UNITED STATES 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~~quarter ~~period~~ ended June 30, 2005 ~~2004~~

Commission file number: ~~000~~0-23736

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

(410-) 631-6300

(Registrant’s telephone number, including area code):

Indicate by check mark whether the ~~Registrant~~ 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 ~~Registrant~~ was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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

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

Class		Outstanding August 52, ~~2004~~2005
Common Stock, $.01 par value		44,036,380
Common Stock, $0.01 par value		46,577,927

~~Guilford~~TABLE ~~Pharmaceuticals~~OF ~~Inc.~~CONTENTS

INDEX


			Page

PART I
	Item 1 Financial Statements (unaudited)			4
		Consolidated Balance Sheets		5
		Consolidated Statements of Operations		6
		Consolidated Statements of Cash Flows		7
		Consolidated Statement of Changes in Stockholders’ Equity (Deficit)		8
	Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
	Item 3 Quantitative and Qualitative Disclosure About Market Risk			34
	Item 4 Controls and Procedures			35

PART II
	Item 1 Legal Proceedings			36
	Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			36
	Item 3 Defaults Upon Senior Securities			36
	Item 4 Submission of Matters to a Vote of Security Holders			36
	Item 5 Other Information			37
	Item 6 Exhibits			58
	Signatures			59

			Page
Part I Financial Information
	Item 1. Financial Statements			3
		Consolidated Balance Sheets		4
		Consolidated Statements of Operations		5
		Consolidated Statement of Changes in Stockholders’ Equity		6
		Consolidated Statements of Cash Flows		7
		Notes to Consolidated Financial Statements		8
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
	Item 3. Quantitative and Qualitative Disclosures About Market Risk			28
	Item 4. Controls and Procedures			28
Part II Other Information
	Item 1. Legal Proceedings			29
	Item 2. Changes in Securities and Use of Proceeds			29
	Item 3. Defaults Upon Senior Securities			29
	Item 4. Submission of Matters to a Vote of Security Holders			29
	Item 5. Other Information			30
	Item 6. Exhibits and Reports on Form 8-K			48
	Signatures			50
	Certifications			51

FORWARD-LOOKING STATEMENTS

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

All of these items involve significant risks and uncertainties. These and any of the other 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 caution you that our actual results may differ significantly from the results we discuss in the forward-looking statements.

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements. (unaudited)

The consolidated financial statements included in this report have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ~~(“SEC”)~~. Certain information and footnote disclosures, normally included in consolidated financial statements prepared in accordance with U.S. 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 the related notes included in our annual report on Form 10-K for the year ended December 31, ~~2003~~2004.

In the opinion of our management, any adjustments contained in the accompanying unaudited consolidated financial statements as of and for the three months and six months ended June 30, 2005 (or Unaudited Consolidated Financial Statements) are of a normal recurring nature, necessary to present fairly our financial position, results of operations, ~~changes~~ ~~in stockholders’ equity and~~ cash flows ~~as of~~ and ~~for~~changes ~~the~~in ~~three-~~stockholders’ ~~and~~equity ~~six-month periods ended June 30, 2004~~(deficit. ) Interim results are not necessarily indicative of results for the full fiscal year.

GUILFORD PHARMACEUTICALS INC.

~~AND~~CONSOLIDATED ~~SUBSIDIARIES~~BALANCE SHEETS

~~Consolidated~~($ ~~Balance~~in ~~Sheets~~thousands, except share data)

(in thousands, except share data)


			June 30,			December 31,
			2005			2004

			(Unaudited)
ASSETS
Cash and cash equivalents			$	38,878		$	61,889
Marketable securities				18,444			27,705
Investments — held by Symphony Neuro Development Company				23,771			32,062
Accounts receivable, net				5,540			4,666
Inventories				3,166			2,373
Prepaid expenses and other current assets				1,709			4,744

	Total current assets			91,508			133,439
Investments — restricted				1,837			19,899
Property and equipment, net				1,988			1,758
Intangibles, net				36,069			75,943
Other assets				4,980			6,096

	Total assets		$	136,382		$	237,135


LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Accounts payable			$	11,296		$	15,333
Current portion of long-term debt				1,941			2,916
Accrued payroll related costs				5,555			2,932
Accrued contracted services				7,665			3,929
Accrued expenses and other current liabilities				5,112			6,355

	Total current liabilities			31,569			31,465
Long-term debt, excluding current portion				70,033			87,393
Revenue interest obligation				45,890			44,932
Other liabilities				8,899			8,320

	Total liabilities			156,391			172,110

Minority interest				21,145			28,132
Commitments and contingencies				—			—
Stockholders’ Equity (Deficit):
	Preferred stock, par value $0.01 per share; authorized 4,700,000 shares, none issued			—			—
	Series A junior participating preferred stock, par value $0.01 per share; authorized 300,000 shares, none issued			—			—
	Common stock, par value $0.01 per share; authorized 125,000,000 shares,
		46,638,788 and 46,638,788 issued		466			466
	Additional paid-in capital			436,310			435,130
	Accumulated deficit			(472,427	)		(391,416	)
	Accumulated other comprehensive loss			(1,061	)		(2,130	)
	Unearned compensation			(3,830	)		(3,653	)
	Treasury stock, at cost; 123,415 and 304,336 shares			(612	)		(1,504	)

		Total stockholders’ (deficit) equity		(41,154	)		36,893

	Total liabilities and stockholders’ equity (deficit)		$	136,382		$	237,135

			June 30, 2004			December 31, 2003
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	18,715		$	29,939
	Investments, net			34,909			50,261
	Accounts receivable, net			4,103			3,460
	Inventories, net			3,541			2,504
	Prepaid expenses and other current assets			1,492			1,787
		Total current assets		62,760			87,951
Investments – restricted				20,437			21,743
Investments – held by Symphony Neuro Development Company				36,197			—
Property and equipment, net				21,353			22,395
Intangible assets, net				79,370			82,796
Other assets				9,061			6,438
			$	229,178		$	221,323
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	9,335		$	8,549
	Current portion of long-term debt			3,030			3,394
	Accrued payroll related costs			2,158			4,538
	Accrued contracted services			1,986			1,909
	Accrued expenses and other current liabilities			5,739			3,590
		Total current liabilities		22,248			21,980
Long-term debt, excluding current portion				87,862			88,885
Revenue interest obligation				43,707			42,155
Other liabilities				4,040			1,103
		Total liabilities		157,857			154,123
Minority interest				37,987			—
Commitments and contingencies				—			—
Stockholders’ equity:
	Preferred stock, par value $0.01 per share; authorized 4,700,000 shares, none issued			—			—
	Series A junior participating preferred stock, par value $0.01 per share; authorized 300,000 shares, none issued			—			—
	Common stock, par value $0.01 per share; authorized 125,000,000 shares, 34,963,124 and 34,908,076 issued at June 30, 2004 and December 31, 2003, respectively			350			349
	Additional paid-in capital			382,652			377,168
	Accumulated deficit			(342,873	)		(303,538	)
	Accumulated other comprehensive loss			(1,881	)		(1,485	)
	Note receivable from officer			—			(85	)
	Treasury stock, at cost; 995,882 and 1,055,816 shares at June 30, 2004 and December 31, 2003, respectively			(4,914	)		(5,209	)
		Total stockholders’ equity		33,334			67,200
			$	229,178		$	221,323

See accompanying notes to consolidated financial statements.

5 ~~See accompanying notes to consolidated~~ ~~financial statements.~~

4 GUILFORD PHARMACEUTICALS INC.

~~GUILFORD~~CONSOLIDATED ~~PHARMACEUTICALS~~STATEMENTS ~~INC.~~OF OPERATIONS

~~AND SUBSIDIARIES~~(unaudited)

~~Consolidated~~($ ~~Statements~~in ofthousands, ~~Operations (unaudited~~except per share data)

(in thousands, except per share data)


			Three Months Ended						Six Months Ended
			June 30,						June 30,

			2005			2004			2005			2004

Revenue:
	Net product revenue		$	12,384		$	10,747		$	22,887		$	19,474
	Revenue from license fees, milestones and other			381			402			614			603

		Total revenue		12,765			11,149			23,501			20,077

Costs and Expenses:
	Cost of sales			857			1,232			1,842			2,223
	Research and development			16,910			8,852			32,935			18,225
	Selling, general and administrative			14,724			14,433			29,585			26,181
	Intangible amortization			1,042			1,705			2,755			3,426
	Acquired in-process research and development			—			5,238			—			5,238
	Impairment of long-lived assets			6,093			—			37,118			—

		Total costs and expenses		39,626			31,460			104,235			55,293

Operating Loss				(26,861	)		(20,311	)		(80,734	)		(35,216	)
Other Income/(Expenses):
		Investment and other income		600			402			720			880
		Revenue interest expense		(2,107	)		(2,095	)		(4,203	)		(4,430	)
		Interest expense		(1,063	)		(1,367	)		(2,296	)		(2,673	)

Loss before Minority Interest				(29,431	)		(23,371	)		(86,513	)		(41,439	)
	Minority Interest			2,964			2,104			5,502			2,104

Net Loss			$	(26,467	)	$	(21,267	)	$	(81,011	)	$	(39,335	)

Basic and Diluted Loss per Common Share			$	(0.58	)	$	(0.63	)	$	(1.76	)	$	(1.16	)

Weighted-average shares used to calculate basic and diluted loss per share				46,015			33,954			45,969			33,938

			Three Months Ended						Six Months Ended
			June 30,						June 30,
			2004			2003			2004			2003
Revenues:
	Net product sales		$	10,747		$	5,002		$	19,474		$	8,406
	Revenues from license fees, milestones and other			402			5,600			603			5,659
		Total revenues		11,149			10,602			20,077			14,065
Costs and expenses:
	Cost of sales			1,232			1,031			2,223			1,924
	Research and development			8,852			7,410			18,225			15,197
	Selling, general and administrative			14,433			7,877			26,181			14,388
	Intangible amortization			1,705			210			3,426			420
	Acquired in-process research and development			5,238			—			5,238			—
		Total costs and expenses		31,460			16,528			55,293			31,929
Operating loss				(20,311	)		(5,926	)		(35,216	)		(17,864	)
Other income (expense):
	Investment and other income			402			912			880			1,776
	Revenue interest expense			(2,095	)		—			(4,430	)		—
	Interest expense			(1,367	)		(340	)		(2,673	)		(460	)
Loss before minority interest			$	(23,371	)	$	(5,354	)	$	(41,439	)	$	(16,548	)
	Minority interest			2,104			—			2,104			—
Net loss			$	(21,267	)	$	(5,354	)	$	(39,335	)	$	(16,548	)
Basic and diluted loss per common share:			$	(0.63	)	$	(0.18	)	$	(1.16	)	$	(0.55	)
Weighted-average shares outstanding to compute basic and diluted loss per share				33,954			29,750			33,938			29,832

See accompanying notes to consolidated financial statements.

6 ~~See accompanying notes to consolidated~~ ~~financial statements.~~

5 GUILFORD PHARMACEUTICALS INC.

~~GUILFORD~~CONSOLIDATED ~~PHARMACEUTICALS~~STATEMENTS ~~INC.~~OF CASH FLOWS

~~AND SUBSIDIARIES~~(unaudited)

~~Consolidated~~($ ~~Statement of Changes~~ in ~~Stockholders’~~ ~~Equity~~thousands)

Six Months Ended June 30, 2004


				Six Months Ended
				June 30,

				2005			2004

Cash Flows From Operating Activities:
	Net loss			$	(81,011	)	$	(39,335	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Impairment of long-lived assets			37,118			—
		Acquired in-process research and development			—			5,238
		Depreciation and amortization			3,518			6,348
		Minority interest			(5,502	)		(2,104	)
		Non-cash compensation expense			1,511			233
		Non-cash imputed revenue interest expense			866			1,476
		Loss on sale of marketable securities			893			144
		Loss on termination of swap agreement			524			—
	Changes in assets and liabilities:
		Accounts receivable			(874	)		(643	)
		Prepaid expenses and other current assets and other assets			3,573			299
		Inventories			(793	)		(1,037	)
		Accounts payable and other liabilities			597			1,132

			Net cash flows used in operating activities		(39,580	)		(28,249	)

Cash Flows From Investing Activities:
	Purchases of investments held by SNDC				—			(43,000	)
	Proceeds from sale of investments held by SNDC				8,291			6,803
	Proceeds from maturities and sales of available-for-sale securities				30,825			26,127
	Purchases of available-for-sale securities				(3,310	)		(10,949	)
	Purchases of property and equipment				(270	)		(11	)

			Net cash flows from (used in) investing activities		35,536			(21,030	)

Cash Flows From Financing Activities:
	Principal payments on debt and revenue interest obligation				(18,729	)		(2,234	)
	Net proceeds from sale of preferred stock by SNDC				—			43,000
	Payment to terminate swap agreement				(622	)		—
	Proceeds from sale of treasury stock				384			159
	Debt issuance costs				—			(3,105	)
	Net proceeds from issuances of common stock				—			235

			Net cash flows (used in) from financing activities		(18,967	)		38,055

Net decrease in cash and cash equivalents					(23,011	)		(11,224	)
Cash and cash equivalents at the beginning of year					61,889			29,939

Cash and cash equivalents at the end of period				$	38,878		$	18,715

Supplemental cash flow data:
	Net interest paid			$	6,945		$	5,209
	Stock distributed to 401(k) and ESP plans				653			292
	Non-cash investing and financing activities:
		Capital lease obligations			394			847

~~(unaudited)~~See accompanying notes to consolidated financial statements.

7 ~~(in thousands, except share data)~~

														Accumulated
				Common Stock										Other			Note
								Additional						Comprehensive			Receivable						Total
				Number of				Paid-In			Accumulated			Income			From			Treasury			Stockholders’
				Shares		Amount		Capital			Deficit			(Loss)			Officer			Stock, at Cost			Equity
Balance, January 1, 2004					34,908,076	$	349	$	377,168		$	(303,538	)	$	(1,485	)	$	(85	)	$	(5,209	)	$	67,200
Comprehensive loss:
	Net loss											(39,335	)											(39,335	)
	Other comprehensive loss:
		Unrealized gain on interest rate swap agreements													471									471
		Unrealized loss on available-for-sale securities													(867	)								(867	)
			Total other comprehensive loss																					(396	)
Total comprehensive loss																							$	(39,731	)
Forgiveness of officer loan																		85						85
Issuance of common stock					55,048		1		234															235
Issuance of warrants									5,238															5,238
Distribution of 16,775 shares of treasury stock to 401(k) plan									51												82			133
Distribution of 41,333 shares of treasury stock to ESP plan									(45	)											204			159
Distribution of 1,826 shares of treasury stock to consultant									6												9			15
Balance, June 30, 2004					34,963,124	$	350	$	382,652		$	(342,873	)	$	(1,881	)	$	—		$	(4,914	)	$	33,334

LANDSCAPE>

~~See~~GUILFORD ~~accompanying~~PHARMACEUTICALS ~~notes to consolidated financial statements~~INC.

6 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

~~GUILFORD~~($ ~~PHARMACEUTICALS~~in ~~INC.~~thousands, except share data)

~~AND SUBSIDIARIES~~(unaudited)

Consolidated Statements of Cash Flows


														Accumulated
				Common Stock										Other									Total
								Additional						Comprehensive						Treasury			Stockholders’
				Number of				Paid-In			Accumulated			Income			Unearned			Stock, at			Equity
				Shares		Amount		Capital			Deficit			(Loss)			Compensation			Cost			(Deficit)

Balance, December 31, 2004					46,638,788	$	466	$	435,130		$	(391,416	)	$	(2,130	)	$	(3,653	)	$	(1,504	)	$	36,893
Comprehensive gain(loss):
	Net loss											(81,011	)											(81,011	)
	Other comprehensive gain(loss):
		Recognition of loss on termination of swap agreement													524									524
		Unrealized gain on interest rate swap agreements													5									5
		Unrealized gain on available-for-sale securities													540									540

			Total other comprehensive gain(loss)																					1,069

Total comprehensive loss																								(79,942	)

Amortization of unearned compensation																		1,183						1,183
Exercise of stock options and restricted stock units (12,902 shares)									(19	)											64			45
Issuance of restricted stock units									1,360									(1,360	)					—
Distribution of 66,775 shares to 401(k) plan									(16	)											330			314
Distribution of 98,141 shares to ESP plan									(145	)											484			339
Distribution of 3,103 shares to consultant									—												14			14

Balance, June 30, 2005 (unaudited)					46,638,788	$	466	$	436,310		$	(472,427	)	$	(1,061	)	$	(3,830	)	$	(612	)	$	(41,154	)

~~(unaudited)~~See accompanying notes to consolidated financial statements.

8 ~~(in thousands)~~

				Six Months Ended
				June 30,
				2004			2003
Cash Flows From Operating Activities:
	Net loss			$	(39,335	)	$	(16,548	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Minority interest			(2,104	)		—
		Realized (gains)/losses on sale of available-for-sale securities			144			(180	)
		Depreciation and amortization			6,348			2,266
		Non-cash compensation expense			233			219
		Non-cash imputed revenue interest expense			1,476			—
		Acquired in-process research and development			5,238			—
	Changes in assets and liabilities:
		Accounts receivable, net, prepaid expenses and other assets			(344	)		(1,287	)
		Inventories			(1,037	)		607
		Accounts payable and other liabilities			1,132			(3,756	)
			Net cash used in operating activities		(28,249	)		(18,679	)
Cash Flows From Investing Activities:
	Purchases of property and equipment				(11	)		(18,759	)
	Purchases of investments held by SNDC				(43,000	)		—
	Sale of investments held by SNDC				6,803			—
	Maturities and sales of available-for-sale securities				26,127			58,995
	Purchases of available-for-sale securities				(10,949	)		(38,268	)
			Net cash (used in) provided by investing activities		(21,030	)		1,968
Cash Flows From Financing Activities:
	Net proceeds from issuances of common stock				235			213
	Proceeds from sale of treasury stock				159			—
	Sale of preferred stock by SNDC				43,000			—
	Proceeds from issuances of debt				—			78,800
	Purchase of treasury stock				—			(5,280	)
	Debt issuance costs				(3,105	)		(2,837	)
	Principal payments on debt				(2,234	)		(2,471	)
			Net cash provided by financing activities		38,055			68,425
Net increase (decrease) in cash and cash equivalents					(11,224	)		51,714
Cash and cash equivalents at the beginning of period					29,939			14,777
Cash and cash equivalents at the end of period				$	18,715		$	66,491
Supplemental disclosures of cash flow information:
	Net interest paid			$	5,209		$	167
	Non-cash investing and financing activities:
		Capital lease obligations pursuant to leases for certain equipment		$	847		$	750

GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES

~~See~~NOTES ~~accompanying~~TO ~~notes~~CONSOLIDATED toFINANCIAL ~~consolidated~~STATEMENTS ~~financial statements.~~

7 1. Organization and Description of Business

~~GUILFORD~~Guilford ~~PHARMACEUTICALS~~Pharmaceuticals ~~INC~~Inc. (together with its subsidiaries, Guilford or the Company) is a pharmaceutical company located in Baltimore, Maryland, engaged in the research, development and commercialization of proprietary pharmaceutical products that target the hospital and neurology markets.

~~Notes~~2. toSummary ~~Consolidated~~of ~~Financial Statements~~ Significant Accounting Policies and Practices

~~June 30,~~Basis ~~2004~~of Presentation

~~(unaudited)~~The Unaudited Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated.

~~1. Organization and~~Use ~~Description~~ of ~~Business~~Estimates

~~Guilford~~The ~~Pharmaceuticals~~preparation ~~Inc.~~of ~~(together~~the ~~with~~Company’s ~~its~~financial statements in ~~subsidiaries,~~conformity ~~“Guilford”~~with orU.S. generally ~~the~~accepted ~~“Company”)~~accounting isprinciples arequires ~~pharmaceutical~~management ~~company~~to ~~located~~make inestimates ~~Baltimore,~~and ~~Maryland,~~assumptions ~~engaged~~that inaffect the ~~research~~reported amounts of assets and liabilities, ~~development~~and to disclose contingent assets and ~~commercialization~~liabilities as of ~~proprietary~~ ~~pharmaceutical~~the ~~products~~dates ~~that~~of such ~~target~~financial statements and the ~~hospital~~reported amounts of revenues and expenses during the reporting period. Actual results could ~~neurology~~differ ~~markets~~from those estimates.

2. Revenue ~~Symphony~~Interest ~~Transaction~~Obligation

InThe ~~June 2004, the~~ Company ~~licensed~~has toentered ~~Symphony Neuro~~into ~~Development Company (“SNDC”),~~ a ~~newly~~Revenue ~~formed Delaware~~Interest ~~corporation, its rights in the United States to GPI~~Assignment ~~1485,~~Agreement a(or ~~novel~~Revenue ~~compound~~Agreement) ~~based~~with onPaul ~~the~~Royalty ~~Company’s neuroimmunophilin ligand technology~~Fund, ~~for the following four~~L.P. ~~indications:~~and ~~Parkinson’s~~certain ~~disease,~~of ~~peripheral~~its ~~nerve~~affiliated ~~injury, including~~entities ~~post-prostatectomy erectile dysfunction~~ (~~“PPED”),~~or ~~HIV-related neuropathy~~collectively, ~~and HIV-related~~PRF), ~~dementia.~~pursuant ~~SNDC~~to ~~agreed~~which toPRF ~~invest~~is ~~approximately~~entitled ~~$40.0 million~~ to ~~advance~~receive ~~GPI~~revenue ~~1485 through clinical development in these~~interest ~~indications.~~payments ~~Currently,~~based ~~the~~on ~~Parkinson’s~~sales ~~disease~~of ~~and~~certain ~~PPED indications are in Phase II clinical trials and the HIV-related indications are in preclinical development. In addition to the grant~~ of the ~~license, SNDC~~Company’s ~~investors~~ ~~received~~existing ~~five-year~~and ~~warrants~~future ~~to purchase 1~~products.~~5 million shares~~ ofThe ~~the~~ Company’s ~~common~~recorded ~~stock~~its ~~at $7.48 per~~revenue ~~share.~~interest Inobligation ~~consideration~~as ~~for~~debt ~~the~~due ~~warrants,~~to the Company ~~received an exclusive option from SNDC~~’s ~~investors to purchase SNDC.~~ ~~This~~significant ~~option~~continuing ~~was~~involvement ~~valued~~in ~~at $5.2 million,~~ the ~~corresponding value~~generation of ~~the warrants using the Black-Scholes method, and~~cash ~~expensed~~flows asdue ~~acquired~~to ~~in-process~~PRF. ~~research~~The ~~and~~Company ~~development~~amortizes ~~because~~ the ~~licensed~~revenue ~~technology had not reached technological~~interest ~~feasibility~~obligation ~~and~~under ~~had no known alternative future uses. This option is exercisable by~~ the ~~Company~~effective atinterest ~~any~~method ~~time beginning April 1, 2005~~ and ~~ending~~utilizes ~~March 31, 2007, at~~ an ~~exercise~~imputed ~~price~~interest ~~starting~~rate atequivalent ~~$75.1 million in April 2005 and increasing~~ to ~~$119.8 million~~PRF’s ~~in March 2007. The option~~projected ~~exercise~~internal ~~price~~rate ~~may be paid for in cash or in a combination~~ of ~~cash~~ ~~and~~return ~~the~~based ~~Company’s~~on ~~common~~estimated ~~stock,~~future ~~at the Company’s~~revenue ~~discretion,~~interest ~~provided~~obligation ~~that~~payments. ~~the~~Revenue ~~Company’s~~interest ~~common stock may~~obligation ~~not~~payments ~~constitute~~made ~~more~~to ~~than~~PRF ~~50%~~reduce of the ~~option~~future ~~exercise price~~obligation.

~~RRD~~Revenue ~~International, LLC (“RRD”), a~~Recognition company providing clinical trials strategy, design and management expertise, will manage SNDC and will sub-contract the ongoing development work to the Company and to other vendors. Under the Company’s agreement with RRD to provide certain clinical development services to SNDC, the Company will perform services related to manufacturing, process development, toxicology, patent prosecution and maintenance, and regulatory matters (the “Development Services.”)

InRevenue ~~connection~~from ~~with~~sales ~~this transaction, the Company sold $2.8 million~~ of ~~clinical~~GLIADEL® ~~trial~~Wafer ~~supply,~~(or atGliadel) ~~cost, to~~and ~~SNDC~~AGGRASTAT® ~~during the quarter. The Company previously expensed this clinical trial supply in 2003. Accordingly, the sale of the clinical trial supply resulted in a minority interest gain of $2.8~~Injection ~~million for the Company. This gain will be deferred until the earlier of either the exercise~~ (or ~~the expiration of the purchase option (the “Deferral Period”~~Aggrastat). ~~As mentioned~~is ~~above,~~recognized ~~the Company provides SNDC with Development~~when ~~Services,~~all ~~which~~four ~~are at market rates. The excess~~ of the ~~market rate~~following ~~over~~criteria ~~the~~are ~~cost of the Development Services also results in a~~met: minority interest gain for the Company. Similarly, this gain will be deferred over the Deferral Period. The total deferred minority interest gain of $2.9 million is included in other liabilities on the 2004 consolidated balance sheet.

In• ~~accordance with FIN 46R, “Consolidation of Variable Interest Entities”, SNDC Holdings LLC,~~ the ~~parent of SNDC, is considered a variable interest entity. Under FIN 46R, the~~ Company has ~~been~~persuasive ~~deemed the~~evidence ~~primary~~that ~~beneficiary~~an ofarrangement ~~the~~exists; ~~variable~~• ~~interest~~price ~~entity because it~~ is ~~most~~fixed ~~closely~~and ~~associated~~determinable; ~~with~~• ~~SNDC~~title ~~Holdings LLC. Accordingly, the Company~~ has ~~consolidated~~passed; ~~the~~and ~~financial~~• ~~activity of~~collection ~~SNDC~~is ~~Holdings~~reasonably ~~LLC within its financial statements~~assured.

8 The Company records its revenue net of provisions for returns, chargebacks and discounts, which are established at the time of sale. The Company’s credit and exchange policy includes provisions for return of any product that has expired or was damaged in shipment. The Company’s historical return rate is applied to its current unit sales to provide an allowance for future product returns. The product return rate is periodically updated to reflect actual experience.

3 Product demand by distributors and wholesalers during a given period may not correlate with prescription demand for the product in the same period. ~~Summary~~As ofa ~~Significant~~result, ~~Accounting~~the ~~Policies~~Company periodically evaluates the specialty distributor’s and wholesalers’ inventory positions. If such evaluation causes the Company to believe that these

9 ~~Principles of Consolidation~~

~~The~~levels ~~consolidated~~are ~~financial~~too ~~statements~~high ~~include~~based ~~the financial~~on ~~statements~~expected ofprescription ~~Guilford and its subsidiaries~~demand, ~~all of~~then ~~which~~until ~~are~~these ~~wholly-owned.~~levels ~~The~~are ~~consolidated~~reduced ~~financial~~to ~~statements also~~acceptable ~~include~~levels the ~~financial statements of SNDC Holdings LLC, a~~Company ~~variable interest entity. All intercompany balances and~~will: ~~transactions have been eliminated in consolidation.~~

~~Earnings~~• ~~(Loss)~~defer ~~Per~~recognition ~~Common~~of ~~Share~~ revenue if the Company determines there is excess channel inventory for the product; and • not accept purchase orders from the distributor or not ship additional products.

~~Basic earnings (loss) per share are computed by dividing net earnings (loss) by the weighted~~Stock-~~average~~Based ~~number of~~Compensation shares outstanding for the period. The computation of diluted earnings (loss) per share is similar to basic earnings (loss) per share except that the weighted-average number of shares outstanding for the period is increased to include the number of additional shares that would have been outstanding if the dilutive potential common shares had been issued. Potential common shares are excluded if the effect on earnings (loss) per share is antidilutive.

~~Revenue~~The ~~Recognition/~~Company ~~Net~~accounts ~~Product~~for stock-based compensation under ~~Sales~~Accounting Principals Board Opinion No. 25, “Accounting for Stock Issued to Employees” (or APB 25), and recognizes compensation costs attributable to stock option and similar plans based on any excess of the quoted market price of the stock on the date of grant over the amount the employee is required to pay to acquire the stock.

~~Revenue~~Statement ~~from~~of ~~sales~~Financial ofAccounting ~~GLIADEL®~~Standards ~~Wafer~~ (~~“GLIADEL®”~~or SFAS) No. 148, ~~and~~“Accounting ~~AGGRASTAT®~~for ~~Injection~~Stock-Based ~~(“AGGRASTAT®~~Compensation — Transition and Disclosure” (or SFAS 148), ~~are~~which ~~recognized~~amended ~~when~~SFAS 123, ~~the following~~“Accounting ~~four~~for ~~criteria~~Stock-Based ~~are~~Compensation,” ~~met~~ (i)or SFAS ~~the~~123) ~~Company~~requires companies ~~has~~to ~~persuasive evidence~~provide ~~that~~alternative anmethods ~~arrangement~~of ~~exists,~~transition ~~(ii)~~ for a voluntary change to the ~~price~~fair isvalue based method of accounting ~~fixed~~for ~~and~~stock-based ~~determinable,~~employee ~~(iii) title~~compensation. ~~has~~In ~~passed~~addition, ~~and~~ ~~(iv)~~SFAS ~~collection~~148 isamended ~~reasonably~~the ~~assured.~~disclosure ~~The~~requirements ~~Company’s~~of ~~credit~~SFAS 123 to require prominent disclosures in both annual and ~~exchange~~interim ~~policy~~financial ~~includes~~statements ~~provisions~~about the method of accounting for ~~return~~stock-based employee compensation and the effect of ~~its~~the ~~product~~method ~~that~~used ~~(i) has~~on ~~expired,~~reported orresults. ~~(ii) was~~The ~~damaged~~disclosure inrequirements of ~~shipment~~SFAS 148 have been incorporated herein.

The ~~Company’s~~following ~~historical~~table ~~return~~illustrates ~~rate~~the ~~is applied~~effect toon ~~its~~net ~~unit~~loss ~~sales~~and toloss per ~~provide~~share anif ~~allowance~~the ~~for~~Company ~~future product~~had ~~returns.~~applied ~~The~~the ~~product~~fair ~~return~~value ~~rate~~recognition provisions isof ~~periodically~~SFAS 123 ~~updated~~ to ~~reflect~~stock-based ~~actual~~employee ~~experience.~~compensation:

The primary customer for GLIADEL® is Cardinal Health Specialty Pharmaceuticals Distribution (“SPD”), a division of Cardinal Health, Inc. which sells directly to hospitals and was formerly known as National Specialty Services, Inc. Product demand by SPD during a given period may not correlate with prescription demand for the product in that period. As a result, the Company periodically evaluates SPD’s inventory position. If the Company believes these levels are too high based on prescription demand, it will either not accept purchase orders from, or ship additional product to, SPD until these levels are reduced or it will defer recognition of revenue if it determines that there is excess channel inventory for the product.


		Three Months Ended						Six Months Ended
		June 30,						June 30,

		2005			2004			2005			2004
($ in thousands, except per share data)
Net loss, as reported		$	(26,467	)	$	(21,267	)	$	(81,011	)	$	(39,335	)
Add:Stock-based employee compensation expense included in reported net loss			622			—			1,183			—
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards			(1,930	)		(2,562	)		(4,552	)		(5,446	)

Pro forma net loss		$	(27,775	)	$	(23,829	)	$	(84,380	)	$	(44,781	)

Basic and diluted loss per share:
	As reported	$	(0.58	)	$	(0.63	)	$	(1.76	)	$	(1.16	)
	Pro forma	$	(0.60	)	$	(0.70	)	$	(1.84	)	$	(1.32	)

~~The~~New ~~Company~~Accounting ~~has three primary wholesalers for~~Standards AGGRASTAT®, AmerisourceBergen Drug Corporation, Cardinal Health, Inc. and McKesson Corporation, each of whom sells directly to hospitals. Product demand during a given period may not correlate with prescription demand for the product in the period. As a result, the Company periodically evaluates the inventory position of its wholesalers. If the Company believes these inventory levels are too high based on prescription demand during the quarter, it will defer recognition of revenue for the product. During the quarter ended June 30, 2004, the Company deferred $0.5 million of sales related to excess inventory at its wholesalers, which is included in accrued expenses and other current liabilities on the consolidated balance sheet at June 30, 2004. The deferred revenue will be recognized in the third quarter. The Company’s normal payment terms applied to these sales.

~~Collaborative research revenue is recognized, up~~SFAS 123R: to the contractual limits, when the Company meets its performance obligations under the respective agreements. Payments received that relate to future performance are deferred and recognized as revenue at the time such future performance has been accomplished. Non-refundable upfront fee arrangements that contain an element of continuing involvement are deferred and recognized as revenue over the involvement period. Contract and licensing revenue is recognized when milestones are met and the Company’s significant performance obligations have been satisfied in accordance with the terms of the respective agreements.

9 In December 2004, the Financial Accounting Standards Board (or FASB) issued SFAS 123R (revised 2004), “Share-Based Payment,” which is a revision of SFAS 123. SFAS 123R supersedes APB 25 and amends SFAS 95, “Statement of Cash Flows.” Generally, the approach in SFAS 123R is similar to the approach described in SFAS 123. In accordance with the effective date of the statement, the Company will adopt the statement starting in its fiscal year beginning January 1, 2006.

~~Revenue~~As ~~Interest~~permitted ~~Obligation~~by SFAS 123, the Company currently accounts for share-based payments to employees using APB 25’s intrinsic value method. However, SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values over the expected period of service. Accordingly, the adoption of SFAS 123R’s fair value

10 ~~The revenue interest obligation entered into with~~ ~~Paul Royalty Fund, L.P. and certain of its affiliated entities~~ (collectively, “PRF”), in the fourth quarter of 2003, was recorded as debt, because the Company has significant continuing involvement in the generation of the cash flows due to PRF. The obligation will be amortized under the effective interest method. The Company utilized an imputed interest rate equivalent to PRF’s projected internal rate of return based on estimated future revenue interest obligation payments. Revenue interest obligation payments made to PRF will reduce the future obligation. The Company periodically reviews estimated future revenues and updates the imputed interest rate as necessary.

~~Stock~~method ~~Based~~may ~~Compensation~~have an impact on the Company’s results of operations, although it will have no impact on the Company’s overall financial position.

The ~~Financial~~impact ~~Accounting~~of ~~Standards~~adopting ~~Board (“FASB”)~~SFAS 123R ~~issued~~cannot ~~Statement~~be ~~No. 148,~~predicted at ~~“Accounting~~this ~~for~~time ~~Stock-Based~~because ~~Compensation — Transition~~it ~~and~~will ~~Disclosure,”~~depend ~~which~~on ~~amended~~levels ~~FASB~~of share-based ~~Statement~~payments Nogranted in the future. ~~123~~ However, ~~“Accounting~~if ~~for~~the ~~Stock-Based~~Company adopted ~~Compensation,”~~SFAS 123R toin ~~provide~~prior ~~alternative~~periods, ~~methods~~the impact of ~~transition~~ ~~for~~that astandard would ~~voluntary~~have ~~change~~approximated to the ~~fair~~impact ~~value~~of ~~based~~SFAS 123 ~~method~~as described in the disclosure of ~~accounting~~pro ~~for~~forma ~~stock-based~~net ~~employee~~loss ~~compensation.~~and Inloss per share as ~~addition,~~disclosed ~~Statement~~above Noin “Stock-Based Compensation.” SFAS ~~148~~123R ~~amended~~also requires the ~~disclosure~~benefits of tax deductions in ~~requirements~~excess of ~~Statement~~recognized ~~No. 123~~compensation costs to ~~require~~be ~~prominent~~reported as a ~~disclosures~~financing incash ~~both~~flow, ~~annual~~rather ~~and~~than ~~interim~~as ~~financial~~an ~~statements~~operating cash flow as ~~about~~required ~~the~~under ~~method~~current ofliterature. ~~accounting~~This ~~for~~requirement ~~stock-based~~will ~~employee~~reduce ~~compensation~~net ~~and~~operating ~~the~~cash ~~effect~~flows ofand ~~the~~increase ~~method~~net ~~used~~financing oncash ~~reported~~flows ~~results~~in periods after adoption. The ~~disclosure~~Company ~~requirements~~is ofunable ~~Statement~~to ~~No. 148~~estimate ~~have~~what ~~been~~those ~~incorporated~~amounts ~~herein~~will be in the future because they depend on, among other things, when employees exercise stock options.

~~The~~SFAS ~~Company continues to account for stock based compensation under Accounting Principals Board (“APB”) No. 25. If Statement No. 123 would have been applied, it would have had the following impact~~151:

		For the Three-Month						For the Six-Month
		Period Ended June 30,						Period Ended June 30,
		2004			2003			2004			2003
		(In thousands)						(In thousands)
Net loss, as reported		$	(21,267	)	$	(5,354	)	$	(39,335	)	$	(16,548	)
Add: Total stock-based employee compensation expense determined under fair value based method for all awards			(2,562	)		(3,331	)		(5,446	)		(6,960	)
Pro forma net loss		$	(23,829	)	$	(8,685	)	$	(44,781	)	$	(23,508	)
Loss per share:
	Basic and diluted — as reported	$	(0.63	)	$	(0.18	)	$	(1.16	)	$	(0.55	)
	Basic and diluted — pro forma	$	(0.70	)	$	(0.29	)	$	(1.32	)	$	(0.79	)

In November 2004, FASB issued SFAS 151, “Inventory Cost.” This statement amends Accounting Research Bulletin No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage.) The provision of the statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is evaluating the impact of this statement on its consolidated financial positions, results of operations and cash flows.

~~Net~~SFAS ~~loss, as reported, does not include any stock-based compensation expense determined under the intrinsic value method.~~ 154:

~~Reclassifications~~In June 2005, FASB issued SFAS 154, “Accounting Changes and Error Corrections” (or SFAS 154), a replacement of APB 20, “Accounting Changes,” and SFAS 3, “Reporting Accounting Changes in Interim Financial Statements.” This statement applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle. SFAS 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. It is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Earlier application is permitted for accounting changes and corrections of errors made occurring in fiscal years beginning after June 1, 2005. As of June 30, 2005, this statement had no impact on the Company’s financial statements, results of operations and cash flows.

~~Certain~~3. ~~prior~~Aggrastat ~~year amounts have been reclassified to conform with the current year presentation.~~ Intangibles

~~New~~On ~~Accounting~~April 5, ~~Standards~~2005, the Company concluded that its Aggrastat intangibles and other related assets and liabilities (or the Aggrastat Assets) were not essential to the Company’s long-term business strategy. As a result, the Company is pursuing strategic alternatives for the Aggrastat Assets, including, but not limited to, selling, divesting, partnering, licensing or entering into other similar arrangements with respect to those assets.

In ~~December~~accordance ~~2003,~~with ~~the FASB issued FASB Interpretation (“FIN”)~~ SFAS No. 46144, ~~(revised~~“Accounting ~~December~~for ~~2003),~~Impairment ~~“Consolidation~~or Disposal of ~~Variable~~Long-Lived ~~Interest Entities~~Assets,” the Company ~~(FIN 46R),~~performed ~~which~~an ~~addresses~~impairment ~~how~~analysis aas ~~business~~of ~~enterprise~~March 31, ~~should~~2005 due ~~evaluate~~to ~~whether~~the itCompany’s ~~has~~expectation athat ~~controlling~~it ~~financial~~was ~~interest~~more inlikely anthan ~~entity~~not ~~through~~that ~~means~~the ~~other~~Aggrastat ~~than~~Assets ~~voting~~will ~~rights~~be ~~and~~sold ~~accordingly~~or otherwise disposed ~~should~~of ~~consolidate~~significantly before the ~~entity.~~end ~~FIN 46R~~of ~~replaces~~their ~~FASB~~previously estimated ~~Interpretation~~useful Nolives. ~~46,~~ ~~“Consolidation~~The ofimpairment ~~Variable Interest~~analysis ~~Entities,”~~was ~~which~~performed ~~was~~using market-based ~~issued~~sales inmultiples ~~January~~for ~~2003.~~comparable ~~In June~~product ~~2004,~~lines and the Company ~~entered~~determined ~~into~~that athe ~~transaction~~carrying ~~for~~value ~~which~~of the Aggrastat ~~Company~~Assets was ~~deemed~~in ~~the~~excess ~~primary beneficiary~~ of aits ~~variable interest~~fair ~~entity~~value. Accordingly, during the quarter ~~Company~~ended ~~has~~March 31, ~~applied~~2005, the Company recorded a ~~requirements~~non-cash charge of ~~FIN~~$31.0 ~~46R~~million ~~and~~to ~~consolidates~~write-down the ~~financial~~carrying ~~statements~~value of ~~SNDC~~the ~~Holdings~~Aggrastat ~~LLC~~Assets ~~within~~to ~~its~~fair ~~financial statements~~value.

10 As of June 30, 2005, the Company performed an impairment analysis and determined that the carrying value of the Aggrastat Assets was still in excess of its fair value based on a non-binding offer received from a third-party. Accordingly, during the quarter ended June 30, 2005, the Company recorded a non-cash charge of $6.1 million to further write-down the carrying value of the Aggrastat Assets to its fair value. The Aggrastat Assets are being classified as an “Asset Held for Use” because assets are not available for immediate sale as PRF holds a security interest in the assets related to Aggrastat under the Revenue Agreement.

~~4. Accounts Receivable~~11

		June 30,			December 31,
		2004			2003
		(In thousands)
Trade accounts receivable		$	4,113		$	4,276
Less allowance for doubtful accounts			(10	)		(816	)
	Accounts receivable, net	$	4,103		$	3,460

As of June 30, 2005, the Company stopped all Aggrastat related trials, including TENACITY, a multi-center, double-blind, randomized comparison of Aggrastat and Abciximab (ReoPro®.) As of June 30, 2005, the Company’s contractual commitments related to the Aggrastat Assets included:

Accounts receivable at June 30, 2004 and December 31, 2003, include amounts relating to sales of GLIADEL® and AGGRASTAT®. Sales of GLIADEL® to the Company’s specialty distributor, hospitals and wholesalers provide for net payments in 91 days, with certain discounts for early payment. Sales of AGGRASTAT® to the wholesalers provide for net payment in 31 days, with certain discounts for early payment. In May 2004, collection and billing responsibilities for AGGRASTAT® were transitioned to Cardinal Health Specialty Pharmaceutical Services (“SPS”) from Merck and Co., Inc. Amounts due from Merck and Co., Inc., which provided billing and collection services for sales of AGGRASTAT® to wholesalers from the acquisition date through April 30, 2004, are included in accounts receivable at December 31, 2003.


	•	an agreement with Baxter Healthcare Corporation for the supply of 250 ml and 100 ml bags of Aggrastat through July 2009, which commits the Company to purchase approximately $6.1 million of such bags, and $1.3 million of such purchase commitment remains outstanding for the remainder of 2005; and

	•	various funding commitments and agreements related to the advancement of the Company’s research and development activities, which the Company currently estimates to be no more than $1.0 million.

~~At December 31~~Additionally, ~~2003,~~under the ~~allowance~~Revenue ~~for doubtful~~Agreement, ~~accounts~~PRF ~~included~~is ~~$0.8 million~~entitled ~~relating~~ to a ~~dispute~~require ~~with~~the ~~Cardinal~~Company ~~Health~~to ~~Sales~~repurchase ~~and~~all ~~Marketing~~or ~~Services~~a portion of PRF’s ~~(“Cardinal”)~~revenue ~~that~~interest ~~SPD,~~if the Company’s ~~specialty~~sells the Aggrastat Assets. The ~~pharmaceutical~~repurchase ~~distributor~~price ~~and~~guarantees PRF a ~~division~~return ofin ~~Cardinal,~~an ~~offset~~amount over its ~~against~~initial aninvestment ~~existing~~which ~~trade~~is ~~receivable~~reduced tobased on the Company.’s prior Inpayments to PRF before the ~~first~~ ~~quarter~~date ofthat ~~2004~~PRF’s interest is repurchased; however, the ~~Company~~repurchase ~~wrote-off~~price ~~the~~may ~~receivable~~never ~~due~~exceed ~~from~~three ~~SPD~~and one-half times PRF’s initial investment, or $147.0 million.

5 Effective July 20, 2005, in connection with the merger agreement with MGI Pharma, Inc. ~~Inventories~~(or MGI Pharma), the Company entered into a letter agreement with PRF and MGI Pharma whereby PRF agreed to sell, and on or before the consummation of the merger, MGI Pharma agreed to repurchase, PRF’s revenue interest granted under the Revenue Agreement for an agreed calculated price. In the event the merger is not consummated, the letter agreement will terminate and, should the Gliadel business be sold to MGI Pharma as provided under the line of credit agreement, PRF’s revenue interest in Gliadel will be repurchased by the Company for the same agreed calculated price. The repurchase price ranges from approximately $58.0 million to approximately $66.0 million and is dependent on when the repurchase occurs between August 1, 2005 and March 31, 2006, at which time the option to sell Gliadel to MGI Pharma expires. If the Company repurchases PRF’s revenue interest during this period, the Company would incur a non-cash loss on restructuring the revenue interest obligation ranging from approximately $14.0 million to approximately $20.0 million depending on when the repurchase occurs. See Note 11. “Subsequent Events” below for further detail.

		June 30,		December 31,
		2004		2003
		(In thousands)
Raw materials		$	123	$	191
Work in progress			487		275
Finished goods			2,931		2,038
	Inventories, net	$	3,541	$	2,504


4.	Accounts Receivable

Inventories are stated at net realizable value. 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 efforts. Inventories identified for development activities are expensed in the period in which such inventories are designated for such use.


		June 30,			December 31,
		2005			2004
($ in thousands)
Trade accounts receivable		$	5,556		$	4,692
Less allowance for doubtful accounts			(16	)		(26	)

	Accounts receivable, net	$	5,540		$	4,666

11 Accounts receivable include amounts relating to sales of Gliadel to a specialty distributor, hospitals and wholesalers that provide for net payments in 91 days, and sales of Aggrastat to wholesalers that provide for net payments in 31 days, both with certain discounts for early payment.

65. ~~Intangible Assets~~Inventory

Intangible assets and related accumulated amortization consist of the following:


		June 30,		December 31,
		2005		2004
($ in thousands)
Raw materials		$	714	$	354
Work-in-process			635		314
Finished goods			1,817		1,705

	Inventory	$	3,166	$	2,373

		June 30,			December 31,
		2004			2003
		(In thousands)
GLIADEL® rights reacquisition		$	8,412		$	8,412
AGGRASTAT®
	Patents		53,390			53,390
	Trademarks		9,750			9,750
	Customer contracts and related customer relationships		14,712			14,712
	Other		267			267
	Total AGGRASTAT®		78,119			78,119
Less accumulated amortization			(7,161	)		(3,735	)
	Intangible assets, net	$	79,370		$	82,796

~~The Company is amortizing its intangible assets over periods varying between 10 to 13 years~~6. ~~Amortization expense~~Intangible ofAssets ~~intangible assets was $1.7 million~~ and ~~$0.2 million~~ ~~for~~Acquired ~~the~~In-process ~~quarters~~Research ~~ended June 30, 2004~~ and ~~2003,~~ respectively, and $3.4 million and $0.4 million for the six months ended June 30, 2004 and 2003, respectively. Amortization expense is expected to be $6.9 million per year for 2004, 2005, 2006, 2007 and 2008. Development

7. Revenue Interest Obligation


		Estimated		June 30,			December 31,
		Life in Years		2005			2004
($ in thousands)
Gliadel rights reacquisition			10	$	8,412		$	8,412

Aggrastat patents			13		21,589			53,390
Trademarks			13		3,942			9,750
Customer contracts and related relationships			13		103			14,712
Other			11		5,949			267

	Total Aggrastat intangible assets				31,583			78,119

Less accumulation amortization					(3,926	)		(10,588	)

	Intangible assets, net			$	36,069		$	75,943

On ~~October~~April 285, ~~2003~~2005, the Company ~~acquired the~~concluded ~~rights~~that ~~to AGGRASTAT® from Merck and Co., Inc., in~~ the ~~United~~ ~~States and its territories, for a purchase price of~~Aggrastat ~~$84.0 million.~~Assets Inwere ~~order~~not essential to ~~finance~~ the ~~acquisition, the~~ Company’s ~~used $42.0 million of working capital and entered~~long-term ~~into~~business ~~a $42~~strategy.~~0 million~~ ~~revenue~~As ~~interest financing arrangement with PRF pursuant to~~ a ~~revenue~~result, ~~interest assignment agreement. In addition to its revenue interest in~~ the Company’s ~~products or~~evaluated ~~future products, as~~ the ~~case may be, PRF received five-year~~ ~~warrants~~recoverability ~~to purchase 300,000 shares~~ of the ~~Company’s~~ ~~common~~Aggrastat ~~stock~~Assets atas ~~an exercise price~~ of ~~$9.15 per~~ ~~share. Under the Company’s arrangement with PRF, from October~~March 2831, ~~2003,~~2005 and ~~through~~determined ~~December 31,~~that ~~2006, PRF~~the iscarrying ~~entitled~~value towas ~~receive~~in ~~10%~~excess of the ~~Company’s~~fair ~~GLIADEL® and AGGRASTAT® net sales up to $75~~value.~~0 million~~ Accordingly, ~~and~~the ~~2.5%~~Company ofrecorded ~~those~~a ~~annual~~non-cash ~~net~~charge ~~sales in excess~~ of $7531.0 million, ~~and~~to ~~from~~write-down ~~January 1, 2007, through December 31, 2012 (~~the ~~end~~carrying ofvalue ~~the term~~ of the ~~financing~~ ~~arrangement~~Aggrastat ~~with~~Assets ~~PRF), these percentages are 17.5% and 3.5%, respectively. This revenue interest percentage can increase if the Company fails~~ to ~~meet~~fair ~~contractually specified levels of annual net sales of products for which PRF is entitled to receive its revenue interest~~value.

~~Revenue~~As ~~interest expense~~ of ~~$2.1~~June ~~million~~30, ~~and $4.4 million~~2005, ~~was~~based ~~recorded~~on ~~for~~a ~~the~~non-binding ~~three and six~~third-~~month~~party ~~periods ended June 30~~offer, ~~2004.~~the ~~Revenue~~Company ~~interest~~determined ~~expense~~that ~~is calculated using~~ the ~~effective~~carrying ~~interest~~value ~~method.~~of ~~The Company~~the ~~utilized~~Aggrastat anAssets ~~imputed~~was ~~interest~~still ~~rate~~in ~~equivalent~~excess ~~to PRF’s projected internal rate~~ of ~~return~~its ~~based~~fair ~~on estimated future revenue interest obligation payments~~value. ~~Revenue interest~~ ~~obligation~~Accordingly, ~~payments~~the ~~made~~Company torecorded ~~PRF~~a ~~will~~non-cash ~~reduce~~charge ~~the future~~of ~~obligation~~$6.1 million ~~The~~to ~~Company~~further ~~periodically~~write-down ~~reviews~~the ~~estimated~~carrying ~~future revenues~~value ~~and updates~~ of the ~~imputed~~Aggrastat ~~interest~~Assets ~~rate~~to asits ~~necessary~~fair value.

~~Under~~Amortization ~~the~~expense ~~revenue~~for ~~interest agreement,~~ the ~~Company will~~three ~~pay~~months ~~PRF~~ended onJune 30, 2005 aand ~~quarterly~~2004 ~~basis~~was ~~minimum payments totaling~~ $51.0 million inand ~~2004,~~ $61.37 million ~~in 2005~~, ~~$7.5 million in 2006~~respectively, and $102.08 million ~~in each of 2007 – 2009~~ and $123.54 million ~~in each of~~for ~~2010 – 2012. During~~ the ~~second quarter and first~~ six months ofended ~~2004~~June 30, ~~the~~2005 ~~Company paid to PRF $1.25 million~~ and ~~$2.5 million~~ ~~related~~2004, ~~to the minimum payments~~respectively.

~~As part of the Company’s financing arrangement with PRF, PRF has been granted a security interest in the assets related to GLIADEL® and AGGRASTAT®~~7. ~~As a result of this security interest, the Company may not be free to utilize those assets at its discretion, such as selling or out~~Long-~~licensing~~term ~~rights to part or all of those~~ Debt

12 In January 2005, the Company paid off the outstanding principal balance of $17.2 million on its five-year term loan with Wachovia Bank National Association (or Wachovia.) Under the terms of the loan, the Company was required to maintain a restricted cash collateral account in the amount of the remaining unpaid principal of the loan. Additionally, the Company had entered into a swap agreement that effectively fixed the interest rate on this indebtedness at 5.36%. As a result of the repayment, the related cash collateral account balance of $17.2 million has been released and the swap agreement was paid and terminated, which resulted in a realized loss of $0.5 million.

~~assets,~~8. ~~without first obtaining the permission of~~ PRF. ~~This~~Revenue ~~requirement~~Interest ~~could delay, hinder or condition the Company’s ability to enter into corporate partnerships or strategic alliances with respect to these assets.~~ Obligation

~~Also~~On inOctober 28, ~~connection with the Company’s arrangement with PRF~~2003, the Company ~~has~~acquired ~~agreed~~from toMerck ~~set aside cash~~& ~~and cash equivalents~~Co., ~~such~~Inc. ~~as marketable securities in~~ the ~~amount~~ ofrights ~~$12.6 million (such amount~~ to beAggrastat in the ~~amount~~United ~~of the~~States ~~next~~and ~~eight quarters of minimum payments to PRF) as additional evidence of~~ its ~~liquidity. The Company may maintain~~ ~~this~~territories ~~account~~for ata ~~its~~purchase ~~discretion;~~price ~~however,~~of ~~if the Company does not, it will be required to maintain at least~~ $2084.0 million ~~of net working capital during the term of the agreement~~. ~~If the~~The Company ~~does~~paid ~~not maintain the account or it does not have~~ $2042.0 million ofin ~~net~~cash ~~working~~and ~~capital,~~entered ~~then~~into ~~PRF may exercise~~ a ~~right to require the Company to repurchase its revenue~~ ~~interest at a purchase price that reflects a return to PRF (but is reduced by amounts previously paid to PRF)~~$42.0 million ~~PRF may also require the Company to repurchase its~~ revenue interest ~~if (1) the~~financing ~~Company~~arrangement ~~fails to make its minimum payments to them, (2) the Company sells GLIADEL® and AGGRASTAT® (~~with PRF ~~having~~pursuant ~~partial rights~~ to ~~make~~ the ~~Company~~Revenue ~~repurchase its interest in the event of the sale of one~~Agreement, ~~but not both products), (3) upon~~ the ~~occurrence~~terms of ~~a bankruptcy or similar event, or (4) upon a change of control of the Company. Regardless of the reason for~~ which ~~PRF may be entitled~~are tosummarized ~~require~~as ~~the Company to repurchase its revenue interest (in~~follows: ~~addition to the liquidity events discussed above), the repurchase amount may never exceed three and a half times PRF’s initial investment, or $147.0 million.~~

8.• ~~Related~~PRF ~~Party~~is ~~Transaction~~entitled to receive:

In connection with the sale of 34,129 shares of the Company’s common stock in February 1994 to John P. Brennan, Senior Vice President, Technical Operations, Mr. Brennan delivered to the Company a full-recourse note bearing an interest rate of 5.34% annually in the amount of $60,000. That note, as amended, was due and payable during February 2002, at which time the Company extended the payment date of the note to February 2004. In January 2004, the Compensation Committee of the Board of Directors forgave the obligation under the note, which at the time equaled approximately $94,200 of principal and interest. The forgiveness of the note was a taxable event for Mr. Brennan and Mr. Brennan is responsible for those tax obligations. The forgiveness of the note was in connection with the planned retirement of Mr. Brennan from the Company, which will be effective May 2005. Until his effective retirement date, Mr. Brennan will be transitioning his duties to his respective successors in the areas of manufacturing, logistics, facilities and employee safety and health.


	•	from October 28, 2003 through December 31, 2006 — 10% of the Company’s combined net revenue from Gliadel and Aggrastat up to $75.0 million and 2.5% of those annual net revenues in excess of $75.0 million;

	•	from January 1, 2007 through December 31, 2012 (the end of the term of the financing arrangement with PRF) — 17.5% of the Company’s combined net revenue from Gliadel and Aggrastat up to $75.0 million and 3.5% of those annual net revenues in excess of $75.0 million;

~~9. Subsequent Events~~13

Supply Agreement with Baxter Healthcare Corporation


	•	the revenue interest percentages can increase if the Company fails to meet contractually specified levels of annual net revenue from products for which PRF is entitled to receive its revenue interest; and

	•	minimum payments payable quarterly totaling $6.3 million in 2005, $7.5 million in 2006, $10.0 million per year in 2007 through 2009, and $12.5 million per year in 2010 through 2012. During the three months ended June 30, 2005 and June 30, 2004, the Company paid $1.6 million and $1.3 million, respectively, to PRF related to the minimum payments requirements, and $3.1 million and $2.5 million during the six months ended June 30, 2005 and 2004, respectively.

On• ~~July 1,~~During ~~2004,~~each year of the ~~Company~~term ~~entered~~of ~~into~~the ~~a manufacturing~~Revenue ~~and~~Agreement, ~~supply~~PRF ~~agreement~~will ~~with~~be ~~Baxter~~entitled ~~Healthcare Corporation,~~to orreceive ~~Baxter.~~a ~~Baxter~~portion ~~will~~of ~~supply~~revenue from products that the Company ~~with finished~~may ~~product~~acquire in the future or of ~~AGGRASTAT~~the Company’s product candidates AQUAVAN® inInjection ~~250~~(or mlAquavan) and ~~100~~GPI ~~ml bags~~1485, ~~through~~ ~~July~~in ~~2009.~~the ~~Under~~case that the ~~terms~~Company’s ofcalculated annual obligation(s) to make royalty payments under the ~~agreement,~~Revenue Agreement (based upon the ~~Company is~~combined ~~committed~~net torevenue ~~minimum~~from ~~purchase~~Gliadel ~~requirements~~and Aggrastat) are less than $7.6 million for 2005, ~~which~~$8.3 ~~may~~million befor ~~any combination~~2006, of$15.3 ~~250ml~~million ~~and~~for ~~100ml~~2007, ~~bags~~$15.5 million for 2008, of$15.8 75million for 2009,~~000 units~~ ~~in 2004~~$16.0 million for 2010 or $15.9 million for 2011 and ~~100~~2012,~~000 units~~ ~~each~~respectively. • PRF received five-year ~~thereafter~~warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $9.15 Ofper share. • PRF received a security interest in the assets related to Gliadel and Aggrastat. As a result of this ~~commitment~~ security interest, the Company ~~has~~may ~~already~~not ~~purchased~~be ~~approximately 59~~free to utilize those assets at its discretion,~~000 units~~ such as selling or outlicensing rights to part or all of those assets, without first obtaining the permission of PRF. This ~~agreement~~requirement ~~replaces~~could delay, hinder or condition the ~~agreement~~Company’s ability to enter into corporate partnerships or strategic alliances with ~~Merck~~ ~~whereby~~respect ~~Merck~~to ~~had~~these ~~agreed~~assets. • PRF may be entitled to ~~supply~~require the Company ~~with~~to ~~this finished~~repurchase ~~product through~~ its ~~own~~revenue ~~contract~~interest ~~manufacturing arrangement~~under ~~with~~the ~~Baxter.~~ following circumstances:

~~Common~~• ~~Stock~~if ~~Offering~~the Company fails to maintain an escrow account funded with eight quarters of minimum payments to PRF in the aggregate of $15.7 million and $13.8 million as of June 30, 2005 and December 31, 2004, respectively, or fails to maintain at least $20.0 million of net working capital; • if the Company fails to make its minimum payments to PRF; • if the Company sells Gliadel and Aggrastat (with PRF having partial rights to make the Company repurchase its interest in the event of the sale of one, but not both products);

On• ~~July 7,~~upon ~~2004,~~ the ~~Company~~occurrence ~~completed~~of a ~~public~~ ~~offering~~bankruptcy ofor ~~its~~similar ~~common~~event; ~~stock.~~or ~~The~~• ~~Company~~upon ~~raised approximately~~certain ~~$42.3 million,~~conditions ~~net~~related ofto ~~offering~~a ~~costs,~~change ~~through the issuance~~ of ~~10,000,000 shares~~control of ~~its~~the ~~common stock~~Company.

~~Item~~ The 2.repurchase ~~Management~~price guarantees PRF a return in an amount over its initial investment and is reduced based on the Company’s ~~Discussion~~prior ~~and~~payments ~~Analysis~~to ofPRF ~~Financial~~before ~~Condition~~the date that PRF’s interest is repurchased; however, the repurchase price may never exceed three and ~~Results~~one-half oftimes ~~Operations~~PRF’s initial investment, or $147.0 million.

~~This~~Revenue ~~quarterly~~interest ~~report~~expense, ~~contains~~calculated ~~forward-looking statements~~using ~~that~~the weeffective interest ~~try~~method, towas ~~identify~~$2.1 million byfor ~~using~~both ~~words~~of ~~such~~the asthree ~~“anticipate~~months ended June 30,” ~~“believe~~2005 and 2004,” ~~“expect~~and $4.2 million and $4.4 million for the six months ended June 30,” ~~“estimate”~~2005 and ~~similar~~2004, ~~expressions~~respectively. ~~While~~The ~~these~~Company utilizes an imputed ~~statements~~interest ~~reflect~~rate ~~our~~equivalent to PRF’s projected internal rate of return based on estimated future revenue interest obligation payments. Revenue interest obligation payments made to PRF reduce the future obligation.

13 Effective July 20, 2005, in connection with the merger agreement with MGI Pharma, the Company entered into a letter agreement with PRF and MGI Pharma whereby PRF agreed to sell, and on or before the consummation of the merger, MGI Pharma agreed to repurchase, PRF’s revenue interest granted under the Revenue Agreement for an agreed calculated price. In the event the merger is not consummated, the letter agreement will terminate and, should the Gliadel business be sold to MGI Pharma as provided under the line of credit agreement, PRF’s revenue interest in Gliadel will be repurchased by the Company for the same

14 ~~current plans and expectations, we cannot be sure~~ that we will be able to implement these plans successfully. These statements involve risks and uncertainties, including those described in the section entitled “Risk Factors” included in this filing. Investors should review this quarterly report in combination with these risk factors, in order to have a more complete understanding of the principal risks associated with an investment in our securities. The statements that 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. Further, these statements speak only as of the date of this document, and we do not intend to update these statements to reflect events or circumstances that occur after that date. All numbers are presented in millions unless otherwise stated.

~~Overview~~agreed calculated price. The repurchase price ranges from approximately $58.0 million to approximately $66.0 million and is dependent on when the repurchase occurs between August 1, 2005 and March 31, 2006, at which time the option to sell Gliadel to MGI Pharma expires. If the Company repurchases PRF’s revenue interest during this period, the Company would incur a non-cash loss on restructuring the revenue interest obligation ranging from approximately $14.0 million to approximately $20.0 million depending on when the repurchase occurs. See Note 11. “Subsequent Events” below for further detail.

~~We are a pharmaceutical company engaged in the research, development and commercialization of proprietary pharmaceutical products that target the hospital and neurology markets~~9. WeRelated ~~market~~Party and sell proprietary pharmaceutical products within our targeted markets, conduct clinical research to expand the labeled indications for our marketed products, and develop new product candidates. We also collaborate with other pharmaceutical companies to support the sales and marketing of our products and the clinical development of our products and product candidates. Transactions

WeIn ~~currently~~December ~~have~~2004, ~~two~~the ~~marketed~~Company ~~products: GLIADEL®~~recorded ~~Wafer~~$3.8 million ~~(“GLIADEL®”) and~~in ~~AGGRASTAT®~~unearned ~~Injection (“AGGRASTAT®”). GLIADEL®~~compensation ~~provides~~to ~~targeted,~~stockholders’ ~~site-specific~~equity ~~chemotherapy~~ for the ~~treatment~~fair value of ~~malignant glioma at~~ the ~~time~~equity ofinstruments ~~initial surgery,~~granted into ~~conjunction~~Dean ~~with~~J. ~~radiation and chemotherapy~~Mitchell, ~~and for~~ the Company’s ~~treatment~~President ofand ~~recurrent~~Chief ~~glioblastoma~~Executive ~~multiforme~~Officer. The ~~AGGRASTAT®~~Company is anamortizing ~~inhibitor~~the ofunearned ~~platelet~~compensation ~~aggregation~~expense ~~approved~~into ~~for~~operations over the ~~treatment~~service ofperiod. ~~acute~~During ~~coronary~~the ~~syndrome,~~three ormonths ~~ACS, including~~and ~~patients~~six ~~who~~months ~~are~~ended toJune 30, be2005, ~~managed~~the ~~medically~~Company ~~and~~recorded non-cash ~~those~~compensation ~~undergoing percutaneous~~expense ~~transluminal~~of ~~coronary~~$0.4 million ~~angioplasty~~and $0.9 million, ~~or PTCA~~respectively. ~~We acquired~~As ~~the~~of ~~rights~~June 30, to2005, $2.8 million ~~AGGRASTAT®~~of inunearned ~~the~~compensation ~~United~~remained ~~States~~to ~~and~~be ~~its~~amortized ~~territories~~for ~~and possessions from Merck~~Mr. &Mitchell’s ~~Co.,~~equity ~~Inc. (“Merck”)~~instrument ~~in October 2003~~grants.

~~During~~Pursuant to the ~~first~~terms ~~quarter~~ of ~~2004,~~the weCompany’s ~~began~~September ~~the~~2004 ~~marketing~~consulting ofand ~~AGGRASTAT®~~separation ~~for~~agreement with Craig R. Smith, M.D., the ~~treatment~~Company’s offormer ~~ACS.~~President, ~~Through~~Chief ~~both~~Executive ~~the~~Officer ~~expansion~~and Chairman of ~~our~~the ~~marketing~~Board, ~~efforts for~~ the ~~use~~Company ofpaid ~~AGGRASTAT®~~Dr. Smith toapproximately ~~treat~~$0.3 million ~~ACS~~ and $0.4 million ~~our~~for ~~efforts~~the tothree ~~expand~~months ~~the~~and ~~label~~six months ended ~~for~~June 30, ~~AGGRASTAT®~~2005, torespectively. ~~include~~As ~~use~~of June 30, 2005, $1.4 million in ~~percutaneous~~consulting ~~coronary~~and separation costs remained ~~intervention,~~and oris ~~PCI,~~recorded wein ~~are~~accrued ~~seeking~~payroll torelated ~~significantly~~costs ~~grow~~on the ~~revenues~~Unaudited Consolidated Balance Sheet.

~~Our~~Pursuant ~~product~~to ~~pipeline~~the ~~consists~~terms of ~~product~~the Company’s September 1995 ~~candidates~~consulting inagreement ~~various~~with ~~stages~~Solomon H. Snyder, M.D., a director, the Company paid approximately $0.1 million for consulting services for both of ~~clinical~~the three months ended June 30, 2005 and ~~preclinical~~2004, and $0.2 million and $0.1 million for the six months ended June 30, 2005 and 2004, respectively. These services included advising on the Company’s research and development: programs and on the acquisitions of new technologies and laboratory equipment and participating in business meetings.

~~AQUAVAN® Injection~~ 10. Restructuring

WeOn ~~have completed two Phase~~May II24, ~~clinical trials of AQUAVAN®~~2005, athe ~~prodrug~~Company ofannounced ~~propofol,~~a ~~for procedural~~workforce ~~sedation~~reduction ~~during~~of ~~brief~~38 ~~diagnostic or therapeutic procedures~~employees. ~~During~~ ~~the~~As ~~first~~a ~~quarter~~result of this ~~year~~reduction, ~~we met with~~ the ~~Food and~~ ~~Drug~~Company ~~Administration~~will ~~(“FDA”)~~incur ~~regarding~~approximately ~~results~~$1.3 million ~~from~~of expenses ~~those~~primarily ~~clinical~~related ~~trials~~to ~~and~~employee ~~discussed~~severance ~~plans~~and ~~for~~related ~~the~~costs ~~Phase III~~during ~~clinical~~2005, ~~program.~~of Inwhich ~~May,~~$1.0 million wewas ~~initiated~~recorded aduring ~~Phase III~~the ~~clinical~~three ~~development~~months ~~program~~ended ~~for~~June 30, ~~AQUAVAN®~~2005. ~~The~~As ~~Phase III program consists~~ of ~~four Phase~~June ~~III~~30, ~~trials~~2005, ~~studying~~a ~~AQUAVAN®~~restructuring ~~for~~reserve ~~procedural~~of ~~sedation~~$1.0 million ~~for~~is ~~use~~recorded in ~~the following~~ ~~procedures:~~accrued ~~colonoscopy,~~expenses ~~bronchoscopy, cardiac procedures~~ and ~~minor~~ ~~surgical~~other ~~procedures.~~current ~~Additionally,~~liabilities weon ~~will~~the ~~conduct a~~Unaudited ~~series~~Consolidated ofBalance ~~smaller studies for special patient populations~~Sheet.

~~GPI~~11. ~~1485~~ Subsequent Events

~~GPI~~Merger ~~1485, a lead clinical candidate in our~~Agreement neuroimmunophilin ligand program, is in Phase II clinical trials for the treatment of Parkinson’s disease and post-prostatectomy erectile dysfunction. In June 2004, we licensed to Symphony Neuro Development Corporation, or SNDC, our rights in the United States to GPI 1485 for the following four indications: Parkinson’s disease, peripheral nerve injury, including post-prostatectomy erectile dysfunction (“PPED”), HIV-related neuropathy, and HIV-related dementia. SNDC agreed to invest approximately $40.0 million to advance GPI 1485 through clinical development in these indications. Currently, the Parkinson’s disease and PPED indications are in Phase II clinical trials and the HIV-related indications are in preclinical development. In addition to the grant of the license, SNDC’s investors received

14 On July 20, 2005, the Company entered into a definitive merger agreement (or the Merger Agreement) with MGI Pharma. Pursuant to the terms of the Merger Agreement, MGI Pharma will acquire all of the Company’s outstanding shares of common stock in a taxable merger for total consideration of $3.75 per share, which consists of a fractional share of MGI Pharma’s common stock that will have a value of $2.625 (as determined over the five day trading period ending three trading days prior to closing the merger), plus $1.125 in cash. However, if the average closing price of MGI Pharma’s common stock is equal to or more than $31.71 (as determined over the five day trading period ending three trading days prior to closing the merger), each share of the Company’s common stock will be exchanged for 0.0828 of a share of MGI Pharma’s common stock, plus $1.125 in cash; if the average closing price is equal to or less than $23.43, each share of the Company’s common stock will be exchanged for 0.1120 of a share of MGI Pharma’s common stock, plus $1.125 in cash. Subject to regulatory and the Company’s stockholder approvals, and other customary closing conditions, the Company expects the merger to close in the fourth quarter of 2005. The Company has agreed to pay MGI Pharma a termination fee of $7.0 million if the Merger Agreement is terminated under certain specified circumstances.

15 ~~five-year warrants to~~ purchase 1.5 million shares of our common stock at $7.48 per share. In consideration for the warrants, we received an exclusive option from SNDC’s investors to purchase SNDC. This option was valued at $5.2 million, the corresponding value of the warrants using the Black-Scholes method, and expensed as acquired in-process research and development because the licensed technology had not reached technological feasibility and had no known alternative future uses. This option is exercisable by us at any time beginning April 1, 2005 and ending March 31, 2007, at an exercise price starting at $75.1 million in April 2005, and increasing to $119.8 million in March 2007. The option exercise price may be paid for in cash or in a combination of cash and our common stock, at the our discretion, provided that our common stock may not constitute more than 50% of the option exercise price.

InLine ~~accordance with FIN 46R, “Consolidation~~ of ~~Variable~~Credit ~~Interest Entities”, SNDC~~Agreement Holdings LLC, the parent of SNDC, is considered a variable interest entity. Under FIN 46R, we are deemed the primary beneficiary of the variable interest entity because we are most closely associated with SNDC Holdings LLC. Accordingly, we have consolidated the financial activity of SNDC Holdings LLC within our financial statements.

~~AGGRASTAT®~~On July 20, 2005, the Company entered into a line of credit ~~Injection~~agreement with MGI Pharma, pursuant to which, commencing October 1, 2005, until the earlier of December 31, 2005 or the termination of the Merger Agreement, MGI Pharma has agreed to advance the Company an aggregate amount not to exceed $18.0 million. The line of credit will bear interest at a rate equal to 14% per annum, payable in arrears on the first day of each month, commencing January 1, 2006 and unless due sooner pursuant to the terms of the line of credit agreement, the outstanding principal and interest with respect to the line of credit will be due on December 31, 2006. The line of credit is subject to a security agreement. MGI Pharma has been granted a first priority interest in the NAALADase inhibitor Compounds and PARP inhibitor Compounds and in the Aquavan intellectual property and related assets (but excluding, in each case, any collateral in which PRF has a security interest.) In addition, if the Merger Agreement is terminated without closing, the Company has a 90-day right to sell its Gliadel business to MGI Pharma for a purchase price of $90.0 million.

InLetter ~~order~~Agreement to expand the label for AGGRASTAT®, during the first half of 2004 we began preparations for a Phase III clinical program studying AGGRASTAT® administered in a high dose at the time of a percutaneous coronary intervention. In March and May 2004, we held pre-Phase III meetings with ~~the FDA to discuss our plans~~PRF ~~for this program.~~

~~Additional~~ On ~~Product~~July 20, ~~Candidates~~2005, the Company entered into a letter agreement with PRF and MGI Pharma whereby PRF agreed to sell, and on or before the consummation of the merger, MGI Pharma agreed to repurchase, PRF’s revenue interest granted under the Revenue Agreement for an agreed calculated price. In the event the merger is not consummated, the letter agreement will terminate and, should the Gliadel business be sold to MGI Pharma as provided under the line of credit agreement, PRF’s revenue interest in Gliadel will be repurchased by the Company for the same agreed calculated price. The repurchase price ranges from approximately $58.0 million to approximately $66.0 million and is dependent on when the repurchase occurs between August 1, 2005 and March 31, 2006, at which time the option to sell Gliadel to MGI Pharma expires. If the Company repurchases PRF’s revenue interest during this period, the Company would incur a non-cash loss on restructuring the revenue interest obligation ranging from approximately $14.0 million to approximately $20.0 million depending on when the repurchase occurs.

~~Registration of DOPASCAN® Injection, an imaging agent used to diagnose and monitor the progression of Parkinson’s disease, is being pursued in Japan and Finland by our corporate collaborators~~12. ~~Our~~Commitments ~~preclinical research programs include the development of NAALADase inhibitor compounds for peripheral neuropathy, prostate cancer, drug addiction~~ and ~~traumatic brain and spinal cord injury and the development of PARP inhibitor compounds for cancer chemosensitization and radiosensitization.~~ Contingencies

WeIn ~~have~~April ~~financed~~2005, ~~our~~the ~~operations~~Company ~~since~~awarded ~~inception in~~retention ~~July~~bonuses ~~1993,~~to ~~primarily~~certain employees ~~through~~of the ~~issuance~~Company who are considered important to the implementation of ~~equity~~the Company’s business strategy announced ~~securities~~in April 2005. These employees will be paid their retention bonuses if they continue their employment with the Company through December 6, ~~convertible~~2005 ~~subordinated~~or ~~notes~~April 6, ~~revenues~~2006, ~~from~~depending on the ~~sales~~ ofemployee. ~~GLIADEL®~~If ~~and~~the ~~more~~MGI ~~recently~~Pharma ~~AGGRASTAT®~~merger is consummated, the ~~funding~~retention ~~pursuant~~bonuses, tototaling ~~collaborative~~$1.8 million, consisting of both cash and ~~partnering~~grants ~~agreements~~of restricted stock units, awill be paid out ~~revenue~~on ~~interest~~an ~~obligation~~accelerated ~~with~~basis ~~Paul~~as ~~Royalty~~of ~~Fund,~~the Lmerger date.P. ~~and~~As of ~~certain~~June 30, 2005, $0.5 million of ~~its~~retention ~~affiliated~~bonus ~~entities~~expense has ~~(“PRF”)~~been recorded. Further, ~~and~~officers of the Company may be ~~proceeds~~entitled ~~from~~to ~~loans~~receive orseverance ~~other~~payments ~~borrowings.~~under ~~Any,~~the orterms ~~all,~~of their employment agreements upon termination of their employment under certain circumstances. Amounts contingently payable under these ~~financing~~arrangements ~~vehicles~~total orup ~~others~~to $6.4 million as of June 30, 2005. Additional amounts may be ~~utilized~~due to ~~fund~~these ~~our~~officers ~~future~~as ~~capital~~“gross ~~requirements~~up” payments resulting from excise taxes owed by these officers on these severance payments.

~~Results~~In addition, under the terms of ~~Operations~~the Company’s 5% convertible subordinated notes due in July —2008, upon ~~Revenue~~completion of the merger with MGI Pharma, each holder of an outstanding convertible note may require MGI Pharma to repurchase that note in cash at 100% of the principal amount, plus accrued and unpaid interest. MGI Pharma must mail a notice to each holder of a convertible subordinated note within 20 days of completing the merger. Should all holders so require, the cost of such repurchase could be up to $69.4 million in principle plus accrued and unpaid interest.

WeIn ~~recognized~~addition, ~~revenue~~the ~~for~~Company, ~~the~~from ~~three~~time to time, is involved in routine legal matters and ~~six~~contractual disputes incidental to its ~~months~~normal ~~ended~~operations. ~~June 30~~In management’s opinion, ~~2004~~there ~~and~~are ~~2003,~~no existing asmatters ~~follows:~~that are expected to have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity.

		For the Three				For the Six
		Months Ended				Months Ended
		June 30,				June 30,
		2004		2003		2004		2003
Net product revenues
	GLIADEL®	$	7.1	$	5.0	$	12.6	$	8.4
	AGGRASTAT®		3.6		—		6.9		—
Revenue from license fees, milestones and other			0.4		5.6		0.6		5.7
Total revenues		$	11.1	$	10.6	$	20.1	$	14.1

~~AGGRASTAT®~~Item ~~net product sales of $3~~2.~~6 million~~ ~~and~~Management’s ~~$6.9 million~~Discussion ~~for the three~~ and ~~six months~~Analysis ~~ended~~of ~~June 30,~~Financial ~~2004~~Condition ~~contributed to the $5.7 million~~ and ~~$11.1 million~~Results ~~increases in net product revenue period over period. All~~ of our sales of AGGRASTAT® were made directly to wholesalers. The remainder of the increase results from a $2.1 million and a $4.2 million increase in GLIADEL® net product sales for the quarter and six Operations

15 Overview

~~months ended June 30, 2004, respectively, compared to the quarter and six months ended June 30, 2003.~~ We ~~believe~~are ~~that~~a ~~the~~pharmaceutical ~~increase~~company engaged in ~~GLIADEL® sales over~~ the ~~prior~~ ~~year periods is attributable to the FDA approving expanded~~research, ~~labeling~~development ~~for~~and ~~the~~commercialization ~~product~~of onproprietary ~~February 25, 2003, to permit~~pharmaceutical ~~the~~products ~~use~~that oftarget the ~~product~~hospital atand ~~the~~neurology ~~time~~markets. ~~of initial surgery for~~We ~~malignant~~market ~~glioma,~~and asell ~~price~~proprietary ~~increase,~~pharmaceutical anproducts ~~increased~~within ~~sales force, a~~our targeted ~~marketing program~~markets, ~~use~~conduct ~~in a~~ clinical ~~trial~~research ~~and a greater international presence. During these periods, we sold GLIADEL® (i) directly~~ to aexpand ~~specialty distributor,~~the ~~(ii) directly~~labeled toindications ~~hospitals, (iii) by drop shipment to hospitals pursuant to purchase orders from wholesalers, (iv) to distributors located outside the United States~~ for ~~resale~~ byour ~~distributors~~marketed ~~in non-United States markets~~products, and ~~(v) directly~~ todevelop anew product ~~corporation for use in a clinical trial~~candidates.

InWe ~~May~~have ~~2003,~~financed weour ~~signed~~operations ansince ~~exclusive~~inception ~~license agreement~~in ~~with~~July ~~Pfizer,~~1993 through ~~Inc.~~the ~~and~~issuance ~~received~~of aequity ~~$5.0 million~~securities, convertible ~~payment~~subordinated ~~upon~~notes, ~~signing~~revenues offrom the ~~agreement.~~sales ~~Under the terms~~ of ~~the~~GLIADEL® ~~agreement,~~Wafer we(or ~~did~~Gliadel) ~~not~~and ~~have~~more ~~continuing~~recently ~~involvement~~AGGRASTAT® Injection (or ~~relating~~Aggrastat), ~~to the~~funding ~~contract~~pursuant to collaborative and ~~therefore~~partnering ~~the~~agreements, ~~payment~~a ~~was~~revenue ~~recognized~~interest asobligation with ~~“Revenue~~Paul ~~from~~Royalty ~~license fees~~Fund, ~~milestones~~L.P. and ~~other.” Pfizer~~certain ~~elected~~of toits ~~terminate~~affiliated ~~this~~entities (or ~~agreement~~PRF), ina ~~March~~sale ~~2004.~~and ~~During the~~leaseback ~~second~~transaction ~~quarter~~ of ~~2003,~~our wefacilities ~~also recorded a $0.6 million~~and ~~milestone~~proceeds ~~payment~~ from ~~Daiichi~~loans ~~Radioisotope~~or ~~Laboratories,~~other ~~Ltd~~borrowings.~~, our~~ ~~partner~~Any inor ~~Japan~~all ~~for~~of ~~DOPASCAN®~~these financing ~~Injection~~vehicles, ~~which~~or ~~related to~~others, ~~the~~may ~~filing~~be ofutilized anto ~~application~~fund ~~for regulatory approval to~~our ~~market~~future ~~the~~capital ~~product in Japan~~requirements.

~~Revenue~~ We —currently ~~GLIADEL®~~have ~~net~~two ~~product~~marketed ~~revenues~~products: Gliadel and Aggrastat. Gliadel provides targeted, site-specific chemotherapy for the treatment of malignant glioma and recurrent glioblastoma multiforme in conjunction with surgery and radiation. Aggrastat is an inhibitor of platelet aggregation approved for the treatment of acute coronary syndrome (or ACS), including patients who are to be managed medically and those undergoing percutaneous transluminal coronary angioplasty. We acquired the rights to Aggrastat in the United States and its territories and possessions from Merck & Co., Inc. (or Merck) in October 2003.

~~For~~Based ~~the~~on ~~quarter~~our ~~ended~~review ~~June 30~~of our long-term strategy, ~~2004~~on ~~and~~April 5, ~~2003~~2005, we ~~recognized~~determined ~~GLIADEL®~~that ~~net~~we should focus our activities and resources on Gliadel and our product ~~revenues~~candidate, ofAQUAVAN® ~~$7.1~~Injection ~~million~~(or Aquavan), in order to maximize their value, and ~~$5.0 million~~consequently, ~~respectively~~maximize shareholder value. We have pursued ~~recognized~~this ~~GLIADEL®~~strategy ~~net~~by ~~product~~seeking ~~revenues~~the sale of the Aggrastat intangibles ~~$12.6 million~~and other related assets and ~~$8.4 million~~liabilities ~~for~~(or the ~~six~~Aggrastat Assets) ~~months~~and have received a non-binding offer from a third ~~ended~~party. ~~June~~On July 3020, ~~2004~~2005, ~~and~~we ~~2003~~entered into a merger agreement with MGI Pharma, ~~respectively~~Inc. ~~These~~(or ~~revenues~~MGI Pharma), described below, pursuant ~~were~~to ~~sold~~which ~~through~~we expect to combine our business with theirs and under which our stockholders will receive a combination of MGI Pharma’s common stock and cash, but if the ~~following~~merger ~~channels:~~is not consummated, we will seek other strategic options, which could include seeking strategic partners, licensees, acquirers or other similar opportunities to divest our non-key assets, such as Aggrastat, which transactions would be subject to the approval of our Board of Directors. If we are unable to consummate any of these strategic alternatives, we intend to continue to sell Aggrastat, but may begin a significant sales price discount program.

		For the Three				For the Six
		Months Ended				Months Ended
		June 30,				June 30,
		2004		2003		2004		2003
Specialty distributor sales		$	5.0	$	3.9	$	8.8	$	6.6
Direct hospital sales			0.8		0.7		1.5		1.3
International sales			0.8		0.4		1.4		0.5
Other			0.5		—		0.9		—
	Total GLIADEL® net product revenues	$	7.1	$	5.0	$	12.6	$	8.4

Recent Events

~~GLIADEL®~~ Merger ~~net product revenues to customers~~Agreement within the United States were approximately $6.3 million and $4.6 million for the three-month periods ended June 30, 2004 and 2003, respectively. For the six-month periods ended June 30, 2004 and 2003, GLIADEL® net product revenues to customers within the United States were approximately $11.2 million and $7.9 million, respectively. The remaining units were sold outside the United States, including Europe and Canada, either through distributors or directly to hospitals.

~~Approximately~~On ~~$5.0~~July ~~million~~20, ~~(455 units)~~2005, we entered into a definitive merger agreement (or ~~70%~~the ~~and~~Merger $3Agreement) with MGI Pharma.~~9 million~~ ~~(365 units)~~Pursuant orto the ~~78%~~terms of ~~GLIADEL®~~ ~~treatments~~the ~~sold~~Merger ~~during~~Agreement, ~~the~~MGI ~~three-month~~Pharma ~~periods~~will acquire all ~~ended~~of ~~June 30,~~our ~~2004~~outstanding ~~and~~shares ~~2003,~~of ~~respectively,~~common ~~were~~stock ~~sold~~in toa taxable merger ~~Cardinal~~for ~~Health~~total ~~Specialty~~consideration ~~Pharmaceuticals~~of ~~Distribution~~$3.75 per share, orwhich ~~SPD,~~consists of a ~~division~~fractional share of ~~Cardinal~~MGI ~~Health~~Pharma’s ~~Inc.,~~common stock that will ~~was~~have ~~formerly~~a ~~known~~value ~~as National~~of ~~Specialty~~$2.625 ~~Services,~~(as ~~Inc.~~determined ~~For~~over the ~~six~~five ~~months ended~~day ~~June 30,~~trading ~~2004~~period ~~and~~ending ~~2003,~~three ~~approximately~~trading ~~$8.8 million (819 units)~~days orprior ~~70%~~to ~~and~~closing the merger), plus $61.~~6 million~~125 ~~(613 units) or~~in ~~79%,~~cash. ~~respectively~~However, ~~were~~if ~~sold~~the toaverage ~~SPD.~~closing price ~~SPD~~of ~~has~~MGI ~~nationwide marketing~~Pharma’s ~~and~~common ~~distribution~~stock ~~capabilities~~is ~~that~~equal ~~complement~~to ~~our~~or more than ~~sales~~$31.71 ~~and~~(as ~~marketing~~determined ~~efforts.~~over ~~Additionally,~~the ~~when~~five weday ~~make~~trading ~~sales~~period toending ~~SPD,~~three ~~they~~trading ~~are~~days ~~responsible~~prior ~~for~~to ~~shipping~~closing the ~~product~~merger), ~~that~~each ~~they~~share of ~~purchase~~our tocommon ~~hospital~~stock ~~pharmacies,~~will ~~thereby~~be ~~reducing~~exchanged ~~our~~for ~~overall distribution costs~~0.0828 ~~Without~~of ~~this~~a ~~distributor,~~share weof ~~would incur~~MGI ~~separate~~Pharma’s ~~shipping~~common ~~costs~~stock, ~~from~~plus ~~our~~$1.125 ~~logistical~~in ~~distributor~~cash; ~~for~~if ~~each~~the average ~~shipment~~closing ofprice ~~the~~is ~~product~~equal to ~~hospital~~or ~~pharmacies~~less ~~and~~than ~~other end-users~~$23.43, ~~SPD~~each ~~receives~~share aof ~~discount~~our common onstock ~~its~~will ~~purchases~~be ~~of GLIADEL®~~exchanged ~~based~~for on0.1120 ~~the~~of ~~amount~~a share of ~~capital~~MGI Pharma’s itcommon ~~has~~stock, ~~committed~~plus ~~to the~~$1.125 ~~product~~in ascash. ofSubject ~~the~~to regulatory ~~date~~and ofour ~~its~~stockholder ~~purchases~~approvals, and aother ~~discount for~~customary ~~timely~~closing ~~payment.~~conditions, Wewe ~~have~~expect the ~~ability~~merger to ~~accept~~close orin ~~reject~~the ~~purchase~~fourth ~~orders~~quarter ~~from~~of ~~SPD~~2005. atWe ~~our~~have ~~sole~~agreed ~~discretion.~~to ~~For~~pay ~~the~~MGI ~~three-~~Pharma ~~and~~a termination ~~six-month~~fee ~~periods~~of ~~ended June~~$7.0 ~~30,~~million ~~2004,~~if ~~SPD~~the ~~sold~~merger ~~456~~agreement ~~and~~is terminated ~~857 units,~~under ~~respectively,~~certain tospecified ~~hospitals and wholesalers~~circumstances.

1617

~~For~~ Line ~~the three-month periods ended June 30, 2004 and 2003, approximately $0.8 million and $0.7 million~~ of ~~GLIADEL® domestic net product~~Credit ~~revenues, respectively, resulted from sales directly to~~Agreement hospitals and by drop shipments to hospitals pursuant to purchase orders from wholesalers. For the six-month periods ended June 30, 2004 and 2003, GLIADEL® domestic net product revenues sold directly to hospitals and by drop shipments to hospitals pursuant to purchase orders from wholesalers were approximately $1.5 million and $1.3 million, respectively. Substantially all of these sales to hospitals and wholesalers included our normal payment terms, including discounts for early payment. The remaining $0.5 million and $0.9 million of GLIADEL® domestic net product revenues for the three- and six-month periods ended June 30, 2004 were sold to a corporation for use in a clinical trial.

~~For~~On ~~the~~July 20, ~~three-month~~2005, ~~periods~~we ~~ended~~entered ~~June 30, 2004~~into ~~and~~a ~~2003,~~line ~~approximately~~of ~~$0.8 million and~~credit ~~$0.4 million~~agreement ofwith ~~GLIADEL®~~MGI ~~net~~Pharma, ~~product~~pursuant ~~revenues~~to which, commencing ~~respectively~~October 1, ~~resulted~~2005, ~~from~~until ~~sales~~the toearlier ~~distributors~~of ~~outside~~December 31, 2005 ofor the ~~United~~ ~~States.~~termination ~~For~~of the ~~six-month~~Merger ~~periods~~Agreement, ~~ended~~MGI ~~June 30,~~Pharma has ~~2004~~agreed ~~and~~to ~~2003,~~advance ~~GLIADEL®~~us ~~international~~an ~~net~~aggregate ~~product~~amount ~~revenues were~~not ~~approximately~~to exceed $118.~~4 million and $~~0.5 million~~, respectively~~. ~~International~~The ~~sales~~line ~~increased~~of ~~year~~credit ~~over~~will ~~year~~bear ~~due~~interest at a rate equal to ~~active~~14% per ~~promotion~~annum, payable in ~~Europe~~arrears ~~with~~on ~~Esteve~~the first ~~and~~day ~~Link Pharmaceuticals~~of ~~Ltd~~each month, orcommencing ~~Link~~January 1, ~~under~~2006 ~~the recurrent disease~~and ~~labeling.~~unless Indue ~~May~~sooner ~~2004,~~pursuant weto ~~granted~~the ~~exclusive~~terms ~~rights~~of tothe ~~Link~~line toof credit ~~market~~agreement, ~~sell~~the ~~and~~outstanding ~~distribute~~principal ~~GLIADEL®~~and ininterest ~~Germany,~~with ~~France,~~respect ~~Benelux,~~to ~~Austria~~the ~~and~~line ~~Switzerland.~~of Wecredit ~~received~~will ~~$0.5 million upon~~be ~~signing~~due ~~the~~on ~~agreement~~December 31, ~~and~~2006. ~~may~~The line ~~receive~~of ~~additional~~credit ~~milestone payments~~is ~~totaling~~subject up to ~~$2.0 million.~~a ~~Because~~security ~~the~~ agreement ~~with~~. ~~Link~~MGI ~~contains~~Pharma has anbeen ~~element~~granted ofa ~~continuing~~first ~~involvement~~priority oninterest ~~our part,~~in the ~~$0.5 million~~NAALADase inhibitor ~~upfront~~Compounds ~~has~~and ~~been~~PARP ~~deferred~~inhibitor Compounds and ~~will~~in the beAquavan ~~recognized~~intellectual asproperty ~~revenue~~and ~~over~~related ~~the~~assets ~~involvement~~(but ~~period~~excluding, in each case, any collateral in which ~~is approximately~~PRF ~~10 years~~has a security interest.) ~~GLIADEL®~~In isaddition, ~~currently~~if ~~approved for~~the ~~use~~Merger inAgreement 13is ~~countries~~terminated without ~~outside~~closing, ofwe ~~the~~have ~~United~~a ~~States~~90-day ~~and~~right ~~Canada~~to sell our Gliadel business to ~~treat~~MGI ~~recurrent~~Pharma ~~glioblastoma~~for ~~mutliforme~~a purchase price of $90.0 million.

~~Revenue~~ Letter —Agreement ~~AGGRASTAT® net product revenues~~with PRF

~~All~~On ofJuly 20, ~~our~~2005, ~~sales~~we ofentered ~~AGGRASTAT®~~into ofa letter agreement with ~~$3.6 million~~PRF and ~~$6.9 million~~MGI ~~for~~Pharma ~~the~~whereby ~~three-~~PRF ~~and six-month~~agreed ~~periods~~to ~~ended June 30~~sell, ~~2004~~and ~~occurred~~on inor ~~the~~before ~~United~~the ~~States~~consummation ~~and~~of ~~its~~the ~~territories~~merger, ~~and~~MGI ~~were~~Pharma ~~made~~agreed ~~directly~~ to repurchase, ~~wholesalers.~~PRF’s ~~Three~~revenue ~~primary~~interest ~~wholesalers~~granted ~~accounted~~under ~~for~~the Revenue Interest ~~approximately~~Assignment ~~$3.2 million~~Agreement ~~and~~dated ~~$6.3~~October ~~million~~28, ~~net~~2003 ~~sales~~(or Revenue ofAgreement) ~~AGGRASTAT®~~ for ~~the~~an ~~quarter~~agreed ~~and~~calculated ~~six months ended June 30, 2004~~price. ~~Sales~~In ofthe ~~AGGRASTAT®~~event to the ~~wholesalers~~ ~~provide~~merger ~~for~~is ~~net~~not ~~payments~~consummated, inthe ~~31 days.~~letter Asagreement awill ~~result~~terminate and, ofshould ~~our review~~the ofGliadel ~~estimated~~business ~~AGGRASTAT®~~be ~~inventory~~sold atto ~~our~~MGI ~~wholesalers~~Pharma as atprovided ~~June 30,~~under ~~2004,~~the weline ~~determined~~of ~~that~~credit ~~there~~agreement, ~~were~~PRF’s ~~units of~~revenue ~~AGGRASTAT®~~interest atin ~~the~~Gliadel ~~wholesalers~~will inbe ~~excess~~repurchased ofby ~~current prescription~~us ~~demand~~ for the ~~quarter~~same agreed calculated price. ~~Accordingly,~~The werepurchase ~~deferred recognizing~~price ranges from approximately $058.50 million ofto ~~AGGRASTAT®~~approximately ~~revenue~~$66.0 million inand ~~the~~is ~~second~~dependent ~~quarter.~~on ~~The~~when ~~deferred~~the ~~revenue~~repurchase occurs ~~will~~between ~~be recognized~~August 1, in2005 ~~the~~and ~~third~~March 31, ~~quarter.~~2006, ~~Since~~at which time the ~~acquisition~~option ~~of AGGRASTAT®~~to insell ~~the~~Gliadel ~~fourth~~to ~~quarter~~MGI ofPharma ~~2003,~~expires. If we ~~have~~repurchase ~~increased the~~PRF’s ~~size~~revenue ofinterest ~~our~~during ~~sales~~this ~~force~~period, ~~and~~we would ~~completed~~incur a ~~training~~non-cash ~~program~~loss ~~for~~ on restructuring the ~~entire~~revenue interest ~~sales~~obligation ~~and~~ranging ~~marketing~~from ~~team~~approximately $14.0 million ~~These~~to ~~re-launch~~approximately ~~efforts focus~~$20.0 million depending on ~~increasing~~when ~~demand for~~ the ~~product~~repurchase ~~in the ACS market~~occurs.

~~Cost~~Product ~~of Sales and Gross Margin~~Pipeline

		For the Three				For the Six
		Months Ended				Months Ended
		June 30,				June 30,
		2004		2003		2004		2003
GLIADEL®		$	1.0	$	1.0	$	1.8	$	1.9
AGGRASTAT®			0.2		—		0.4		—
	Total cost of sales	$	1.2	$	1.0	$	2.2	$	1.9

Our product pipeline consists of product candidates in various stages of clinical and pre-clinical development as described below in this quarterly report.

~~GLIADEL~~ AQUAVAN® ~~cost of sales includes the cost of~~ ~~materials, labor, overhead and royalties paid to the~~Injection Massachusetts Institute of Technology pursuant to a license agreement. Gross profit percentage (net product sales less cost of sales as a percent of net product sales) for GLIADEL® for the three-month periods ended June 30, 2004 and 2003 was 86% and 79%, respectively. For the six months ended June 30, 2004 and 2003, the gross profit percentages were 86% and 77%, respectively. The gross profit percentage for the first half of 2003 was negatively impacted by approximately $0.4 million for a write off of inventory that we determined did not meet product specifications through regular quality control testing. The cost to manufacture GLIADEL® can

17 Aquavan is a proprietary water soluble prodrug of propofol. Unlike propofol, which is formulated in an oil or lipid-based emulsion, Aquavan is formulated in a clear aqueous solution and is rapidly converted by an enzyme in the body, called alkaline phosphatase, into propofol after intravenous injection.

~~vary~~Aquavan ~~materially~~is ~~with~~currently ~~production~~in ~~volume.~~Phase III Toclinical ~~the~~trials for use ~~extent~~for ~~that~~procedural ~~production~~sedation ~~levels~~during ~~increase~~brief diagnostic or ~~decrease~~therapeutic procedures. inIn support of the filing of a New Drug Application ~~future~~(or NDA) for Aquavan, we ~~anticipate~~expect ~~that~~additional ~~the~~Phase III ~~unit~~and supporting ~~cost~~Phase II studies with Aquavan to ~~manufacture~~include its use ~~GLIADEL®~~(i) in ~~may~~the ~~decrease~~intensive orcare ~~increase~~unit, ~~respectively.~~(ii) in As a study of its ~~result~~interaction with other drugs, we(iii) for ~~would~~colonoscopy procedures, and (iv) for minor surgical procedures. We expect that the ~~cost~~colonoscopy ofand ~~product~~minor ~~sales~~surgical procedures studies will be based on the results of a dose finding trial in ~~GLIADEL®,~~colonoscopy ~~and~~that ~~accordingly,~~we ~~gross~~launched ~~profit~~in ~~percentage~~July 2005. Based on our current projected timelines, we expect to ~~fluctuate~~ ~~from~~be ~~year~~able to ~~year~~file an NDA during the second half of 2006.

~~For~~ GPI ~~the three and six months ended June 30,~~1485 2004, the gross profit percentage for AGGRASTAT® was 93% and 94%, respectively. We have entered into an exclusive supply agreement with Merck for the manufacture and supply of the active pharmaceutical ingredient of AGGRASTAT® until December 31, 2014. We have also entered into a manufacturing and supply agreement with Baxter Healthcare Corporation, or Baxter, which will supply us with finished product of AGGRASTAT® in 250 ml and 100 ml bags, through July 2009. This agreement with Baxter replaced an agreement with Merck whereby Merck had agreed to supply us with finished product in bags through December 2007. Merck has agreed to supply us with finished product of AGGRASTAT® 50ml vials, through its contract manufacturer, Ben Venue, through the end of 2004. We may negotiate a direct contractual relationship with this manufacturer in the future.

~~Research~~GPI 1485, a lead clinical candidate in the neuroimmunophilin ligand program, is in Phase II clinical trials for the treatment of Parkinson’s disease and ~~Development~~post-prostatectomy erectile ~~Expenses~~dysfunction (or PPED) and in pre-clinical development for HIV related dementia and neuropathy. GPI 1485 is licensed to Symphony Neuro Development Company (or SNDC).

18 ~~Beginning in fiscal year 1999, we began recording~~ ~~research and development costs under two platforms,~~ pharmaceutical technologies and biopolymer technologies. From January 1, 1999 through June 30, 2004, we incurred, in the aggregate, costs of $117.5 million in pharmaceutical technologies, $34.5 million for its biopolymer technologies, and $89.1 million of indirect expenses. From our inception in July 1993 through December 1998, we recorded $100.4 million in direct and indirect research and development costs relating to pharmaceutical and biopolymer technologies. Our research and development projects are currently focused on pharmaceutical research and development. For our biopolymer technologies, we have chosen to pursue potential corporate partnerships or other strategic alternatives in order to further their research and development, rather than develop these projects ourselves. The following chart sets forth our projects in each of these areas and the stage to which each has been developed:

	Development
	Stage		Status
Pharmaceutical technologies:
GPI 1485 (neuroimmunophilin ligand)		Phase II		Active
AQUAVAN® Injection		Phase II/III		Active
AGGRASTAT® Injection for PCI indication		Phase III		Active
NAALADase inhibitors		Pre-clinical		Active
Other neuroimmunophilin ligands		Research		Active
Other CNS projects		Research		Active
PARP inhibitors		Research		Active
Biopolymer technologies:
PACLIMER® Microspheres (Ovarian Cancer)		Phase I/II		Inactive
PACLIMER® Microspheres (Lung Cancer)		Phase I/II		Inactive
Lidocaine-PE (formerly LIDOMERTM Microspheres)		Phase I		Inactive
Other biopolymer projects		Research		Inactive

AGGRASTAT® Injection

~~For~~On ~~each~~April 5, ~~of our research and development projects~~2005, we ~~incur~~concluded ~~both~~that ~~direct~~Aggrastat ~~and~~was ~~indirect expenses. Direct~~not ~~expenses~~essential ~~include~~to ~~salaries~~our ~~and~~long-term ~~other~~business ~~costs~~strategy. ofAs ~~personnel~~a result, ~~raw~~we ~~materials~~intend ~~and~~to ~~supplies.~~divest, Wepartner, ~~may~~license ~~also~~or ~~incur~~enter ~~third~~into ~~party~~other ~~costs~~similar ~~related~~arrangements tofor ~~these~~this ~~projects,~~product. ~~such~~As asa ~~contract research~~result, ~~consulting~~we performed ~~and~~impairment ~~clinical~~analyses ~~development~~as ~~costs.~~of ~~Indirect expenses~~March 31, ~~such~~2005 asand June 30, ~~facility~~2005, ~~and~~as ~~equipment~~described ~~costs,~~below ~~utilities,~~under ~~non-specific~~“Impairment ~~research~~of Long-lived Assets,” and ~~development~~wrote ~~management~~down ~~and~~the ~~other~~carrying ~~administrative~~value ~~overhead~~of ~~are~~the Aggrastat ~~generally~~Assets ~~allocated~~ to ~~research~~its ~~and~~fair ~~development~~value. ~~based~~As onof June 30, ~~among other things~~2005, ~~the~~we ~~extent~~received a tonon-binding ~~which~~offer ~~our~~from ~~general~~a ~~research~~third ~~and development~~party ~~efforts~~to ~~make~~acquire ~~use of facilities, non-project~~Aggrastat ~~personnel~~Assets and ~~other~~have ~~resources.~~stopped ~~Because~~all ofAggrastat ~~the~~related ~~uncertainties~~trials, including ~~involved~~TENACITY, ina ~~progressing~~multi-center, ~~through pre~~double-~~clinical~~blind, ~~and~~randomized ~~clinical~~comparison of ~~testing,~~Aggrastat and ~~the~~Abciximab ~~time~~(ReoPro®). ~~and~~If ~~cost~~we ~~involved~~are inunable ~~obtaining regulatory~~to ~~approval~~consummate ~~and~~any inof ~~establishing~~these ~~collaborative~~strategic ~~arrangements~~alternatives, ~~among~~we intend to ~~other~~continue ~~factors~~to actively sell Aggrastat, webut ~~cannot~~may ~~reasonably~~begin ~~estimate~~a ~~the~~significant sales ~~future~~price ~~expenses~~discount program. ~~and~~

18 Additional Product Candidates

~~timing~~Our ~~necessary~~other toproduct ~~complete~~candidates ~~our~~and pre-clinical research programs include DOPASCAN® Injection, an imaging agent used to diagnose and monitor the progression of Parkinson’s ~~development~~disease; ~~projects~~NAALADase orinhibitors for the ~~period~~treatment inof ~~which~~neuropathic pain ~~material~~and ~~net~~peripheral ~~cash~~neuropathy; PARP inhibitors for cancer ~~inflows~~chemo-and ~~from~~radiosensitization; ~~significant~~and ~~projects~~GPI ~~are~~15715, ~~expected~~a tonon-intravenous formulation ~~commence~~of the prodrug of propofol.

~~Our~~Results ~~research~~of ~~and development expenses were $8.9~~Operations ~~million~~— ~~and $7.4 million for the three-month~~Revenue periods ended June 30, 2004 and 2003, respectively. For the six months ended June 30, 2004 and 2003, our research and development expenses were $18.2 million and $15.2 million, respectively. These expenses were divided between our research and development platforms in the following manner:

		For the Three				For the Six
		Months Ended				Months Ended
		June 30,				June 30,
		2004		2003		2004		2003
Pharmaceutical technologies		$	6.0	$	4.8	$	12.6	$	9.3
Biopolymer technologies			0.2		0.3		0.3		0.4
Indirect expenses			2.7		2.3		5.3		5.5
	Total research and development expenses	$	8.9	$	7.4	$	18.2	$	15.2

Total revenue for the three months and six months ended June 30, 2005 and 2004 consisted of the following:

Pharmaceutical Technologies


		Three Months				Six Months
		Ended June 30,				Ended June 30,

		2005		2004		2005		2004
($ in millions)
Net product revenue:
	Gliadel	$	8.5	$	7.1	$	15.9	$	12.6
	Aggrastat		3.9		3.6		7.0		6.9

Total net product revenue			12.4		10.7		22.9		19.5
Revenue from license fees, milestones and other			0.4		0.4		0.6		0.6

Total revenue		$	12.8	$	11.1	$	23.5	$	20.1

~~Our~~For ~~pharmaceutical technology research and development expenses increased in~~ the ~~second~~three ~~quarter~~months ~~of 2004, compared to the same period in 2003, primarily due to increased spending of $1.0 million on AQUAVAN®~~ and ~~$0.8 million~~ ~~spending on AGGRASTAT®. For the~~ six months ended June 30, ~~2004~~2005, ~~AQUAVAN® spending~~ ~~increased~~the ~~$1.8 million~~increase ~~and~~in ~~PARP~~total ~~Inhibitor~~revenue ~~spending increased~~compared ~~$0.6 million~~to ~~versus~~ the ~~prior~~same ~~year.~~periods ~~Additionally,~~in ~~spending~~2004 ~~on AGGRASTAT®~~ was ~~approximately~~due ~~$1.2 million for~~to the ~~first half of 2004. The~~ increase in ~~AQUAVAN® spending~~Gliadel ~~for~~net ~~the~~product ~~quarter~~revenue. ~~and six month periods results primarily~~We ~~from~~believe ~~the~~that ~~analysis of~~ the ~~two~~increase ~~Phase II clinical trial results that were completed~~ in ~~the~~Gliadel ~~fourth~~revenue ~~quarter of 2003 and from costs associated with the planning~~ for the ~~Phase III~~three ~~clinical~~months ~~trial~~and ~~which~~six wemonths ~~will~~ended ~~begin in the second half of 2004. Spending on AGGRASTAT®~~June 30, ~~acquired~~2005 inover ~~late 2003, results from~~ the ~~preparation of the Phase III clinical trial of~~same ~~AGGRASTAT®~~periods ~~for use~~ in ~~PCI. Efforts on our PARP Inhibitors program, which was inactive in 2003, have been redirected in~~ 2004 ~~toward~~is ~~lead~~attributable ~~compound testing for possible cancer~~to: indications. The increase in spending in these programs was partially offset by decreased expenditures in our GPI 1485 program as we incurred costs in 2003 for the active pharmaceutical ingredient of which supplies have been adequate through 2004 for the ongoing Phase II trials.

~~Biopolymer~~• ~~Technologies~~a 7% list price increase in January 2005 and 7% list price increase in May 2005; • European Union regulatory approval in 2004 of expanded labeling to permit use at the time of initial surgery for malignant glioma as an adjunct to surgery and radiation; and • a lower reserve for sales returns in 2005.

~~Our~~During ~~biopolymer technology research and development expenses were consistent for~~ the three- months and six~~-month~~ ~~periods~~months ended June 30, ~~2004 as compared to the~~2005 ~~same~~and ~~period in 2003. Currently~~2004, we dosold ~~not~~Gliadel ~~plan~~primarily to ~~conduct additional~~a ~~research~~specialty ~~or clinical testing on our biopolymer technologies~~distributor. ~~Instead, we plan to pursue a corporate~~ ~~partnership,~~We ~~divestiture~~also orsold ~~similar~~Gliadel ~~strategic~~during ~~transaction~~those toperiods: ~~further develop these technologies.~~

~~Indirect~~• ~~Expenses~~directly to hospitals; • by drop shipment to hospitals pursuant to purchase orders from wholesalers; and • to distributors located outside the United States for resale in non-United States markets.

19 ~~Our indirect research and development expenses~~ ~~increased $0.4 million for the three-month period ended~~ June 30, 2004 compared to the same period in 2003, primarily as a result of increased facility related expenses with these increases partially offset by lower non-core project employee expenses. For the six-month period ended June 30, 2004, indirect research and development expenses decreased $0.2 million as a result of reduced non-core project employee expenses.

~~Selling,~~Revenue ~~General~~— ~~and~~Gliadel ~~Administrative Expenses~~ net product revenue

Our selling, general and administrative expenses were $14.4 million and $7.9 million for the three-month periods ended June 30, 2004 and 2003, respectively. For the six-months ended June 30, 2004 and 2003, our selling, general and administrative expenses were $26.2 million and $14.4 million, respectively. For the three-month period ended June 30, 2004, the costs incurred to market, sell and distribute GLIADEL® and


	Three Months						Six Months
	Ended June 30,						Ended June 30,

	2005			2004			2005			2004
($ in millions)
Specialty distributor revenue	$	6.8		$	5.0		$	12.5		$	8.8
Direct hospital revenue		0.7			0.8			1.7			1.5
International revenue		0.8			0.8			1.5			1.4
Other		0.2			0.5			0.2			0.9

Total Gliadel net product revenue	$	8.5		$	7.1		$	15.9		$	12.6

Revenue within United States	$	7.7		$	6.3		$	14.4		$	11.2
% of total Gliadel net product revenue within United States		91	%		88	%		91	%		89	%
% of total Gliadel net product revenue outside of United States*		9	%		12	%		9	%		11	%

19 * Including revenue from Europe and Canada, either through distributors or directly to hospitals.

~~AGGRASTAT®~~During ~~were~~the ~~$9.0 million~~three ~~compared to~~months ~~$3.9~~ended June ~~million~~30, ~~for~~2005 ~~the~~and ~~same~~2004, ~~period~~our specialty indistributor, ~~2003.~~Cardinal ~~Approximately $2.7 million~~Health ofSpecialty ~~the~~Pharmaceuticals Distribution ~~increase~~(or inSPD), ~~sales~~a ~~and~~division ~~marketing expenses~~of isCardinal ~~attributable~~Health toInc. an(or Cardinal), ~~increased~~sold ~~sales~~454 ~~force~~and ~~focused~~456 units, onrespectively, to ~~selling~~hospitals ~~two~~and ~~products,~~wholesalers. ~~the~~Total ~~training~~units ofwe ~~the~~sold ~~sales~~to ~~team~~SPD ~~and~~were ~~the~~449 ~~marketing~~and ~~efforts~~455 units toduring ~~launch~~the ~~AGGRASTAT®.~~three ~~Additionally~~months ended June 30, ~~medical~~2005 ~~education~~and ~~expense~~2004, ~~increased $2~~respectively.~~0 million~~ ~~quarter over~~During ~~quarter~~the assix wemonths ~~held~~ended June 30, ~~several~~2005 ~~conferences~~and in2004, ~~the~~SPD ~~second quarter~~sold of901 ~~2004~~and 857 units, respectively to ~~educate~~hospitals ~~the~~and ~~members~~wholesalers. ofTotal ~~the~~units ~~medical~~we ~~community~~sold as to SPD during the ~~benefits~~respective ofsame ~~the~~six ~~use~~months ofwere ~~GLIADEL®~~856 and ~~AGGRASTAT®~~819 units. ~~For~~SPD ~~the~~has ~~six~~nationwide ~~months~~marketing ~~ended June 30, 2004~~ and distribution ~~2003,~~capabilities ~~costs~~that ~~incurred~~complement toour ~~market,~~sales ~~sell~~ and ~~distribute~~marketing efforts. ~~GLIADEL®~~SPD ~~and~~is ~~AGGRASTAT®~~also ~~were~~responsible ~~$15.9 million~~for ~~and $6.6 million.~~shipping ~~This~~the ~~increase~~product ~~results~~that ~~primarily~~it purchases from ~~a $5.6 million~~us ~~increase~~to inhospital ~~expenses~~pharmacies, ~~related~~thereby reducing our overall distribution costs due to the ~~increased sales~~fact ~~force~~that, ~~its~~without ~~training~~SPD, ~~and~~we would ~~the~~incur ~~marketing~~separate ~~efforts~~shipping tocosts ~~launch~~from our logistical ~~the~~distributor ~~AGGRASTAT®~~for ~~product~~each ~~line~~shipment. ~~Medical~~SPD ~~education~~receives ~~expenses~~a discount on its ~~increased~~monthly ~~$2.0 million~~purchases ~~period~~of ~~over~~Gliadel ~~period~~based ason athe ~~result~~projected ofinventory in the ~~conferences~~distribution ~~held~~channel, incompared to the ~~second~~previous ~~quarter~~month’s prescription ofdemand, ~~2004~~and toalso ~~educate~~receives an additional discount ~~members~~for ofearly ~~the~~payment. ~~medical~~We ~~community~~have the ability to ~~the~~accept ~~benefits~~or ofreject ~~GLIADEL®~~purchase ~~and~~orders ~~AGGRASTAT®~~from ~~usage.~~SPD ~~Additionally,~~at ~~we incurred~~our ~~external~~sole ~~costs~~discretion based on our review of ~~approximately~~estimated ~~$1.1 million~~inventory in the distribution channel ~~related~~compared to ~~AGGRASTAT®~~current ~~commercial~~prescription ~~operations~~demand.

~~Costs~~During ~~and expenses associated with our general and administrative functions were $5.4 million and $4.0 million for~~ the three~~-month~~ ~~periods ended June 30, 2004~~ and 2003, respectively. The increase in general and administrative expenses is primarily attributable to increased legal and professional expenses of $0.4 million in connection with SEC filings and supporting activity, the implementation of expanded evaluative procedures for assessing internal controls and procedures for financial reporting mandated by the Sarbanes-Oxley Act of 2002, increased patent-related costs of $0.3 million and increased recruiting and relocation costs of approximately $0.6 million to expand the sales force and the development teams in preparation for the Phase III clinical trials of AGGRASTAT® and AQUAVAN®. For the six months ended June 30, ~~2004~~2005 and ~~2003~~ 2004, ~~costs~~Gliadel ~~incurred~~direct ~~associated~~hospital ~~with~~revenues ~~our general~~resulted ~~and~~from ~~administrative~~sales ~~function were $10.3 million and~~made ~~$7.8 million,~~directly ~~respectively.~~to ~~The~~hospitals ~~increase~~or ~~results~~drop ~~from increased~~shipments ~~legal~~to ~~and~~hospitals ~~professional~~pursuant ~~services of $0.8 million,~~to ~~increased~~purchase ~~recruiting~~orders ~~and~~from ~~relocation expenses of $0~~wholesalers.~~7 million~~ ~~and~~Substantially ~~increased~~all ~~patent-related costs~~ of ~~$0.7 million.~~ ~~Our general and administrative functions~~these ~~include~~sales ~~the areas of executive management, finance and administration, investor and public relations, corporate development, human resources, legal, intellectual property, and compliance. We include the costs~~ to ~~prepare,~~hospitals ~~file~~ and ~~prosecute domestic~~wholesalers ~~and~~included ~~international patent applications and for other activities to establish and preserve~~ our ~~intellectual~~normal ~~property~~payment ~~rights in our general and administrative expenses. For each function~~terms, weincluding ~~may~~discounts ~~incur~~for ~~direct~~early ~~expenses such as salaries, supplies, third-party consulting and other external costs~~payment. A ~~portion of indirect costs such as facilities, utilities and other administrative overhead are also allocated to selling, general and administrative expenses.~~

~~Intangible~~Revenue ~~Amortization~~— Aggrastat net product revenue

~~Intangible~~For ~~amortization~~the three months ended June 30, 2005 and 2004, Aggrastat net product revenue was $13.79 million and $03.6 million, respectively. Three principal wholesalers accounted for $3.3 million and $3.2 million in Aggrastat revenue for the three months ended June 30, ~~2004~~2005 and ~~2003~~2004, respectively. ~~For~~During the six months ended June 30, ~~2004~~ 2005 and ~~2003~~2004, ~~intangible~~Aggrastat ~~amortization~~net ~~was~~product revenue was $37.40 million and $06.49 million, respectively., ~~Intangible~~of ~~amortization~~which ~~increased~~$6.2 million ~~year~~and ~~over~~$6.3 million ~~year~~were asaccounted afor ~~result~~by the ofthree ~~the~~principal ~~AGGRASTAT®~~wholesalers, respectively. All of our Aggrastat net product ~~rights~~revenue ~~acquisition~~arose from direct sales to wholesalers in the ~~fourth~~United ~~quarter~~States ofand ~~2003~~its territories.

20 ~~Other Income and Expense~~

~~Other~~Cost ~~income and expense consists primarily~~ of ~~income~~ onSales ~~our investments~~ and ~~interest~~Gross ~~expense on our debt and~~Margin other financial obligations. Our investment income was $0.4 million and $0.9 million for the three-month periods ended June 30, 2004, and 2003, respectively. Our investment income was $0.9 million and $1.8 million for the six-month periods ended June 30, 2004, and 2003, respectively The decrease in investment income in the second quarter and first half of 2004 compared to the same periods in 2003 was primarily due to both lower interest rates and investment balances maintained during those periods.

We incurred revenue interest expense of $2.1 million and $4.4 million related to the PRF revenue interest obligation for the three- and six-month periods ended June 30, 2004. Revenue interest expense was calculated using the effective interest method. We utilized an imputed interest rate equivalent to PRF’s projected internal rate of return based on estimated future revenue interest obligation payments. We periodically review the estimated future revenues and make adjustments as necessary.


		Three Months						Six Months
		Ended June 30,						Ended June 30,

		2005			2004			2005			2004
($ in millions)
Cost of sales:
	Gliadel*	$	0.6		$	1.0		$	1.3		$	1.8
	Aggrastat		0.3			0.2			0.5			0.4

	Total cost of sales	$	0.9		$	1.2		$	1.8		$	2.2

Cost of sales as % to net product revenue:
	Gliadel*		7	%		14	%		8	%		14	%
	Aggrastat		8	%		7	%		8	%		6	%

	Total cost of sales as % to net product revenue		7	%		11	%		8	%		11	%

Total gross margin as % to net product revenue			93	%		89	%		92	%		89	%

20 * Gliadel cost of sales includes the cost of materials, labor, overhead and royalties paid to Massachusetts Institute of Technology (or MIT) pursuant to a license agreement.

WeThe ~~incurred~~unit ~~interest~~cost ~~expense~~to ofmanufacture ~~$1.4 million and~~Gliadel ~~$0.3 million~~can ~~for~~vary ~~the~~inversely ~~three-month periods ended~~with ~~June 30,~~production ~~2004 and 2003, respectively~~volume. ~~For~~To the ~~six-months ended~~extent ~~June 30,~~that ~~2004~~production ~~and~~levels materially ~~2003,~~increase weor ~~incurred~~decrease ~~interest~~in ~~expense of~~the ~~$2.7 million and $0.5 million~~future, ~~respectively.~~we ~~The~~anticipate ~~increase~~that inthe ~~interest~~unit ~~expense~~cost into ~~2004~~manufacture asGliadel ~~compared~~will ~~to 2003 is~~respectively ~~primarily~~decrease ~~due~~or ~~to the $69~~increase.~~4 million~~ ~~5% convertible notes~~In ~~offering and~~ the ~~$18.8 million~~event ~~term~~of ~~loan~~such ~~arrangement with~~a ~~Wachovia~~material ~~Bank,~~change ~~National~~in production ~~Association~~levels, ~~both~~we ofwould ~~which~~expect ~~occurred in~~ the ~~second~~cost ~~quarter~~ of ~~2003.~~sales ~~Interest~~of ~~expense~~Gliadel, and inaccordingly, ~~2004~~gross ~~includes amortization~~profit ~~related~~percentage, to ~~the~~fluctuate ~~deferred financing costs of the~~from ~~foregoing~~quarter ~~transactions~~to quarter.

~~Liquidity~~We have entered into an exclusive supply agreement with Merck for the manufacture and ~~Capital~~supply ~~Resources~~of the active pharmaceutical ingredient of Aggrastat until December 31, 2014. In the second quarter of 2004, we also entered into a manufacturing and supply agreement with Baxter Healthcare Corporation (or Baxter) to supply us with finished product of Aggrastat in 250 ml and 100 ml bags, through July 2009. This agreement with Baxter replaced an agreement with Merck whereby Merck had agreed to supply us with finished product in bags through December 2007. Depending on whether we divest Aggrastat, we may need to record a loss for Aggrastat inventory that we are required to purchase from Baxter.

~~Our~~Research ~~primary cash requirements are (i) to fund our research~~ and ~~development~~Development ~~programs, (ii) to support~~Expenses our sales and marketing efforts, (iii) to obtain regulatory approvals, (iv) to prosecute, defend and enforce any patent claims and other intellectual property rights, (v) to fund general corporate overhead, and (vi) to support our debt service requirements and contractual obligations. We have financed our operations since inception primarily through the issuance of equity securities, convertible subordinated notes, revenues from the sales of GLIADEL® and more recently AGGRASTAT®, funding pursuant to collaborative agreements, a revenue interest obligation with Paul Royalty Fund, L.P. and certain of its affiliated entities, and proceeds from loans or other borrowings. In evaluating alternative sources of financing we consider, among other things, the dilutive impact, if any, on our stockholders, the ability to leverage stockholder returns through debt financing, the particular terms and conditions of each alternative financing arrangement and our ability to service our obligations under such financing arrangements.

In ~~July 2004~~1999, we ~~completed~~began arecording ~~public~~research ~~offering~~and ofdevelopment costs under ~~our~~two ~~common~~platforms, ~~stock~~pharmaceutical technologies and biopolymer technologies. WeFrom ~~raised~~January 1, ~~approximately~~1999, ~~$42.3~~through June ~~million~~30, ~~net~~2005, ofwe ~~offering costs~~incurred, ~~through~~in the ~~issuance~~aggregate, costs of ~~10,000,000~~$166.4 ~~shares~~million offor our ~~common~~pharmaceutical ~~stock~~technologies platform, $35.4 million ~~Proceeds~~for ~~from~~our ~~the~~biopolymer technologies ~~sale~~platform, ~~will~~and be$100.4 million ~~used~~of toindirect ~~fund~~expenses. ~~clinical~~From ~~trials~~our inception ~~for~~in ~~AQUAVAN®~~July ~~and AGGRASTAT®~~1993 through December 1998, ~~further~~we ~~development~~recorded $100.4 million ofin ~~our~~direct ~~preclinical~~and ~~product candidates~~indirect research and development ~~for~~costs ~~general~~relating ~~corporate~~to ~~purposes~~pharmaceutical and biopolymer technologies.

InOur ~~June~~research 2004, we licensed to SNDC, a newly formed Delaware corporation, our rights in the United States to GPI 1485, a novel compound based on our neuroimmunophilin ligand technology, for the following four indications: Parkinson’s disease, peripheral nerve injury, including post-prostatectomy erectile dysfunction (“PPED”), HIV-related neuropathy, and ~~HIV-related dementia. SNDC agreed to invest approximately $40.0 million to advance GPI 1485 through clinical~~ development inprojects ~~these indications. Currently, the Parkinson’s disease and PPED indications~~ are ~~in Phase II~~currently ~~clinical~~focused ~~trials and the HIV-related indications~~on ~~are~~pharmaceutical ~~in preclinical development~~technologies. InFor ~~addition to the grant of the license, SNDC’s investors received five-year warrants to purchase 1.5 million shares of~~ our ~~common~~biopolymer ~~stock at $7.48 per share. In consideration for granting the license and the warrants~~technologies, we ~~received an exclusive option from~~ ~~SNDC’s~~plan ~~investors~~ to ~~purchase~~pursue ~~SNDC.~~potential ~~This~~corporate ~~option is exercisable by us at any time beginning April 1~~partnerships, ~~2005~~divestitures ~~and~~or ~~ending~~similar ~~March 31,~~strategic ~~2007,~~alternatives ~~at an exercise price starting at $75.1 million in April 2005 and increasing~~ to ~~$119.8 million~~ infurther ~~March~~their ~~2007.~~research ~~The option exercise price may be paid for in cash or in a combination of cash~~ and ~~our common~~ ~~stock~~development, atrather ~~our discretion, provided that our common stock may not constitute more~~ than ~~50%~~develop ofthese ~~the~~projects ~~option exercise price~~ourselves. The

21 ~~Our cash, cash equivalents and investments~~ ~~(restricted and unrestricted) were $74.1 million at~~ June 30, 2004. Of this amount, $20.4 million is restricted as collateral for certain of our loans and other financial lease obligations. The $27.8 million decrease in cash, cash equivalents and investments from $101.9 million at December 31, 2003 resulted primarily from our operating activities.

~~Operating~~ following ~~Activities~~chart sets forth our projects in the pharmaceutical and biopolymer technology areas and the stage to which each has been developed:

Cash used in operating activities was $28.2 million and $18.7 million for the six-month periods ending June 30, 2004 and 2003, respectively. The net cash used in operating activities is substantially the result of our operating loss. Depreciation and amortization increased over the prior year primarily as a result of the purchase price amortization associated with the AGGRASTAT® purchase in October of 2003 ($3.0 million), the amortization of various deferred financing costs incurred during 2003 ($0.5 million). We also now record non-cash imputed revenue interest expense associated with the revenue interest obligation used to finance our AGGRASTAT® purchase. Net changes in assets and liabilities used cash of $0.2 million in 2004. At June 30, 2004, net accounts receivable increased by approximately $0.6 million from December 31, 2003. The increase


	Development Stage	Status

Pharmaceutical technologies:
Aquavan	Phase III		Active
GPI 1485 (neuroimmunophilin ligand)	Phase II		Active
GPI 15715 (non-IV)	Phase I		Active
NAALADase inhibitors	Phase I/ Pre-clinical		Active
PARP inhibitors	Pre-clinical		Active
Other neuroimmunophilin ligands	Research		Active
Other research projects	Research		Active
Aggrastat for percutaneous coronary intervention (or PCI)	Phase III		Inactive
Biopolymer technologies:
PACLIMER® Microspheres (Ovarian Cancer)	Phase I/ II		Inactive
PACLIMER® Microspheres (Lung Cancer)	Phase I/ II		Inactive
Lidocaine-PE (formerly LIDOMER^tmMicrospheres)	Phase I		Inactive
Other biopolymer projects	Research		Inactive

21 As stated above, on April 5, 2005, we concluded that Aggrastat was not essential to our long-term business strategy and identified Gliadel and Aquavan as key assets on which to focus our future efforts. Consequently, we are pursuing other strategic alternatives for Aggrastat and other non-key assets. As of June 30, 2005, we stopped all Aggrastat related trials, including TENACITY.

inFor ~~accounts~~each ~~receivable~~of ~~results~~our ~~from~~research ~~the~~and ~~timing~~development ~~of sales~~projects, ~~and~~we ~~the~~incur ~~subsequent~~both direct ~~cash~~and ~~receipt~~indirect ~~thereof~~expenses. OfDirect ~~the $4.1 million~~expenses ~~net~~include ~~account receivable balance at~~salaries ~~June 30,~~and ~~2004,~~other ~~78%~~costs of ~~the~~personnel, ~~balance~~raw ismaterials ~~due~~and ~~from~~supplies. ~~both~~We ~~SPD for~~may ~~GLIADEL®~~also ~~and~~incur ~~our~~third-party ~~three~~costs ~~primary~~related ~~wholesalers~~to ~~for AGGRASTAT®. SPD and~~ these ~~wholesalers~~projects, ~~traditionally~~such ~~pay~~as ~~receivables~~contract ~~within 31 days. Inventory increased $1.0 million from December 31~~research, ~~2003~~consulting ~~due~~and toclinical ~~purchase~~development costs. ~~commitments~~Indirect ~~made~~expenses, tosuch ~~Merck~~ as ~~part~~facility ofand ~~the~~equipment ~~AGGRASTAT®~~costs, ~~acquisition.~~utilities, ~~Prepaid~~general ~~expenses~~research ~~fluctuate~~and ~~period-to-period depending~~development onmanagement ~~the timing of preparation~~ and ~~initiation of~~other ~~clinical~~administrative ~~trials.~~overhead We are ~~often~~allocated ~~required~~ to ~~prepay~~research ~~contract~~and ~~research~~development ~~organizations~~generally ~~for~~based ~~services~~on, ~~prior~~among toother things, the ~~initiation of~~extent ~~work~~to ~~performed.~~which ~~Accounts~~our ~~payable~~general research and ~~other~~development ~~liabilities~~efforts ~~increased~~make use ~~$1.1 million~~of ~~primarily~~facilities, ~~due~~non-project ~~deferred~~personnel ~~revenue~~and ~~related~~other toresources. ~~AGGRASTAT®~~Because ~~product~~of ~~sales~~the ~~which~~uncertainties ~~will~~involved ~~be recognized~~ in ~~the~~progressing through ~~third~~pre-clinical ~~quarter~~ and ~~the~~clinical ~~deferral~~testing, ofand the ~~Link~~time ~~milestone~~and ~~payment~~cost ~~which~~involved ~~will~~in beobtaining ~~recognized~~regulatory approval and in ~~future~~establishing collaborative ~~periods.~~arrangements, ~~Fluctuations~~among ~~in operating~~other ~~items~~factors, ~~will~~we ~~vary~~cannot reasonably ~~period~~estimate tothe ~~period~~future ~~due~~expenses ~~to,~~and ~~among~~timing ~~others,~~necessary to ~~timing~~complete ofour ~~sales~~research and ~~the~~development ~~subsequent~~projects, ~~cash~~or ~~receipts~~reasonably estimate ~~thereof,~~the ~~and research~~period ~~and~~in ~~development~~which ~~activities~~material ~~such~~net ascash ~~clinical~~inflows ~~trial~~from ~~preparation~~significant ~~and~~projects ~~initiations~~are expected to commence.

~~Investing~~ Our research and ~~Financing~~development ~~Activities~~expenses for the three months and six months ended June 30, 2005 and 2004 were incurred among our research and development platforms and projects in the following manner:

Our total long-term debt, excluding the revenue interest obligation, decreased $1.4 million to $90.9 million at June 30, 2004, compared to $92.3 million at December 31, 2003. For the period, we entered into capital lease obligations of $0.8 million and made principal repayments of $2.2 million. Our revenue interest obligation was $43.7 million at June 30, 2004 compared to $42.2 million at December 31, 2003.


		Three Months				Six Months
		Ended June 30,				Ended June 30,

		2005		2004		2005		2004
($ in millions)
Research and development expenses:
Pharmaceutical technologies		$	13.7	$	6.0	$	26.6	$	12.6
Biopolymer technologies			0.2		0.2		0.4		0.3
Indirect expenses			3.0		2.7		5.9		5.3

	Total research and development expenses	$	16.9	$	8.9	$	32.9	$	18.2

22 ~~In December 2003, we completed a private~~ ~~placement of 4.8 million shares of our common stock at a~~ price of $5.67 per share and received net proceeds of approximately $25.8 million. In conjunction with this transaction, the investors received seven-year warrants to purchase 1.0 million shares of our common stock at an exercise price of $7.55 per share. The proceeds of the financing will be used primarily to undertake a Phase III clinical trial to establish a percutaneous coronary intervention, or PCI, label for AGGRASTAT®.

OnPharmaceutical October 28, 2003, we acquired the rights to AGGRASTAT® from Merck and Co., Inc., or Merck, in the United States and its territories, for a purchase price of $84.0 million, plus a royalty based on net sales of AGGRASTAT®. From the closing until December 31, 2006, we will not pay royalties on annual net sales less than $40.0 million. On annual net sales above $40.0 million prior to December 31, 2006, and beginning on January 1, 2007, on all sales of AGGRASTAT®, we will pay royalties ranging from 5% to 20% of AGGRASTAT® net sales, based upon our achievement of certain net sales thresholds. In connection with the acquisition of AGGRASTAT®, we entered into an agreement with Merck, to supply us with our requirements of the active pharmaceutical ingredient of AGGRASTAT® through 2014. Technologies

InFor ~~order to finance~~ the ~~acquisition,~~three wemonths ~~used $42.0 million~~ended ~~of working capital and entered into a $42.0~~June ~~million revenue interest financing arrangement with Paul Royalty Fund~~30, ~~L.P. and Paul Royalty Fund II Holdings~~2005, ~~L.P.,~~ ~~or PRF, pursuant to a revenue interest assignment agreement (the Revenue Agreement). Under~~ our ~~arrangement with~~ ~~PRF,~~pharmaceutical ~~from~~technologies’ ~~October 28,~~research ~~2003, through December 31, 2006, PRF is entitled to receive 10% of our GLIADEL®~~ and ~~AGGRASTAT®~~ ~~annual net sales as defined in the agreement up~~development toexpenses ~~$75.0 million,~~increased ~~and~~by ~~2.5% of those annual net sales in excess of~~ $757.07 million, ~~and~~compared ~~from~~to ~~January 1, 2007, through December 31, 2012 (~~the ~~end of the term of the~~same ~~financing~~period ~~arrangement with PRF), these percentages are 17.5% and 3.5%, respectively. If GLIADEL® and AGGRASTAT® net sales are less than $48.3 million, $60.2 million, or $80.6 million~~ in 2004, ~~2005,~~primarily ~~and~~due 2006, respectively, then PRF will receive the higher of the minimum payments for such years described below or 12.5% of combined GLIADEL® and AGGRASTAT® net sales. If combined GLIADEL® and AGGRASTAT® annual net sales are less than $75.0 million in any of 2007 through 2012, then PRF will receive the higher of the minimum payments for such years described below, or 22.5% of combined GLIADEL® and AGGRASTAT® net sales. During each year of the term of the arrangement with PRF, PRF will be entitled to ~~receive~~increased aspending ~~portion~~ of ~~revenues from products that we may acquire in the future, or~~: of AQUAVAN® Injection and GPI 1485 (each product candidates of the Company), in the case that our calculated annual obligation(s) to make royalty payments under the Revenue Agreement (based upon the combined net sales of GLIADEL® and AGGRASTAT®) are less than $6.4 million for 2004, $7.6 million for 2005, $8.3 million for 2006, $15.3 million for 2007, $15.5 million for 2008, $15.8 million for

22 • $4.5 million on Aquavan primarily as a result of costs incurred for the initiation of the Phase III clinical trial which we began in the third quarter of 2004; • $1.7 million for the preparation and initiation of the Phase III clinical trials of Aggrastat for use in PCI; and • $1.6 million for the GPI 1485 program primarily due to increased payroll expenses and contract clinical research expenses as SNDC continues the Phase II clinical trial for Parkinson’s disease.

~~2009,~~For ~~$16.0 million~~the ~~for~~six ~~2010~~months ~~or $15.9 million~~ended ~~for 2011 and 2012, respectively. We will pay PRF minimum royalties of $5.0~~June ~~million in 2004~~30, ~~$6.3 million~~ in 2005, ~~$7.5 million~~our ~~in 2006,~~pharmaceutical ~~$10.0 million~~technologies’ inresearch ~~each~~and ofdevelopment ~~2007-2009~~expenses ~~and~~increased by $1214.50 million in ~~each~~compared ~~of 2010-2012. PRF is also entitled~~ to ~~receive portions of amounts payable to us on~~ the ~~resolution~~same ofperiod ~~future intellectual property disputes involving GLIADEL® and AGGRASTAT® and on the divestiture, if any, of ex-North American marketing rights to GLIADEL®. In addition to its revenue interest~~ in ~~our products or future products~~2004, ~~as the case~~ ~~may~~primarily ~~be,~~due ~~PRF received five-year warrants~~ to ~~purchase 300,000 shares~~ ofincreased ~~our~~spending ~~common stock at an exercise price~~ of ~~$9.15 per share.~~:

As• ~~part~~$8.5 ofmillion ~~our~~on ~~financing~~Aquavan ~~arrangement~~primarily ~~with~~as ~~PRF, PRF~~a ~~has~~result ~~been~~of ~~granted~~costs aincurred ~~security~~for ~~interest~~the ininitiation of the ~~assets~~Phase ~~related to~~III ~~GLIADEL®~~clinical ~~and~~trial ~~AGGRASTAT®.~~which Aswe abegan ~~result~~in ofthe ~~this security~~third ~~interest,~~quarter weof ~~may~~2004; ~~not~~• be$3.5 ~~free~~million tofor ~~utilize~~the ~~those~~preparation ~~assets~~and ~~at our~~initiation ~~discretion,~~of ~~such~~the asPhase ~~selling~~III orclinical ~~licensing~~trials ~~rights~~of toAggrastat ~~part~~for ~~or all~~use ofin ~~those~~PCI; ~~assets,~~and ~~without~~• ~~first~~$2.1 ~~obtaining~~million for the ~~permission~~GPI ~~of PRF.~~1485 ~~This~~program ~~requirement~~primarily ~~could~~due ~~delay,~~to ~~hinder~~payroll orexpenses ~~condition~~and ~~our ability~~contract toclinical ~~enter~~research ~~into~~expenses ~~corporate~~as ~~partnerships~~SNDC orcontinues ~~strategic alliances~~the ~~with~~Phase ~~respect~~II toclinical ~~these~~trial ~~assets~~for Parkinson’s disease.

~~Also~~Based inon ~~connection with~~ our ~~arrangement~~recently ~~with~~announced ~~PRF, we~~new ~~have~~strategic ~~agreed to set aside cash and cash equivalents~~focus, ~~such~~we asintend ~~marketable securities in the amount of $12.6 million (such amount representing the next eight quarters of minimum payments~~ to ~~PRF)~~pursue asother ~~additional~~strategic ~~evidence~~alternatives offor ~~our~~Aggrastat, ~~liquidity. We may maintain~~including ~~this account at our discretion; however~~divesting, ~~if we do not maintain this account~~partnering, welicensing ~~will~~or beentering ~~required~~into toother ~~maintain at least~~similar ~~$20.0 million~~types of ~~net~~arrangements ~~working~~for ~~capital~~this ~~during the term of the agreement~~product. IfAs ~~we do not maintain the account or we do not have $20.0 million~~ of ~~net working capital~~June 30, ~~then PRF may exercise~~ a right to require us to repurchase its revenue interest at a purchase price that reflects a return to PRF on its investment (but is reduced by amounts previously paid to PRF). PRF may also require us to repurchase its revenue interest if (1) we fail to make our minimum payments to them2005, ~~(2)~~ we ~~sell GLIADEL®~~stopped ~~and~~all ~~AGGRASTAT®~~Aggrastat ~~(with~~related ~~PRF having partial rights to make us repurchase its interest in the event of the sale of one~~trials, ~~but not both products), (3) upon the~~including ~~occurrence of a bankruptcy or similar event, or (4) upon a change of control of us~~TENACITY. ~~Regardless of the reason for which PRF~~ may be entitled to require us to repurchase its revenue interest (in addition to the liquidity events discussed above), the repurchase amount may never exceed three and a half times PRF’s initial investment, or $147.0 million.

OnBiopolymer June 17, 2003, we issued $60.0 million (principal amount at maturity) of convertible subordinated notes (Notes) due July 1, 2008. Interest on the Notes accrues at 5% per annum and is payable semi-annually on January 1 and July 1 of each year, commencing on January 1, 2004. The sale of these Notes resulted in our receiving net proceeds of approximately $51.9 million, after taking into account stock repurchases made in connection with the offering and various transaction expenses. The Notes are convertible at the option of the holder at any time prior to maturity into shares of our common stock at a conversion price of $6.24 per share. We have the option to redeem the Notes on or after July 6, 2006, but prior to July 6, 2007, for 102.00% of the principal amount. If we elected to redeem the Notes on or after July 6, 2007, until the maturity date, the redemption price would be 101.00% of the principal amount. The agreement with the initial purchasers of the Notes granted them an option, until July 26, 2003, to purchase up to an additional $20.0 million of Notes. On July 30, 2003, the initial purchasers exercised this option in part, and purchased an additional $9.4 million of Notes, resulting in additional net proceeds of approximately $9.0 million. Technologies

OnFor ~~May~~the three months ended June 730, ~~2003~~2005 and 2004, weour biopolymer ~~entered~~technologies’ ~~into~~research aand ~~5-year~~development expenses were $180.82 million ~~term~~and ~~loan~~$0.2 million, ~~agreement~~respectively. ~~with~~For the ~~Wachovia~~six ~~Bank~~months ended June 30, 2005 and 2004, our biopolymer ~~National~~technologies’ ~~Association.~~research ~~With~~and ~~the~~development ~~proceeds~~expenses ofwere $0.4 million ~~this~~and ~~loan~~$0.3 million, respectively. Currently, we do not plan on conducting additional research or ~~acquired~~clinical testing on our ~~dedicated~~biopolymer ~~research~~technologies. ~~and~~Instead, ~~development~~we plan ~~facility~~to pursue a corporate partnership, ~~land~~divestiture or similar ~~and~~strategic ~~building~~transaction to further develop these technologies. AsTo that ~~part~~end, ofin ~~the~~September ~~agreement~~2004, we ~~have~~entered ~~effectively~~into licensing ~~fixed~~agreements ~~interest~~with ~~expense~~MIT, onJohns ~~this~~Hopkins ~~indebtedness~~University at(or ~~5.36%.~~JHU) ~~The~~and ~~agreement~~Angiodevice ~~requires~~International ~~monthly~~GmbH ~~principal~~(or ~~payments~~Angiotech), which ~~during the~~terminated ~~five-year~~one ~~term~~existing ~~will~~license beagreement ~~approximately~~we ~~$940,000 per~~had ~~year.~~with ~~The~~MIT and JHU, thereby ~~unpaid~~allowing ~~principal~~Angiotech ~~balance~~to ofobtain ~~the~~an ~~loan~~exclusive islicense ~~due~~to certain rights in ~~5 years.~~two patents we had previously licensed from the MIT ~~Under~~and JHU. Concurrently with the ~~terms~~execution of ~~the~~our ~~loan~~agreement with Angiotech, we ~~are~~also ~~required~~entered tointo ~~establish~~an aexclusive license agreement ~~restricted~~with ~~cash~~each ~~collateral~~of ~~account~~MIT inand ~~the~~JHU ~~amount~~granting ofus ~~the~~certain ~~unpaid~~rights to develop ~~principal~~polilactofate ~~balance~~and ofpaclitaxel ~~the~~based ~~loan~~products (~~$17~~e.~~8 million at June 30~~g., PACLIMER® ~~2004~~Microspheres). for certain indications in oncology and women’s health under the two patents licensed to Angiotech.

InIndirect May 2002, we borrowed $3.0 million from a commercial bank, in order to repay a note payable to Cardinal Health Sales and Marketing Services. This indebtedness is payable in four equal annual installments of principal beginning April 30, 2003, with the final payment due on April 30, 2006. In May 2003, we entered into an interest rate swap agreement effectively fixing the interest rate of this debt at 2.78%. Interest payments are due quarterly. In connection with this indebtedness, we are required to maintain with the commercial Expenses

23 For the three months and six months ended June 30, 2005, our indirect research and development expenses increased by $0.3 million and $0.6 million, respectively, compared to the same periods in 2004, primarily from an increase in research and development facility rent expense as a result of the December 2004 sale and leaseback of our research and development facility, and increase in payroll expenses due to retention bonuses for certain employees deemed important to the implementation of our new business strategy announced in April 2005.

23 ~~bank, restricted cash, in the amount of the~~ ~~unpaid principal balance of this indebtedness ($1.5 million~~ ~~at June 30, 2004).~~

~~We have an agreement with SPD~~Selling, toGeneral ~~whom~~and weAdministrative ~~sell~~Expenses GLIADEL®, that permits either us or SPD to terminate the agreement upon 60 days prior written notice. Under the terms of our agreement with SPD, if the agreement is terminated, we have an obligation to repurchase any remaining treatments of GLIADEL® that it may have in its inventory. As of June 30, 2004, we believe that SPD had approximately $1.7 million of GLIADEL® in its inventory.

Future Cash Needs


		Three Months				Six Months
		Ended June 30,				Ended June 30,

		2005		2004		2005		2004
($ in millions)
Selling, general and administrative expenses:
	Marketing, selling and distribution	$	8.2	$	9.0	$	16.8	$	15.9
	General and administrative		6.5		5.4		12.8		10.3

Total selling, general and administrative expenses		$	14.7	$	14.4	$	29.6	$	26.2

~~Historically~~Marketing, weselling ~~have financed our operations primarily through the issuance of equity securities, revenue from the sale of GLIADEL®, funding pursuant to collaborative agreements~~ and proceeds from loans and other borrowings, and during the second and third quarters of 2003, the issuance of convertible debt securities. During the fourth quarter of 2003, we financed the acquisition of AGGRASTAT® through a revenue interest financing arrangement. Our future capital requirements and liquidity will depend on many factors, including but not limited to, revenues from the sale of GLIADEL® and AGGRASTAT®, progress of our research and development programs, progress of pre-clinical and clinical testing, time and cost involved in obtaining regulatory approval, the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, changes in our existing research relationships, competing technological and marketing developments, our ability to establish collaborative arrangements and to enter into licensing agreements and contractual arrangements with others, conversion of long-term convertible notes, the costs of servicing debt, the costs of product in-licensing, and substantial future expenditures we expect to make to increase sales of AGGRASTAT®. We do not know and cannot reasonably estimate when we may incur significant future expenses or the period in which material net cash flows from significant projects are expected to commence because of, among other factors, the risks and uncertainties involved in: distribution

• For ~~The~~the ~~amount~~three ofmonths ~~our~~ended ~~sales~~June 30, of2005, ~~GLIADEL®;~~the •costs incurred ~~The~~to ~~amount~~market, ofsell ~~our~~and ~~sales~~distribute ofGliadel ~~AGGRASTAT®;~~and •Aggrastat decreased ~~The~~by ~~outcomes~~$0.8 million ~~and~~compared ~~costs~~to the same period in 2004, principally from a decrease of ~~pre-clinical~~$1.7 million ~~testing~~in medical ~~and~~education ~~clinical~~expenses ~~trials~~incurred ~~and~~in ~~the~~2004 ~~time~~in ~~when~~connection ~~those~~with conferences ~~outcomes~~held ~~will~~to beeducate ~~determined;~~members •of ~~Obtaining~~the ~~future~~medical ~~corporate~~community ~~partnerships;~~as to •the ~~The~~benefits ~~time~~of ~~and~~the ~~expense~~use of ~~obtaining~~Aggrastat. ~~regulatory~~The ~~approval;~~foregoing •decrease was ~~Competing~~offset ~~products~~by ~~potentially~~an ~~coming~~increase of $0.8 million in sales commission due to ~~market;~~a ~~and~~restructured •commission ~~Obtaining~~schedule ~~protection~~with higher commission rates and ~~freedom~~retention bonuses for certain sales employees deemed important to ~~operate~~the ~~for~~implementation of our ~~patented~~new business ~~technologies~~strategy announced in April 2005.

WeFor ~~believe~~the ~~that~~six ~~our~~months ~~existing~~ended ~~resources~~June 30, ~~will~~2005, ~~be sufficient~~the costs incurred to ~~service~~market, ~~our~~sell ~~existing debt obligations~~ and ~~meet~~distribute ~~our capital~~Gliadel ~~expenditure~~ and ~~working~~Aggrastat ~~capital requirements for the~~increased ~~next~~by ~~twelve months~~$0.9 million ~~Regardless,~~compared ~~we expect~~ to ~~raise additional capital in~~ the ~~future~~same period in ~~order to achieve our future business objectives~~2004, ~~which include clinical and pre-clinical development~~ ~~activities~~principally ~~for our product candidates, such as~~from:

• ~~AGGRASTAT®~~an ~~PCI;~~increase •of ~~AQUAVAN®~~$1.0 ~~Injection;~~million •in ~~GPI~~sales ~~1485~~commission ~~(our~~due ~~lead~~to ~~neuroimmunophilin~~a ~~ligand);~~restructured •commission ~~GPI~~rates ~~1485~~and (retention bonuses for certain sales employees deemed important to the implementation of our ~~lead~~new ~~neuroimmunophilin~~business ~~ligand);~~strategy •announced ~~NAALADase~~in ~~Inhibitors~~April 2005; • ~~other~~an ~~neuroimmunophilin~~increase ~~ligands~~of $0.7 million in market research primarily for Aquavan; and • ~~other~~an ~~research~~increase ~~projects~~of $0.6 million in promotional expenses for Aggrastat.

24 The foregoing increases were primarily offset by the following expenses incurred in 2004:

~~The~~• ~~source,~~a ~~timing~~decrease ~~and~~of ~~availability~~$0.8 ofmillion ~~this funding~~primarily ~~will~~related ~~depend~~to onAggrastat ~~market~~consulting; ~~conditions,~~• ~~interest~~a ~~rates~~decrease ~~and other~~of ~~factors~~$0.5 ~~This~~million ~~funding~~in ~~may~~medical beeducation ~~sought~~expenses ~~through~~in ~~various sources,~~connection ~~including~~with ~~debt~~Aggrastat; and ~~equity~~• ~~offerings,~~a ~~corporate collaborations,~~decrease ~~bank~~of ~~borrowings,~~$0.5 ~~lease~~million ~~arrangements~~in ~~relating~~sales ~~to fixed~~training ~~assets,~~expenses orrelated ~~other~~to ~~financing~~Aggrastat ~~methods.~~and ~~There~~Gliadel ~~can~~product betraining ~~no assurance~~of ~~that~~our ~~additional~~commercial ~~capital~~operations ~~will be available on favorable terms, if at all~~force.

IfGeneral ~~adequate~~and ~~funds are not available, we may be required to:~~ administrative

• Expenses ~~Significantly~~associated ~~delay,~~with ~~curtail or eliminate one or more of~~ our ~~research,~~general ~~development~~ and ~~clinical~~administrative functions ~~programs;~~increased •by ~~Reduce~~$1.1 million ~~the~~for ~~scope of our efforts to market and sell GLIADEL® and/or AGGRASTAT®; • Reduce our workforce; • Reduce our facilities; • Reduce~~ the ~~scope~~three ofmonths ended ~~our~~June 30, ~~intellectual~~2005 ~~property~~compared ~~protection; or • Enter into arrangements with collaborative partners or others that may require us~~ to ~~relinquish~~the ~~certain~~same ~~rights~~period toin ~~our technologies~~2004, principally ~~product candidates or future products, including licensing or transferring rights to our research or development programs to third parties.~~from:

If we are required to do one or more of the foregoing due to insufficient funds, then it may have the effect of delaying our ability to generate additional revenues from any of our products or product candidates. We may also have to outsource one or more of our programs in order to continue its development, resulting in increased costs.


	•	$1.0 million in severance costs related to our reduction in force as a result of our strategic reorganization; and

	•	$0.4 million in non-cash compensation expense related to the amortization of the fair value of equity instruments granted to Dean J. Mitchell in December 2004.

The ~~following~~foregoing ~~are~~increases ~~contractual~~were ~~commitments~~offset ~~at June~~by $0.4 ~~30,~~million decrease ~~2004,~~in ~~associated~~relocation ~~with~~and ~~debt~~recruiting ~~obligations,~~expenses ~~lease~~incurred in 2004 ~~obligations~~related ~~and~~to ~~our~~expansion ~~research~~of ~~and~~the ~~development~~sales ~~projects~~force (and developments teams in preparation for the Phase III clinical trials of ~~thousands):~~Aggrastat and Aquavan.

	Payments Due By Period
Contractual Commitments (1)	Total		<1 Year		1-3 Years		4-5 Years		>5 Years
Long-term debt	$	89,447	$	2,221	$	2,754	$	84,444	$	28
Capital lease obligations		1,445		809		577		59		—
Revenue interest obligation (2)		83,800		5,650		15,650		20,000		42,500
Operating leases		1,494		1,197		297		—		—
Manufacturing commitment for AGGRASTAT®		6,827		787		3,102		2,938		—
Research and development arrangements (3)		11,505		7,630		3,870		5		—
Total Contractual Commitments	$	194,518	$	18,294	$	26,250	$	107,446	$	42,528

~~(1)~~ For ~~This~~the ~~table~~six ~~does~~months ~~not~~ended ~~include~~June 30, ~~any~~2005, ~~milestone~~expenses ~~payments~~associated with ~~under agreements we have entered into in relation to~~ our ~~in-licensed~~general ~~technology, as the timing~~ and ~~likelihood~~administrative offunctions ~~such~~increased ~~payments are not known. This table does not include the~~ by $12.0 5 million ~~milestone~~compared ~~payment due~~ to ~~ProQuest expected to be paid in~~ the ~~second~~same ~~half~~period ~~of 2004 upon dosing of the initial patient~~ in ~~the Phase III trial of AQUAVAN®. Also~~2004, principally ~~minimum annual research expenditures pursuant to such license agreements have been excluded~~ from this table as we expect to spend those amounts as we progress the development of the underlying technologies. In the aggregate, these minimum annual research expenditures are approximately $1.0 million and typically apply to all years prior to regulatory approval of a product incorporating the licensed technology. Similarly, we have excluded the royalty payments due to Merck in connection with the AGGRASTAT® acquisition, as the amount and timing are not determinable. Under the terms of the asset agreement with Merck, Merck is entitled to royalty payments on net sales of AGGRASTAT® through October 23, 2016. The royalty payments to be paid to Merck are calculated as follows:

~~Calendar~~• ~~Year~~$1.3 ~~2004,~~million ~~2005~~in professional services expenses related to our long-term strategic planning and ~~2006~~ analysis; • $1.2 million in severance costs related to our reduction in force as a result of our strategic reorganization; and • $0.9 million in non-cash compensation expense related to the amortization of the fair value of equity instruments granted to Dean J. Mitchell in December 2004.

The foregoing increases were primarily offset by a $0%.4 million ondecrease ~~AGGRASTAT®~~in ~~Net~~relocation ~~Sales~~and uprecruiting expenses incurred in 2004 related to ~~$40,000,000;~~expansion of the sales force and developments teams in preparation for the Phase III clinical trials of Aggrastat and Aquavan.

25 Our general and administrative functions include the areas of executive management, finance and administration, investor and public relations, corporate development, human resources, legal, intellectual property and compliance. We include the costs to prepare, file and prosecute domestic and international patent applications and for other activities to establish and preserve our intellectual property rights in our general and administrative expenses. For each function, we may incur direct expenses such as salaries, supplies and third-party consulting and other external costs. A portion of indirect costs such as facilities, utilities and other administrative overhead are also allocated to selling, general and administrative expenses.

~~10%~~ Intangible on AGGRASTAT® Net Sales in excess of $40,000,000 and less than $50,000,000; 12% on AGGRASTAT® Net Sales in excess of $50,000,000 and less than $75,000,000; 14% on AGGRASTAT® Net Sales in excess of $75,000,000 and less than $100,000,000; and 20% on AGGRASTAT® Net Sales over $100,000,000.Amortization

Calendar Year 2007 and succeeding Calendar Years


		Three Months				Six Months
		Ended June 30,				Ended June 30,

		2005		2004		2005		2004
($ in millions)
Intangible amortization:
	Gliadel rights reacquisition amortization	$	0.2	$	0.2	$	0.4	$	0.4
	Aggrastat intangible amortization		0.8		1.5		2.4		3.0

Total intangible amortization		$	1.0	$	1.7	$	2.8	$	3.4

5% During onthe ~~AGGRASTAT®~~three ~~Net~~months ~~Sales~~ended upMarch 31, to2005, we recorded an impairment charge of $~~28,000,000;~~31.0 million ~~10%~~related onto ~~AGGRASTAT®~~Aggrastat intangibles. ~~Net~~During ~~Sales~~the inthree ~~excess~~months ofended ~~$28~~June 30,~~000~~ 2005,~~000~~ we ~~and~~recorded ~~less~~an ~~than~~additional ~~$50,000,000;~~impairment ~~12%~~charge onof ~~AGGRASTAT®~~$6.1 million also ~~Net~~related ~~Sales~~to inAggrastat ~~excess~~intangibles. ofThe ~~$50,000,000~~intangible amortization ~~and~~expense ~~less~~is ~~than~~expected to be $~~75,000,000;~~4.6 million ~~14%~~for fiscal onyear ~~AGGRASTAT®~~2005 ~~Net~~and ~~Sales~~$3.6 million infor ~~excess~~each of ~~$75,000,000~~the ~~and~~next ~~less~~five fiscal ~~than~~years ~~$100,000,000;~~(see ~~and~~“Impairment ~~20%~~of onLong-lived ~~AGGRASTAT®~~Assets” below ~~Net~~for ~~Sales~~further ~~over $100,000,000~~detail).

~~(2)~~ Impairment ~~We granted PRF a revenue interest in GLIADEL®, AGGRASTAT®, and certain other products which provides for PRF to receive 10% on the first $75.0 million~~ of GLIADEL® and AGGRASTAT® annual net sales, plus 2.5% for net sales exceeding $75.0 million through December 31, 2006. From January 1, 2007 through December 31, 2012, the percentages increase to 17.5% on the first $75.0 million in annual net sales, plus 3.5% on any net sales exceeding $75.0 million. In addition, PRF receives a revenue interest in other Guilford products to the extent that specified future GLIADEL® and AGGRASTAT® net sales are not achieved. At a minimum, we will pay PRF $5.0 million in 2004, $6.3 million in 2005, $7.5 million in 2006, $10.0 million in each of 2007Long-~~2009~~lived ~~and $12.5 million in each of 2010-2012. Though actual payments to PRF under the agreement may be higher, we have included the minimum payments as contractual commitments.~~Assets

~~(3)~~ On ~~Research~~April 5, ~~and~~2005, ~~development~~we ~~arrangements~~concluded ~~include~~that ~~commitments~~our ~~that~~Aggrastat intangibles weand ~~have~~other ~~entered~~related ~~into~~assets atand ~~June~~liabilities ~~30,~~(or ~~2004,~~the Aggrastat toAssets) ~~engage~~were ~~third~~not ~~parties~~essential to ~~perform~~our ~~various~~long-term ~~aspects~~business strategy. ofAs ~~our~~a ~~research~~result, ~~and~~we ~~development~~intend ~~efforts subsequent~~ to ~~June~~sell, 30divest, ~~2004~~partner, license or enter into other similar arrangements with respect to those assets.

~~Critical~~In accordance with Statement of Financial Accounting ~~Policies~~Standards (or SFAS) No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets,” we performed an impairment analysis as of March 31, 2005 due to our expectation that it is more likely than not that the Aggrastat Assets will be sold or otherwise disposed of significantly before the end of their previously estimated useful lives. The impairment analysis was performed using market-based sales multiples for comparable product lines and we determined that the carrying value of the ~~Estimates~~Aggrastat Assets was in excess of its fair value. Accordingly, during the quarter ended March 31, 2005, we recorded a non-cash charge of $31.0 million to write-down the carrying value of the Aggrastat Assets to fair value.

~~The~~As ~~preparation~~ of ~~financial~~June 30, ~~statements~~2005, ~~in conformity~~we ~~with~~performed ~~accounting~~an ~~principles~~impairment ~~generally accepted in the~~analysis ~~United States requires us to make estimates~~ and ~~assumptions~~determined that ~~affect~~ the ~~reported~~carrying ~~amounts~~value of ~~assets,~~the ~~liabilities,~~Aggrastat ~~revenues and~~Assets ~~expenses~~was ~~and~~still ~~disclosure~~in excess of ~~contingent~~its ~~assets~~fair ~~and~~value ~~liabilities.~~based ~~We base our estimates and judgments~~ on ~~historical~~a ~~experience and~~non-binding ~~various~~offer ~~other~~received ~~factors that are believed to be reasonable under the circumstances. Actual results could differ~~ from ~~our estimates~~a ~~and assumptions~~third-party. WeAccordingly, ~~believe~~during the ~~following critical~~ ~~accounting~~quarter ~~policies~~ended June 30, ~~among others~~2005, ~~affect~~we ~~our~~recorded ~~more~~a ~~significant estimates~~non-cash ~~and assumptions and require the use~~ charge of ~~complex judgment~~$6.1 million into ~~their application.~~further

25 ~~Revenue Recognition.~~ ~~Revenue from sales of GLIADEL® and AGGRASTAT® are~~ recognized when the following four criteria are met: (i) we have persuasive evidence that an arrangement exists, (ii) the price is fixed and determinable, (iii) title has passed and (iv) collection is reasonably assured.

~~Our~~write-down ~~primary~~the ~~customer~~carrying ~~for~~value ~~GLIADEL®~~of ~~is Cardinal~~the ~~Health~~Aggrastat ~~Specialty~~Assets ~~Pharmaceuticals~~to ~~Distribution (SPD), a~~its ~~specialty~~fair ~~pharmaceutical~~value. ~~distributor~~The ~~who~~Aggrastat ~~sells~~Assets ~~directly~~are ~~to hospitals~~being ~~and~~classified ~~was formerly known~~ as ~~National Specialty Services,~~an ~~Inc.~~“Asset ~~Product~~Held ~~demand by SPD during a given period may not correlate with prescription demand~~ for ~~the~~Use” ~~product~~because inassets ~~that period. As a result, we periodically evaluate SPD’s inventory position. If we believe these levels~~ are ~~too high based on prescription demand, we will either~~ not ~~accept purchase~~available ~~orders from, or ship additional product to, SPD until these levels are reduced, or we will defer recognition of revenue if we determine that there is excess inventory at SPD~~ for ~~our products.~~immediate Wesale ~~have~~as ~~three~~PRF ~~primary~~holds ~~wholesalers for AGGRASTAT®, AmerisourceBergen Drug Corporation, Cardinal Health, Inc. and McKesson Corporation, who sell directly to hospitals. Product demand during~~ a ~~given~~security ~~period~~interest ~~may not correlate with prescription demand for the product~~ in ~~that period. If we believe that these levels are too high based on prescription demand, we will defer recognition of revenue for~~ the ~~product. During the quarter ended~~ ~~June 30,~~assets ~~2004, we deferred $0.5 million of sales~~ related to ~~excess~~Aggrastat ~~inventory~~under ~~at our wholesalers. The deferred revenue will be recognized in~~ the ~~third~~Revenue ~~quarter~~Agreement.

26 As of June 30, 2005, we stopped all Aggrastat related trials, including TENACITY. As of June 30, 2005, our contractual commitments related to the Aggrastat Assets included:

Provisions for sales discounts, and estimates for chargebacks, rebates, damaged product returns, and exchanges for expired product are established as a reduction of product sales revenues at the time such revenues are recognized. We establish these revenue reductions as our best estimate at the time of sale based on historical experience, adjusted to reflect known changes in the factors that impact such reserves.


	•	an agreement with Baxter Healthcare Corporation for the supply of 250 ml and 100 ml bags of Aggrastat through July 2009, which commits the Company to purchase approximately $6.1 million of such bags, and $1.3 million of such purchase commitment remains outstanding for the remainder of 2005; and

	•	various funding commitments and agreements related to the advancement of our research and development activities, which we currently estimate to be no more than $1.0 million.

~~Research and Development Expenses. For each of our research and development projects~~Additionally, weunder ~~incur~~the ~~both~~Revenue ~~direct and indirect expenses. Direct expenses include salaries and other costs of personnel~~Agreement, ~~raw~~PRF ~~materials and supplies. We~~ may ~~also~~be ~~incur third~~entitled ~~party~~to ~~costs~~require ~~related~~us to ~~these~~repurchase ~~projects,~~all ~~such~~or asa ~~contract research,~~portion ~~consulting~~of ~~and clinical development costs. Indirect~~PRF’s ~~expenses,~~revenue ~~such~~interest asif ~~facility~~we ~~and~~sell ~~equipment~~the ~~costs,~~Aggrastat ~~utilities, general~~Assets. ~~research~~The ~~and development management and other~~repurchase ~~administrative~~price ~~overhead~~guarantees ~~are~~PRF ~~allocated~~a toreturn ~~research~~in ~~and development~~an ~~generally~~amount ~~based~~over ~~on,~~its ~~among other things, the extent~~initial toinvestment which ~~our~~is ~~general~~reduced ~~research and development efforts make use of facilities, non-project personnel and other resources. We accrue clinical trial expenses~~ based on ~~estimates~~our ofprior ~~work performed~~payments ~~and completion of certain milestones. Accrued clinical costs are subject~~ to ~~revisions as trials progress to completion.~~PRF ~~Revisions~~before ~~are charged to expense in~~ the ~~period~~date ~~in which the facts~~ that ~~give~~PRF’s ~~rise~~interest tois ~~the revision become known (a change in~~repurchased; ~~estimate). Expense of other contracted research arrangements or activities are charged to operations either under the terms of the contract~~however, ~~milestones or in some instances pro rata over~~ the ~~term~~ ofrepurchase ~~the~~price ~~agreement.~~may ~~Based~~never onexceed ~~the~~three ~~facts~~ and ~~circumstances, we~~ ~~select~~one-half ~~the~~times ~~method~~PRF’s ~~which~~initial weinvestment, ~~believe best aligns the expense~~or ~~recognition with the work performed~~$147.0 million.

~~Intangible~~Other ~~Assets. When~~Income ~~we purchase products we classify the purchase price, including expenses~~ and ~~assumed liabilities, as intangible~~Expenses assets. The purchase price may be allocated to product rights, trademarks, patents and other intangibles using the assistance of valuation experts. We estimate the useful lives of the assets by considering the remaining life of the patents, competition by products prescribed for similar indications, estimated future introductions of competing products, and other related factors. The factors that drive the estimate of the life of the asset are often uncertain. When events or circumstances warrant review, we will assess recoverability from future operations of intangibles using undiscounted cash flows derived from the intangible assets. Any impairment would be recognized in operating results to the extent that the carrying value exceeds the fair value, which is determined based on the net present value of estimated future cash flows.

Long-lived assets. We review our property and intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Assumptions and estimates used in the evaluation of impairment may affect the carrying value of long-lived assets, which could result in impairment charges in future periods. Such assumptions include projections of future cash flows and, in some cases, the current fair value of the asset. In addition, our depreciation and amortization policies reflect judgments on the estimated useful lives of assets.


		Three Months						Six Months
		Ended June 30,						Ended June 30,

		2005			2004			2005			2004
($ in millions)
Other income (expenses):
	Investment and other income	$	0.6		$	0.4		$	0.7		$	0.9
	Revenue interest expense		(2.1	)		(2.1	)		(4.2	)		(4.4	)
	Interest expense		(1.1	)		(1.4	)		(2.3	)		(2.7	)

Net other income (expenses)		$	(2.6	)	$	(3.1	)	$	(5.8	)	$	(6.2	)

~~Revenue~~The ~~Interest Obligation.~~investment ~~Our~~income ~~revenue~~increased ~~interest obligation~~for ~~was~~the ~~recorded~~three asmonths ~~debt~~ended June 30, as2005 wecompared ~~have~~to ~~significant continuing~~the ~~involvement~~same period in ~~the~~2004 ~~generation~~primarily due ofto ~~the~~investment ~~cash~~income ~~flows~~from ~~due to~~investments ~~PRF~~held by SNDC. The investment ~~obligation~~income ~~will~~decreased befor ~~amortized~~the ~~under~~six ~~the~~months ~~effective~~ended ~~interest~~June 30, ~~method.~~2005 Wecompared ~~utilized~~to anthe ~~imputed~~same ~~interest~~period ~~rate~~in ~~equivalent~~2004 primarily due to ~~PRF’s~~a ~~projected~~loss ~~internal rate~~ of ~~return~~$0.5 million ~~based~~ on ~~estimated~~ ~~future~~the ~~revenue~~payment ~~interest obligation payments. Revenue~~and ~~interest~~termination ~~obligation~~of ~~payments~~a ~~made~~swap toagreement ~~PRF~~during ~~will~~the ~~reduce~~first ~~the~~quarter, ~~future~~offset ~~obligation.~~by Weinvestment ~~periodically~~income ~~review~~from ~~estimated~~investments ~~future~~held ~~revenues~~by ~~and update~~SNDC ~~the~~in ~~imputed interest rate as necessary~~2005.

~~New~~Revenue ~~Accounting~~interest ~~Standards~~expense relates to the PRF revenue interest obligation and is calculated using the effective interest method, utilizing an imputed interest rate equivalent to PRF’s projected internal rate of return based on estimated future revenue interest obligation payments.

InThe ~~December~~interest ~~2003,~~expense ~~the~~decreased ~~FASB~~for ~~issued~~the ~~FASB Interpretation~~three ~~No. 46~~months ~~(revised~~and ~~December 2003),~~six ~~“Consolidation~~months ofended ~~Variable Interest Entities” (FIN~~June ~~46R)~~30, ~~which~~2005 ~~addresses~~compared ~~how~~to athe ~~business~~same ~~enterprise~~periods ~~should~~in ~~evaluate~~2004 ~~whether~~primarily itdue ~~has~~to athe ~~controlling~~fact ~~financial~~that ~~interest~~ in ~~an entity~~January ~~through~~2005 ~~means~~we ~~other~~paid ~~than~~off the ~~voting~~outstanding ~~rights~~principal ~~and~~balance ~~accordingly should~~of ~~consolidate~~ the ~~entity~~$17. ~~FIN~~2 ~~46R~~million five-year ~~replaces~~term ~~FASB Interpretation~~loan ~~No. 46,~~with ~~“Consolidation~~Wachovia ofBank ~~Variable~~National Association (or ~~Interest~~Wachovia) ~~Entities,”~~and ~~which~~also ~~was~~paid ~~issued~~off inand ~~January~~terminated ~~2003.~~the Inrelated swap ~~June~~agreement. ~~2004,~~Other weinterest ~~entered~~expense ~~into~~items ainclude ~~transaction~~amounts ~~for~~arising under ~~which~~our we5% convertible ~~were~~subordinated notes; capital leases ~~deemed~~entered ~~the~~into ~~primary~~for ~~beneficiary~~the purchases of avarious ~~variable~~equipment; ~~interest~~and ~~entity.~~a note ~~Accordingly,~~payable weto ~~have~~a ~~applied~~commercial ~~the~~bank ~~requirements~~primarily ofused ~~FIN 46R and~~to ~~consolidated~~repay ~~the~~a $2.4 million ~~financial~~account ~~statements~~payable ofto ~~SNDC~~Cardinal ~~Holdings~~Health ~~LLC~~Sales and ~~within~~Marketing ~~our financial statements~~Services.

2726

~~Item~~ Liquidity ~~3. Quantitative~~ and ~~Qualitative~~Capital ~~Disclosures About Market Risk~~Resources

A substantial portion of our assets are investment grade debt instruments such as direct obligations of the U.S. Treasury, securities of federal agencies which carry the direct or implied guarantee of the U.S. government, bank certificates of deposit and corporate securities, including commercial paper and corporate debt instruments. The market value of such investments fluctuates with current market interest rates. In general, as rates increase, the market value of a debt instrument would be expected to decrease. The opposite is also true. To minimize such market risk, we have in the past and, to the extent possible, will continue in the future to hold such debt instruments to maturity, at which time the debt instrument will be redeemed at its stated or face value. Due to the short duration and nature of these instruments, we do not believe that we have a material exposure to interest rate risk related to our investment portfolio. The investment portfolio at June 30, 2004 was $64.4 million and yield to maturity was approximately 2.20%. The weighted-average return on our investments during the quarter ended June 30, 2004 was approximately 0.0%. Overview

~~Certain~~Our ofprimary ~~our~~cash ~~debt,~~requirements ~~primarily~~are the $18.8 million in borrowings from Wachovia Bank, was established with interest rates which fluctuate with market conditions. As a hedge against such fluctuations in interest rates, we have entered into certain interest rate swap agreements with a commercial bank (“counter party”), to ~~exchange substantially all of our variable rate financial~~: obligations for fixed rate obligations. Including the Wachovia borrowings, we have entered into interest rate swaps for $19.8 million of our approximately $134.6 million in total outstanding indebtedness, which includes our revenue interest obligation. For this $19.8 million of debt, we were obligated to pay variable interest rates of LIBOR plus between 1/2% and 5/8%. The interest rate swap agreements had a total notional principal amount of approximately $19.8 million as of June 30, 2004. Pursuant to these interest rate swap agreements, we pay a fixed rate of interest to the counter party and receive from the counter party a variable rate of interest. The differential to be paid or received as interest rates change is charged or credited, as appropriate to operations. Accordingly, we had fixed interest rates on $19.8 million of our June 30, 2004 financial obligations between 2.78% and 6.06%. These interest rate swap agreements have approximately the same maturity dates as the financial obligations and expire on various dates through May 2008. We do not speculate on the future direction of interest rates nor do we use these derivative financial instruments for trading purposes. In the event of non-performance by the counter party, we could be exposed to market risk related to interest rates.

~~The~~• ~~aggregate~~fund ~~fair~~our ~~value~~research ofand ~~these~~development ~~interest~~programs; ~~rate swap~~• ~~agreements~~support ~~was~~our asales ~~liability~~and ofmarketing ~~approximately $0.6 million~~efforts; at• ~~June 30~~obtain regulatory approvals; • prosecute, ~~2004.~~defend ~~Current~~and ~~market~~enforce ~~pricing models~~any ~~were~~patent ~~used~~claims toand ~~estimate~~other ~~these~~intellectual ~~fair~~property ~~values~~rights; • fund general corporate overhead; and • support our debt service requirements and contractual obligations.

~~Item~~ Our 4.cash ~~Controls~~requirements could change materially as a result of changes in our business and ~~Procedures~~strategy. As a result of the new senior management team’s evaluation of our business strategy, we are committed to pursuing strategic alternatives for the Aggrastat Assets, including selling the Aggrastat Assets. As of June 30, 2005, we have received a non-binding offer from a third party to acquire the Aggrastat Assets.

a)Our ~~Evaluation~~cash ofrequirements ~~Disclosure~~could ~~Controls~~also ~~and Procedures.~~change ~~Under~~materially depending on the ~~supervision~~level ~~and~~of ~~with~~success ~~the participation~~ of our ~~management~~marketed products, ~~including~~our ~~the~~competitive position ~~Chief~~in ~~Executive Officer and~~ the ~~Chief~~ ~~Financial Officer~~marketplace, ~~we have evaluated~~ the ~~effectiveness~~progress of ~~the~~ ~~design and operation of~~ our ~~disclosure~~research ~~controls~~ and ~~procedures~~development ~~pursuant~~and toclinical ~~Rule 13a-15~~programs, ~~promulgated~~licensing ~~under the~~activities, ~~Securities Exchange Act of 1934~~acquisitions, asdivestitures ~~amended,~~or asother ofcorporate ~~the~~developments. ~~end of~~If the ~~period~~merger ~~covered~~is bynot ~~this report (the “Evaluation Date”). Based on that evaluation~~completed, ~~the~~we ~~Chief~~would ~~Executive Officer~~not ~~and the Chief Financial Officer~~ have ~~concluded~~sufficient ~~that, as~~cash ofto ~~the~~meet ~~Evaluation~~our ~~Date,~~ongoing ~~these~~obligations ~~controls~~ and ~~procedures~~would ~~were,~~need ~~in design and operation, effective~~ to ~~assure~~draw ~~that~~down on the ~~information required~~line toof becredit ~~included~~and inraise ~~this~~additional ~~report~~capital, ~~has~~or ~~been~~sell ~~properly~~Gliadel ~~collected,~~for ~~processed,~~$90.0 million ~~and timely communicated~~ to ~~those responsible~~MGI ~~in order that it may be included in this report~~Pharma.

b)We ~~Changes in Internal Control over Financial Reporting. There~~ have ~~been~~financed ~~no changes in~~ our ~~internal control~~operations ~~over~~since ~~financial~~inception ~~reporting during the period covered by~~primarily ~~this report that has materially affected, or is reasonably~~through: ~~likely to materially affect, our internal control over financial reporting.~~

28 • the issuances of equity securities and convertible subordinated notes; • revenue from Gliadel and, more recently, from Aggrastat; • funding pursuant to collaborative agreements; • our Revenue Agreement with PRF; • a sale and leaseback transaction; and • proceeds from loans or other borrowings.

~~PART II.~~In ~~OTHER~~evaluating ~~INFORMATION~~alternative sources of financing we consider, among other things, the dilutive impact, if any, on our stockholders, the ability to leverage stockholder returns through debt financing, the particular terms and conditions of each alternative financing arrangement and our ability to service our obligations under such financing arrangements.

~~Item~~ Our cash, cash equivalents, marketable securities and restricted investments were $59.2 million and $109.5 million at June 30, 2005 and December 31, 2004, respectively. Of these amounts, $1.8 million ~~Legal~~and ~~Proceedings:~~$19.9 million were restricted as of June 30, 2005 and December 31, 2004, respectively, as collateral for certain of our loans and other financial lease obligations. The $50.3 million decrease in cash, cash equivalents, marketable securities and restricted investments from December 31, 2004 to June 30, 2005 resulted primarily from our overall operating activities and our repayment of the outstanding principal balance of $17.2 million on our Wachovia term loan and an additional $0.6 million to pay off and terminate the related swap agreement in January 2005. Additionally, we had investments held by SNDC of $23.8 million and $32.1 million at June 30, 2005 and December 31, 2004, respectively.

27 ~~None~~

~~Item~~ Sources ~~2. Changes In Securities~~ and ~~Use~~Uses of ~~Proceeds:~~Cash

OnOperating June 17, 2004, the Company issued five-year warrants to purchase 1.5 million shares of Guilford’s common stock at $7.48 per share. The warrants were issued to outside investors in Symphony Neuro Development Company (“SNDC”), all of whom are accredited investors within the meaning of Rule 501(a) of Regulation D, in connection with a transaction on that same date by which the Company licensed to SNDC its rights to GPI 1485. See Item 1 in Part I above for a description of the terms of the transaction with SNDC. The issuance of the warrants was made in reliance on Section 4(2) under the Securities Act and/or Regulation D promulgated thereunder in that such issuance did not involve a public offering. All of the warrants that were issued in this transaction contain appropriate restrictive legends. The warrants are exercisable at the election of the holder through June 17, 2009, and the exercise price is payable in cash or pursuant to cashless exercise provisions. The Company intends to file a registration statement to register the resale of the common stock of the Company issuable upon exercise of the warrants. Activities

OnCash ~~July~~used in operating activities was $39.6 million and $28.2 million for the six months ended June 30, 2005 and 2004, werespectively. ~~issued~~Our 2net loss,~~488~~ ~~(Two~~adjusted for non-cash ~~Thousand~~charges, ~~Four~~of ~~Hundred~~$43.5 million and ~~Eighty-Eight)~~$28.1 million ~~shares~~for ~~of our common~~the ~~stock~~six tomonths ~~Burns~~ended ~~McClellan~~June 30, ~~Inc.~~2005 ~~(“Burns~~and ~~McClellan”)~~2004, asrespectively, is ~~partial~~the ~~consideration~~primary reason for ~~Burns~~the ~~McClellan~~use. ~~providing~~Net uschanges ~~with~~in assets and ~~investor~~liabilities ~~relations/public-relations~~provided ~~services.~~net Incash ~~connection~~of ~~with~~$2.5 million during the ~~this~~six ~~issuance~~months ended June 30, we2005, ~~relied~~mainly ondue ~~the~~to ~~exemption~~a ~~from~~decrease ~~registration~~in ~~under~~prepaid ~~the~~expenses ~~Securities~~and ~~Act~~other ofcurrent ~~1933~~assets ~~provided~~and other assets and an increase in ~~Section 4(2)~~accounts payable and other liabilities, partially ofoffset ~~the~~by ~~Act~~increases in accounts receivable and inventory.

~~Item~~ Prepaid 3expenses, which fluctuate from period to period depending on the timing and level of preparation and initiation of clinical trials, decreased by $2.8 million. ~~Defaults~~We ~~Upon~~are ~~Senior~~often required ~~Securities:~~to prepay contract research organizations for services prior to the initiation of work performed. Fluctuations in operating items vary from period to period due to, among others, timing of sales and the subsequent cash receipts thereof, and research and development activities such as clinical trial preparation and initiations.

~~None~~The change in accounts receivable results from the timing of sales and the subsequent cash receipts thereof. Depending on the timing of the sales and the associated subsequent payment, which is traditionally within 31 days, our accounts receivable will increase or decrease for comparative reporting periods. Both at June 30, 2005 and December 31, 2004, we had $2.5 million in accounts receivable relating to the specialty distributor, primarily related to sales made in June 2005 and December 2004. Additionally, at June 30, 2005 and December 31, 2004, we had $2.7 million and $1.2 million, respectively, in accounts receivable relating to Aggrastat primarily related to sales made in June 2005 and December 2004, respectively.

~~Item~~ Included 4.in ~~Submission~~operating ofactivities ~~Matters~~for tothe asix ~~Vote~~months ended June 30, 2005 were $8.3 million of ~~Security~~SNDC ~~Holders:~~operating activities funded by investments held by SNDC.

~~The~~Investing ~~stockholders~~and ofFinancing ~~the Company voted on three items at the Annual Meeting of Stockholders held on May 5, 2004:~~ Activities

1. In ~~The~~December ~~election~~2004, ofwe ~~directors~~sold toour ~~serve~~corporate onand ~~the~~research ~~Company’s~~and development ~~Board~~facilities for $20.8 million, net of ~~Directors~~expenses, and concurrently leased the properties back from the purchaser for aan initial term of ~~one~~15 years. ~~year~~The ~~and~~lease ~~until~~is ~~their~~renewable ~~successors~~at our ~~are~~option ~~elected~~for ~~and~~two ~~qualified;~~additional 2terms of ten years each. ~~The~~A ~~ratification~~gain of $1.5 million from the ~~selection~~sale ofis ~~KPMG~~being ~~LLP~~deferred and amortized as a reduction of rent expense over the ~~Company’s~~initial ~~registered~~term ~~public~~of 15 years. ~~accounting~~We ~~firm~~acquired ~~for~~the ~~2004;~~research and 3.development ~~The~~facility in ~~amendment~~May of2003 ~~the~~utilizing ~~Company’s~~a ~~Amended~~five-year ~~and~~$18.8 million ~~Restated~~term ~~Certificate~~loan agreement ofwith ~~Incorporation,~~Wachovia asin ~~amended,~~order to ~~increase~~finance the ~~authorized~~acquisition. ~~number~~In January of2005, ~~shares~~we paid off the outstanding principal balance of $17.2 million on our ~~common~~Wachovia ~~stock~~term ~~from~~loan ~~75,000,000~~and an additional $0.6 million to ~~125,000,000~~terminate the related swap agreement. This repayment reduced our restricted cash by $17.2 million.

~~The~~During ~~nominees~~the ~~for~~six ~~director~~months ~~were~~ended ~~elected~~June 30, ~~based~~2005, onwe reduced our total long-term debt, including current portion, but excluding the ~~following~~revenue ~~votes:~~interest obligation, by $18.3 million to $72.0 million at June 30, 2005, compared to $90.3 million at December 31, 2004. During the six months ended June 30, 2005, we made principal repayments of $18.7 million, including the above-mentioned $17.2 million payment in January 2005 to Wachovia. Our revenue interest obligation to PRF was $45.9 million at June 30, 2005, compared to $44.9 million at December 31, 2004.

Nominee	Votes For		Votes Withheld
Craig R. Smith, M.D.		25,744,025		754,542
George L. Bunting, Jr.		25,704,777		793,790
Joseph R. Chinnici		25,745,112		753,455
Barry M. Fox		25,704,777		793,790
Elizabeth M. Greetham		25,704,777		793,790
Joseph Klein, III		25,745,212		753,355
Ronald M. Nordmann		25,659,594		838,973
Solomon H. Snyder		25,658,807		839,760
David C. U’Prichard		25,745,112		753,455

During the six months ended June 30, 2005, we used 98,141 and 66,775 shares of treasury stock to meet our commitment under our employee stock purchase plan and for our 401(k) plan match, respectively. We may continue to use our treasury stock in the future for the same or similar needs, which will cause dilution to our shareholders.

29 On October 28, 2003, we acquired from Merck the rights to Aggrastat in the United States and its territories for a purchase price of $84.0 million. We paid $42.0 million in cash and entered into a $42.0 million

28 ~~The proposal to ratify the selection of KPMG LLP~~ ~~as independent auditors for 2004 received the following votes:~~

• revenue ~~26,317,203~~interest ~~votes~~financing ~~for~~arrangement ~~approval~~with •PRF ~~136~~pursuant to the Revenue Agreement,~~647~~ ~~votes~~the ~~against~~terms •of ~~44,717~~which ~~abstentions~~are summarized as follows:

~~There~~• ~~were~~PRF nois ~~broker~~entitled ~~non-votes~~to ~~for this item.~~ receive:

~~The~~• ~~proposal~~from October 28, 2003 through December 31, 2006 — 10% of our combined net revenue from Gliadel and Aggrastat up to ~~amend~~$75.0 million and 2.5% of those annual net revenues in excess of $75.0 million; • from January 1, 2007 through December 31, 2012 (the ~~Company’s~~end ~~Amended and~~of ~~Restated~~the ~~Articles~~term of ~~Incorporation~~the financing arrangement with PRF) — 17.5% of our combined net revenue from Gliadel and Aggrastat up to ~~increase~~$75.0 million and 3.5% of those annual net revenues in excess of $75.0 million; • the ~~authorized~~ ~~capital~~revenue interest percentages can increase if we fail to meet contractually specified levels of annual net revenue from products for which PRF is entitled to receive its revenue interest; and • minimum payments, payable quarterly totaling $6.3 million in 2005, $7.5 million in 2006, $10.0 million per year from 2007 through 2009, and $12.5 million per year from 2010 through 2012. During the ~~Company~~three ~~received~~months ended June 30, 2005 and 2004, we paid $1.6 million and $1.3 million to PRF, respectively, related to the ~~following~~minimum ~~votes:~~ payments requirement, and $3.1 million and $2.5 million during the six months ended June 30, 2005 and 2004, respectively.

• 24During each year of the term of the Revenue Agreement,~~946~~ PRF will be entitled to receive a portion of revenue from products that we may acquire in the future or of our product candidates Aquavan and GPI 1485,~~382~~ ~~votes~~in the case that our calculated annual obligation(s) to make royalty payments under the Revenue Agreement (based upon the combined net revenue from Gliadel and Aggrastat) are less than $7.6 million for ~~approval~~2005, •$8.3 1million for 2006,~~487~~ $15.3 million for 2007,~~195~~ ~~votes~~$15.5 ~~against~~million for 2008, $15.8 million for 2009, $16.0 million for 2010, or $15.9 million for 2011 and 2012, respectively. • 64PRF received five-year warrants to purchase 300,~~990~~000 ~~abstentions~~shares of our common stock at an exercise price of $9.15 per share. • PRF received a security interest in the assets related to Gliadel and Aggrastat. As a result of this security interest, we may not be free to utilize those assets at our discretion, such as selling or outlicensing rights to part or all of those assets, without first obtaining the permission of PRF. This requirement could delay, hinder or condition our ability to enter into corporate partnerships or strategic alliances with respect to these assets. • PRF may be entitled to require us to repurchase its revenue interest under the following circumstances:

~~There~~– ~~were~~if nowe ~~broker~~fail ~~non-votes~~to ~~for~~maintain ~~this~~an ~~item~~escrow account funded with eight quarters of minimum payments to PRF in the aggregate of $15. 7 million and $13.8 million as of June 30, 2005 and December 31, 2004, respectively, or fail to maintain at least $20.0 million of net working capital; – if we fail to make our minimum payments to PRF; – if we sell Gliadel and Aggrastat (with PRF having partial rights to make us repurchase its interest in the event of the sale of one, but not both products); – upon the occurrence of a bankruptcy or similar event; or – upon certain conditions related to a change of control of us.

~~Item~~The 5.repurchase ~~Other~~amount ~~Information:~~guarantees PRF a return in an amount over its initial investment and is reduced based on payments that we have previously made to PRF prior to the time that its interest is repurchased, but the repurchase price may never exceed three and a half times PRF’s initial investment, or $147.0 million.

~~Risk~~Effective ~~Factors~~July 20, 2005, in connection with the merger agreement with MGI Pharma, we entered into a letter agreement with PRF and MGI Pharma whereby PRF agreed to sell, and on or before the consummation of the merger, MGI Pharma agreed to repurchase, PRF’s revenue interest granted under the Revenue

29 ~~Investing in our securities involves a high~~ ~~degree of risk. Before making an investment decision, you should~~ carefully consider the risk factors set forth herein, as well as other information we include or incorporate by reference in this prospectus and the additional information in the other reports we file with the Securities and Exchange Commission (the “SEC” or the “Commission”). If any of the following risks actually occur, our business could be harmed. In such case, the trading price of our securities could decline and you could lose all or part of your investment.

WeAgreement ~~have~~for aan agreed calculated price. In the event the ~~history~~merger ofis ~~losses~~not consummated, the letter agreement will terminate and, ~~our~~should ~~future~~the ~~profitability~~Gliadel business be sold to MGI Pharma as provided in the line of credit agreement described below, PRF’s revenue interest in Gliadel will be repurchase by us for the same agreed calculated price. The repurchase price ranges from approximately $58.0 million to approximately $66.0 million and is dependent on when the repurchase ~~uncertain~~occurs between August 1, 2005 and March 31, 2006, at which time the option to sell Gliadel to MGI Pharma expires. If we repurchase PRF’s revenue interest during this period, we would incur a non-cash loss on restructuring the revenue interest obligation ranging from approximately $14.0 million to approximately $20.0 million depending on when the repurchase occurs.

We ~~may~~fund ~~not~~capital beexpenditures ~~able~~through toeither ~~achieve~~lease ~~or sustain~~arrangements ~~significant revenues~~ or ~~earn~~direct apurchases ~~profit~~utilizing inour ~~the~~existing ~~future~~cash. ~~Since~~To ~~we were founded in July 1993, with~~ the ~~sole exception of 1996~~extent possible, we ~~have~~ ~~not~~finance ~~earned~~property aand ~~profit~~equipment inrequirements ~~any year. Our losses for the years~~by ~~ended~~obtaining ~~December 31, 2003, 2002 and 2001, were $53~~leases.~~9 million,~~ ~~$59.3~~During ~~million, and $60.3 million, respectively, and for~~ the six months ended June 30, ~~2004~~2005 ~~were $39.3 million. Our losses result mainly from the significant amount of money that we have spent on research, development~~ and ~~clinical trial activities. As of June 30,~~ 2004, we had an$0.7 million ~~accumulated~~and ~~deficit of approximately~~ $~~342~~0.9 million. ~~We expect to have significant additional~~in ~~losses~~capital ~~over the next several years due to expenses associated with our product candidates related to research~~expenditures, development and clinical trial activities, applying for and obtaining meaningful patent protection and establishing freedom to commercialize and applying for and receiving regulatory approval for our drug product candidatesrespectively.

~~Our~~We ~~product~~have ~~candidates~~an ~~are~~agreement inwith ~~research~~SPD orto ~~various~~whom we sell Gliadel that ~~stages~~permits ofeither ~~pre-clinical~~us ~~and~~or ~~clinical~~SPD ~~development.~~to ~~Except~~terminate ~~for~~the agreement upon ~~GLIADEL®~~60 days ~~Wafer~~prior ~~and~~written ~~AGGRASTAT®~~notice. ~~Injection,~~Under ~~none~~the terms of our ~~products~~agreement orwith ~~product~~SPD, ~~candidates~~if ~~may~~the beagreement ~~sold~~is toterminated, ~~the~~we ~~public.~~have ~~Nearly~~an ~~all~~obligation to repurchase any remaining treatments of ~~our~~Gliadel that ~~past~~SPD ~~revenues~~may have ~~come~~in ~~from:~~its inventory. As of June 30, 2005, we believe that SPD had $1.9 million treatments of Gliadel in its inventory.

• Future ~~our~~Cash sale and distribution of GLIADEL® Wafer; • payments from Aventis and Amgen under now terminated agreements with each of them, supporting the research, development and commercialization of our product candidates; and • royalty payments from Aventis’ sale and distribution of GLIADEL® Wafer.Needs

~~Presently~~Historically, we ~~expect~~have tofinanced ~~receive~~our ~~significant revenue~~operations ~~only~~primarily ~~from~~through the ~~sales~~issuance of ~~GLIADEL®~~equity ~~Wafer~~securities and ~~AGGRASTAT®~~ ~~Injection.~~convertible Wesubordinated notes, dorevenues ~~not~~from ~~expect~~the ~~that~~sale ~~the~~of ~~revenue from~~Gliadel ~~these~~and ~~sources~~more ~~will~~recently beof Aggrastat, ~~sufficient~~funding pursuant to ~~support~~collaborative ~~all~~agreements, ~~our~~a ~~anticipated~~revenue ~~future~~interest ~~activities.~~obligation Wewith doPRF ~~not~~and ~~expect~~proceeds ~~to generate revenue~~ from ~~sales~~loans ofand other ~~our product candidates~~borrowings.

30 Our future capital requirements and liquidity will depend on many factors, including but not limited to:

~~for~~• the ~~next~~consummation ~~several~~of ~~years~~our merger with MGI Pharma; • the timing and the extent of draw downs on the line of credit with MGI Pharma; • the revenue from Gliadel and, ifto ~~ever~~a lesser extent, ~~because~~Aggrastat; • our ability to partner, divest, license or enter into a similar type of transaction for Aggrastat and our other non-key assets or intellectual property, and the ~~significant~~consideration ~~risks~~we ~~associated~~receive ~~with~~therefor; ~~pharmaceutical~~• ~~product~~ our need to potentially discount the sale price of Aggrastat; • the progress of our research and development. programs; • the timing and progress of SNDC’s clinical development of GPI 1485 and our option to purchase SNDC; • the progress of pre-clinical and clinical testing; • the time and cost involved in obtaining regulatory approvals; • the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; • the changes in our existing research relationships, competing technological and marketing developments; • our ability to establish collaborative arrangements and to enter into licensing agreements and contractual arrangements with others; • the conversion of the long-term convertible notes; • the terms of any renegotiation of our revenue interest obligation • the costs of servicing debt;

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

• ~~our ability to successfully market, sell, distribute and obtain additional regulatory approvals for GLIADEL® Wafer and AGGRASTAT® Injection; •~~ the ~~successful~~costs ~~development~~ of ~~our other~~ product ~~candidates either on our own, or together with future corporate partners with whom we enter into collaborative or license agreements~~in-licensing; and • ~~the~~any ~~ability~~future tochange in~~-license~~ ~~or acquire additional products in~~ our ~~targeted~~business ~~markets~~strategy.

We ~~will require~~do ~~substantial~~not ~~funds~~know inand ~~addition~~cannot toreasonably ~~our~~estimate ~~existing~~when ~~working~~we may incur ~~capital~~significant tofuture ~~develop~~expenses ~~our~~or ~~product~~the ~~candidates,~~period ~~carry~~in ~~out~~which ~~our~~material ~~sales~~net ~~and~~cash ~~marketing~~flows ~~plans~~from ~~and~~significant ~~otherwise~~projects are expected to ~~meet~~commence because ~~our~~of, ~~business~~among other factors, the risks and uncertainties ~~objectives.~~involved in:

We• will require substantial funds in addition to our existing working capital to develop our product candidates, including to conduct a Phase III clinical trial of AQUAVAN® and clinical trials to support expanding the ~~label~~amount ~~indications~~ of ~~AGGRASTAT® Injection, to carry out~~ our ~~sales and marketing plans, including our plans for AGGRASTAT® Injection, and otherwise to meet our business objectives. We have never generated enough~~ revenue ~~during~~from ~~any~~Gliadel ~~period since our inception to cover our expenses~~ and ~~have spent~~, ~~and expect~~ to ~~continue~~ toa ~~spend~~lesser extent, ~~substantial~~Aggrastat; ~~funds~~• tothe ~~continue~~costs ~~our research~~ and ~~development~~outcomes ~~and~~of pre-clinical ~~programs~~testing and toclinical ~~support~~trials ~~our sales~~ and ~~marketing~~the ~~efforts.~~time Wewhen ~~cannot~~those beoutcomes ~~certain that we~~ will be ~~able to~~determined; ~~raise~~• ~~additional~~obtaining ~~capital~~future ~~when~~corporate wepartnerships; ~~need~~• ~~it,~~the ontime ~~terms~~and ~~favorable to~~expense ~~us,~~of orobtaining atregulatory ~~all.~~approval; If• wethe ~~cannot~~competing ~~raise~~products ~~additional~~potentially ~~capital~~coming into ~~a timely~~market; ~~manner,~~and ~~then~~• weobtaining ~~may~~protection ~~not~~and befreedom ~~able~~to ~~meet~~operate for our ~~business objectives~~patented technologies.

We ~~will~~have the right to sell Gliadel to MGI Pharma for ~~depend~~$90.0 million onunder ~~GLIADEL®~~the terms of the line of credit ~~Wafer~~agreement ~~and~~with ~~AGGRASTAT®~~MGI ~~Injection~~Pharma. While we expect to complete the merger with MGI Pharma during the fourth quarter of 2005, if the merger with MGI Pharma does not close, we will need to draw down on the line of credit, raise additional capital, or sell Gliadel for ~~revenues~~$90.0 million to MGI Pharma, in order to achieve our future business objectives. These objectives include clinical and pre-clinical development activities for our product candidates, including, but not limited to:

~~Our~~• ~~short-term~~Aquavan; ~~prospects~~• ~~depend~~GPI ~~heavily~~1485; on• ~~sales of~~NAALADase ~~GLIADEL®~~inhibitors; ~~Wafer~~• ~~and~~PARP ~~AGGRASTAT®~~inhibitors; ~~Injection,~~• ~~our commercial~~GPI ~~products.~~15715 ~~GLIADEL®~~(non-iv); ~~Wafer~~ and ~~AGGRASTAT® Injection~~• ~~accounted~~other ~~for~~research approximately 70% and 9%, respectively, of our total revenues for the year ended December 31, 2003, and approximately 63% and 34%, respectively, of our total revenues for the six months ended June 30, 2004projects. GLIADEL® Wafer was launched commercially in the United States by Aventis and its predecessors in February 1997 after having received approval from the FDA in September 1996. We do not know whether the product will ever gain broader market acceptance. If GLIADEL® Wafer fails to gain broader market acceptance, the revenues we receive from sales of GLIADEL® Wafer would be unlikely to increase.

~~Until~~The ~~February 25,~~revised ~~2003,~~estimated wecosts ~~only had approval from the FDA~~ to ~~market~~complete ~~GLIADEL® Wafer in~~ the ~~United~~ ~~States~~current ~~for~~series ~~a limited subset~~ of Aquavan ~~patients~~trials ~~who~~are ~~suffer~~approximately ~~from brain cancer~~$30.0 million ~~Prior~~ to $35.0 million. ~~that time~~Additionally, ~~our~~we ~~approval~~may, ~~was~~at ~~for~~our ~~those~~discretion, ~~patients~~exercise ~~who~~our ~~had~~right ato ~~brain~~acquire ~~tumor~~all ~~surgically removed and had “recurrent” forms~~ of athe ~~type~~equity of ~~brain~~SNDC ~~cancer~~at ~~called~~any ~~glioblastoma~~time ~~multiforme~~beginning on April 1, or2005 ~~GBM.~~and Aending ~~“recurrent”~~on ~~GBM~~the isearlier ~~one~~of inMarch 31, ~~which~~2007 or the ~~cancer~~90th ~~has~~day ~~returned~~ after ~~initial~~the ~~surgery~~date ~~to remove~~that ~~a brain tumor. The number of patients undergoing~~SNDC ~~recurrent~~provides ~~surgery~~us ~~for~~with ~~GBM~~financial isstatements ~~very~~showing ~~limited,~~cash and ~~we believe the~~cash ~~total~~equivalents ~~number~~ of ~~patients~~less onthan an$2.0 million. ~~annual~~The ~~basis~~option ~~who have recurrent~~exercise ~~GBM~~price instarted ~~the~~at ~~United States is approximately 3,000 to 4,000~~$75. ~~On February~~1 ~~25,~~million ~~2003, we received FDA approval to also market GLIADEL® Wafer for patients undergoing initial surgery, also known as first line therapy,~~ in ~~the~~April ~~United~~2005 ~~States~~and ~~for~~increases ~~malignant~~incrementally ~~glioma~~to ~~in conjunction with surgery and radiation~~$119.8 million ~~We estimate that the total number of patients undergoing initial surgery~~ in ~~the~~January ~~United States is between approximately 7~~2007,~~000~~ and ~~9,000~~ ~~per~~may ~~year. In the second quarter of 2003 we instituted a~~be ~~new~~paid ~~sales~~in ~~and~~cash ~~marketing~~or ~~effort~~in ~~for~~our ~~GLIADEL®~~common ~~Wafer~~stock, ~~for initial~~at ~~surgery.~~our Wesole ~~cannot assure you~~discretion, provided ~~however,~~ that weour ~~will~~common ~~be successful~~stock inmay ~~this~~not ~~effort~~constitute ormore inthan ~~achieving~~50% of ~~sales~~the ofconsideration ~~GLIADEL® Wafer~~tendered for ~~use in initial surgeries~~payment.

InThe ~~addition~~source, intiming ~~January~~and ~~2002~~availability weof ~~submitted applications~~this ~~for~~funding ~~approval~~will todepend on market ~~GLIADEL®~~conditions, ~~Wafer~~interest ~~in Europe~~rates ~~for~~and ~~patients~~other ~~undergoing~~factors. ~~initial~~This funding ~~surgery~~may ~~for~~be ~~malignant glioma.~~sought Inthrough ~~November~~various ~~2002~~sources, weincluding ~~withdrew those applications while~~debt weand ~~were~~equity ~~waiting~~offerings, ~~for~~corporate ~~the~~collaborations, ~~FDA~~divestures, partnership, tobank ~~respond~~borrowings, tolease aarrangements ~~similar~~relating ~~application~~to infixed ~~the~~assets ~~United~~or ~~States.~~other Wefinancing ~~resubmitted these European applications in November 2003~~methods. ~~Presently~~There ~~GLIADEL®~~can ~~Wafer~~be ~~is approved for~~no ~~the~~assurance ~~recurrent~~that ~~GBM~~additional ~~market~~capital inwill ~~only~~be 21available ~~countries,~~on ~~including France,~~favorable ~~Spain~~terms, ~~Germany~~if ~~and~~at ~~the U~~all.~~K. GLIADEL® Wafer is currently~~ ~~approved for first line therapy only in the United States and Canada. If we are not able to~~

31 If adequate funds are not available, we may be required to:

~~obtain~~• ~~additional~~divest ~~approvals,~~Gliadel ~~the~~and/or ~~market~~Aggrastat; ~~for GLIADEL®~~• ~~Wafer~~draw ~~would~~down ~~remain~~on ~~limited~~the ~~outside~~line of ~~the~~credit ~~United States,~~with ~~which~~MGI ~~reduces~~Pharma; ~~the~~• ~~potential~~alter ~~sales~~or ofrevise ~~GLIADEL® Wafer.~~our ~~Regardless~~newly-announced ofcorporate ~~the~~strategy; ~~number~~• ofsignificantly ~~foreign regulatory approvals that we have received~~delay, ~~international~~curtail ~~sales~~or toeliminate ~~date~~one ~~comprised less~~or ~~than~~more ~~6% and 12%~~ of ~~worldwide~~our ~~sales of GLIADEL® Wafer for the year ended December 31~~research, ~~2003~~development and ~~for~~clinical ~~the six months ended June 30, 2004, respectively.~~ programs;

31 ~~We acquired AGGRASTAT® Injection from Merck~~ ~~and Co., Inc. on October 28, 2003. AGGRASTAT®~~ Injection is a glycoprotein GP IIb/ IIIa receptor antagonist used for the treatment of acute coronary syndrome (ACS) including unstable angina, which is characterized by chest pain when one is at rest, and non-ST elevation myocardial infarction (NSTEMI). Prior to acquiring AGGRASTAT® Injection, we have never marketed and sold a product for cardiovascular conditions. We cannot assure you that we will be successful in our efforts to market and sell AGGRASTAT® Injection.

~~Pfizer terminated~~• ~~its~~reduce ~~agreement~~the scope of our efforts to market and sell Gliadel; • reduce our workforce; • reduce the scope of our intellectual property protection; • enter into corporate partnerships or co-promotions to market and sell Gliadel; or • enter into arrangements with collaborative partners or others that may require us ~~and~~to werelinquish ~~will~~certain ~~not~~rights ~~receive~~to ~~any more~~our ~~payments~~technologies, ~~from~~product ~~them~~candidates or future products, including licensing or transferring rights to our research or development programs to third parties.

InIf ~~May 2003,~~ we ~~entered~~are ~~into~~required ~~an exclusive license agreement with Pfizer, which provided Pfizer with research, development and commercialization rights~~ to ~~our~~do ~~NAALADase inhibitor~~one ~~technology.~~or ~~The~~more ~~agreement~~of ~~included~~the aforegoing ~~$5 million payment~~due to ~~us at signing and an additional $10 million~~ ~~milestone~~insufficient ~~payment due on or before March 31~~funds, ~~2004.~~then Init ~~March 2004,~~may ~~Pfizer informed us that the milestone payment would not be made and that Pfizer was terminating the agreement. We do not~~ have ~~sufficient resources to pursue independently~~ the ~~research, development~~effect ~~and commercialization~~ of ~~the~~delaying ~~NAALADase inhibitor~~or ~~technology~~restricting ~~that~~our weability ~~licensed~~ to ~~Pfizer~~generate ~~and~~additional ~~pursue~~revenues ~~our~~from ~~other~~any ~~business~~of ~~objectives.~~our ~~Unless~~products ~~we enter into an alternative partnering~~ or ~~other~~product ~~arrangement~~candidates. ~~with~~We ~~respect~~may toalso ~~this~~have ~~NAALADase~~to ~~technology~~outsource one or ~~alter~~more of our ~~other~~programs ~~business~~in ~~objectives,~~order ~~it is unlikely that we will be able~~ to ~~further~~continue ~~develop this~~its ~~technology. Accordingly~~development, itresulting isin ~~less~~increased ~~likely~~costs ~~that~~and wereductions ~~will~~in ~~receive~~any ~~revenues~~potential ~~from~~returns ~~products~~realizable ~~based~~by ~~on this technology in the future~~us.

~~Our~~Off-Balance ~~operating results~~Sheet ~~are likely to fluctuate from quarter to quarter, which~~Arrangements ~~could cause the price of our common stock to fluctuate.~~

~~Our~~The ~~revenues~~only ~~and~~off-balance ~~expenses~~sheet ~~have~~arrangements ~~fluctuated significantly~~we inhave ~~the~~entered ~~past.~~into ~~This fluctuation has in turn caused~~are our ~~operating~~facility ~~results~~and toequipment ~~vary~~operating ~~significantly~~lease ~~from~~agreements. ~~quarter to~~Our ~~quarter~~obligations ~~and~~under ~~year~~these toagreements ~~year.~~are Wepresented ~~expect the fluctuations~~ in ~~our revenues~~this ~~and expenses to continue and thus our operating results~~section ~~should~~under ~~also~~“Contractual ~~continue~~Obligations” toin ~~vary~~the ~~significantly. These fluctuations~~Form 10-K ~~may~~for bethe ~~due~~year toended ~~a variety of factors~~December 31, ~~including:~~2004.

• Contractual the timing and amount of sales of GLIADEL® Wafer and AGGRASTAT® Injection; • the timing and realization of milestone and other payments from existing and future corporate partners; • the timing and amount of expenses relating to our research and development, product development, and manufacturing activities; and • the extent and timing of costs related to our activities to obtain patents on our inventions and to extend, enforce and/or defend our patent and other rights to our intellectual property.Obligations

~~Because~~Our ofcontractual ~~these~~commitments ~~fluctuations,~~for itlong-term isdebt ~~possible~~as of ~~that~~December 31, ~~our~~2004 ~~operating~~were ~~results~~reduced ~~for~~in aJanuary ~~particular~~2005 ~~quarter~~by ~~or quarters~~our ~~will~~repayment ~~not~~of ~~meet~~ the ~~expectations~~outstanding ofprincipal ~~public~~balance ~~market analysts and~~of ~~investors,~~$17.2 million ~~causing~~under the ~~market~~Wachovia ~~price~~term ofloan ~~our~~we ~~common~~used ~~stock~~ to ~~decrease.~~finance ~~For example,~~ the ~~trading~~acquisition ~~price~~ of our ~~common~~corporate ~~stock from~~and ~~July 1,~~research ~~2002 to June 30, 2004 ranged from $2.65~~and todevelopment $9facilities.~~62.~~

We In ~~may~~addition, ~~not~~in ~~be able~~April 2005, we awarded retention bonuses to certain ~~generate~~of ~~sufficient~~our ~~cash~~employees who are considered important to ~~satisfy~~the implementation of our ~~existing~~business strategy announced in April 2005. These employees will be paid their retention bonuses if they continue their employment with us through December 6, 2005 or April 6, 2006, depending on the employee. If the MGI Pharma merger is consummated, the retention bonuses, totaling $1.8 million, consisting of both cash and grants of ~~future~~restricted ~~debt~~stock ~~obligations~~units, will be paid out on an accelerated basis as of the merger date. As of June 30, 2005, $0.5 million of retention bonus expense has been recorded.

~~Our~~Critical ~~ability~~Accounting toPolicies ~~pay the required interest~~ and ~~principal~~ ~~payments on our debt depends on the future performance~~Estimates of our business. As of June 30, 2004, we had total long-term debt and revenue interest obligations of $134.6 million. We will require substantial funds to service our debt obligations and to operate our business in the future, including to fund research and development activities, pre-clinical and clinical testing, to manufacture our products and to make acquisitions.

32 The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. We base our estimates and assumptions on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from our estimates and assumptions. We believe the following critical accounting policies, among others, affect our more significant estimates and assumptions and require the use of complex judgment in their application. These policies have been reviewed by the Audit Committee.

~~Our~~Revenue ~~obligations for 2004 include approximately $3~~Recognition.~~4 million~~ inRevenue ~~principal~~from Gliadel and ~~approximately~~Aggrastat ~~$5.2 million~~is inrecognized ~~interest~~when onthe ~~our~~following ~~long-term~~four ~~debt.~~criteria ~~In addition,~~are met: (i) we ~~are~~have ~~obligated~~persuasive toevidence ~~make~~that ~~payments~~an onarrangement ~~our Revenue~~exists; ~~Interest~~(ii) the ~~Obligation~~price asis ~~disclosed~~fixed inand determinable; (iii) the title ~~Paul~~has ~~Royalty~~passed; ~~Funds~~and ~~risk factor~~(iv) the oncollection ~~page 36~~is reasonably assured. WeRevenues are ~~obligated~~recorded tonet ~~pay~~of ~~the~~provisions ~~minimum~~for returns, ~~amount~~chargebacks ~~under~~and ~~the~~discounts, ~~Paul~~which ~~Royalty~~are ~~agreement~~established ofat ~~$5.0 million~~the intime of ~~2004~~sale.

WeOur ~~have~~primary acustomer ~~history~~for ofGliadel ~~net~~is ~~losses. Our historical financial results have been~~SPD, ~~and~~a ~~we anticipate that our future~~specialty ~~financial~~pharmaceutical ~~results~~distributor ~~will~~who ~~be,~~sells ~~subject~~directly to ~~fluctuations~~hospitals. ~~Unless we~~Our ~~are~~three ~~able~~main towholesalers ~~substantially~~for ~~increase our profitability and cash flow from operations compared to historical levels or obtain refinancing~~Aggrastat, weAmerisourceBergen ~~cannot assure you that our business will~~Drug ~~generate sufficient cash flow from operations or that future capital will be available to us in amounts sufficient to enable us to pay our debt~~Corporation, orCardinal toand ~~fund~~McKesson ~~our other liquidity needs. If we are unable to meet our debt service obligations or fund our other liquidity needs~~Corporation, ~~we may be required to restructure or refinance our debt or seek additional equity capital or we may be required to~~ sell ~~assets.~~directly ~~We cannot assure you that if and when required~~ to ~~do so we will be able to accomplish those~~ ~~actions on satisfactory terms, or at all~~hospitals.

~~The market~~ ~~price~~Product ofdemand ~~our~~by ~~stock~~distributor and wholesalers during a given period may benot ~~negatively~~correlate ~~affected~~with byprescription ~~market~~demand for the ~~volatility~~product in that period. As a result, we periodically evaluate the distributor and wholesalers’ inventory positions. If we believe these levels are too high based on prescription demand, we will either

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

~~From~~• ~~time~~defer torecognition ~~time,~~of ~~stock~~revenue ~~market~~if ~~professionals publish~~we ~~research~~determine ~~reports~~that ~~covering~~there ~~our~~is ~~business~~excess ~~and~~channel ~~our~~inventory ~~future prospects.~~for ~~For~~our aproducts; ~~number~~or of• ~~reasons,~~not weaccept ~~may~~purchase beorders ~~unable~~from ~~to meet~~ the ~~expectations~~ ofdistributor; ~~these~~or ~~professionals~~• ~~and~~not ~~our~~ship ~~stock~~additional ~~price~~products ~~may decline.~~until ~~These~~these ~~expectations~~levels ~~may~~are ~~include:~~ reduced.

• Provisions ~~announcements~~for bysales usdiscounts, orand ~~our~~estimates ~~competitors~~for ofchargebacks, product ~~clinical~~returns ~~results,~~for ~~technological~~damaged ~~innovations,~~or ~~regulatory~~expired ~~approvals~~products, ~~product~~are ~~sales,~~established as ~~new~~a ~~products~~reduction orof product ~~candidates;~~revenues •at ~~developments~~the ortime ~~disputes~~such ~~concerning~~revenues ~~patent~~are recognized. orWe ~~proprietary~~establish ~~rights;~~these •revenue ~~regulatory~~reductions ~~developments~~with ~~affecting~~ our ~~products;~~best estimate •at ~~period-to-period fluctuations in~~ the ~~results~~time of ~~our~~the ~~operations;~~sale •based ~~market~~on ~~conditions~~historical ~~for~~experience, adjusted ~~emerging~~to ~~growth~~reflect ~~companies~~known ~~and~~changes ~~biopharmaceutical~~in ~~companies;~~the •factors ~~revenues~~that ~~received~~impact such ~~from GLIADEL® Wafer and AGGRASTAT® Injection; and • our expenditures~~reserves.

InResearch ~~the~~and ~~past,~~Development ~~following~~Expenses. ~~periods~~For each of ~~volatility in~~our ~~the~~research ~~market~~and ~~price~~development ofprojects, ~~the~~we ~~securities~~incur ofboth ~~companies~~direct inand indirect ~~our~~expenses. ~~industry,~~Direct expenses include salaries and other ~~securities~~costs ~~class~~of ~~action~~personnel, ~~litigation~~raw ~~has~~materials ~~often~~and ~~been~~supplies. ~~initiated~~We may also ~~against~~incur ~~those~~third-party ~~companies.~~costs Ifrelated weto ~~face~~these projects, such ~~litigation~~as contract research, itconsulting ~~would~~and clinical development costs. ~~result~~Indirect inexpenses, ~~substantial~~such as facility and equipment costs, utilities, general research and ~~divert~~development management’s and other ~~attention~~administrative overhead are allocated to research and development ~~resources~~generally based on, ~~which~~among ~~would~~other ~~negatively~~things, ~~impact~~the extent to which our general research and development efforts make use ~~business~~of facilities, non-project personnel and other resources.

~~Furthermore,~~We ~~market~~accrue ~~volatility~~clinical ~~may~~trial ~~adversely~~expenses based on estimates of work ~~affect~~performed and completion of certain milestones. Certain milestone payments are deferred and amortized over the ~~market~~clinical trial ~~price~~period. ofAccrued ~~our~~clinical ~~common~~costs ~~stock,~~are ~~which~~subject ~~could~~to ~~limit~~revisions as ~~our~~trials ~~ability~~progress to ~~raise~~completion. ~~capital~~Revisions are charged to expense in the period in which the facts that give rise to the revision become known (a change in estimate.) Expense of other contracted research arrangements or ~~make~~activities ~~acquisitions~~are charged to operations either under the terms of ~~products~~the contract, milestones or in some ~~technology~~instances pro rata over the term of the agreement. Based on the facts and circumstances, we select the method that we believe best aligns the expense recognition with the work performed.

Intangible Assets. When we purchase products, we classify the purchase price, including expenses and assumed liabilities, as intangible assets. The ~~large~~purchase price may be allocated to ~~number~~product rights, trademarks, patents and other intangibles using the assistance of ~~shares~~valuation experts. We estimate the useful lives of ~~common~~the ~~stock~~assets ~~eligible~~by considering the remaining lives of the patents, competition from products prescribed for similar indications, estimated future ~~sale~~introductions ~~upon~~of competing ~~conversion~~products, and other related factors. The factors that drive the estimate of ~~our~~the ~~convertible~~life ~~notes~~of ~~could~~the ~~depress~~asset ~~our~~are ~~stock~~often uncertain. When ~~price~~events or circumstances warrant review, we assess recoverability of intangibles from future operations, using undiscounted future cash flows derived from the intangible assets. Any impairment would be recognized in operating results, to the extent the carrying value exceeds the fair value (see “Impairment of Long-lived Assets” below.)

~~Upon~~Impairment ~~conversion~~ of ~~our~~Long-lived ~~$69,354,000~~Assets. ~~principal~~We review our property ~~amount~~and ofintangible ~~notes~~assets atfor ~~their~~possible ~~conversion~~impairment ~~price~~whenever ofevents ~~$6.24,~~or ~~approximately~~circumstances ~~11,114,423~~indicate ~~shares~~that the carrying amount of ~~common~~an ~~stock~~asset ~~would~~may not be ~~issuable~~ recoverable. ~~Our~~Assumptions ~~stock~~and ~~price~~estimates ~~could~~used bein ~~depressed~~the evaluation ~~significantly~~of ~~if the~~impairment ~~holders~~may ofaffect the ~~notes~~carrying ~~decide~~value toof long-lived ~~convert~~assets, ~~their~~which ~~notes~~could ~~and~~result ~~sell the~~in ~~common~~impairment ~~stock~~charges ~~issued~~in future ~~thereby~~periods. orSuch ~~are~~assumptions ~~perceived~~include byprojections ~~the~~of ~~market~~future ascash ~~intending~~flows toand, ~~sell~~in ~~them.~~some ~~These~~cases, ~~sales~~the ~~also~~current ~~might~~fair ~~make~~value itof ~~more~~the ~~difficult~~asset. ~~for~~In usaddition, toour ~~sell~~depreciation ~~equity~~and ~~securities~~amortization ~~in the future at a~~policies ~~time~~reflect ~~and~~judgments aton athe ~~price~~estimated ~~that~~useful welives ~~deem~~of ~~appropriate~~assets.

33 Revenue Interest Obligation. Our revenue interest obligation was recorded as debt as we have significant continuing involvement in the generation of the cash flows due to PRF. The obligation is being amortized under the effective interest method, utilizing an imputed interest rate equivalent to PRF’s projected internal rate of return based on estimated future revenue interest obligation payments. Revenue interest obligation payments made to PRF reduce the future obligation.

We Consolidation ~~have~~of SNDC. In accordance with FIN 46R, ~~limited~~which ~~sales~~addresses ~~experience~~how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights, and weaccordingly ~~expect~~should consolidate tothe ~~incur~~entity, ~~significant~~SNDCH is considered a variable interest ~~expense~~entity. inUnder ~~marketing~~FIN 46R, ~~selling~~we ~~and~~have ~~distributing~~been deemed the primary ~~GLIADEL®~~beneficiary ~~Wafer~~of ~~and~~the variable interest entity because we are most ~~AGGRASTAT®~~closely ~~Injection~~associated with SNDCH. Accordingly, the financial results of SNDCH have been consolidated with our financial statements since June 2004.

33 ~~When we began selling GLIADEL® Wafer~~ ~~ourselves in January 2001, it was the first time that we had~~ undertaken direct sales and marketing activities. We, therefore, have limited experience in engaging in sales and marketing efforts. This limited experience may limit our success selling GLIADEL® Wafer and AGGRASTAT® Injection. Additionally, our sales and marketing efforts may use resources and require attention from management that would otherwise be provided to our drug development programs.

WeNew doAccounting ~~not~~Pronouncements ~~have manufacturing capabilities for commercial quantities of any of our product candidates.~~

~~Currently,~~SFAS weNo. 123R. ~~have~~In noDecember ~~manufacturing capabilities for commercial quantities of any of our product candidates. Consequently~~2004, inFASB ~~order to complete the commercialization process~~issued ofSFAS 123R ~~any~~(revised ~~of our product candidates~~2004), we“Share-Based ~~must either (1) acquire~~Payment,” ~~build~~which oris ~~expand~~a ~~our~~revision ~~internal~~of ~~manufacturing capabilities~~SFAS 123, or“Accounting for ~~(2) rely~~Stock-Based onCompensation.” ~~third~~SFAS 123R ~~parties~~supersedes Accounting toPrinciples ~~manufacture~~Bulletin Opinion ~~these~~(or ~~product~~APB) ~~candidates~~No. 25, We“Accounting ~~cannot~~for beStock ~~sure~~Issued ~~that we will be able~~ to ~~accomplish~~ ~~either~~Employees,” ofand ~~these~~amends ~~tasks. If we are not able to do so~~SFAS 95, it“Statement ~~would~~of ~~impede~~Cash ~~our~~Flows.” ~~efforts~~Generally, tothe ~~bring~~approach ~~our~~in ~~product~~SFAS 123R ~~candidates~~is similar to ~~market, which~~the ~~would~~approach ~~adversely~~described ~~affect~~in ~~our business~~SFAS 123. ~~Moreover, if we~~In ~~decide~~accordance towith ~~manufacture~~the ~~one~~effective ordate ~~more~~ of ~~our~~the ~~product candidates ourselves (rather than engage a contract manufacturer)~~statement, we ~~would~~will ~~incur~~adopt ~~substantial~~the ~~start-up~~statement ~~expenses~~starting ~~and~~with ~~would~~our ~~need~~fiscal toyear ~~expand our~~beginning ~~facilities~~January 1, ~~and hire additional personnel~~2006.

~~Third-party~~As ~~manufacturers~~permitted ~~must~~by ~~also~~SFAS 123, ~~comply~~we ~~with FDA,~~currently ~~Drug~~account ~~Enforcement~~for share-based ~~Administration,~~payments ~~and~~to ~~other~~employees ~~regulatory~~using APB 25’s ~~requirements~~intrinsic ~~for~~value ~~their facilities~~method. ~~In addition~~However, ~~the~~SFAS 123R ~~manufacture~~requires all ofshare-based ~~product~~payments ~~candidates~~to onemployees, aincluding ~~limited~~grants ~~basis~~of ~~for investigational use~~employee instock ~~animal~~options, ~~studies~~to orbe ~~human~~recognized ~~clinical~~in ~~trials~~the ~~does~~income ~~not~~statement ~~guarantee~~based on ~~that~~their ~~large-scale,~~fair ~~commercial~~values ~~production~~over isthe ~~viable.~~expected ~~Small~~period ~~changes in methods~~ of ~~manufacture~~service. Accordingly, ~~can affect~~ the ~~safety,~~adoption ~~efficacy, controlled~~of ~~release~~SFAS 123R’s orfair ~~other~~value method ~~characteristics~~may ofhave aan ~~product. Changes~~impact inon ~~methods~~our results of ~~manufacture~~operations, ~~including commercial~~although ~~scale-up,~~it ~~may,~~will ~~among~~have ~~other~~no ~~things,~~impact ~~require~~on ~~the~~our ~~performance~~overall ~~of new~~financial ~~clinical studies~~position.

~~Revenues~~ The ~~from~~full impact of adoptions of SFAS 123R cannot be ~~GLIADEL®~~predicted ~~Wafer,~~at this time because it will depend on levels of ~~AGGRASTAT®~~share-based ~~Injection,~~payments orgranted in the future. ~~products~~However, ifhad we ~~any~~adopted SFAS 123R in prior periods, ~~depend~~the impact of that standard would have approximated the impact of SFAS 123 as described in ~~part~~the ondisclosure ~~reimbursement~~of ~~from~~pro ~~health~~forma ~~care~~net ~~payors~~income and earnings per share in Note 4 to the Consolidated Financial Statements. SFAS 123R also required the benefits of tax deductions in excess of recognized compensation costs to be reported as a financing cash flow, rather than as an operating ~~which~~cash isflow ~~uncertain~~as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. We are unable to estimate what those amounts will be in the future because they depend on, among other things, when employees exercise stock options.

~~The~~SFAS 151. ~~efforts~~In ofNovember ~~government~~2004, ~~and~~FASB ~~insurance~~issued ~~companies~~SFAS 151, ~~health~~“Inventory ~~maintenance~~Cost.” ~~organizations~~This ~~and~~statement ~~other payors of~~amends ~~health~~Accounting ~~care~~Research ~~costs~~Bulletin No. 43, ~~to contain or reduce costs of health care may~~Chapter 4, ~~affect~~“Inventory ~~our~~Pricing,” ~~future~~to ~~revenues~~clarify ~~and~~the ~~profitability.~~accounting ~~These efforts may~~for ~~also~~abnormal ~~affect~~amounts ~~the future revenues and profitability~~ of ~~our potential~~idle ~~customers~~facility expense, ~~suppliers and collaborative partners~~freight, inhandling ~~turn~~costs ~~affecting~~and ~~demand~~wasted ~~for~~material ~~our products~~(spoilage.) ~~For~~The ~~example,~~provision ~~in certain foreign markets, pricing or profitability~~ of ~~prescription~~the ~~pharmaceuticals~~statement is ~~subject~~effective tofor ~~government~~inventory ~~control.~~costs Inincurred ~~the United~~during ~~States,~~fiscal ~~given~~years ~~recent~~beginning ~~federal~~after ~~and state government initiatives directed at lowering the total cost of health care~~June 15, ~~the U~~2005.~~S. Congress~~ ~~and~~We ~~state legislatures will likely continue to focus on~~are ~~health~~evaluating ~~care reform,~~ the ~~cost~~impact of ~~prescription~~this ~~pharmaceuticals~~statement ~~and~~ on ~~the~~our ~~reform of the Medicare and Medicaid systems. While we~~consolidated ~~cannot~~financial ~~predict whether any such legislative or regulatory proposals will be adopted~~positions, ~~the~~results ~~announcement or adoption~~ of ~~such proposals~~operations ~~could have a negative effect on our business~~ and ~~operating~~ ~~results~~cash flows.

~~Our~~SFAS 154. ~~ability~~In toJune ~~commercialize~~2005, ~~our~~FASB ~~products~~issued SFAS 154, ~~successfully~~“Accounting ~~will~~Changes ~~depend~~and inError ~~part~~Corrections” on(or SFAS 154), ~~the~~a ~~extent~~replacement toof ~~which~~APB 20, ~~private~~“Accounting ~~health insurers~~Changes,” ~~organizations~~and ~~such~~SFAS 3, as“Reporting ~~HMOs and governmental~~Accounting ~~authorities~~Changes ~~reimburse~~in ~~the~~Interim ~~cost~~Financial ofStatements.” ~~our~~This ~~products~~statement applies ~~and~~to ~~related treatments.~~all ~~Third-party~~voluntary ~~payors~~changes ~~are~~in ~~increasingly~~accounting ~~challenging~~principle, ~~the~~and ~~prices~~changes ~~charged~~the requirements for ~~medical~~accounting ~~products~~for and ~~services.~~reporting ~~Also,~~of ~~the~~a ~~trend~~change ~~toward managed health care~~ in ~~the~~accounting ~~United~~principle. ~~States~~SFAS 154 ~~and the~~requires ~~concurrent~~retrospective ~~growth~~application ofto ~~organizations~~prior ~~such~~periods’ ~~as HMOs, which could~~financial ~~control~~statements orof ~~significantly~~a ~~influence~~voluntary ~~the~~change ~~purchase~~in ofaccounting ~~health~~principle ~~care~~unless ~~services~~it ~~and~~is ~~products,~~impracticable. asIt ~~well~~is aseffective ~~legislative~~for ~~proposals~~accounting tochanges and ~~reform~~corrections ~~health~~of ~~care~~errors ormade ~~reduce~~in ~~government~~fiscal ~~insurance~~years ~~programs,~~beginning ~~may~~after ~~all~~December 15, ~~result~~2005. inEarlier ~~lower~~application ~~prices~~is permitted for accounting orchanges ~~rejection~~and corrections of ~~our~~errors ~~products.~~made ~~The~~occurring in ~~cost~~fiscal ~~containment~~years ~~measures~~beginning ~~that~~after ~~health~~June 1, ~~care~~2005. ~~payors~~As ~~and providers~~of ~~are~~June 30, ~~instituting~~2005, ~~and~~this ~~the~~statement ~~effect~~had ofno ~~any~~impact ~~health~~on ~~care reform could~~our ~~materially~~financial ~~and~~statements, ~~adversely~~results ~~affect~~of ~~our~~operations ~~ability~~and tocash ~~operate profitably~~flows.

~~Furthermore,~~Item ~~even if reimbursement is available for our products, we cannot be sure that it will be available at price levels sufficient to cover the cost of our products to customers~~3. ~~This~~Quantitative ~~may~~and ~~have~~Qualitative ~~the~~Disclosures ~~effect~~About ofMarket ~~reducing the demand for our products, or may prohibit us from charging customers a price for our products that would result in an appropriate return on our investment in those products.~~ Risk

34 A substantial portion of our assets are investment grade debt instruments such as direct obligations of the U.S. Treasury, securities of federal agencies that carry the direct or implied guarantee of the U.S. government, bank certificates of deposit and corporate securities, including commercial paper and corporate debt instruments. The market value of such investments fluctuates with current market interest rates. In general, as rates increase, the market value of a debt instrument would be expected to decrease. The opposite is also true. To minimize such market risk, we have in the past and, to the extent possible, will continue in the future to hold such debt instruments to maturity, at which time the debt instrument will be redeemed at its stated or face value. Due to the short duration and nature of these instruments, we do not believe that we have a material exposure to interest rate risk related to our investment portfolio. The investment portfolio at June 30, 2005 was $55.4 million and weighted-average yield to maturity was approximately 3.2%. The return on our investments during the three months ended June 30, 2005 was approximately 2.8%.

34 ~~A significant~~ ~~portion of our sales of GLIADEL® Wafer are to Specialty~~ ~~Pharmaceuticals Distribution (formerly known as National Specialty Services, Inc.), a specialty pharmaceutical distributor.~~

~~Approximately~~Certain ~~76%~~ of our ~~sales of GLIADEL® Wafer in 2003~~debt, ~~and~~primarily ~~approximately 70% in~~ the ~~six~~$17.2 million ~~months ended~~in ~~June 30,~~borrowings ~~2004,~~from ~~were~~Wachovia ~~made~~that towas ~~Cardinal~~repaid ~~Health~~in ~~Specialty Pharmaceuticals~~January ~~Distribution~~2005, ~~or SPD, a nationwide specialty~~was ~~pharmaceutical~~established ~~distributor. We have an agreement~~ with ~~SPD regarding~~interest ~~its~~rates ~~purchase of the product~~ that ~~permits~~fluctuate ~~either~~with ~~us or~~market ~~SPD to terminate the agreement upon 60 days prior written notice~~conditions. WeAs ~~have~~a nohedge ~~assurance~~against ~~that~~such ~~SPD~~fluctuations ~~will~~in ~~not exercise its~~interest ~~rights to terminate its agreement with us at any time. If SPD does terminate the agreement~~rates, ~~there can be no assurance that~~ we ~~will~~ behad ~~able~~entered tointo ~~enter~~interest ~~into~~rate answap ~~arrangement~~agreements with ~~another specialty~~a ~~distributor~~commercial ~~for~~bank ~~the~~(or ~~purchase~~counter ~~and~~party) ~~sale~~to ofexchange ~~GLIADEL® Wafer. Additionally, under~~ the ~~terms~~variable ofrate financial ~~our~~obligations ~~agreement~~for ~~with~~fixed ~~SPD,~~rate ifobligations. ~~the agreement~~We ~~is terminated, we~~ have anone interest ~~obligation~~rate toswap ~~repurchase~~agreement ~~any~~ remaining ~~treatments of GLIADEL® Wafer~~ that ~~SPD~~had ~~may~~a ~~have~~total innotional ~~its~~principal ~~inventory.~~value As of ~~June 30, 2004, we believe that SPD had approximately~~ $10.78 million as of ~~GLIADEL®~~June 30, ~~Wafer in its inventory~~2005.

~~SPD~~Pursuant ~~orders~~to ~~GLIADEL®~~the ~~Wafer~~interest ~~treatments~~rate ~~based upon~~swap agreement, ~~among~~we ~~other~~pay ~~things,~~a ~~its~~fixed rate ~~estimation~~ of ~~our~~interest ~~ability~~to the counter party and ~~its~~receive from the ~~ability~~counter toparty ~~successfully~~a ~~sell~~variable ~~GLIADEL®~~rate ~~Wafer~~of tointerest. ~~hospital~~The differential to ~~pharmacies~~be ~~and~~paid ~~its~~or ~~desired~~received ~~level~~as ofinterest ~~inventory.~~rates Ifchange ~~the~~is ~~demand~~charged ~~for~~or ~~GLIADEL®~~credited, ~~Wafer~~as ~~from~~appropriate ~~hospital~~to ~~pharmacies~~operations. ~~decreases~~Accordingly, orwe ~~SPD~~had ~~decreases~~fixed ~~the~~interest ~~amount~~rate iton ~~keeps~~$0.8 million inof ~~its~~our ~~inventory~~June 30, 2005 ~~SPD~~financial ~~may~~obligations ~~decrease~~at 2.78%. The interest rate swap oragreement ~~stop~~has ~~making~~the ~~additional~~same ~~purchases~~maturity ofdate as the ~~product~~financial ~~from~~obligation and usexpires in April 2006. ~~The~~We do not speculate on the future ~~result~~direction of ~~such~~interest arates ~~decrease~~nor ~~would~~do ~~most~~we ~~likely~~use these derivative financial instruments for trading purposes. In the event of non-performance by the counter party, we could be ~~our~~exposed ~~reporting~~to ~~lower~~market ~~sales~~risk ofrelated ~~GLIADEL®~~to ~~Wafer~~interest rates.

~~We cannot be~~ ~~certain~~In ~~that~~January 2005, we ~~will~~paid beoff ~~able~~the to$17.2 million ~~maintain~~outstanding principal orbalance ~~increase~~on ~~sales~~the ~~of AGGRASTAT®~~Wachovia ~~Injection~~term loan, ~~nor~~ ~~can~~and weas bea ~~certain~~result, the ~~that~~related wecash ~~will~~collateral beaccount ~~able~~balance tohas ~~expand~~been released and the ~~labeled indications~~related ~~for~~swap ~~AGGRASTAT®~~agreement ~~Injection~~has been paid and terminated.

~~When~~Item ~~we purchased AGGRASTAT® Injection from Merck, Merck had not been actively promoting the product in the United States and product sales were in decline~~4. ~~Our~~Controls ~~strategy for reintroducing AGGRASTAT® Injection into the United States marketplace involves actively promoting the product~~ and ~~conducting~~ ~~an additional clinical trial for AGGRASTAT® Injection, in order to seek from the FDA expanded labeling for use in percutaneous coronary intervention, or PCI~~Procedures. Until we receive approval for use in PCI, we are not promoting the use of the product in catheterization laboratories. We cannot be certain that our promotion of the product will let us maintain or lead to increased sales based on the product’s current indication. For example, although we have begun our active promotion efforts, sales for AGGRASTAT® Injection have not met our original expectations and are lower than the sales level achieved by Merck without active promotion. Additionally, we may not be able to reach an understanding with the FDA if we submit a protocol under the special protocol assessment procedure as to an appropriate clinical trial design in order to expand the indications for AGGRASTAT® Injection, the clinical trial may be cost prohibitive to conduct, we may not be able to fully enroll the clinical trial or assure you that if conducted the clinical trial will be successful. Even if we are able to reach an understanding with the FDA and even if the trial is successful, we cannot be certain that the expanded indication will lead to increased sales or market share. At this time we are not able to predict when, if ever, a trial to support an expanded indication can commence.

~~We depend~~ ~~upon~~Disclosure ~~Merck~~Controls toand ~~supply~~Procedures: usUnder the supervision and with the ~~active~~participation ~~pharmaceutical~~of our management, including our ~~ingredient~~Chief ~~for~~Executive ~~Aggrastat~~Officer and ~~for~~the ~~finished~~Chief ~~product~~Financial Officer, we have evaluated the effectiveness of ~~Aggrastat~~our disclosure controls and procedures (as defined in ~~vials.~~Exchange WeAct ~~will~~Rules 13a-15(e) under ~~depend~~the ~~upon~~Securities ~~Baxter~~Exchange ~~Healthcare~~Act ~~Corporation~~of ~~to provide~~1934, usas ~~with~~amended ~~finished~~(or ~~product~~the “Exchange Act”), as of ~~Aggrastat~~June 30, in2005 (the ~~bags~~“Evaluation Date”.) Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective.

~~Aggrastat®~~Changes ~~Injection consists of an active pharmaceutical ingredient, or API, which is sold as finished product~~ in ~~both~~Internal ~~vials~~Control ~~and~~over ~~bags.~~Financial ~~Merck is obligated to supply us~~Reporting: ~~with~~There ~~the~~have ~~API~~been ~~until~~no ~~2014.~~changes ~~Under~~in our ~~agreement~~internal ~~with~~control ~~Merck, we are~~over ~~obligated~~financial toreporting ~~purchase~~(as ~~all~~defined ofin ~~our~~Rules 13a-15(f) ~~requirements of API from Merck.~~and In15d-15(f) under the ~~event~~Exchange ofAct) ~~Merck’s~~during ~~breach of~~ the ~~agreement,~~quarter weended ~~may~~on ~~seek~~the anEvaluation ~~alternative~~Date ~~source~~that ofhas ~~API.~~materially ~~However~~affected, weor ~~have not~~is ~~investigated~~reasonably ~~alternative~~likely ~~sources, and we may not be able~~ to ~~procure~~ anmaterially ~~alternative~~affect ~~source~~our ofinternal ~~API.~~control ~~Should we succeed in~~over ~~procuring~~financial ~~an alternative source of API, we would still need to pay a royalty to Merck for the use of the API until 2014~~reporting. Because we depend upon this relationship with Merck for key ingredients of Aggrastat, the limited duration of Merck’s obligation to us, and the potential lack of an alternative provider may adversely affect the operation of our business.

35 ~~We sell Aggrastat primarily in 250 ml and~~ ~~100 ml bags, which will be filled for us by Baxter~~ Healthcare Corporation, or Baxter, under an exclusive manufacturing agreement that we executed with them on July 1, 2004. This agreement provides us with certain remedies if Baxter is not able to perform its obligations to us.

35 PART II. OTHER INFORMATION

~~Regardless,~~Item if1. ~~Baxter~~Legal ~~is not able to provide us with finished bags of Aggrastat, we may not be able to provide Aggrastat to our customers, which may adversely affect our business.~~ Proceedings

~~We also sell Aggrastat in vials, which we purchase from Merck~~None. ~~These vials are manufactured for Merck by a~~ third party contract manufacturer. Merck’s contractual relationship with this contract manufacturer lasts until December 31, 2004. Under our agreement with Merck, we are entitled to enter into a direct relationship with this contract manufacturer to obtain vials of Aggrastat. If we do not enter into a direct relationship with this contract manufacturer, we may continue to receive vials through Merck. If we are not able to procure vials of Aggrastat through Merck or otherwise, we may not be able to meet the demands of our customers for vials and this inability may adversely affect our business.

~~The~~Item ~~amount~~2. ~~of inventory~~Unregistered Sales of ~~AGGRASTAT® Injection~~Equity atSecurities ~~pharmaceutical~~and ~~wholesalers~~Use ~~may negatively affect our sales~~ of ~~the product.~~ Proceeds

~~AGGRASTAT® Injection was sold by Merck to pharmaceutical wholesalers, among other customers~~None. ~~These~~ wholesalers buy quantities of products to resell to hospitals, pharmacies and other end users. Oftentimes, when they think that a pharmaceutical company may increase the price of a product, they order additional quantities of the product, in order to purchase under existing sales and marketing programs, or at the lower price. When we purchased AGGRASTAT® Injection from Merck, we could not be certain what quantity of AGGRASTAT® Injection wholesalers were maintaining. The amount of inventory of the product that pharmaceutical wholesalers had at the time that we acquired the product or currently have, could negatively affect our sales of the product.

~~Paul~~Item ~~Royalty Funds is entitled to a portion of our revenues, which may limit our ability to fund some of our operations~~3. IfDefaults weUpon doSenior not achieve certain sales targets for GLIADEL® Wafer and AGGRASTAT® Injection, Paul Royalty Funds may be entitled to a greater percentage of our revenues, revenues from future products we may acquire or certain of our product candidates. Securities

~~Under the terms of our Revenue Interest Assignment Agreement with Paul Royalty Fund, L~~None.~~P. and Paul~~ Royalty Fund Holdings II, who we refer to as Paul Royalty Funds or PRF, from October 28, 2003, through December 31, 2006, PRF is entitled to receive 10% of our GLIADEL® Wafer and AGGRASTAT® Injection combined annual net sales up to $75 million, and 2.5% of those combined annual net sales in excess of $75 million, and from January 1, 2007, through December 31, 2012 (the end of the term of the financing arrangement with PRF), these percentages are 17.5% and 3.5%, respectively. If combined GLIADEL and AGGRASTAT annual net sales are less than $48.3 million, $60.2 million, or $80.6 million in 2004, 2005, and 2006, respectively, then PRF will receive the higher of the minimum payments for such years described below or 12.5% of combined GLIADEL and AGGRASTAT net sales. If GLIADEL and AGGRASTAT net sales are less than $75 million in any of the years 2007 through 2012, then PRF will receive the higher of the minimum payments for such years described below, or 22.5% of combined GLIADEL and AGGRASTAT net sales. During each year of the term of the arrangement with PRF, PRF will be entitled to receive a portion of revenues from products that we may acquire in the future, or of AQUAVAN® Injection and GPI 1485 (each a product candidate of ours), in the case that our calculated annual obligation(s) to make royalty payments under the Revenue Interest Assignment Agreement (based upon the combined net sales of GLIADEL and AGGRASTAT) are less than $6.4 million for 2004, $7.6 million for 2005, $8.3 million for 2006, $15.3 million for 2007, $15.5 million for 2008, $15.8 million for 2009, $16.0 million for 2010, or $15.9 million for 2011 and 2012, respectively. We will pay PRF minimum royalties of $5.0 million in 2004, $6.3 million in 2005, $7.5 million in 2006, $10.0 million in each of 2007-2009 and $12.5 million in each of 2010-2012. PRF is also entitled to receive portions of amounts payable to us on the resolution of future intellectual property disputes involving GLIADEL or AGGRASTAT and on any future sale of ex-North American marketing rights to GLIADEL. In addition to its revenue interest in our products or future products, as the case may be, PRF received five-year warrants to purchase 300,000 shares of our common stock at an exercise price of $9.15 per share.

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

~~Under certain~~ ~~circumstances,~~Our ~~Paul~~stockholders ~~Royalty~~voted ~~Funds~~on ~~may~~four ~~require~~items usat ~~to repurchase its revenue interest,~~ the ~~payment~~Annual ofMeeting ~~which may significantly~~of ~~deplete~~Stockholders ~~our~~held ~~cash~~on ~~resources~~May 4, ~~or limit our ability to enter into~~2005: ~~significant business transactions.~~

~~PRF~~1. ~~may~~The beelection ~~entitled~~of todirectors ~~require us~~ to ~~repurchase its~~serve ~~revenue~~on ~~interest~~our ~~under~~Board ~~the~~of ~~following~~Directors ~~circumstances: (1) if~~for wea ~~fail~~term toof ~~maintain~~one anyear ~~escrow~~and ~~account~~until ~~funded~~their ~~with eight~~successors ~~quarters~~are ofelected ~~minimum~~and ~~payments~~qualified; to2. ~~PRF~~The orratification ~~fail~~of tothe ~~maintain~~selection ~~at least~~of ~~$20 million~~KPMG ofLLP ~~net~~as ~~working~~our ~~capital,~~independent ~~(2) if~~registered ~~we fail~~public toaccounting ~~make~~firm ~~our~~for ~~minimum~~2005; ~~payments~~3. toThe ~~PRF,~~amendment ~~(3) if~~of weour ~~sell GLIADEL®~~2002 ~~Wafer~~Stock Award and ~~AGGRASTAT®~~Incentive ~~Injection~~Plan (~~with~~the ~~PRF having~~“Incentive ~~partial~~Plan”) ~~rights~~ to ~~make~~(i) usincrease ~~repurchase its interest in~~ the ~~event~~ ofnumber ~~the sale~~ of ~~one,~~shares ~~but~~available ~~not~~for ~~both~~issuance ~~products),~~under ~~(4) upon~~ the ~~occurrence~~Incentive ofPlan aby ~~bankruptcy~~1,500,000 ~~or similar event~~shares, orand (5ii) ~~upon certain~~increase ~~conditions~~the ~~related~~number ~~to a change~~ of ~~control~~shares ofother ~~us.~~than ~~The repurchase~~non-incentive ~~amount~~stock ~~guarantees~~options ~~PRF a return in an amount over its initial investment and is reduced based on payments~~ that wemay ~~have previously~~be ~~made~~issued tounder ~~PRF prior to~~ the ~~time~~Incentive ~~that~~Plan ~~its~~by ~~interest is repurchased~~1, ~~but the repurchase price may never exceed three and a half times PRF’s initial investment~~000,000 ~~or $147 million~~shares; 4. The ~~exercise~~amendment of ~~this repurchase right may significantly impair~~ our ~~ability~~2002 toEmployee ~~fund~~Stock ~~our~~Purchase ~~operations. Additionally,~~Plan ~~because~~(the ~~PRF~~“Stock ~~would~~Purchase bePlan”) ~~entitled~~ to ~~exercise~~increase ~~this repurchase~~the ~~right~~number ~~upon a change~~ of ~~control~~shares ofavailable ~~us,~~for orissuance ~~upon~~under the ~~sale~~ ofStock ~~GLIADEL®~~Purchase ~~Wafer~~Plan orby ~~AGGRASTAT® Injection~~400,000 ~~we may not be able to effect a business transaction that would have one of these results~~shares.

~~We have~~ ~~pledged~~The ~~our~~nominees ~~assets~~for ~~related~~director ~~to GLIADEL®~~were ~~Wafer~~elected ~~and AGGRASTAT®~~based ~~Injection~~on tothe ~~Paul Royalty Funds;~~following ~~therefore, we may not be free to utilize those assets at our~~votes: ~~discretion.~~

PRF has been granted a security interest in the intellectual property assets related to GLIADEL® Wafer and AGGRASTAT® Injection, which in the aggregate accounted for all of our net product revenue of $21.7 million and $19.5 million for the year ended December 31, 2003 and for the six months ended June 30, 2004, respectively. As of June 30, 2004, the intangible assets related to GLIADEL® Wafer and AGGRASTAT® Injection were $79.4 million, or approximately 35% of total assets. We, therefore, may not be free to utilize those assets at our discretion, such as selling or outlicensing rights to part or all of those assets, without first obtaining the permission of PRF. This requirement could delay, hinder or condition, our ability to enter into corporate partnerships or strategic alliances with respect to these assets.


Nominee	Votes For		Votes Withheld

George L. Bunting, Jr.		37,645,486		3,980,397
Joseph R. Chinnici		37,877,691		3,748,192
Barry M. Fox		37,762,283		3,863,600
Elizabeth M. Greetham		37,408,654		4,217,229
Joseph Klein, III		37,898,291		3,727,592
Dean J. Mitchell		38,601,278		3,024,605
Ronald M. Nordmann		38,043,158		3,582,725
Craig R. Smith, M.D.		37,739,817		3,886,066
Solomon H. Snyder, M.D.		38,123,886		3,501,997
David C. U’Prichard, Ph.D.		33,569,783		8,056,100

The ~~integration~~proposal ~~of AGGRASTAT®~~to ~~Injection into~~ratify ~~our~~the ~~business~~selection ~~and~~of ~~our~~KPMG ~~clinical~~LLP ~~development~~as ~~plans for~~independent ~~AGGRASTAT®~~registered ~~Injection~~public ~~and AQUAVAN®~~accounting ~~Injection~~firm ~~will~~for ~~require~~2005 ~~significant~~received the ~~additional~~following ~~capital.~~votes:

In• ~~order (1) to successfully integrate AGGRASTAT® Injection into our business~~40, ~~which includes expanding our commercial operations and (2) to conduct clinical trials for AQUAVAN® Injection and to expand the labeled indication of AGGRASTAT® Injection~~631,679 wevotes will require significant additional capital resources within the next eighteen months. Although we know that we will need significant additional capital to undertake these activities, we cannot reasonably estimate the amount due to the uncertainties involved with these activities. For example, with respect to a clinical trial to expand the labeled indication for AGGRASTAT® Injection, we do not know the size or nature of the clinical trial that the FDA will require us to conduct, including the number of patients in the trial, the clinical endpoints for the trial, whether the trial will require the use of concomitant medications and the cost of such medications or the duration of the trial. With respect to the Phase III clinical trials of AQUAVAN® Injection, we do not know the number of procedural sedation settings that the FDA will require us to test in order to receive approval to• market the drug for a broad range of brief diagnostic or therapeutic procedures. The results of these determinations can cause our capital requirements to vary considerably. This additional financing may take the form of an offering of debt or equity972,831 ~~and~~votes ~~that~~against ~~offering~~• ~~could be material in size. If we conduct a primary equity offering~~21,373 the issuance of the additional shares of common stock may be dilutive to our existing stockholders and may have a negative effect on the market price of our stock. We do not know if those capital resources will be available to us. If they are not available, we may not be able to successfully execute on these business objectives or on any other business or operational goals. abstentions

37 There were no broker non-votes for this item.

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

The ~~research,~~proposal ~~development~~to ~~and~~amend ~~commercialization of~~the ~~pharmaceutical~~2002 ~~drugs~~Stock ~~involve~~Award ~~significant~~and ~~risk.~~Incentive ~~Before~~Plan ~~a drug~~to ~~can~~increase bethe ~~commercialized,~~number ~~we,~~of orshares aavailable ~~future~~received ~~corporate~~the ~~partner will~~following ~~have to~~votes:

• ~~expend substantial capital and effort to develop our product candidates further~~19,111,489 ~~which~~votes ~~includes~~for ~~conducting~~approval ~~extensive and expensive pre-clinical animal studies and human clinical trials;~~ • ~~apply for and obtain regulatory clearance to develop~~5,624,488 ~~market~~votes ~~and~~against ~~sell such product candidates; and~~ • ~~conduct~~33,448 ~~other costly activities related to preparation for product launch.~~abstentions

InThere ~~some~~were ~~of our research programs~~16, we are using compounds that we consider to be “prototype” compounds in the research phase of our work. By prototype compounds we mean compounds that we are using primarily to establish that a relevant scientific mechanism of biological or chemical action could have commercial application in diagnosing856,458 ~~treating~~broker ~~or preventing~~non-votes ~~disease. We generally do not consider our prototype compounds to be lead compounds acceptable~~ for ~~further development~~this ~~into a product because of factors that make them unsuitable as drug candidates~~item. ~~These factors may include the~~ ability for the compound to be absorbed, metabolized, distributed and excreted from the body. In order to develop commercial products, we will need to conduct research using other compounds that share the key aspects of the prototype compounds but do not have the unsuitable characteristics. Identifying lead compounds may not always be possible. Our current research programs are examples of programs where we have not yet identified lead compounds suitable for drug candidates. Identifying lead compounds may not always be possible.

InThe ~~addition,~~proposal ~~our product candidates are subject~~ to amend the ~~risks~~2002 ofEmployee ~~failure~~Stock ~~inherent~~Purchase inPlan to increase the ~~development~~number of ~~products based~~shares onavailable ~~new~~received ~~and unsubstantiated technologies. These risks include~~ the ~~possibility that~~following votes:

• ~~our new approaches will not result in any products that gain market acceptance; • a product candidate will prove to be unsafe or ineffective~~22,976,576 orvotes ~~will otherwise fail to receive and maintain regulatory clearances necessary~~ for ~~development~~approval ~~and marketing;~~ • ~~a product~~1, ~~even if found to be safe and effective~~764,529 ~~could~~votes ~~still be difficult to manufacture on the scale necessary~~ for ~~commercialization~~against ~~or otherwise not be economical to market;~~ • ~~a product will unfavorably interact with other types of commonly used medications~~28,733 thus restricting the circumstances in which it may be used; • third parties may successfully challenge our proprietary rights protecting a product; • proprietary rights of third parties will preclude us from manufacturing or marketing a new product; or • third parties will market superior or more cost-effective products.abstentions

AsThere awere ~~result~~16, ~~our activities~~856,045 ~~either~~broker ~~directly~~non-votes ~~or through~~for ~~future~~this ~~corporate partners, may not result in any commercially viable products~~item.

WeItem ~~will depend~~5. onOther ~~collaborations with third parties for the development and commercialization of our products.~~ Information

~~Our~~Risk ~~resources are limited; and therefore, our~~Factors business strategy requires us to depend on either corporate collaborations, strategic financings or both, in order to develop one or more of our product candidates through to commercialization. In developing our product candidates, we may enter into various arrangements with:

• Investing ~~corporate~~in our securities involves a high degree of risk. Before making an investment decision, you should carefully consider the risk factors set forth herein, as well as other information we include in this report and ~~financial~~the ~~partners;~~additional information •in ~~academic~~the ~~investigators;~~other •reports ~~licensors~~we offile ~~technologies;~~with the Securities and Exchange •Commission ~~licensees~~(the “SEC” or the “Commission”). If any of the following risks actually occur, our ~~technologies~~business could be harmed. In such case, the trading price of our securities could decline and you could lose all or part of your investment.

38 Risks Related to the Merger

If wethe ~~are~~proposed ~~unable~~merger ~~to enter into such arrangements,~~with ~~our~~MGI ~~ability~~Pharma tois ~~proceed~~not ~~with the research~~completed, ~~development, manufacture and/or sale of product candidates may be limited and we may have to alter or curtail~~ our business ~~objectives based on our capital resources. If we do so, it~~ could ~~result~~be ~~in delaying~~materially ~~the~~and ~~progress~~adversely ofaffected ~~pre-clinical research or clinical trials,~~ and ~~consequently,~~ ~~the~~our ~~eventual~~stock ~~commercialization~~price ofcould ~~a marketed product based on one of these programs, or eliminating one or more research or development programs from our business objectives~~decline.

InWe ~~trying~~have toentered ~~attract~~into ~~corporate~~an Agreement and ~~financial~~Plan of Merger (or Merger ~~partners~~Agreement), wedated ~~face~~as ~~serious~~of ~~competition~~July 20, ~~from~~2005 ~~other~~with ~~small~~MGI Pharma, Inc. ~~pharmaceutical~~(or ~~companies~~MGI ~~and~~Pharma,) ~~the~~under ~~in-house~~which ~~research~~MGI ~~and~~Pharma would acquire us through ~~development~~the ~~staffs~~merger of ~~larger~~a ~~pharmaceutical~~wholly ~~companies.~~owned subsidiary of MGI Pharma with and ~~Additionally,~~into weGuilford ~~may~~Pharmaceuticals ~~not~~Inc. beUpon ~~successful~~the inclosing ~~attracting~~of ~~corporate~~the ~~and~~merger, ~~financial~~the ~~partners~~holders ~~(“collaborators”)~~of ~~over~~our ~~other~~outstanding common stock will receive ~~companies~~consideration ~~because~~consisting ~~(i) their~~of ~~research~~a ~~programs~~fractional ~~may~~share beof ~~more~~MGI ~~attractive~~Pharma’s common stock worth $2.625, subject to a ~~collaborator~~collar, and ~~(ii) their~~$1.125 ~~stage~~ in ~~the research~~cash. ~~process~~The ~~may~~merger beis ~~more~~subject ~~advanced~~to customary closing conditions, ~~(iii) they~~including ~~may~~stockholder ~~have~~approval, customary regulatory ~~synergies~~approvals ~~with~~and ~~the~~other ~~collaborator’s~~closing ~~existing~~conditions. ~~research programs~~Therefore, orthe ~~(iv) they~~merger may not be completed or may ~~agree~~not tobe ~~terms~~completed ~~and~~in ~~conditions~~the ofexpected ~~the~~time ~~collaboration~~period. ~~that~~If ~~are~~the ~~more~~Merger ~~favorable~~Agreement tois terminated, the ~~collaborator~~market ~~than~~price weof ~~would~~our ~~otherwise~~common ~~agree.~~stock Itwill islikely ~~common~~decline, ~~practice~~as inwe ~~many~~believe ~~corporate~~that ~~partnerships~~our inmarket ~~our~~price ~~industry~~reflects ~~for~~an assumption that the ~~larger~~merger will ~~partner~~be tocompleted. In addition, our stock price may be adversely ~~have~~affected ~~responsibility~~as ~~for~~a ~~conducting~~result ~~pre-clinical~~of ~~studies~~the fact that we have incurred and will ~~human~~continue ~~clinical~~to ~~trials~~incur ~~and/or~~significant ~~preparing~~expenses ~~and~~related ~~submitting~~to the merger ~~applications~~prior ~~for~~to ~~regulatory~~its ~~approval~~closing ofthat ~~potential~~will ~~pharmaceutical~~not be recovered if the merger is ~~products~~not completed. ItIf the Merger Agreement is ~~possible~~terminated ~~that~~under certain ~~this~~circumstances, ~~will~~we may be ~~the~~obligated ~~case~~to ~~with~~pay ~~future~~MGI Pharma a ~~arrangements~~termination fee of ~~ours~~$7.0 million. IfAs a ~~collaborative~~consequence ~~partner~~of ~~fails~~the failure of the merger to ~~develop~~ be completed, as well as of some or ~~commercialize~~all of ~~successfully~~these ~~any~~potential effects of ~~our~~the ~~product~~termination of the Merger ~~candidates~~Agreement, weour ~~may~~business ~~not~~could be ~~able~~materially toand ~~remedy~~adversely affected ~~this~~in ~~failure~~that ~~and~~concerns about our viability are likely to increase, making it more difficult to retain employees and ~~could~~existing ~~negatively~~customers ~~affect~~and ~~our~~to generate new business.

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

WeThe ~~have licensed~~fact ~~some~~that ofthere ~~our~~is ~~GPI 1485 development and commercialization~~a ~~rights~~merger topending ~~Symphony~~could ~~Neuro~~have ~~Development Company (“SNDC”) and will not receive any future royalties or revenues with respect to this intellectual property unless we exercise~~ an ~~option~~ toadverse ~~acquire~~effect ~~SNDC~~on inour ~~the future. We may not have the~~business, ~~financial~~revenue ~~resources~~and toresults ~~exercise~~of ~~this option~~operations.

WeWhile ~~have licensed to SNDC our rights to GPI 1485 for some indications in~~ the ~~United~~merger ~~States.~~is ~~SNDC~~pending, ~~will~~it ~~invest~~creates ~~up to~~uncertainty ~~$40 million to advance GPI 1485 through clinical~~about ~~development in four indications: Parkinson~~Guilford’s ~~disease, peripheral nerve injury, including post-prostatectomy erectile dysfunction, HIV-neuropathy and HIV-dementia~~future. ItAs isa ~~expected that~~result ~~the $40 million clinical development budget will be fully expended in approximately two years. In exchange for the license rights and for five-year warrants to purchase 1.5 million shares~~ of ~~our~~this ~~common stock at $7.48 per share~~uncertainty, we ~~received~~customers amay ~~purchase~~decide ~~option~~to ~~allowing us~~delay, ~~in our discretion~~defer, ~~to acquire~~or ~~all~~cancel ofpurchases ~~the equity~~ of ~~SNDC. The purchase option is~~our ~~exercisable~~products byor usto atenter ~~any~~into ~~time~~other ~~beginning~~transactions onwith ~~April 1,~~us ~~2005~~pending ~~and~~completion ~~ending~~of on the ~~earlier~~merger ~~of (i) March 31, 2007,~~ or ~~(ii) the~~ ~~90th~~termination ~~day~~of ~~after~~ the ~~date~~Merger ~~that SNDC provides us with~~Agreement. ~~financial~~If ~~statements~~these ~~showing~~decisions ~~cash~~represent ~~and~~a ~~cash~~significant ~~equivalents~~portion of ~~less~~our ~~than~~anticipated ~~$2 million~~revenue, atour anresults ~~exercise~~of ~~price~~operations ~~starting at $75.1 million in April 2005~~ and ~~increasing incrementally to~~quarterly ~~$119.8 million~~revenues incould ~~January 2007. The purchase option may~~ be ~~paid~~ insubstantially ~~cash,~~below ~~or in our common stock, at our sole discretion, provided that our common stock may not constitute more than 50% of~~ the ~~consideration~~expectations ~~tendered for payment~~ of ~~the purchase option~~market ~~exercise price~~analysts.

IfIn weaddition, ~~elect~~while ~~to exercise~~ the ~~purchase~~merger ~~option~~is pending, we ~~will~~ beare ~~required~~subject to ~~make~~ a ~~substantial cash payment or to issue~~ ~~a substantial~~ number of ~~shares~~risks of our common stock, or enter into a financing arrangement or license arrangement with one or more third parties, or some combination of these. A payment in cash would reduce our capital resources. A payment in shares of our common stock could result in dilution to our stockholders at that ~~time. Other financing or licensing alternatives~~ may ~~be expensive~~adversely oraffect ~~impossible~~our tobusiness, ~~obtain. The exercise of the purchase~~revenue ~~option will likely require us to record a significant charge to earnings~~ and ~~may adversely impact future operating~~ results. ~~If we~~of ~~do not exercise the purchase option prior to its expiration~~operations, ~~our~~ ~~rights in and to~~including:

39 • the diversion of management and employee attention and the unavoidable disruption to our relationships with customers and vendors may detract from our ability to grow revenues and minimize costs; • we have and will continue to incur significant expenses related to the merger prior to its closing; and • we may be unable to respond effectively to competitive pressures, industry developments and future opportunities.

~~SNDC~~ Some ~~with~~of ~~respect~~our todirectors ~~the GPI 1485 programs will~~and ~~terminate.~~executive ~~Additionally,~~officers wehave ~~may~~interests ~~not~~that ~~have~~differ ~~the~~from ~~financial~~those ~~resources~~of our tostockholders ~~exercise~~in ~~the~~recommending ~~purchase~~that ~~option,~~our ~~which~~stockholders ~~may~~vote ~~result~~ in ~~our~~favor of ~~loss~~adoption of ~~these~~ ~~rights~~the merger agreement.

We Certain ~~may~~of beour executive officers and directors have interests ~~unable~~in tothe ~~obtain~~merger ~~proprietary~~that ~~rights~~are different from and in addition to ~~protect~~the interests of our ~~products~~stockholders generally. These interests include change of control and severance payments that are due as a ~~services~~result of the merger. In addition, ~~permitting~~either ~~competitors~~the toadoption ~~duplicate~~by our ~~them~~stockholders of the Merger Agreement or the completion of the merger will result in the accelerated vesting of stock options that have been granted under our equity compensation plans to employees, executive officers and directors. Restricted stock units held by our executive officers will also vest immediately prior to the merger.

~~Any~~MGI ~~success~~Pharma ~~that~~also weagreed ~~have~~in ~~will~~the ~~depend~~Merger inAgreement ~~large part~~to onindemnify ~~our~~and provide ~~ability~~liability insurance to ~~obtain,~~our ~~maintain~~officers and ~~enforce~~directors. ~~intellectual~~At ~~property~~the ~~protection~~effective ~~for~~time ~~our~~of ~~products~~the ~~and~~merger, ~~processes~~our ~~and~~current tochief executive ~~license~~officer ~~patent~~Dean ~~rights~~Mitchell ~~from~~will ~~third~~be ~~parties~~appointed to MGI Pharma’s board of directors.

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

~~The~~We ~~rules~~have ~~and~~contracts ~~criteria~~with ~~for~~suppliers, ~~receiving~~distributors, ~~and~~customers, ~~enforcing~~licensors aand ~~patent~~other ~~for~~business ~~pharmaceutical~~partners. ~~and~~Various ~~biotechnological~~contracts require ~~inventions~~us ~~are~~to inobtain ~~flux~~consent ~~and~~from ~~are~~these ~~unclear~~other parties in ~~many~~connection ~~respects. The~~with ~~range~~the ofmerger. ~~protection~~If ~~given~~ these ~~types~~third-party ofconsents ~~patents~~cannot isbe ~~uncertain,~~obtained on ~~and~~favorable terms, the combined company may suffer a ~~number~~loss of potential ~~our~~future ~~product~~revenue ~~candidates~~and ~~are~~may ~~subject~~lose torights ~~this~~that are material ~~uncertainty~~to the business of the combined company.

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

We ~~are~~estimate ~~aware~~that ofwe atwill ~~least~~incur ~~one~~significant ~~company~~direct ~~that has~~transaction ~~asserted~~costs ~~publicly~~in ~~that~~connection itwith ~~has~~the ~~submitted~~merger. ~~patent~~Our ~~applications~~costs in connection ~~claiming~~with the ~~use~~merger ofwill ~~certain~~be ofexpensed ~~its~~in ~~immunosuppressive~~the ~~compounds~~periods in which they ~~and~~are ~~multi-drug~~incurred. ~~resistance~~In ~~compounds~~addition, ~~for~~the ~~nerve~~merger ~~growth applications.~~with ~~That~~MGI ~~company~~Pharma ~~also~~has required ~~stated~~and ~~that~~is itexpected ~~has~~to ~~issued~~continue ~~U.S.~~to require substantial ~~patents~~management ~~and~~time, ~~pending~~attention Uand resources.S. ~~applications~~We ~~which~~believe ~~claim~~the combined ~~compounds~~company ~~that~~ may beincur ~~useful~~charges into ~~nerve~~operations, ~~growth~~but ~~applications.~~cannot reasonably Weestimate ~~cannot~~those ~~give~~costs ~~any assurance~~at asthis totime, in the ~~ability~~quarter ofin which ~~our~~the ~~patents~~merger ~~and~~is ~~patent applications~~completed, to ~~adequately~~reflect ~~protect~~costs ~~our~~associated ~~neurotrophic product~~with ~~candidates~~integrating the two companies. ~~Also,~~There ~~our~~is ~~neurotrophic~~no ~~product~~assurance ~~candidates~~that ~~may~~the ~~infringe~~combined orcompany bewill ~~dominated~~not byincur ~~patents~~additional ~~that~~material ~~have~~charges ~~issued~~in subsequent orquarters ~~may issue~~to inreflect ~~the~~additional ~~future~~costs toassociated ~~third~~with the ~~parties~~merger.

In Provisions ~~order to protect our intellectual property position with respect to our neuroimmunophilin ligands, we filed an opposition in 1998 in an effort to prevent the final issuance~~ of ~~a European patent to~~ the ~~company discussed in the above~~Merger ~~paragraph.~~Agreement Inmay ~~2000,~~discourage weother ~~won~~companies ~~the~~from ~~opposition~~entering ~~and~~into ~~the subject patent~~a ~~was~~merger ~~revoked.~~or ~~However,~~other ~~the~~business ~~patentee~~combination ~~has~~with ~~appealed~~us ~~the~~which ~~initial~~might ~~determination~~otherwise ~~and~~benefit ~~the~~our ~~patent could be reinstated~~stockholders.

~~Furthermore,~~The ~~any~~Merger orAgreement ~~all~~prohibits ofus, ~~the~~subject ~~patent applications assigned or licensed~~ to uscertain ~~from third parties may~~limited ~~not~~exceptions, befrom ~~granted.~~soliciting Weor ~~may~~encouraging ~~not~~any ~~develop additional products or~~discussions ~~processes~~regarding ~~that~~a ~~are~~proposal ~~patentable. Any patents issued~~ to ~~us,~~enter ~~or licensed~~into byany ~~us,~~business ~~may~~combination ~~not provide us~~ with any ~~competitive advantages~~party orother ~~adequate~~than ~~protection for our products~~MGI Pharma. ~~Others~~Under ~~may~~specified ~~successfully challenge~~circumstances, ~~circumvent~~we ormay ~~invalidate~~be ~~any~~required ofto ~~our existing~~pay orMGI ~~future~~Pharma ~~patents~~a termination orfee ~~intellectual property.~~of

38 ~~We rely on~~ ~~confidentiality agreements to maintain trade secret protection which may not be adhered to or effective.~~

~~Our~~$7.0 million. ~~policy~~These isrestrictions tomay ~~control~~discourage ~~the disclosure and use~~other ofcompanies ~~our~~from ~~know-how and trade secrets by~~ entering into ~~confidentiality~~ ~~agreements~~a ~~with~~merger ~~our~~or ~~employees,~~other ~~consultants and~~business ~~third~~combination ~~parties.~~with ~~There~~us iswhich amight ~~risk,~~otherwise ~~however,~~benefit ~~that:~~our stockholders.

• If ~~these~~we ~~parties~~do ~~will~~ not ~~honor~~close ~~our~~the merger ~~confidentiality~~prior ~~agreements;~~to •October 1, ~~disputes~~2005, we will ~~arise~~be ~~concerning~~required ~~the~~to incur ~~ownership~~additional ofindebtedness ~~intellectual~~pursuant ~~property~~to orour ~~the~~Line ~~applicability~~ of ~~confidentiality~~Credit Agreement ~~obligations;~~(the or“Credit •Agreement”) ~~disclosure~~with ofMGI ~~our~~Pharma, and ~~trade~~to ~~secrets~~secure ~~will~~our ~~occur~~indebtedness ~~regardless~~with certain of ~~these~~our ~~contractual~~intellectual property ~~protections~~rights.

40 Our Credit Agreement with MGI Pharma provides that, commencing October 1, 2005 until the earlier of December 31, 2005 or the termination of the Merger Agreement, MGI Pharma will advance us up to an aggregate of $18.0 million. The outstanding principal and interest of any amounts advanced to us under the Credit Agreement will be due on December 31, 2006. Guilford’s obligations under the Credit Agreement are secured by a first priority security interest in (i) our NAALADase inhibitors and PARP inhibitors and (ii) Aquavan intellectual property and related assets; provided that such security interest does not attach to any property in which Paul Royalty Fund, L.P. and Paul Royalty Fund Holdings II (collectively “PRF”) maintains a security interest. If we default in our obligations under the Credit Agreement, we will incur additional indebtedness and fees, and may lose certain rights to our intellectual property.

WeThe ~~may~~value ~~not~~of bethe shares of ~~able~~MGI toPharma’s ~~acquire~~common ~~exclusive~~stock ~~rights~~that toour ~~inventions~~stockholders orreceive ~~information~~in ~~resulting~~the ~~from~~merger ~~work~~could ~~performed~~vary ~~under~~as ~~consulting~~a orresult ~~collaboration~~of the fixed exchange ratio ~~agreements~~above and below the collar and fluctuations in the price of MGI Pharma’s common stock.

InAt ~~our~~the ~~business~~effective time of the merger, weeach ~~often~~outstanding ~~work~~share ~~with~~of our ~~consultants~~common stock will be converted into the right to receive a ~~and~~fractional ~~research~~share ~~collaborators~~of atMGI ~~universities~~Pharma’s common stock and ~~other~~$1.125 ~~research~~in ~~organizations~~cash. IfThe ~~any~~stock portion of ~~these~~this ~~consultants~~consideration oris ~~research~~subject to a ~~collaborators~~collar ~~use~~such ~~intellectual~~that, ~~property~~if ~~owned~~MGI byPharma’s ~~others~~common asstock ~~part~~price is ofbetween ~~their~~$23.4345 ~~work~~and ~~with us~~$31.7055, ~~disputes~~our ~~may~~shareholders ~~arise~~will ~~between~~receive total usconsideration ~~and~~of ~~these~~$3.75 per share, consisting of a ~~other~~fractional ~~parties~~share asof MGI Pharma’s common stock equal to $2.625 ~~which~~divided ~~one~~by the average closing price of usMGI ~~has~~Pharma’s common stock, as determined over the ~~rights~~five today trading period ~~intellectual~~ending ~~property~~three ~~related~~trading todays orprior ~~resulting~~to ~~from~~closing of the ~~work~~merger, plus ~~done~~$1.125 Wein ~~support~~cash. ~~and~~If ~~collaborate~~the inaverage ~~research~~closing ~~conducted~~price inof MGI ~~universities,~~Pharma’s ~~such~~common asstock ~~Johns~~is ~~Hopkins,~~equal ~~and~~to inor ~~governmental research~~more ~~organizations~~than $31.7055, each ~~such~~share asof ~~the~~our ~~National~~common ~~Institutes~~stock will be exchanged for 0.0828 of a ~~Health~~share of MGI Pharma’s common stock plus $1.125 Wein ~~may~~cash. ~~not~~If the beaverage ~~able~~closing toprice ~~acquire~~of ~~exclusive~~MGI ~~rights~~Pharma’s tocommon ~~the~~stock is ~~inventions~~equal to or ~~technical~~less ~~information~~than ~~that~~$23.4345, ~~result~~each ~~from~~share ~~work performed~~of byour ~~personnel~~common atstock will ~~these~~be ~~organizations~~exchanged for 0.1120 ~~Also,~~of ~~disputes~~a share of MGI Pharma’s ~~may~~common ~~arise~~stock asplus to$1.125 ~~which~~in ~~party~~cash. ~~should~~In ~~have~~these ~~rights~~circumstances, changes in ~~research~~the price of MGI Pharma’s common stock above or ~~programs~~below ~~that~~these weprices ~~conduct~~will onaffect the value of the consideration that our ~~own~~stockholders orreceive in ~~collaboration~~the ~~with others~~merger, meaning that ~~are~~if ~~derived~~the price ~~from~~of orMGI ~~related~~Pharma’s common stock declines prior to completion of the ~~work~~merger, ~~performed~~the atvalue of the merger consideration ato ~~university~~be orreceived ~~governmental~~by ~~research~~our ~~organization~~stockholders will decrease. InStock ~~addition,~~price invariations could be the ~~event~~result of achanges ~~contractual~~in ~~breach~~the ~~by us~~business, operations ~~some~~or prospects of ~~our collaborative~~MGI ~~research~~Pharma, ~~contracts~~us ~~provide~~or ~~that~~the wecombined company, ~~must~~market ~~return~~assessments of the likelihood that the merger ~~technology~~will ~~rights,~~be ~~including~~completed ~~any~~within ~~patents~~the anticipated time frame or ~~patent~~at ~~applications~~all, togeneral market and economic conditions and other factors which are beyond the ~~contracting~~control ~~university~~of MGI Pharma or ~~governmental~~us. ~~research~~There is no ~~organization.~~provision in the Merger Agreement that guarantees a minimum value for the MGI Pharma’s common stock to be issued at closing or permits Guilford to terminate the merger if MGI Pharma’s common stock declines.

~~Our~~Risks ~~products may~~Related ~~now or in the future infringe upon the proprietary rights of others, which could result in considerable litigation costs or the loss of the right~~ to ~~use or develop products.~~Our Business

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

WeOur ~~may~~ability ~~incur~~to ~~substantial~~pay ~~costs~~the ifrequired weinterest ~~must~~and ~~defend~~principal payments ~~against~~on ~~charges~~our ofdebt ~~infringement~~depends ofon ~~patent~~the orfuture ~~proprietary~~performance ~~rights~~ of ~~third~~our ~~parties~~business. As Weof ~~may~~June 30, ~~also~~2005, ~~incur substantial costs if~~ we ~~find it~~had ~~necessary~~total tolong-term ~~protect~~debt ~~our own patent or proprietary rights by~~and ~~bringing~~revenue ~~suit~~interest ~~against~~obligations ~~third~~of ~~parties~~$117.9 million. We ~~could~~will require ~~also~~substantial ~~lose~~funds ~~rights~~ to ~~develop~~service orour ~~market~~debt ~~products~~obligations orand ~~be required~~ to ~~pay monetary~~ ~~damages~~operate orour ~~royalties~~business toin ~~license~~the ~~proprietary~~future, ~~rights~~including ~~from third parties. In response~~ to ~~actual~~fund orresearch and ~~threatened~~development ~~litigation~~activities, wepre-clinical ~~may seek~~and ~~licenses~~clinical ~~from third parties or attempt~~ testing, to ~~redesign~~manufacture our products orand ~~processes~~ to ~~avoid~~make ~~infringement~~acquisitions. ~~We may not be able~~ ~~to obtain licenses on acceptable terms, or at all, or successfully redesign our products or processes.~~

39 ~~In addition to the risk that we could be a party~~ to patent infringement litigation, the U.S. Patent and Trademark Office could require us to participate in patent interference proceedings, or we may find it necessary to provoke an interference with a third party. These proceedings are often expensive and time-consuming, even if we were to prevail in such proceedings.

We Our ~~rely~~obligations ~~on licensed~~for ~~intellectual~~2005 ~~property~~include ~~for~~approximately $1.9 million ~~GLIADEL®~~in ~~Wafer~~principal ~~and~~payments on our ~~other~~ ~~product~~long-term ~~candidates~~debt. In addition, we are obligated to make payments on our revenue interest obligation as disclosed in the ~~agreements~~PRF ~~for~~risk ~~which~~factor ~~impose~~below. We are obligated to pay ~~requirements~~the onminimum usamount under the PRF agreement of $6.3 million in 2005.

We have ~~licensed~~a ~~intellectual~~history ~~property,~~of ~~including~~net losses. Our historical financial ~~patents,~~results ~~patent~~have ~~applications~~been, and ~~know-how~~we anticipate that our future financial results will be, ~~from~~subject ~~universities~~to fluctuations. Unless we are able to substantially increase our profitability and cash flow from ~~others~~operations compared to historical levels or obtain refinancing, we ~~including~~cannot ~~intellectual~~assure ~~property~~you ~~underlying~~that ~~GLIADEL®~~our business will generate sufficient ~~Wafer,~~cash ~~DOPASCAN®~~flow ~~Injection,~~from ~~AQUAVAN®~~operations ~~Injection~~or ~~and~~that ~~the~~future capital will be ~~neuroimmunophilin~~available ~~ligand~~to ~~technology.~~us ~~Some~~in ofamounts sufficient to enable us to pay our debt, ~~product~~or to fund our other liquidity needs. If we are unable to ~~development~~meet ~~programs~~our ~~depend~~debt onservice obligations or fund our ~~ability~~other liquidity needs, we may be required to ~~maintain~~restructure ~~rights~~or refinance our debt ~~under~~or ~~these~~seek ~~licenses~~additional equity capital or we may be required to sell assets. ~~Under~~We ~~the~~cannot ~~terms~~assure ofyou ~~our~~that ~~license~~if ~~agreements,~~and when required to do so we ~~are~~will ~~generally~~be ~~obligated~~able to: accomplish those actions on satisfactory terms, or at all.

• We ~~exercise~~have ~~diligence~~a inhistory ~~the research and development~~ of ~~these technologies; • achieve specified development~~ losses and ~~regulatory~~our ~~milestones;~~future •profitability ~~expend~~is minimum amounts of resources in bringing potential products to market; • make specified royalty and milestone payments to the party from which we have licensed the technology; and • reimburse patent costs to these partiesuncertain.

41 We may not be able to achieve or sustain significant revenues or earn a profit in the future. Since we were founded in July 1993, with the sole exception of 1996, we have not earned a profit in any year. Our losses for the years ended December 31, 2004, 2003 and 2002, were $87.9 million, $53.9 million and $59.3 million, respectively, and for the six months ended June 30, 2005 were $81.0 million. Our losses result mainly from the significant amount of money that we have spent on research, development and clinical trial activities. As of June 30, 2005, we had an accumulated deficit of $472.4 million. We expect to have significant additional losses over the next several years due to expenses associated with our product candidates related to research, development and clinical trial activities, applying for and obtaining meaningful patent protection and establishing freedom to commercialize and applying for and receiving regulatory approval for our drug product candidates.

InOur ~~addition,~~product ~~these~~candidates ~~license~~are ~~agreements~~in ~~require~~research ~~us to~~or ~~abide~~various bystages ~~record~~of pre-~~keeping~~clinical and ~~periodic~~clinical ~~reporting obligations~~development. ~~Each~~ ~~licensor~~Except ~~has~~for ~~the~~Gliadel ~~power to terminate its agreement if we~~and ~~fail~~Aggrastat, tonone ~~meet~~of our ~~obligations.~~products Ifor weproduct ~~cannot~~candidates ~~meet~~may ~~our obligations~~be ~~under~~sold ~~these~~to ~~license~~the ~~agreements,~~public. weNearly ~~may~~all ~~lose~~of ~~access~~our topast ~~our~~revenues ~~key~~have come ~~technology.~~from:

If• ~~licensed patents covering~~ our ~~products~~sale ~~or product~~and ~~candidates~~distribution ~~are~~of ~~infringed,~~Gliadel weand ~~generally~~more ~~have~~recently ~~the~~of ~~right, but~~Aggrastat; ~~not~~• ~~the~~payments ~~obligation,~~from ~~to bring suit against the infringing party. If we choose to bring suit against an infringing party~~Aventis, ~~the~~ ~~licensor~~Amgen ofand ~~the~~Pfizer ~~technology~~under isnow ~~generally~~terminated ~~required~~agreements ~~to cooperate~~ with ~~the~~each ~~enforcement~~ of ~~the patents that we have licensed. If we do not choose to bring suit against an infringing party~~them, ~~rights~~supporting ~~to enforce~~ the ~~licensed~~research, ~~patents generally~~development ~~revert~~and tocommercialization ~~the licensor. Proceeds received from the successful enforcement~~ of our ~~patent~~product ~~rights~~candidates; ~~are~~• ~~generally~~royalty ~~split between~~payments usfrom ~~and~~Aventis’ ~~the~~sale ~~licensor,~~and ~~with~~distribution ~~the~~of ~~party~~Gliadel; ~~bringing~~and ~~the~~• ~~suit receiving~~payments ~~the~~relating ~~more~~to ~~significant~~patent ~~portion~~licensing ofagreements ~~those~~from ~~proceeds~~Angiotech.

~~Losing~~Presently, ~~our~~we ~~proprietary~~expect ~~rights~~to receive significant revenue only from sales of Gliadel and, in the short term, from Aggrastat. We do not expect that the revenue from these sources will be sufficient to support all our ~~licensed~~anticipated future activities. We ~~technology~~do ~~would~~not ~~have~~expect ato ~~significant~~generate ~~negative~~revenue ~~effect~~from onsales of our product ~~business,~~candidates ~~financial~~for ~~condition~~the ~~and~~next ~~results~~several years, if ever, because of ~~operations.~~the significant risks associated with pharmaceutical product development.

~~Our~~Many ~~license~~factors ~~agreements~~will ~~for~~dictate ~~GLIADEL®~~our ~~Wafer require~~ability us to ~~pay~~achieve ~~a royalty to MIT on sales of GLIADEL®~~sustained ~~Wafer.~~profitability ~~Similarly, we will have to pay milestone and/or royalty payments~~ in ~~connection with~~ the ~~successful development and commercialization of DOPASCAN® Injection~~future, ~~AQUAVAN®~~including: ~~Injection and any products that result from the neuroimmunophilin ligand technology.~~

In• ~~addition,~~ our ~~U.S.~~ability ~~patent~~to ~~protection~~successfully ~~for GLIADEL®~~market, ~~Wafer~~sell, ~~which~~distribute ~~for~~and ~~the~~obtain ~~three~~initial ~~months~~or ~~ended June 30,~~additional ~~2004,~~regulatory ~~accounted~~approvals for ~~approximately~~Gliadel ~~65%~~and ofAquavan; ~~our product~~• ~~sales~~the ~~revenue,~~successful ~~expires~~development inof ~~2006.~~our ~~From~~other ~~and~~product ~~after~~candidates ~~that time~~either on our own, ~~there~~or ~~can~~together bewith nofuture ~~assurance~~corporate ~~that~~partners ~~others~~with ~~will~~whom ~~not~~we enter ~~the market~~into ~~with~~collaborative aor ~~generic~~license ~~copy~~agreements; ofand ~~GLIADEL®~~• ~~Wafer.~~the ~~The availability~~ability ofto ~~such~~in-license aor ~~generic~~acquire ~~copy~~additional ~~could~~products ~~negatively~~in ~~impact~~ our ~~revenues~~ ~~from~~targeted ~~GLIADEL® Wafer~~markets.

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

~~The~~ We ~~U.S.~~will ~~government~~depend ~~holds~~on ~~rights that govern~~Gliadel ~~aspects~~and, ~~of specific technologies licensed~~ to ~~us by third party licensors. These government rights in inventions conceived or reduced to practice under~~ a ~~government-~~limited ~~funded program may include a non-exclusive~~extent, ~~royalty-free,~~Aggrastat ~~worldwide license~~ for ~~the government to use resulting inventions for any governmental purpose~~revenues. ~~In addition, the U.S. government has the right to grant~~ ~~to others licenses under any of these non-exclusive licenses if the government determines that:~~

• Our ~~adequate~~short-term ~~steps~~prospects ~~have~~depend ~~not~~heavily ~~been~~on ~~taken~~sales toof ~~commercialize~~Gliadel ~~such~~and Aggrastat, ~~inventions;~~our •commercial products. Gliadel and Aggrastat accounted for approximately 69% and 31%, respectively, of our total product revenues for the ~~grant~~year isended ~~necessary~~December 31, 2004, toand ~~meet~~approximately ~~public~~69% ~~health~~and or31%, ~~safety~~respectively, ~~needs;~~of our total revenues for the six months ended June 30, 2005. Gliadel was launched commercially in the United States by Aventis and its predecessors in February 1997 after having received approval from the Food and Drug Administration (or •FDA) in September 1996. We do not know whether the ~~grant~~product iswill ~~necessary~~ever gain broader market acceptance. If Gliadel fails to ~~meet~~gain ~~requirements~~broader ~~for~~market acceptance, ~~public~~the ~~use~~revenues ~~under~~we ~~federal~~receive ~~regulations~~from sales of Gliadel would be unlikely to increase.

~~The~~Prior ~~U.S.~~to ~~government~~early ~~also~~2003, ~~has~~we only had approval from the ~~right~~FDA to ~~take~~market ~~title~~Gliadel toin the United States for patients who had a ~~subject~~brain ~~invention~~tumor surgically ifremoved and had recurrent forms of a type of brain cancer called glioblastoma multiforme (or GBM), affecting approximately 3,000 to 4,000 patients annually. On February 25, 2003, we ~~fail~~received FDA approval to ~~disclose~~also ~~the~~market ~~invention~~Gliadel ~~within~~for ~~specified~~patients ~~time~~undergoing ~~limits.~~initial ~~The~~surgery, ~~U.S.~~also ~~government~~known ~~may~~as ~~acquire~~first ~~title~~line therapy, in ~~any~~the ~~country~~United States for malignant glioma in conjunction ~~which~~with wesurgery doand ~~not~~radiation. ~~file~~We aestimate ~~patent~~that the ~~application~~total ~~within~~number ~~specified~~of ~~time~~such ~~limits~~patients to be between 7,000 and 9,000 per year. In the second quarter of 2003 we instituted a new sales and marketing effort for Gliadel for initial surgery. We cannot assure you, however, that we will be successful in this effort or in achieving sales of Gliadel for use in initial surgeries.

~~Federal~~We ~~law~~acquired ~~requires~~Aggrastat ~~any~~from ~~licensor~~Merck ofand anCo., ~~invention~~Inc. on ~~partially~~October 28, ~~funded~~2003. byPrior ~~the~~to ~~federal~~acquiring ~~government~~Aggrastat, towe ~~obtain~~had never marketed and sold a product for cardiovascular conditions. ~~commitment~~Through ~~from~~the ~~any~~end ~~exclusive~~of ~~licensee,~~the ~~such~~first asquarter usof 2005, our efforts to ~~manufacture~~ramp ~~products~~up ~~using~~our ~~the~~sales ~~invention~~of ~~substantially~~Aggrastat inthrough ~~the~~expanded marketing ~~United~~efforts ~~States.~~did ~~Further,~~not ~~these~~meet ~~rights~~our ~~include~~expectations. ~~the~~We ~~right~~recently ofannounced ~~the~~our ~~government~~plans to ~~use~~minimize ~~and~~our ~~disclose~~ongoing ~~technical~~expenses ~~data~~related ~~relating~~ to Aggrastat and ~~licensed~~to ~~technology~~devise ~~that~~and ~~was~~implement ~~developed~~an inexit ~~whole~~strategy orfrom inthe ~~part~~product, atas ~~government~~discussed ~~expense~~above. ~~Several~~We ofcannot ~~our~~assure ~~principal~~you ~~technology~~that ~~license~~we will be successful ~~agreements~~in ~~contain~~our ~~provisions~~efforts ~~recognizing~~to ~~these~~do ~~rights~~so.

~~Pre-clinical~~We will require substantial ~~and~~funds ~~clinical~~in ~~trial~~addition ~~results~~to ~~for~~our existing working capital to develop our product ~~products~~candidates, ~~may~~carry ~~not~~out beour sales and marketing plans and ~~favorable~~otherwise to meet our business objectives.

InWe ~~order~~will torequire ~~obtain~~substantial ~~regulatory~~funds ~~approval~~in ~~for~~addition ~~the commercial~~to ~~sale~~our ofexisting working ~~any~~capital ofto develop our product candidates, weincluding ~~must~~to conduct ~~both pre-~~clinical ~~studies~~trials of Aquavan, to carry out our sales and marketing ~~human~~plans, ~~clinical~~including ~~trials~~our plans for Gliadel and Aquavan, and otherwise to meet our business objectives. We have never ~~These~~generated ~~studies~~enough revenue during any period since our inception to cover our expenses and ~~trials~~have ~~must~~spent, ~~demonstrate~~and ~~that~~expect ~~the~~to ~~product~~continue isto ~~safe~~spend, ~~and~~substantial ~~effective~~funds ~~for~~to ~~the~~continue our research and development and clinical ~~use~~programs ~~for~~and ~~which~~to wesupport ~~are~~our ~~seeking~~sales and ~~approval~~marketing efforts. ~~The~~We ~~results~~cannot ofbe ~~clinical~~certain ~~trials~~that we ~~conduct~~will ~~may~~be ~~not~~able beto ~~successful.~~raise ~~Adverse~~additional ~~results~~capital ~~from~~when ~~any~~we ~~clinical~~need ~~trials~~it, ~~could~~on ~~have~~terms favorable to us, or at all. If we cannot raise additional capital in a ~~negative~~timely manner, ~~effect~~then onwe may not be able meet our business objectives.

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

WeOur ~~also~~revenue ~~face~~and ~~the~~expenses ~~risk~~have ~~that~~fluctuated wesignificantly ~~will~~in ~~not be~~the ~~permitted~~past. toThis ~~undertake~~fluctuation orhas ~~continue~~in ~~clinical~~turn ~~trials~~caused ~~for~~our ~~any~~operating ofresults ~~our~~to ~~product~~vary ~~candidates~~significantly infrom ~~the~~quarter ~~future. Even if we are able~~ to ~~conduct~~ ~~such~~quarter ~~trials,~~and weyear ~~may not be able~~ to ~~demonstrate~~year. ~~satisfactorily~~We ~~that~~expect the ~~products~~fluctuations ~~are~~in ~~safe~~our ~~and~~revenue ~~effective~~ and ~~thus qualify~~expenses ~~for the regulatory approvals needed~~ to continue ~~market~~ and ~~sell them.~~thus ~~Results~~our ~~from~~operating ~~pre-clinical~~results ~~studies~~should ~~and~~also ~~early~~continue ~~clinical~~to ~~trials~~vary ~~are~~significantly. ~~often~~These ~~not~~fluctuations ~~accurate~~may ~~indicators~~be ofdue ~~results~~to ofa variety ~~later-stage~~of ~~clinical~~factors, ~~trials that involve larger human~~including: ~~populations.~~

We• ~~are subject~~the timing and amount of revenue from Gliadel and Aggrastat; • the timing and realization of milestone and other payments from existing and future corporate partners; • the timing and amount of expenses relating to ~~extensive~~our ~~governmental~~research ~~regulation~~and development, ~~which~~product ~~may~~development, ~~result in~~and ~~increased~~manufacturing ~~costs~~activities; and ~~significant~~• ~~delays~~the ~~in,~~extent orand ~~ultimate~~timing ~~denial~~ of costs related to our activities to obtain patents on our inventions and to extend, ~~approval~~enforce ~~for~~and/or defend our ~~product~~patent ~~candidates~~and other rights to our intellectual property.

41 ~~Our research, pre-clinical development and~~ ~~clinical trials, and the manufacturing and marketing of our~~ product candidates are subject to extensive regulation by numerous governmental authorities in the United States and other countries, including the FDA and the DEA. Except for GLIADEL® Wafer and AGGRASTAT® Injection, none of our product candidates has received marketing clearance from the FDA or any foreign regulatory authority.

AsBecause aof ~~condition~~these tofluctuations, ~~approval~~it ofis possible that our ~~product~~operating ~~candidates~~results ~~under~~for ~~development,~~a ~~the~~particular ~~FDA~~quarter ~~could require additional pre-clinical, clinical~~ or ~~other~~quarters ~~studies.~~will ~~Any~~not ~~requirement~~meet ~~that we~~the ~~perform~~expectations ~~additional~~of ~~studies~~public ~~could~~market ~~delay,~~analysts orand ~~increase~~investors, causing the ~~expense~~ market price of, our ~~product~~common ~~candidates’~~stock ~~regulatory~~to ~~approval~~decrease. ~~This~~For ~~delay~~example, orthe ~~increased~~trading ~~expense~~price ~~could~~of ~~have~~our acommon ~~negative~~stock ~~effect~~from ~~on our business. Additionally~~January 1, 2002 to ~~receive regulatory approval~~June 30, we2005 ~~must also~~ranged ~~demonstrate~~from ~~that~~$2.05 ~~the~~to ~~product is capable of being manufactured in accordance with applicable regulatory standards~~$12.55.

We may not be successful in ~~When~~our ~~trying~~attempts to ~~obtain~~minimize ~~regulatory~~our ~~approval,~~ongoing expenses related to ~~significant~~Aggrastat ~~risk~~or ~~exists~~to ~~that:~~implement an exit strategy from this product.

• Our weattempts ~~will~~to ~~not~~minimize beour ~~able~~ongoing expenses related to Aggrastat ~~satisfy~~and to devise and implement an exit strategy from the product, ~~FDA’s~~whether ~~requirements~~occurring ~~with~~before ~~respect~~or toafter ~~any~~our merger MGI Pharma, are contingent upon a number of factors, including our ability ~~drug~~to appropriately manage the process of reducing product development ~~candidates;~~expenses, find and engage qualified purchasers, licensees or •partners ~~even~~for ifthe product and minimize the ~~FDA~~time ~~does~~that it ~~approve~~takes ~~our~~us ~~product~~to ~~candidates~~do so. Our success, ~~the~~if ~~FDA~~any, will ~~approve~~also ~~less~~depend ~~than~~on the consideration that we are able to receive for Aggrastat. Even after consummation of our merger, the ~~full~~consideration ~~scope~~to be received upon disposition of ~~uses~~Aggrastat may not reach acceptable levels. If we do not find and engage qualified purchasers, licensees or ~~labeling~~partners who are willing to provide the consideration that we ~~seek~~determine is reasonable or appropriate, or if it takes a significantly longer amount of time and resources than we presently anticipate to accomplish these objectives, we may not be able to minimize our ongoing expenses related to Aggrastat or be able to implement an exit strategy from the product.

~~Failure~~As of June 30, 2005, our contractual commitments related to the ~~obtain~~Aggrastat ~~regulatory~~Assets ~~drug~~included ~~approvals~~an onagreement awith Baxter ~~timely~~Healthcare ~~basis~~Corporation ~~could~~for ~~have~~the asupply ~~material~~of ~~adverse~~250 ~~effect~~ml onand 100 ml bags of Aggrastat through July 2009, which commits us to purchase approximately $6.1 million of such bags, and $1.3 million of such purchase commitment remains outstanding for the remainder of 2005. Additionally, we had various funding commitments and agreements related to the advancement of our research and development activities, all of ~~business~~which are assignable with the mutual consent of the parties. If we elected to terminate these commitments and agreements, we would be responsible for the costs related to services rendered to date and any irrevocable commitments entered into on our behalf. We currently estimate these costs to be no more than $1.0 million.

~~Even~~Additionally, ifour weability ~~are~~to ~~able~~accomplish toany ~~obtain~~of ~~necessary~~our ~~FDA~~objectives ~~approval,~~regarding ~~the~~Aggrastat ~~FDA~~will ~~may~~depend ~~nevertheless~~on ~~require~~our ~~post-marketing testing~~success ~~and~~in ~~surveillance~~reaching toa mutually ~~monitor~~acceptable ~~the~~arrangement ~~approved~~with ~~product~~PRF ~~and~~regarding our revenue ~~continued~~interest ~~compliance~~agreement with ~~regulatory requirements~~PRF. The ~~FDA~~revenue ~~may~~interest agreement is ~~withdraw~~secured ~~product~~by, ~~approvals~~among ifother wethings, dothe ~~not~~revenues ~~maintain~~from ~~compliance~~Aggrastat ~~with~~and ~~regulatory~~the ~~requirements~~intellectual property related to Aggrastat. ~~The~~Implementing ~~FDA~~a viable ~~may~~exit ~~also~~strategy ~~withdraw~~for ~~product~~Aggrastat will require such an ~~approvals~~arrangement. ifIf ~~problems~~we ~~concerning~~are ~~safety~~not orable ~~efficacy~~to ofreach ~~the~~this arrangement, then we may not be able to successfully minimize our expenses related to this product, ~~occur~~which ~~following~~expenses ~~approval~~include payments owed to PRF.

~~The~~In ~~process~~addition, ofif ~~obtaining~~the ~~FDA~~MGI ~~and~~Pharma ~~other~~merger ~~required approvals~~does ornot ~~licenses~~close and ofwe ~~meeting other regulatory~~are ~~requirements~~unable to ~~test~~divest, ~~and~~partner, ~~market~~license ~~drugs~~or isenter ~~rigorous~~into ~~and~~other ~~lengthy.~~similar Wearrangements ~~have~~for ~~expended~~Aggrastat, ~~and~~we ~~will~~intend ~~continue~~ to ~~expend,~~continue ~~substantial resources in order~~ to ~~do this. We will need to conduct clinical~~sell ~~trials~~Aggrastat, ~~and~~but ~~other~~may ~~studies~~begin ~~on all of our product candidates before we are in~~ a ~~position~~significant ~~to file a new drug application for marketing and~~ sales ~~approval.~~price ~~Unsatisfactory clinical trial~~discount ~~results and other delays in obtaining regulatory approvals or licenses could prevent the marketing of the products we are developing~~program. ~~Until we receive the necessary approvals or licenses~~ ~~and meet other regulatory requirements, we will not receive revenues or royalties related to product sales.~~

In Our ~~addition~~ability to ~~the requirements for product~~realize ~~approval,~~significant ~~before~~value a pharmaceutical product may be marketed and sold in some foreign countries, the proposed pricing for the product must be approved as well. Products may be subject to price controls or limits on reimbursement. The requirements governing product pricing and reimbursement vary widely from ~~country~~ toour ~~country~~early ~~and~~stage ~~can~~“pipeline” ~~be implemented disparately at the~~is ~~national~~dependent ~~level.~~upon Wesuccessful ~~cannot~~collaboration ~~guarantee~~with ~~that any country that has~~external ~~price controls or reimbursement limitations for pharmaceuticals will allow favorable reimbursement and pricing arrangements for our products~~parties.

~~Because~~We ~~controlled~~are ~~drug~~attempting ~~products~~to ~~and~~create value from our early stage pipeline ~~radio~~through licensing, corporate partnerships, sales or other similar transactions. Any such transaction will be dependent upon the cooperation of a third-~~labeled~~party. ~~drugs~~If we are ~~subject~~not successful in reaching reasonable or appropriate agreements with such third parties related to ~~special~~these ~~regulations~~technologies, inwe may not be able to ~~addition~~create significant value from them. Early stage research projects often fail to ~~those~~achieve ~~applicable~~commercial success due to ~~other~~factors such ~~drugs,~~as ~~the~~unsatisfactory ~~DEA~~pre-clinical and ~~the~~clinical testing ~~Nuclear~~results, ~~Regulatory~~regulatory ~~Commission~~approval requirements, ormarket ~~NRC~~acceptance, and ~~may~~reimbursement ~~regulate~~limitations. ~~some~~Additionally, in the absence of support ~~our~~from third parties, we may not be able to continue to ~~products~~fund the research and ~~product~~development ~~candidates,~~of ~~including~~these ~~DOPASCAN®~~early stage pipeline ~~Injection~~technologies. As a consequence, asthese ~~controlled~~technologies ~~substances~~may never provide value to our shareholders.

4342

~~and~~ Timely ~~as radio-labeled drugs. The NRC licenses~~regulatory ~~persons~~approval(s) ~~who~~to ~~use~~market ~~nuclear materials and establishes standards for radiological health and safety. The DEA is responsible for compliance activities for companies engaged in the manufacture~~Aquavan, ~~distribution~~ ~~and~~without ~~dispensing of controlled substances, including~~ the ~~equipment~~requirement ~~and raw materials used in their manufacture and~~for ~~packaging~~monitored inanesthesia order to prevent such substances from being diverted into illicit channels of commerce. Registration is required and other activities involving controlled substances are subject to a variety of record-keeping and security requirementscare, ~~and~~will todirectly ~~permits~~affect ~~and~~whether ~~authorizations and other~~we ~~requirements.~~achieve ~~States~~our ~~often~~financial ~~have requirements for controlled substances as well~~goals. ~~The DEA grants certain exceptions from the~~ requirements for permits and authorizations to export or import materials related to or involving controlled substances. Our potential future inability to obtain exceptions from the DEA for shipment abroad or other activities could have a negative effect on us.

WeIt ~~cannot~~is beessential ~~sure~~to ~~that~~the wesuccess ~~will~~of beour ~~able~~new tobusiness ~~meet~~strategy that ~~applicable~~we ~~requirements~~receive toapproval ~~test,~~from ~~manufacture~~the Food and Drug Administration (FDA) to market Aquavan so that we may launch our sales of ~~controlled~~the ~~substances~~product orduring ~~radio-labeled~~the ~~drugs,~~last orcalendar ~~that~~quarter of 2007. If this approval is significantly delayed, we ~~will~~may benot achieve our ~~able~~financial togoals, ~~obtain~~which ~~additional~~include ~~necessary~~goals ~~approvals~~related ~~permits~~to revenues, total ~~authorizations~~expenses, ~~registrations~~losses and profits. Additionally, if the FDA’s approval of Aquavan limits or ~~licenses~~prohibits our ability to ~~meet~~market the ~~state~~administration of the product without an anesthesiologist, ~~federal~~a ~~and~~nurse ~~international~~anesthetist ~~regulatory~~or ~~requirements~~similar tomedical ~~manufacture~~professional, ~~and~~we do not ~~distribute~~expect ~~such~~to ~~products~~achieve our financial goals.

Our ~~competitors~~ ~~are~~ability ~~pursuing alternative approaches~~ to ~~the same~~significantly ~~conditions~~increase werevenues ~~are~~of ~~working~~Gliadel ~~on.~~will ~~Our~~directly ~~products~~affect ~~use~~whether ~~novel alternative~~we ~~technologies~~achieve ~~and~~our ~~therapeutic~~financial ~~approaches, which have not been widely studied~~goals.

~~Many~~In oforder to achieve our ~~product~~financial ~~development~~goals, ~~efforts~~we ~~focus~~must onsubstantially ~~novel~~increase ~~alternative~~sales ~~therapeutic~~of ~~approaches~~Gliadel ~~and~~over ~~new~~the ~~technologies that~~next ~~have~~five ~~not been widely studied~~years. ~~Applications~~Our ~~for these~~ability ~~approaches~~to ~~and~~increase ~~technologies~~these ~~include,~~sales ~~among~~will ~~other~~be ~~things,~~primarily ~~the diagnosis~~based ~~and~~upon ~~monitoring~~our ~~of Parkinson’s disease, the~~ability ~~promotion~~to ofattain ~~nerve~~greater ~~growth~~market ~~and~~penetration ~~the~~than ~~prevention~~we ofcurrently ~~neuronal damage~~have. We ~~These~~expect ~~approaches~~to ~~and~~attain ~~technologies~~greater ~~may~~market ~~not~~penetration bethrough, ~~successful.~~among ~~We are~~other ~~applying~~things, ~~these~~increasing ~~approaches~~the amount of time and ~~technologies~~effort inthat our ~~attempt to~~sales ~~discover~~force ~~new~~devotes ~~treatments~~to ~~for~~Gliadel, ~~conditions~~increasing ~~that~~the ~~are~~sales ~~also~~success ~~the~~of ~~subject~~that ofsales ~~research~~force and ~~development~~increasing ~~efforts~~our ofmarketing ~~many~~resources; ~~other~~however, ~~companies. Our~~if ~~competitors~~we ~~may~~fail ~~succeed~~to indo ~~developing~~so ~~technologies~~then orwe ~~products that~~may ~~are~~not ~~more~~be ~~effective~~able orto ~~economical~~increase ~~than~~our ~~those we are~~sales ~~developing,~~of orthe ~~they~~product. ~~may~~Even ~~introduce~~if ~~a competitive product before~~ we are able toincrease doour ~~so.~~sales ~~Rapid~~and marketing ~~technological~~efforts, ~~change~~such orincreases ~~developments by others~~ may not result in ~~our technology or product candidates~~increased ~~becoming~~sales ~~obsolete~~of ~~or noncompetitive~~Gliadel.

Our ~~business~~ability to achieve isstrong ~~dependent~~revenue ongrowth ~~our~~for ~~ability~~Gliadel and Aquavan may depend to ~~keep~~a large ~~pace~~extent ~~with~~on the ~~latest~~results of additional clinical trials that ~~technological~~we ~~changes~~may conduct.

~~The~~We ~~technological~~may ~~areas~~conduct inadditional ~~which~~clinical wetrials ~~work~~with ~~continue~~ Gliadel to provide ~~evolve~~physicians atwith aadded ~~rapid~~clinical ~~pace~~data and/or to expand Gliadel’s labeled indications. ~~Our~~There ~~future~~is ~~success~~no ~~depends~~assurance ~~upon~~that ~~maintaining~~such ~~our~~clinical ~~ability~~trials, toif ~~compete~~any, inwill ~~the~~be ~~research~~successful, ~~development~~or if ~~and~~successful, ~~commercialization~~will ofpersuade ~~products~~physicians ~~and~~to ~~technologies~~use inthe ~~our~~product ~~areas~~with ofmore ~~focus.~~frequency ~~Competition~~or ~~from~~convince ~~pharmaceutical,~~the ~~chemical~~FDA ~~and~~that an additional indication ~~biotechnology~~is ~~companies~~warranted. Also, ~~universities~~if ~~and~~one ~~research~~or ~~institutions is~~more ~~intense~~additional ~~and~~clinical ~~expected~~trials are tonot ~~increase.~~successful, ~~Many~~sales of ~~these~~the ~~competitors have~~product ~~substantially~~in ~~greater~~its ~~research~~current ~~and~~markets could ~~development~~be ~~capabilities and~~adversely ~~experience~~affected and ~~manufacturing,~~could ~~marketing,~~significantly ~~financial and~~adversely ~~managerial~~affect ~~resources~~our ~~than~~ability weto doachieve our financial goals.

~~Acquisitions~~Additionally, ofour ~~competing~~ability ~~companies~~to byincrease ~~large~~the size of the potential ~~pharmaceutical~~market ~~companies~~for orAquavan ~~other~~will ~~companies~~depend ~~could~~upon ~~enhance~~our ~~the~~success in obtaining ~~financial,~~approval ~~marketing~~for ~~and~~the ~~other~~product ~~resources~~in ~~available~~a tovariety ~~these~~of procedural sedation ~~competitors~~settings. ~~These~~We ~~competitors~~will ~~may~~likely ~~develop~~need ~~products~~to ~~that~~conduct ~~are~~additional clinical ~~superior~~trials tobeyond those we ~~are~~already ~~developing.~~have Weannounced ~~are~~to ~~aware~~do so, and such trials may not be successful or may not, in the determination of the FDA, warrant an indication for Aquavan larger than the one ~~development~~we byare ~~other~~currently ~~companies~~attempting ~~and~~to ~~research~~obtain. ~~scientists~~In such cases, sales of ~~alternative~~Aquavan ~~approaches~~may never meet our expectations and we would not be able to: achieve our financial goals.

• Revenue ~~the~~from ~~treatment~~Gliadel, Aggrastat ofor ~~malignant~~future ~~glioma;~~products, •if ~~the~~any, ~~treatment~~depends ofin ~~acute~~part ~~cardiovascular~~on reimbursement ~~conditions;~~from •health ~~the~~care ~~diagnosis~~payors, ofwhich ~~Parkinson’s disease; • the development of a water soluble formulation of propofol; • the promotion of nerve growth and repair; and • the treatment and prevention of neuronal damage~~is uncertain.

~~Our~~The ~~competitors~~efforts of government and insurance companies, health maintenance organizations and other payors of health care costs to contain or reduce costs of health care may ~~develop~~affect ~~products~~our ~~that~~future revenues ~~make~~and profitability. These efforts may also affect the future revenues and profitability of our potential customers, suppliers and collaborative partners, in turn affecting demand for our products. orFor ~~technologies~~example, ~~noncompetitive~~in certain foreign markets, pricing or ~~obsolete~~profitability of prescription pharmaceuticals is subject to government control. In the United States, given ~~addition~~recent Federal and state government initiatives directed at lowering the total cost of health care, wethe ~~may~~U.S. Congress and ~~not~~state belegislatures ~~able~~will likely continue to ~~keep~~focus ~~pace~~on ~~with~~health care ~~technological~~reform, the cost of prescription pharmaceuticals and on the ~~developments~~reform of the Medicare and Medicaid systems. While we cannot predict whether any such legislative or regulatory proposals will be adopted, the announcement or adoption of such proposals could have a negative effect on our business and operating results.

44 Our ability to commercialize our products successfully will depend in part on the extent to which private health insurers, organizations such as HMOs and governmental authorities reimburse the cost of our products and related treatments. Third-party payors are increasingly challenging the prices charged for medical products and services. Also, the trend toward managed health care in the United States and the concurrent

43 ~~Our products~~ ~~must compete with others to gain market~~ ~~acceptance.~~

~~For~~growth ~~the~~of ~~treatment~~organizations ofsuch ~~malignant~~as ~~glioma~~HMOs, which could control or ~~GLIADEL®~~significantly ~~Wafer~~influence ~~competes~~the ~~with~~purchase ~~traditional~~of ~~systemic~~health care services and ~~chemotherapy~~products, ~~radioactive~~as ~~seeds,~~well ~~radiation~~as ~~catheters,~~legislative proposals to reform health care ~~TEMODAR®~~or ~~Capsules~~reduce government insurance programs, amay ~~chemotherapy~~all ~~product~~result ~~manufactured~~in bylower ~~Schering~~prices ~~Corporation,~~for ~~and~~or ~~other~~rejection ~~experimental~~of ~~protocols~~our products. The cost containment ~~AGGRASTAT®~~measures ~~Injection~~that ~~competes~~health ~~directly~~care ~~with INTEGRELIN®~~payors ~~Injection,~~and ~~marketed~~providers byare ~~Millennium~~instituting ~~Pharmaceuticals,~~ and ~~ReoPro®,~~the ~~marketed~~effect byof ~~Eli~~any ~~Lilly,~~health ~~for~~care reform could materially and ~~the~~adversely ~~inhibition~~affect ofour ~~platelet~~ability ~~aggregation~~to operate profitably.

~~Any~~Furthermore, ~~product~~even ~~candidate~~if ~~that~~reimbursement weis ~~develop~~available ~~and~~ for our ~~which~~products, we ~~gain~~cannot ~~regulatory~~be ~~approval~~sure ~~must~~that ~~then~~it ~~compete~~will ~~for~~be ~~market acceptance~~available ~~and~~at ~~market~~price levels ~~share.~~sufficient Anto ~~important~~cover ~~factor will be~~ the ~~timing~~ ofcost ~~market introduction~~ of ~~competitive~~our products. to ~~Accordingly,~~customers. ~~the~~This ~~relative~~may ~~speed~~have ~~with~~the ~~which~~effect weof ~~and~~reducing ~~competing companies~~the ~~can~~demand ~~develop~~for our products, ~~complete~~or ~~the~~may ~~clinical~~prohibit ~~testing and~~us ~~approval~~from ~~processes,~~charging ~~and~~customers ~~supply~~a ~~commercial~~price for ~~quantities~~our ~~of the~~ products tothat ~~the~~would ~~market~~result ~~will~~in be an ~~important~~appropriate ~~element~~return ~~of market~~on ~~success~~our investment in those products.

European regulatory agencies ~~Significant~~may ~~competitive~~impose ~~factors~~restrictions ~~include:~~on our ability to import Gliadel to the European Union.

• We ~~capabilities~~have ofbeen ~~our~~informed ~~collaborators;~~by •the ~~product~~European ~~efficacy~~regulatory ~~and~~agency responsible ~~safety;~~for •overseeing ~~timing~~the testing and ~~scope~~release of ~~regulatory~~Gliadel ~~approval;~~in the •European ~~product~~Union ~~availability;~~that •we ~~awareness~~may ~~and~~have ~~acceptance~~to oftest ~~our~~each ~~products~~sublot byof Gliadel ~~physicians;~~that •we ~~marketing~~ship ~~and~~to ~~sale~~the ~~capabilities;~~European •Union. ~~reimbursement~~Each ~~coverage~~time ~~from~~a ~~insurance~~lot ~~companies~~is tested ~~and~~it ~~others;~~results •in the ~~amount~~destruction of ~~clinical~~a ~~benefit~~portion of ~~our~~the ~~product~~lot. The ~~candidates~~cost ~~relative~~associated with this requirement would make it commercially unfeasible to ~~their~~ship ~~cost;~~small •sublots of Gliadel labeled for smaller European markets. If we are not able to agree with the regulatory agency to an alternative method of ~~administering~~testing aand releasing ~~product;~~sublots •of ~~price;~~Gliadel, ~~and~~we •may ~~exclusivity~~not be able to continue to ship Gliadel to our distributors for smaller European markets. As a result, ~~through~~our ~~patent~~Gliadel ~~protection~~revenue orwould ~~FDA~~be ~~regulations~~negatively affected.

PRF is entitled to a portion ~~Our~~of ~~competitors~~our revenues, which may ~~develop~~limit ~~more~~our ~~effective~~ability orto fund some of our ~~more~~operations. ~~affordable~~If ~~products~~we ordo not achieve ~~earlier~~certain ~~product~~revenue ~~development~~targets for ~~completion,~~Gliadel ~~patent~~and ~~protection~~Aggrastat, ~~regulatory~~PRF ~~approval~~may orbe ~~product~~entitled to a greater ~~commercialization~~percentage ~~than~~of weour dorevenue, ~~which~~revenue ~~could~~from ~~have~~future aproducts ~~material~~we may ~~adverse~~acquire ~~effect~~or oncertain of our ~~business~~product candidates.

We Under ~~are~~the terms of our Revenue Interest Assignment Agreement ~~subject~~(the Revenue Agreement) with PRF, PRF is entitled to ~~risks~~receive a percentage of ~~product~~our ~~liability~~combined ~~both~~annual ~~because~~net revenue from Gliadel and Aggrastat as follows: from October 28, 2003 through December 31, 2006, PRF is entitled to receive 10% of ~~our~~such ~~product~~net ~~line~~revenue up to $75.0 million, and ~~our~~2.5% ~~limited~~of ~~insurance~~such ~~coverage~~net revenue in excess of $75.0 million; from January 1, 2007 through December 31, 2012 (the end of the term of the financing arrangement with PRF), the respective percentages are 17.5% and 3.5%. If combined Gliadel and Aggrastat annual net revenue is less than $48.3 million, $60.2 million, or $80.6 million in 2004, 2005, and 2006, respectively, then PRF receives the higher of certain minimum payments for such years (the PRF Minimum Payments, as described below) or 12.5% of combined Gliadel and Aggrastat net revenue. If combined Gliadel and Aggrastat net revenue is less than $75.0 million in any of the years 2007 through 2012, then PRF will receive the higher of the PRF Minimum Payments or 22.5% of combined Gliadel and Aggrastat net revenue.

WePRF ~~may~~Minimum ~~potentially~~Payments ~~become~~included ~~subject~~a toroyalty ~~large~~payment of ~~liability~~$5.0 million ~~claims~~in 2004, and ~~significant~~include ~~defense~~minimum ~~costs~~royalties asof $6.3 million ain ~~result~~2005, $7.5 million in 2006, $10.0 million in each of 2007-2009 and $12.5 million in each of 2010-2012. During each year of the ~~design~~term of the Revenue Agreement, ~~manufacture~~PRF orwill ~~marketing~~be entitled to receive a portion of revenues ~~our~~from products, ~~including GLIADEL®~~that ~~Wafer~~we ~~and~~may ~~AGGRASTAT®~~acquire ~~Injection,~~in the future or ~~the~~of ~~conduct~~our ofproduct ~~clinical~~candidates ~~trials~~Aquavan ~~involving~~and ~~our~~GPI ~~products.~~1485, Wein ~~currently~~the case that ~~maintain~~our ~~only~~calculated ~~$10 million~~annual ofobligation(s) ~~product~~to ~~liability~~make ~~insurance~~royalty payments ~~covering~~under ~~clinical~~the ~~trials~~Revenue ~~and~~Agreement ~~product~~(based ~~sales.~~upon ~~This~~the ~~existing coverage~~combined ornet ~~any~~revenue from ~~future~~Gliadel ~~insurance~~and ~~coverage~~Aggrastat) weare ~~obtain~~less ~~may~~than ~~not~~$6.4 million befor ~~adequate~~2004, $7.6 million ~~Furthermore~~for 2005, ~~our~~$8.3 million ~~insurance~~for ~~may~~2006, $15.3 million ~~not~~for ~~cover~~2007, a$15.5 million ~~claim~~for ~~made~~2008, ~~against us~~$15.8 million ~~Product~~for ~~liability~~2009, ~~insurance~~$16.0 million ~~varies~~for in2010, ~~cost~~or $15.9 million Itfor ~~can be~~2011 ~~difficult~~and ~~to obtain~~2012, ~~and~~respectively. wePRF ~~may~~is ~~not~~also entitled beto ~~able~~receive portions of amounts payable to ~~purchase~~us iton in the resolution of future onintellectual ~~terms~~property ~~acceptable~~disputes toinvolving Gliadel ~~us,~~ or atAggrastat ~~all.~~and Weon ~~also~~any ~~may~~future ~~not~~sale of ex-North American bemarketing ~~able~~rights to ~~otherwise~~Gliadel. ~~protect~~In ~~against~~addition ~~potential~~to ~~product~~its ~~liability~~revenue interest ~~claims.~~in ~~Product~~our ~~liability~~products ~~claims and/~~or ~~the~~future ~~failure~~products, toas ~~obtain adequate~~the ~~product~~case ~~liability~~may ~~insurance~~be, ~~could~~PRF received ~~prevent~~five-year orwarrants ~~inhibit~~to purchase 300,000 shares ~~the~~of ~~clinical~~our ~~development~~common ~~and/or~~stock ~~commercialization~~at ofan ~~any products~~exercise weprice ~~are~~of ~~developing~~$9.15 per share.

We If ~~depend~~we ~~on qualified~~are ~~personnel~~unable to close the MGI Pharma merger and ~~consultants~~we do not sell Gliadel to MGI Pharma, ~~especially~~we ~~Craig~~would Rcontinue discussing a renegotiation of the terms of the Revenue Agreement with PRF. ~~Smith~~We cannot assure you that these discussions will result in a favorable change, or any change, to such terms or our Mobligations under the Revenue Agreement.D. Failure to renegotiate the terms may hinder or prevent our ability to achieve our financial goals.

44 ~~We depend heavily on the principal members of our~~ ~~management and scientific staff, including Craig R. Smith, M.D.,~~ ~~our Chairman, President and Chief Executive Officer. We have key man life insurance covering Dr. Smith. Dr. Smith has extensive experience in the pharmaceutical industry and provides us with unique~~

45 Under certain circumstances, PRF may require us to repurchase its revenue interest, the payment of which may significantly deplete our cash resources or limit our ability to enter into significant business transactions.

~~access~~PRF may be entitled to ~~his~~require ~~contacts~~us into repurchase its revenue interest under the ~~scientific~~following circumstances: (1) if we fail ~~community.~~to ~~The~~maintain ~~loss~~an ofescrow ~~the~~account ~~services~~funded with eight quarters of minimum ~~Dr. Smith~~payments to PRF or ~~other~~fail to maintain at least ~~members~~$20.0 million of net working capital, (2) if we fail to make our ~~senior~~minimum ~~management~~payments ~~team~~to ~~could~~PRF, ~~have~~(3) if we sell Gliadel and Aggrastat (with PRF having partial rights to make us repurchase its interest in the event of the sale of one, but not both products), (4) upon the occurrence of a ~~negative~~bankruptcy or ~~effect~~similar onevent, ~~our~~or ~~business~~(5) upon certain conditions related to a change of control of us.

WeThe ~~have~~repurchase ~~entered~~amount ~~into~~guarantees PRF a return in an ~~employment~~amount ~~agreement~~over its ~~with~~initial investment and is reduced based on payments that we Drhave previously made to PRF prior to the time that its interest is repurchased, but the repurchase price may never exceed three and a half times PRF’s initial investment, or $147.0 ~~Smith~~million. If PRF requires us to repurchase its revenue interest, ~~which~~our ~~provides~~ability ~~protection~~to ~~for~~fund our ~~proprietary~~operations may be ~~rights~~significantly impaired. ~~Nevertheless~~Additionally, hebecause ~~may~~PRF ~~terminate~~would ~~his~~be entitled ~~relationship~~to ~~with~~exercise ~~us at~~this ~~any~~repurchase ~~time.~~right ~~Accordingly~~upon a change of control of us, or upon the sale of either Gliadel or Aggrastat, we ~~cannot~~may not be ~~sure~~able ~~that~~to ~~Dr.~~effect ~~Smith~~a ~~will~~business transaction that would ~~remain~~have ~~with~~one usof these results.

~~Recruiting~~ We ~~and~~have ~~retaining~~pledged ~~qualified~~our ~~personnel,~~assets ~~collaborators,~~related ~~advisors~~to Gliadel and ~~consultants~~Aggrastat ~~will be critical~~ to ~~our activities.~~PRF; ~~Our~~therefore, ~~planned~~we ~~activities~~may ~~will~~not be ~~require~~free ~~personnel~~to ~~and consultants~~utilize ~~with~~those ~~expertise~~assets inat ~~many~~our ~~areas including:~~discretion.

• PRF ~~medicinal~~has ~~chemistry~~been granted a security interest in the intellectual property assets related to Gliadel and ~~other~~Aggrastat, ~~research~~which ~~specialties;~~in •the aggregate ~~pre-clinical~~accounted ~~testing;~~for •all ~~clinical~~of ~~trial~~our ~~management;~~net •product ~~regulatory~~revenue ~~affairs;~~of $40.2 million •for ~~intellectual~~the ~~property;~~year •ended ~~sales~~December 31, 2004, and ~~marketing;~~all •of ~~manufacturing;~~our net product revenue of $22.9 million for the six months ended June 30, 2005. As of June 30, 2005, the intangible assets related to Gliadel and •Aggrastat ~~business~~were $36.1 million, ~~development~~or approximately 26% of our total assets. We, therefore, may not be free to utilize those assets at our discretion, such as selling or outlicensing rights to part or all of those assets, without first obtaining the permission of PRF. This requirement could delay, hinder or condition our ability to enter into corporate partnerships or strategic alliances with respect to these assets.

We Our ~~may~~clinical ~~not be able to attract and retain~~development ~~personnel~~plans ~~or consultants with these expertise. Furthermore, many pharmaceutical, biotechnology and health care companies and academic and other research institutions compete intensely~~ for ~~personnel~~ ~~and~~Aquavan ~~consultants~~will ~~with~~require ~~these~~significant ~~expertise. If we are not~~additional ~~able to hire these personnel or consultants, it could have a negative effect on us~~capital.

~~Our~~ In ~~business~~order to conduct clinical trials for Aquavan, we will require ~~involves~~significant ~~using~~additional ~~hazardous~~capital ~~and~~resources. ~~radioactive~~We ~~materials~~cannot ~~and~~reasonably estimate ~~animal~~the required amount due to the uncertainties involved ~~testing~~with these activities. With respect to our planned Phase III clinical trials of Aquavan, ~~all~~we do not know the number of ~~which~~procedural sedation settings that the FDA will require us to test in order to receive approval to market the drug for a broad range of brief diagnostic or therapeutic procedures. The results of these determinations can cause our capital requirements to vary considerably. This additional financing may take ~~result~~the form of an offering of debt or equity, and that offering could be material in ~~environmental~~size. If we conduct a primary ~~liability~~equity offering, the issuance of the additional shares of common stock may be dilutive to our existing stockholders and may have a negative effect on the market price of our stock. We do not know if those capital resources will be available to us. If they are not available, we may not be able to successfully execute on these business objectives or on any other business or operational goals. We, therefore, may need to enter into corporate partnerships or co-promotions to market and sell Gliadel and/or Aggrastat, or divest ourselves of one or both of the products in order to support our operations.

~~Our~~ We ~~research~~have ~~and~~licensed ~~development~~some ~~processes~~of ~~involve~~our ~~the~~GPI ~~controlled~~1485 ~~use~~development ~~of hazardous~~ and ~~radioactive~~commercialization ~~materials.~~rights ~~We and our partners are subject~~ to ~~extensive laws governing the~~Symphony ~~use,~~Neuro ~~manufacture,~~Development ~~storage,~~Company ~~handling~~(or SNDC) and ~~disposal~~will ofnot ~~hazardous~~receive any ~~and~~future ~~radioactive~~royalties ~~materials.~~or ~~There~~revenues iswith arespect ~~risk~~to ofthis ~~accidental~~intellectual ~~contamination~~property orunless ~~injury from these materials. Also,~~ we ~~cannot control~~exercise ~~whether~~an ~~our~~option ~~collaborative~~to ~~partners~~acquire ~~comply~~SNDC ~~with~~in the ~~governing standards~~future. IfWe wemay ~~or our partners do~~ not ~~comply~~have ~~with~~ the ~~governing~~financial ~~laws~~resources ~~and~~to ~~regulations,~~exercise ~~we could face significant~~this ~~fines~~option ~~and~~or ~~penalties~~sufficient ~~that~~clinical ~~could~~data ~~have~~in aorder ~~negative~~to ~~effect~~determine ~~on our~~whether ~~business, operations or finances. In addition,~~ we ~~and/or~~should ~~our collaborative~~exercise ~~partners~~this ~~could be held liable for damages, fines or other liabilities, which could exceed our resources~~option.

We ~~may also~~ have licensed to ~~incur~~SNDC ~~significant~~our ~~costs~~rights to ~~comply~~ ~~with~~GPI ~~environmental~~1485 ~~laws and regulations~~ in the ~~future. In~~United ~~addition,~~States ~~future~~in ~~environmental~~exchange ~~laws~~for orSNDC’s ~~regulations~~investment ~~may~~of ~~have~~up ato ~~negative~~$40.0 million ~~effect~~to onadvance ~~our~~GPI ~~operations,~~1485 ~~business~~through orclinical development ~~assets.~~in four indications:

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

~~Effecting~~Parkinson’s adisease, peripheral nerve injury, including ~~change~~post-prostatectomy oferectile ~~control~~dysfunction, ofHIV ~~Guilford~~neuropathy ~~would~~and HIV dementia. We expect that the $40.0 million clinical development budget will be ~~difficult,~~fully ~~which~~expended ~~may~~in approximately one ~~discourage~~year. ~~offers~~In exchange for the license rights and for five-year warrants to purchase 1.5 million shares of our common stock at $7.48 per share, ~~which~~we received an option to acquire all of the equity of SNDC. We may, at our discretion, exercise ~~prevent~~this oroption ~~frustrate~~at any ~~attempt~~time bybeginning ~~shareholders~~on toApril 1, ~~change~~2005 ~~our~~and ~~direction~~ending on the earlier of March 31, 2007 or ~~management~~the 90th day after the date that SNDC provides us with financial statements showing cash and cash equivalents of less than $2.0 million. The option exercise price starts at $75.1 million in April 2005 and increases incrementally to $119.8 million in January 2007, and may be paid in cash or in our common stock, at our sole discretion, provided that our common stock may not constitute more than 50% of the consideration tendered for payment.

~~Our~~If ~~certificate~~we ofelect ~~incorporation~~to ~~and~~exercise the ~~Delaware General~~purchase ~~Corporation~~option, ~~Law~~we ~~contain~~will ~~provisions~~be ~~that~~required to ~~may~~make ~~delay~~a substantial cash payment or to issue a substantial ~~prevent~~number anof ~~attempt~~shares byof our common stock, or enter into a financing arrangement or license arrangement with one or more third parties, ~~party~~or some combination of these. A payment in cash would reduce our capital resources. A payment in shares of our common stock could result in dilution to ~~acquire~~our ~~control~~stockholders at that time. Other financing or licensing alternatives may be expensive or impossible to obtain. The exercise of the purchase option will likely require us. to record a significant charge to earnings and ~~These~~may ~~provisions~~adversely ~~include~~impact future operating results. If we do not exercise the ~~requirements~~purchase ofoption ~~Section 203~~prior ofto its expiration, our rights in and to SNDC with respect to the ~~Delaware~~GPI ~~General~~1485 ~~Corporation~~programs ~~Law~~will terminate. InWe ~~general~~may not have the financial resources to exercise the purchase option, which may result in our loss of these ~~Section 203~~rights. ~~prohibits~~Additionally, ~~designated~~we ~~types~~may not have sufficient clinical data in order to determine whether we should exercise this option.

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

ofThe ~~business combinations~~research, ~~including~~development ~~mergers,~~and ~~for a~~commercialization ~~period~~ of pharmaceutical ~~three~~drugs ~~years~~involve ~~between~~significant usrisk. ~~and~~Before ~~any~~a ~~third~~drug ~~party~~can be ~~who~~commercialized, ~~owns 15%~~we, or ~~more~~a offuture ~~our~~corporate ~~common~~partner ~~stock.~~will ~~This provision does not apply~~have ifto:

• ~~our~~expend ~~Board~~substantial ofcapital ~~Directors~~and ~~approves~~effort ofto ~~the~~develop ~~transaction before the third party acquires 15% of~~ our ~~common~~product ~~stock;~~candidates •further, ~~the~~which ~~third~~includes ~~party~~conducting ~~acquires~~extensive atand ~~least~~expensive ~~85%~~pre-clinical ofanimal ~~our~~studies ~~common~~and ~~stock~~human atclinical ~~the time its ownership goes past the 15% level~~trials; or • ~~our~~apply ~~Board~~for ofand ~~Directors~~obtain ~~and~~regulatory ~~two-thirds~~clearance ofto ~~the~~develop, ~~shares~~market ofand ~~our~~sell ~~common~~such ~~stock~~product ~~not~~candidates; ~~held~~and by• ~~the~~conduct ~~third~~other ~~party~~costly ~~vote~~activities inrelated ~~favor~~to ofpreparation ~~the~~for ~~transaction~~product launch.

WeIn ~~have~~some ~~also~~of ~~adopted~~our aresearch ~~stockholder~~programs, ~~rights~~we ~~plan~~are using compounds that we ~~intended~~consider to ~~deter~~be ~~hostile~~prototype orcompounds ~~coercive~~that ~~attempts~~we are using primarily to ~~acquire~~establish ~~us.~~that a relevant scientific mechanism of biological ~~Under~~or ~~the~~chemical ~~plan,~~action ifcould ~~any~~have ~~person~~commercial application in diagnosing, treating or ~~group~~preventing ~~acquires~~disease. ~~more~~We ~~than~~generally ~~20%~~do ofnot consider our ~~common~~prototype ~~stock~~compounds ~~without~~to ~~approval~~be oflead ~~the~~compounds ~~Board~~acceptable for offurther ~~Directors under~~development ~~specified~~into ~~circumstances,~~a ~~our~~product ~~other~~because ~~stockholders~~of ~~have~~factors ~~the~~that ~~right~~make tothem ~~purchase~~unsuitable ~~shares~~as ofdrug ~~our~~candidates. ~~common~~In ~~stock~~order to develop commercial products, orwe ~~shares~~will ofneed ~~the~~to conduct research using ~~acquiring~~other ~~company,~~compounds atthat ashare ~~substantial~~the ~~discount~~key toaspects of the ~~public~~prototype ~~market~~compounds ~~price.~~but ~~The~~do ~~plan~~not ~~makes~~have anthe ~~acquisition~~unsuitable ~~much~~characteristics. Identifying ~~more~~lead ~~costly~~compounds ~~to a~~may ~~potential~~not ~~acquirer~~always be possible.

~~Our~~In ~~certificate~~addition, ofour ~~incorporation~~product ~~also~~candidates ~~authorizes us~~are tosubject ~~issue up~~ to ~~5,000,000 shares of preferred stock in one or more different series with terms fixed by~~ the ~~Board~~risks of ~~Directors.~~failure ~~Stockholder~~inherent ~~approval is not necessary to issue preferred stock~~ in ~~this manner. Issuance of these shares of preferred stock could have~~ the ~~effect~~development of ~~making~~products itbased ~~more difficult~~on ~~for~~new ~~a person or group to acquire control of us, as~~and ~~well~~unsubstantiated ~~as prevent or frustrate any attempt by shareholders to change our direction or management~~technologies. NoThese ~~shares~~risks ofinclude ~~our preferred~~the ~~stock~~possibility ~~are currently outstanding. While our Board of Directors~~that: ~~has no current intentions or plans to issue any preferred stock, issuance of these shares could also be used as an anti-takeover device.~~

~~Our~~• ~~agreement~~our ~~with~~new ~~Paul~~approaches ~~Royalty~~will ~~Funds~~not ~~gives~~result ~~Paul Royalty~~in ~~Funds~~any ~~the~~products ~~right~~that gain market acceptance; • a product candidate will prove to ~~cause~~be usunsafe or ineffective, or will otherwise fail to ~~repurchase~~receive ~~its~~and ~~interests at~~maintain ~~substantial~~regulatory ~~prices~~clearances innecessary ~~the~~for ~~event~~development ~~of,~~and ~~among~~marketing; ~~other~~• ~~things~~a product, ~~a change~~even inif ~~control.~~found ~~Our~~to ~~convertible~~be ~~notes~~safe ~~are~~and ~~also~~effective, ~~subject~~could still be difficult to ~~repurchase,~~ asmanufacture on the ~~option~~scale necessary for commercialization or otherwise not be economical to market; • a product will unfavorably interact with other types of ~~the~~commonly ~~holders~~used medications, ~~upon~~thus arestricting ~~change~~the circumstances in ~~control.~~ which it may be used; • third parties may successfully challenge our proprietary rights protecting a product;

4746

~~Item~~• 6.proprietary ~~Exhibits~~rights ~~and~~of ~~Reports~~third onparties ~~Form~~will 8preclude us from manufacturing or marketing a new product; or • third parties will market superior or more cost-K:effective products.

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

Exhibit No.		Description
	3.01D	Certificate of Amendment of Amended and Restated Articles of Incorporation, As Amended (previously filed as an exhibit to the Company’s Form 8-K filed on May 20, 2004)
	10.41	Employment Agreement, dated June 17, 2004, between the Company and William F. Spengler
	10.42	Manufacturing and Supply Agreement, dated July 1, 2004, between the Company and Baxter Healthcare Corporation, (confidential treatment has been requested for a portion of this exhibit)
	10.43	Purchase Option Agreement, dated June 17, 2004, by and among Guilford Pharmaceuticals Inc., SNDC Holdings LLC and Symphony Neuro Development Company (previously filed as an exhibit to the Company’s Form 8-K filed on June 21, 2004)
	10.44	Novated and Restated Technology License Agreement, dated June 17, 2004, between GPI NIL Holdings, Inc., Guilford Pharmaceuticals Inc., Symphony Neuro Development Company and SNDC Holdings LLC. (confidential treatment has been requested for a portion of this exhibit) (previously filed as an exhibit to the Company’s Form 8-K filed on June 21, 2004)
	31.01	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
	31.02	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
	32.01	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
	32.02	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

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

~~B. Reports~~Our resources are limited, therefore, our business strategy requires us to depend on ~~Form 8-K~~either corporate collaborations, strategic financings or both, in order to develop one or more of our product candidates through to commercialization. In developing our product candidates, we may enter into various arrangements with:

On• ~~May 5,~~corporate ~~2004,~~and ~~the~~financial ~~Company~~partners; ~~filed~~• aacademic ~~current report~~investigators; on• ~~Form 8-K,~~licensors ~~the purpose~~ of ~~which~~technologies; ~~was~~and to• ~~announce the~~licensees ~~resignation~~ of ~~Andrew~~our Rtechnologies. ~~Jordan, Executive Vice President, Finance and Administrative and Chief Financial Officer reporting under Item 5.~~

OnIf ~~May 20,~~we ~~2004,~~are ~~the~~unable ~~Company~~to ~~filed~~enter ainto ~~current~~such arrangements, our ability to ~~report~~proceed onwith ~~Form 8-K~~the research, ~~the~~development, ~~purpose~~manufacture and/or sale of ~~which~~product ~~was~~candidates may be limited and we may have to ~~reflect~~alter anor ~~amendment~~curtail toour ~~the~~business ~~Amended~~objectives ~~and~~based ~~Restated~~on ~~Articles~~our ofcapital ~~Incorporation,~~resources. ~~increasing~~If ~~the~~we ~~authorized~~do ~~capital~~so, ofit could result in delaying the ~~Company~~progress toof ~~130 million~~pre-clinical ~~shares~~research ~~reporting~~or ~~under~~clinical ~~Items 5~~trials, and 7.consequently, the eventual commercialization of a marketed product based on one of these programs, or eliminating one or more research or development programs from our business objectives.

OnWe ~~June 18,~~face ~~2004,~~serious ~~the~~competition ~~Company~~from ~~filed~~other asmall pharmaceutical ~~current~~companies ~~report~~and onthe ~~Form 8~~in-K,house ~~the~~research ~~purpose~~and development staffs of larger ~~which~~pharmaceutical ~~was~~companies in trying to attract corporate ~~announce~~and financial partners. Additionally, we may not be successful in attracting such partners (or collaborators) over other companies because (i) their research programs may be more attractive to a collaborator, (ii) their stage in the research ~~licensing~~process may be more advanced, (iii) they may have synergies with the ~~U.S.~~collaborator’s existing research programs, or (iv) ~~rights~~they may agree to terms and conditions of the ~~GPI~~collaboration ~~1485~~that are more favorable to the collaborator ~~Symphony~~than ~~Neuro~~we ~~Development~~would ~~Company~~otherwise ~~reporting~~agree. ~~under~~It ~~Items 5~~is common practice in many corporate partnerships in our industry for the larger partner to have responsibility for conducting pre-clinical studies and human 7clinical trials and/or preparing and submitting applications for regulatory approval of potential pharmaceutical products. If such a collaborative partner of ours fails to develop or commercialize successfully any of our product candidates, we may not be able to remedy this failure and it could negatively affect our business.

~~On June 21~~Furthermore, ~~2004,~~larger ~~the~~pharmaceutical ~~Company~~companies ~~filed~~often aexplore ~~current~~multiple ~~report~~technologies onand ~~Form 8-K,~~products for the ~~purpose~~same ofmedical conditions. ~~which~~Therefore, ~~was~~they are likely to develop or enter into ~~disclose~~collaborations awith ~~presentation~~our ~~regarding~~competitors ~~the~~for ~~transaction~~products ~~between~~addressing the ~~Company~~same ~~and~~medical ~~Symphony~~conditions ~~Neuro~~targeted ~~Development~~by ~~Company~~our ~~reporting~~technologies. ~~under~~Our ~~Item 5~~collaborators ~~and~~may, 7therefore, be pursuing alternative technologies or product candidates in order to develop treatments for the diseases or disorders targeted by our collaborative arrangements. Depending on how other product candidates advance, a corporate or financial partner may slow down or abandon its work on our product candidates or terminate its collaborative arrangement with us in order to focus on these other prospects.

On We ~~June 21,~~do ~~2004,~~not ~~the~~have ~~Company filed a~~manufacturing ~~current~~capabilities ~~report~~for oncommercial ~~Form 8-K,~~quantities ~~the purpose~~ of ~~which~~any ~~was to disclose information provided in a prospectus supplement filed on June 21, 2004 in connection with a proposed public offering~~ of ~~the~~our ~~Company’s common stock reporting under~~product ~~Items 5 and 7~~candidates.

48 Currently, we have no manufacturing capabilities for commercial quantities of any of our product candidates. Consequently, in order to complete the commercialization process of any of our product candidates, we must either acquire, build or expand our internal manufacturing capabilities, or rely on third parties to manufacture these product candidates. If we are not able to accomplish either of these tasks, it would impede our efforts to bring our product candidates to market, which would adversely affect our business. Moreover, if we decide to manufacture one or more of our product candidates ourselves, we would incur substantial start-up expenses and would need to expand our facilities and hire additional personnel.

47 ~~On June 28, 2004, the Company filed a~~ ~~current report on Form 8-K, the purpose of which was to~~ ~~announce the appointment of William F. Spengler as Executive Vice President and Chief Financial Officer reporting under Item 5.~~

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

~~SIGNATURES~~ A significant portion of our revenue from Gliadel is to Cardinal Health Specialty Pharmaceuticals Distribution (or SPD), a specialty pharmaceutical distributor.

~~Pursuant~~Approximately 79% of our revenue from Gliadel in the six months ended June 30, 2005 were made to SPD pursuant to a purchase agreement between us and SPD. Under the ~~requirements~~terms of this agreement, either we or SPD may terminate the ~~Securities~~agreement upon 60 days ~~Exchange~~prior ~~Act~~written notice. We have no assurance that SPD will not exercise its right to terminate the agreement at any time. If SPD does terminate the agreement, there can be no assurance that we will be able to enter into an arrangement with another specialty distributor for the purchase and sale of ~~1934~~Gliadel. Additionally, under the ~~Registrant~~terms ~~has~~of ~~duly~~our ~~caused~~agreement ~~this~~with ~~report~~SPD, if the agreement is terminated, we have an obligation to berepurchase ~~signed~~any remaining ontreatments of Gliadel that SPD may have in its inventory. ~~behalf~~As byof ~~the~~June 30, ~~undersigned~~2005, ~~thereunto~~we ~~duly~~believe that SPD had ~~authorized~~approximately $1.9 million of Gliadel in its inventory.

~~GUILFORD~~ SPD ~~PHARMACEUTICALS~~orders ~~INC.~~Gliadel ~~/s/~~treatments ~~Craig~~based R.upon, ~~Smith~~among other things, its Mestimation of our ability and its ability to successfully sell Gliadel to hospital pharmacies and its desired level of inventory.D. ~~Chairman~~If the demand for Gliadel from hospital pharmacies decreases, or SPD decreases the amount it keeps in its inventory, SPD may decrease or stop making additional purchases of the ~~Board~~product ~~and~~from ~~Chief~~us. ~~Executive~~The ~~Officer~~result of such a decrease would most likely be our reporting lower revenue from Gliadel.

~~Date:~~ We ~~August 9,~~depend ~~2004~~upon Merck to supply us with the active pharmaceutical ingredient for Aggrastat. We will depend upon Baxter Healthcare Corporation (or Baxter) to provide us with finished product of Aggrastat in bags.

Filing Compare · MGI GP, Inc.