges and encumbrances,
created or conceived by him during the term of this Agreement and patented or
reduced to practice within one year thereafter, which relate to the business of
the Company and which are not owned by The Johns Hopkins University pursuant to
the Johns Hopkins School of Medicine Intellectual Property Guidelines (dated
January 1, 1995), a copy of which is attached hereto as Exhibit 3 and
incorporated herein by reference (collectively, the "Inventions").

            9.    Disclosure of Inventions. Consultant agrees to promptly
disclose the Inventions to the Company. With respect to the Inventions,
Consultant will, either during the term of or after the expiration or
termination of this Agreement for any reason, at the request and at the sole
cost of the Company, sign, execute, make and do all such deeds, documents, acts
and things as the Company and its duly authorized agents may reasonably require,
and further agrees to:

                  (i)    apply for, obtain and vest in the name of the Company
                         alone (unless the Company otherwise directs) letters
                         patent or other invention protection in any country
                         throughout the world and when so obtained or vested to
                         extend, renew and restore the same;

                  (ii)   defend any opposition proceedings in respect of such
                         applications and any opposition proceedings or
                         petitions or applications for revocation of such
                         letters, patents or other analogous protection; and

                  (iii)  perform any other lawful acts which the Company may
                         reasonably request to carry out the purpose of this
                         Agreement.

            10.   Confidentiality. Consultant agrees that he will not at any
time publish, reveal, sell, make accessible, give away or disclose to others or
use for his own benefit, except



                                      -6-
   7

for the benefit of the Company in the performance of Consultant's duties under
this Agreement, any research, development, engineering and manufacturing data,
plans, designs, formula, processes, specifications, techniques, trade secrets,
financial information, customer or supplier lists or other information which
are, or pursuant to the terms hereof become, the property or confidential
information of the Company or any of its clients, customers, consultants,
licensees or affiliates, or which are acquired by him directly as a result of
his acting as consultant to the Company, except to such extent as may be
required by law. Consultant agrees that he will not make any notes or memoranda
relating to any matter that is a art of the trade, activities or business of the
Company or concerning any of its dealings otherwise than for the benefit of the
Company. Consultant shall return all tangible embodiments of such confidential
information prior to or at the termination of this Agreement.

            11.   Publication of Information. Anything to the contrary herein
notwithstanding, Consultant may publish information relating to the business of
the Company if in each instance the proposed publication is first submitted to
the Chief Executive Officer of the Company or his/her designate, and such person
in his/her sole discretion consents in writing to such publication.

            12.   Breach of Agreement. Consultant and the Company agree that any
material breach of this Agreement by either of them could cause irreparable
damage to the other party, and that in the event of such material breach, in
addition to any other remedies hereinbefore mentioned, the non-breaching party
shall have the right to obtain injunctive relief, including, without limitation,
specific performance or other equitable relief to prevent the violation of the
breaching party's obligations hereunder. It is expressly understood and agreed
that nothing herein contained shall be construed as prohibiting the
non-breaching party from pursuing any other remedies available for such material
breach including, without limitation, the recovery of damages by the
non-breaching party.

            13.   No Assignment; No Other Planned Affiliations by Consultant.

            (a)   The Services to be rendered by Consultant are personal in
nature. Consultant may not assign or transfer this Agreement or any of his
rights or obligations hereunder, except that Consultant may assign any or all of
his rights under this Agreement to Neuroscience Consultants, Inc., a Maryland
corporation. In no event shall Consultant assign or delegate responsibility for
actual performance or Services or any other obligations hereunder.

            (b)   Consultant hereby represents and warrants that he has no plans
to terminate his present relationship with The Johns Hopkins University, whether
to join any pharmaceutical company other than the Company or otherwise.

            14.   Indemnity; Insurance. The parties confirm that the Director
Indemnification Agreement, dated as of March 24, 1994, between the Company and
Consultant continues in full force and effect on the date of this Agreement. The
Company confirms that Consultant is covered in his role as a director of the
Company under the Company's Directors' and Officers' insurance policy generally
in effect for the Company's directors and officers. The Company hereby further
agrees to indemnify and hold Consultant harmless from all liabilities



                                      -7-
   8

incurred by, or claims against, Consultant as a result of his performance of his
obligations under this Agreement, other than liability incurred or claims
against the Consultant caused by his gross negligence or willful misconduct.

            15.   Notices. All notices and other communications hereunder shall
be delivered or sent by registered or certified mail, return receipt requested,
addressed the Company at 6611 Tributary Street, Baltimore, Maryland 21224, Attn:
Dr. Craig R. Smith, or to Consultant at the address set forth beneath his
signature below, or to such address as either party may designate in writing to
the other.

            16.   Binding on Successors and Assigns. Subject to Section 13
above, this Agreement shall be binding upon and inure to the benefit of the
parties and their respective legal representatives, successors and permitted
assigns. Consultant agrees that the Company may, with the prior written consent
of Consultant, which consent shall not be unreasonably withheld, assign this
Agreement to any person or entity controlled by, in control of, or under common
control with, the Company.

            17.   Entire Agreement. This Agreement constitutes the entire
agreement between the parties as to the subject matter hereof and supersedes and
terminates as of this date any prior agreements between the parties for the
Services engaged hereunder, including without limitation the 1995 Consulting
Agreement. No provision of this Agreement shall be waived, altered or canceled
except in writing signed by the party against whom such waiver, alteration or
cancellation is asserted. Any such waiver shall be limited to the particular
instance and time and shall not constitute a waiver of any subsequent instance
without a specific waiver in writing by the party against whom such waiver is
sought to be enforced.

            18.   Counterpart. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.

            19.   Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland, without giving
effect to conflict of laws.

            20.   Severability. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision. Moreover, if one or more of the provisions contained in this
Agreement shall for any reason be held to be excessively broad as to scope,
activity or subject so as to be unenforceable at law, such provision or
provisions shall be construed by limiting or reducing it with the applicable law
as it shall then appear.

            21.   Gender. Any use of the masculine gender herein shall apply
equally to the feminine.

            22.   References to Johns Hopkins. With the limited exception of
citing Consultant's faculty title and affiliation, the Company and its
affiliates will not use the names, likenesses, or logos of the Johns Hopkins
University, any of its Schools or Divisions, or the



                                      -8-
   9

Johns Hopkins Hospital and Health System in any of their fundraising or
investment documents, general publications, advertisements, or marketing and
promotional materials without the prior written permission of the Johns Hopkins
University. A request for such permission must be submitted by Consultant to the
School of Medicine's Conflict of Interest Review Coordinator, who in appropriate
circumstances, will have it reviewed by the School of Medicine's Office of
Public Affairs.

            23.   Survival. Obligations accrued prior to the expiration or
termination of this Agreement shall survive until discharged in full. In
addition, Sections 3(e), (f) and (h), 5, 7(b), 8, 9, 10, 11, 12, 14 and this 23
shall survive any expiration or termination of this Agreement




                                      -9-
   10



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

"COMPANY":
GUILFORD PHARMACEUTICALS INC.

By:   /s/ Craig R. Smith, M.D.
   ------------------------------
Name:  Craig R. Smith, M.D.
Title:    President and Chief Executive Officer

"CONSULTANT":

      /s/ Solomon H. Snyder, M.D.
- ---------------------------------
     Solomon H. Snyder, M.D.

Address:  3801 Canterbury Road, No. 1001
          Baltimore, Maryland 21218


                                     -10-

EX-27.3

 

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S QUARTERLY REPORT ON
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

<MULTIPLIER> 1,000

                             
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          DEC-31-1999
<PERIOD-START>                             JAN-01-1999
<PERIOD-END>                               JUN-30-1999
<CASH>                                           2,550
<SECURITIES>                                   105,284
<RECEIVABLES>                                    1,669
<ALLOWANCES>                                         0
<INVENTORY>                                      1,143
<CURRENT-ASSETS>                                   836
<PP&E>                                          28,757
<DEPRECIATION>                                  10,231
<TOTAL-ASSETS>                                 130,519
<CURRENT-LIABILITIES>                           11,087
<BONDS>                                          7,687
<PREFERRED-MANDATORY>                              199
<PREFERRED>                                          0
<COMMON>                                             0
<OTHER-SE>                                     111,546
<TOTAL-LIABILITY-AND-EQUITY>                   130,519
<SALES>                                          2,866
<TOTAL-REVENUES>                                 6,523
<CGS>                                            1,443
<TOTAL-COSTS>                                   27,228
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                 348
<INCOME-PRETAX>                               (17,111)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                                  0
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                  (17,111)
<EPS-BASIC>                                      (.88)
<EPS-DILUTED>                                    (.88)

<F1>"EPS-PRIMARY" DENOTES BASIC EPS