##### 



FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20459

[x]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2001

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

For the transition period from  to .

Commission file number 0-20713

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

|                                |  |                                     
|------------------------------- |  | ------------------------------------
|Delaware                        |  | 58-1959440                          
|(State or other jurisdiction of |  | (I.R.S. Employer Identification No.)
|incorporation or organization)  |  |                                     

9640 Medical Center DriveRockville, Maryland
(Address of principal executive offices)

20850
(Zip code)

(301) 217-9858
(Registrants telephone number, including area code)

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

YES X NO

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the most recent practicable date.

|                            |  |                                
|--------------------------- |  | -------------------------------
|Class                       |  | Outstanding at November 9, 2001
|                            |  |                                
|Common Stock $.01 Par Value |  | 18,272,370                     





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ENTREMED, INC.

Table of Contents

|                                                                                                                                 |  |     
|-------------------------------------------------------------------------------------------------------------------------------- |  | ----
|PART I. FINANCIAL INFORMATION                                                                                                    |  | PAGE
|                                                                                                                                 |  |     
|Item 1  Financial Statements                                                                                                    |  |     
|                                                                                                                                
|Consolidated Balance Sheets
as of September 30, 2001 and December 31, 2000                                                       |  | 3   
|                                                                                                                                
|Consolidated Statements of                                                                                                       |  |     
|Operations for the Three Months Ended
September 30, 2001 and 2000, and the Nine Months
Ended September 30, 2001 and 2000         |  | 4   
|                                                                                                                                
|Consolidated Statements of Cash
Flows for the Nine Months Ended September 30, 2001
and 2000                                      |  | 5   
|                                                                                                                                
|Notes to Consolidated Financial
Statements                                                                                       |  | 6   
|                                                                                                                                
|Item 2  Managements Discussion and Analysis
                 of Financial Condition and Results of
                 Operations |  | 7   
|                                                                                                                                
|Item 3  Quantitative and Qualitative Disclosures
                 About Market Risk                                             |  | 11  
|                                                                                                                                
|Part II. OTHER INFORMATION                                                                                                       |  |     
|                                                                                                                                
|Item 1  Legal Proceedings                                                                                                       |  | 11  
|                                                                                                                                
|Item 2  Changes in Securities                                                                                                   |  | 11  
|                                                                                                                                
|Item 3  Defaults upon Senior Securities                                                                                         |  | 11  
|                                                                                                                                
|Item 4  Submission of Matters to Vote of
Security Holders                                                                       |  | 11  
|                                                                                                                                
|Item 5  Other Information                                                                                                       |  | 11  
|                                                                                                                                
|Item 6  Exhibits and Reports on Form 8-K                                                                                        |  | 11  
|                                                                                                                                
|SIGNATURES                                                                                                                       |  | 12  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains and incorporates by reference certain forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. These statements may be identified by forward-looking words
such as may, will, expect, anticipate or similar words. These
forward-looking statements include, among others, statements regarding the
timing of our clinical trials and the expected increases in our expenses.

Our forward-looking statements are based on information available to us today,
and we will not update these statements. Our actual results may differ
significantly from those discussed in our forward-looking statements due to,
among other factors, our history of operating losses and anticipation of future
losses; the value of our common stock; uncertainties relating to our
technological approach; uncertainty of our product candidate development; our
need for additional capital and uncertainty of additional funding; our
dependence on collaborators and licensees; intense competition and rapid
technological change in the biopharmaceutical industry; uncertainties relating
to our patent and proprietary rights; uncertainties relating to clinical
trials; government regulation and uncertainties of obtaining regulatory
approval on a timely basis or at all; our dependence on key personnel, research
collaborators and scientific advisors; uncertainties relating to health care
reform measures and third-party reimbursement; risks associated with product
liability; and other factors discussed in our other filings with the Securities
and Exchange Commission.

2



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##### 



ENTREMED, INC.
CONSOLIDATED BALANCE SHEETS

|                                     |                                                  |                                                        |                                            |              |            |               |            |              |            |            |  | 
|------------------------------------ | ------------------------------------------------ | ------------------------------------------------------ | ------------------------------------------ | ------------ | ---------- | ------------- | ---------- | ------------ | ---------- | ---------- |  | 
|                                     |                                                  |                                                        |                                            |              |            | September 30, |            | December 31,
|                                     |                                                  |                                                        |                                            |              |            | 2001          |            | 2000        
|                                     |                                                  |                                                        |                                            |              |            |               |            |             
|                                     |                                                  |                                                        |                                            |              |            | (unaudited)   |            |              |            |           
|ASSETS                               |                                                  |                                                        |                                            |              |            |               |            |             
|Current assets:                      |                                                  |                                                        |                                            |              |            |               |            |             
|                                     | Cash and cash equivalents                        |                                                        | $                                          | 38,089,878   |            |               | $          | 24,503,886   |           
|                                     | Interest receivable                              |                                                        |                                            | 90,160       |            |               |            | 5,086        |           
|                                     | Accounts receivable                              |                                                        |                                            | 66,016       |            |               |            | 1,473,383    |           
|                                     | Prepaid expenses and other                       |                                                        |                                            | 3,225,964    |            |               |            | 494,011      |           
|                                     |                                                  |                                                        |                                            |              |            |               |            |             
|Total current assets                 |                                                  |                                                        | 41,472,018                                 |              |            |               | 26,476,366 |             
|Furniture and equipment, net         |                                                  |                                                        | 4,363,202                                  |              |            |               | 4,576,483  |             
|Other assets                         |                                                  |                                                        | 373,374                                    |              |            |               | 357,563    |             
|                                     |                                                  |                                                        |                                            |              |            |               |            |             
|                                     |                                                  | Total assets                                           |                                            | $            | 46,208,594 |               |            | $            | 31,410,412 |           
|                                     |                                                  |                                                        |                                            |              |            |               |            |             
|LIABILITIES AND STOCKHOLDERS EQUITY |                                                  |                                                        |                                            |              |            |               |            |             
|Current liabilities:                 |                                                  |                                                        |                                            |              |            |               |            |             
|                                     | Accounts payable                                 |                                                        |                                            | 14,222,054   |            |               | $          | 8,562,671    |           
|                                     | Accrued liabilities                              |                                                        |                                            | 2,678,223    |            |               |            | 1,787,416    |           
|                                     | Notes payable                                    |                                                        |                                            | 1,074,640    |            |               |            | 997,096      |           
|                                     |                                                  |                                                        |                                            |              |            |               |            |             
|Total current liabilities            |                                                  |                                                        | 17,974,917                                 |              |            |               | 11,347,183 |             
|Note payable, less current portion   |                                                  |                                                        | 189,772                                    |              |            |               | 1,005,728  |             
|Long term convertible debt           |                                                  |                                                        | 2,097,938                                  |              |            |               |           |             
|                                     |                                                  |                                                        |                                            |              |            |               |            |             
|                                     |                                                  |                                                        | Total liabilities                          |              |            | 20,262,627    |            |              |            | 12,352,911 | 
|Minority interest                    |                                                  |                                                        | 17,300                                     |              |            |               | 17,556     |             
|Stockholders equity:                |                                                  |                                                        |                                            |              |            |               |            |             
|                                     | Convertible preferred stock, $1.00 par and $1.50 |                                                        |                                            |              |            |               |            |              |           
|                                     |                                                  | Liquidation value:                                     |                                            |              |            |               |            |              |            |           
|                                     |                                                  | 5,000,000 shares authorized, none issued and           |                                            |              |            |               |            |              |            |           
|                                     |                                                  | outstanding at September 30, 2001 (unaudited)          |                                            |              |            |               |            |              |            |           
|                                     |                                                  | and December 31, 2000                                  |                                            |              |           |               |            |              |           |           
|                                     | Common stock, $.01 par value:                    |                                                        |                                            |              |            |               |            |              |           
|                                     |                                                  | 35,000,000 shares authorized, 18,855,703 (unaudited)   |                                            |              |            |               |            |              |            |           
|                                     |                                                  | and 17,237,155 shares issued and outstanding at        |                                            |              |            |               |            |              |            |           
|                                     |                                                  | September 30, 2001 and December 31, 2000, respectively |                                            |              | 188,557    |               |            |              | 172,371    |           
|                                     | Treasury stock, at cost: 583,333 shares held at  |                                                        |                                            |              |            |               |            |              |           
|                                     |                                                  | September 30, 2001 (unaudited) and December 31, 2000   |                                            |              | (7,666,746 | )             |            |              | (7,666,746 | )         
|                                     | Additional paid-in capital                       |                                                        |                                            | 183,700,207  |            |               |            | 157,521,715  |           
|                                     | Accumulated deficit                              |                                                        |                                            | (150,293,351 | )          |               |            | (130,987,395 | )         
|                                     |                                                  |                                                        |                                            |              |            |               |            |             
|Total stockholders equity           |                                                  |                                                        | 25,928,667                                 |              |            |               | 19,039,945 |             
|                                     |                                                  |                                                        |                                            |              |            |               |            |             
|                                     |                                                  |                                                        | Total liabilities and stockholders equity |              | $          | 46,208,594    |            |              | $          | 31,410,412 | 
|                                     |                                                  |                                                        |                                            |              |            |               |            |             

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

3



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##### 



ENTREMED, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

|                                  |                            |                       |            |            |                    |      |                   |           |            |       |             |            |            |       |             |            |            |       |  
|--------------------------------- | -------------------------- | --------------------- | ---------- | ---------- | ------------------ | ---- | ----------------- | --------- | ---------- | ----- | ----------- | ---------- | ---------- | ----- | ----------- | ---------- | ---------- | ----- | -
|                                  |                            |                       |            |            | Three Months Ended |      | Nine Months Ended
|                                  |                            |                       |            |            | September 30,      |      | September 30,    
|                                  |                            |                       |            |            |                    |      |                  
|                                  |                            |                       |            |            | 2001               |      | 2000              |           | 2001       |       | 2000       
|                                  |                            |                       |            |            |                    |      |                   |           |            |       |            
|Revenues:                         |                            |                       |            |            |                    |      |                   |           |            |       |             |            |            |       |             |           
|                                  | Grant                      |                       | $          | 89,299     |                    |      | $                 | 72,484    |            |       | $           | 276,925    |            |       | $           | 300,709    |           
|                                  | Royalty                    |                       |            | 1,689      |                    |      |                   | 781,686   |            |       |             | 1,441,511  |            |       |             | 2,037,836  |           
|                                  | Other                      |                       |            |           |                    |      |                   |          |            |       |             | 14,027     |            |       |             | 109,265    |           
|                                  |                            |                       |            |            |                    |      |                   |           |            |       |             |            |            |       |             |           
|Total revenues                    |                            |                       | 90,988     |            |                    |      | 854,170           |           |            |       | 1,732,463   |            |            |       | 2,447,810   |           
|                                  |                            |                       |            |            |                    |      |                   |           |            |       |             |            |            |       |             |           
|Expenses:                         |                            |                       |            |            |                    |      |                   |           |            |       |             |            |            |       |             |           
|                                  | Research and development   |                       |            | 12,731,159 |                    |      |                   | 9,971,223 |            |       |             | 33,323,287 |            |       |             | 30,269,128 |           
|                                  | General and administrative |                       |            | 3,898,658  |                    |      |                   | 2,873,036 |            |       |             | 11,057,642 |            |       |             | 8,771,430  |           
|                                  |                            |                       |            |            |                    |      |                   |           |            |       |             |            |            |       |             |           
|                                  |                            |                       | 16,629,817 |            |                    |      | 12,844,259        |           |            |       | 44,380,929  |            |            |       | 39,040,558  |           
|Gain on sale of royalty interest  |                            |                       | 22,410,182 |            |                    |      |                  |           |            |       | 22,410,182  |            |            |       |            |           
|Interest expense                  |                            |                       | (89,297    | )          |                    |      | (54,889           | )         |            |       | (233,027    | )          |            |       | (167,805    | )         
|Investment income                 |                            |                       | 383,206    |            |                    |      | 764,765           |           |            |       | 1,165,355   |            |            |       | 1,704,643   |           
|                                  |                            |                       |            |            |                    |      |                   |           |            |       |             |            |            |       |             |           
|Net income (loss)                 |                            | $                     | 6,165,262  |            |                    | $    | (11,280,213       | )         |            | $     | (19,305,956 | )          |            | $     | (35,055,910 | )         
|                                  |                            |                       |            |            |                    |      |                   |           |            |       |             |            |            |       |             |           
|Net income (loss) per share       |                            |                       |            |            |                    |      |                   |           |            |       |             |            |            |       |             |           
|                                  |                            |                       | (basic)    |            | $                  | 0.34 |                   |           | $          | (0.66 | )           |            | $          | (1.08 | )           |            | $          | (2.22 | )
|                                  |                            |                       |            |            |                    |      |                   |           |            |       |             |            |            |       |             |           
|Weighted average number of shares |                            |                       |            |            |                    |      |                   |           |            |       |             |            |            |       |             |           
|                                  |                            | outstanding (basic)   |            |            | 18,272,370         |      |                   |           | 16,964,613 |       |             |            | 17,893,661 |       |             |            | 15,781,868 |      
|                                  |                            |                       |            |            |                    |      |                   |           |            |       |             |            |            |       |             |           
|Net income (loss) per share       |                            |                       |            |            |                    |      |                   |           |            |       |             |            |            |       |             |           
|                                  |                            |                       | (diluted)  |            | $                  | 0.33 |                   |           | $          | (0.66 | )           |            | $          | (1.08 | )           |            | $          | (2.22 | )
|                                  |                            |                       |            |            |                    |      |                   |           |            |       |             |            |            |       |             |           
|Weighted average number of shares |                            |                       |            |            |                    |      |                   |           |            |       |             |            |            |       |             |           
|                                  |                            | outstanding (diluted) |            |            | 18,822,750         |      |                   |           | 16,964,613 |       |             |            | 17,893,661 |       |             |            | 15,781,868 |      
|                                  |                            |                       |            |            |                    |      |                   |           |            |       |             |            |            |       |             |           

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

4



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ENTREMED, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                 |                                            |                                           |                            |             |                   |            |             |         |             |          |  
|------------------------------------------------ | ------------------------------------------ | ----------------------------------------- | -------------------------- | ----------- | ----------------- | ---------- | ----------- | ------- | ----------- | -------- | -
|                                                 |                                            |                                           |                            |             | Nine Months Ended
|                                                 |                                            |                                           |                            |             | September 30,    
|                                                 |                                            |                                           |                            |             | 2001              |            | 2000       
|                                                 |                                            |                                           |                            |             |                  
|Cash flows from operating activities             |                                            |                                           |                            |             |                   |            |             |        
|Net loss                                         |                                            | $                                         | (19,305,956                | )           |                   | $          | (35,055,910 | )      
|Adjustments to reconcile net loss to net cash    |                                            |                                           |                            |             |                   |            |             |        
|                                                 | used in operating activities:              |                                           |                            |             |                   |            |             |         |            
|                                                 | Depreciation                               |                                           |                            | 1,016,046   |                   |            |             | 771,416 |            
|                                                 | Loss on equity investment                  |                                           |                            |            |                   |            |             | 195,000 |            
|                                                 | Stock and warrants issued for compensation |                                           |                            |             |                   |            |             |         |            
|                                                 |                                            |                                           | and consulting services    |             |                   | 44,820     |             |         |             |         |  
|                                                 | Gain on sale of royalty interest           |                                           |                            | (22,410,182 | )                 |            |             |        |            
|                                                 | Minority interest                          |                                           |                            | (256        | )                 |            |             | (922    | )          
|                                                 | Changes in assets and liabilities:         |                                           |                            |             |                   |            |             |         |            
|                                                 |                                            |                                           | Accounts receivable        |             |                   | 1,407,367  |             |         |             | (377,443 | )
|                                                 |                                            |                                           | Interest receivable        |             |                   | (85,074    | )           |         |             | (24,751  | )
|                                                 |                                            |                                           | Prepaid expenses and other |             |                   | (2,747,764 | )           |         |             | (134,558 | )
|                                                 |                                            |                                           | Accounts payable           |             |                   | 5,659,383  |             |         |             | (275,126 | )
|                                                 |                                            |                                           | Accrued liabilities        |             |                   | 890,807    |             |         |             | (53,014  | )
|                                                 |                                            |                                           | Deferred revenue           |             |                   |           |             |         |             | (75,000  | )
|                                                 |                                            |                                           |                            |             |                   |            |             |        
|                                                 |                                            | Net cash used in operating activities     |                            |             | (35,530,809       | )          |             |         | (35,030,308 | )       
|                                                 |                                            |                                           |                            |             |                   |            |             |        
|Cash flows from investing activities             |                                            |                                           |                            |             |                   |            |             |        
|Purchases of furniture and equipment             |                                            |                                           | (802,765                   | )           |                   |            | (1,278,939  | )      
|Proceeds from sale of royalty interest, net      |                                            |                                           | 22,410,182                 |             |                   |            |            |        
|                                                 |                                            |                                           |                            |             |                   |            |             |        
|                                                 |                                            | Net cash provided by investing activities |                            |             | 21,607,417        |            |             |         | (1,278,939  | )       
|                                                 |                                            |                                           |                            |             |                   |            |             |        
|Cash flows from financing activities             |                                            |                                           |                            |             |                   |            |             |        
|Proceeds from option and warrant exercises       |                                            |                                           |                            |             |                   |            |             |        
|and the sale of common stock                     |                                            |                                           | 26,149,858                 |             |                   |            | 49,160,245  |        
|Proceeds from issuance of convertible debt       |                                            |                                           | 2,097,938                  |             |                   |            |            |        
|Payment of note payable                          |                                            |                                           | (738,412                   | )           |                   |            | (890,277    | )      
|                                                 |                                            |                                           |                            |             |                   |            |             |        
|                                                 |                                            | Net cash provided by financing activities |                            |             | 27,509,384        |            |             |         | 48,269,968  |         
|                                                 |                                            |                                           |                            |             |                   |            |             |        
|Net increase in cash and cash equivalents        |                                            |                                           | 13,585,992                 |             |                   |            | 11,960,721  |        
|Cash and cash equivalents at beginning of period |                                            |                                           | 24,503,886                 |             |                   |            | 26,027,235  |        
|                                                 |                                            |                                           |                            |             |                   |            |             |        
|Cash and cash equivalents at end of period       |                                            | $                                         | 38,089,878                 |             |                   | $          | 37,987,956  |        
|                                                 |                                            |                                           |                            |             |                   |            |             |        

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

5



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ENTREMED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 (unaudited)

1. BASIS OF PRESENTATION

Our accompanying unaudited consolidated financial information includes the
accounts of our 85% owned subsidiary, Cytokine Sciences, Inc. and our 96.6%
owned subsidiary MaxCyte, Inc. (formally TheraMed, Inc.). MaxCyte was formed
in July 1998 as a wholly owned subsidiary and on April 1, 2000 was capitalized
with $39,000 from us and $1,000 from a minority investor. We also agreed to
contribute certain technology and to provide additional funding in exchange for
preferred stock. TheraMed was renamed MaxCyte, a name reflective of its
business strategy, in October 2001. We continue to provide facility and
administrative services for which MaxCyte is obligated to repay us. MaxCyte
will focus on the continued development and the commercialization of blood cell
permeation technology.

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, such consolidated
financial statements do not include all of the information and disclosures
required by generally accepted accounting principles for complete financial
statements. In the opinion of our management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended September 30,
2001 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2001. For further information, refer to our audited
financial statements and footnotes thereto included in our Form 10-K for the
year ended December 31, 2000.

2. CONTINGENCIES

We are a defendant in a lawsuit initiated in August 1995 in the United
States District Court for the Eastern District of Tennessee by Bolling, McCool
& Twist (BMT), a consulting firm. In the suit, BMT asserts that we breached
an agreement between BMT and us by failing to pay BMT certain fees it asserts
are owed under the agreement. More specifically, BMT has asserted a claim for
the payment of services rendered in the approximate amount of $50,000 and seeks
a success fee in an unspecified amount in connection with the BMS
Collaboration. The judge in the case bifurcated the proceeding into two
phases: an adjudication of whether we breached our agreement with BMT and then
a damage phase. After a trial on the merits the jury found in favor of BMT on
the breach of contract claim. A trial to determine damages had been scheduled
for April 14, 1998. However, on April 6, 1998, the court issued an Order
pursuant to which damages were limited to those arising during the term of the
Agreement, which terminated on November 1, 1995. On May 6, 1999, the court
confirmed its decision by granting our motion for summary judgment and limiting
our damages to approximately $50,000 plus interest. Thus, this litigation at
the trial level had been concluded. BMT filed an appeal and we cross-appealed.
On February 27, 2001, the United States Court of Appeals handed down a decision
in the aforementioned appeal and thereafter denied our request for a rehearing
by a full panel of the Court. The Court of Appeals effectively remanded the
case back to the district court for a trial on what were the basic issues,
whether or not Bolling, McCool and Twist was entitled to any percentage of
anything of value received by EntreMed from the Bristol-Myers Squibb agreement
with EntreMed. A new trial date has been scheduled for January 29, 2002. We
intend to continue to contest any further action vigorously and believe that
this proceeding will not have a material adverse effect on us or on our
financial condition, although there can be no assurance that this will be the
case.

On May 30, 2000, Abbott Laboratories filed a law suit against Childrens
Medical Center Corporation and us in the Federal District Court in
Massachusetts requesting, among other things, that the court substitute Dr.
Donald Davidson as inventor on Childrens U.S. Patent No. 4,854,221 which
covers use of the Kringle 5

6



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##### 



region of the plasminogen molecule as an anti-angiogenic agent and a
declaratory judgement from the court to invalidate any agreement between
Childrens Hospital and EntreMed regarding this patent. Abbott also filed a
claim for misappropriation of trade secrets related to the Kringle 5 molecule
seeking actual and punitive damages from the defendants. On July 18, 2000, we
filed counterclaims against Abbott Laboratories including tortuous interference
with contract and a declaratory judgement that Abbotts patent covering Kringle
5 is invalid and that Childrens patent covering Kringle 5 is valid. The
lawsuit is in the discovery phase. Although we do not currently believe that
the Abbott lawsuit will have a material impact on the operations of the
company, and we intend to vigorously contest the allegations raised in the
lawsuit, there is a risk that Childrens patent or any agreement with
Childrens with respect to the use of the patent could be invalidated or found
not to exist.

The Abbott lawsuit is not directed to nor does the suit affect our
Angiostatin molecule, Kringles 1-3 of the plasminogen molecule, that is
currently in Phase I clinical trial.

3. SALE OF ROYALTY RIGHTS

Pursuant to a purchase agreement dated June 15, 2001 by and between
Bioventure Investments kft (Bioventure) and the Company, as amended July 13,
2001, July 30, 2001 and August 3, 2001 (the Purchase Agreement), Bioventure
purchased as of August 6, 2001 all of our right, title and interest to the net
royalty payments payable by Celgene Corporation (Celgene) to the Company
under the agreement dated as of December 9, 1998 by and between the Company and
Celgene (the Celgene Sublicense). In consideration for such sale, the
Company received $24.38 million in cash, the right to receive a future payment
of $3 million under certain circumstances, and the right to receive additional
contingent consideration in the event that sales of Thalidomide satisfy
specified thresholds.

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

(a)  Overview

Since our inception in September 1991, we have devoted substantially all
of our efforts and resources to sponsoring and conducting research and
development on our own behalf and through collaborations. Through September 30,
2001, all of our revenues and gains have been generated from license fees, research and
development funding, royalty payments, the sale of royalty rights, and certain
research grants; we have not generated any revenue from direct product sales.
We anticipate our primary revenue sources for the next few years to include
research grants and collaboration payments under current or future
arrangements. The timing and amounts of such revenues, if any, will likely
fluctuate and depend upon the achievement of specified research and development
milestones, and results of operations for any period may be unrelated to the
results of operations for any other period.

Results of Operations

Three and Nine Months Ended September 30, 2000 and September 30, 2001

Revenues decreased 89% from approximately $854,000 for the three months
ended September 30, 2000 (2000 Three Months) to approximately $91,000 for the
three months ended September 30, 2001 (2001 Three Months). For the Nine
months ended September 30, 2000 (2000 Nine Months), revenues were
approximately $2,448,000 as compared to $1,732,000 for the nine months ended
September 30, 2001 (2001 Nine Months), a 29% decrease. This decrease is
primarily attributable to a decrease in our net royalty income. Net royalty
income decreased 29% from approximately $2,038,000 for the 2000 Nine Months to

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approximately $1,442,000 for the 2001 Nine Months. The decrease in our
revenues reflects the sale our right to receive future THALOMID® royalties,
which occurred in August 2001.

Research and development expenses increased by 28% from approximately
$9,971,000 for the 2000 Three Months to approximately $12,731,000 for the 2001
Three Months and by 10% from approximately $30,269,000 for the 2000 Nine Months
to approximately $33,323,000 for the 2001 Nine Months. Research and development
expenditures include sponsored research payments to academic collaborators,
including payments to Childrens Hospital of $1,500,000 in 2001 and $900,000 in
2000 and expenses related to our internal research programs. The 2001 Three
Month increase results primarily from increases in personnel, product
manufacturing, sponsored research and clinical trial programs. Reflected in the
research and development expenses for the 2001 Nine Months are decreased
expenditures for manufacturing of our three lead product candidates. This decrease,
which results from the timing of our manufacturing, is offset by increases in
personnel, clinical trial programs and product development programs related to
our antiangiogenesis and blood cell permeation technologies. Overall, research
personnel increased from 74 as of September 30, 2000 to 91 as of September 30,
2001. Research and development expenses are expected to increase in subsequent
quarters as we continue to expand our research and development efforts.

General and administrative expenses increased 36% from approximately
$2,873,000 for the 2000 Three Months to approximately $3,899,000 for the 2001
Three Months. The increase results primarily from securing professional
services in support of ongoing litigation. For the 2000 Nine Months general
and administrative expenses were approximately $8,771,000 as compared to
approximately $11,057,000 for the 2001 Nine Months, a 26% increase. The 2001
Nine Months increase resulted primarily from the increase in administrative
costs associated with adding administrative staff to support our research
efforts and external collaborations, investigating potential strategic
relationships, and managing professional services and relationships.

The Consolidated Statement of Operations for the three and nine months
ended September 30, 2001 reflects a gain on sale of royalty interest of
approximately $22,400,000 resulting from a purchase agreement by and between
Bioventure Investments kft (Bioventure) and the Company. Bioventure purchased
our right, title and interest to the net royalty payments payable by Celgene
Corporation to the Company under an agreement dated as of December 9, 1998 by
and between the Company and Celgene.

Investment income decreased 50% from approximately $765,000 for the 2000
Three Months to approximately $383,000 for the 2001 Three Months and decreased
32% from approximately $1,705,000 in the 2000 Nine Months to approximately
$1,165,000 in the 2001 Nine Months. This overall decrease in investment income
during the 2001 periods versus comparable periods of 2000 is due to a decrease
in the net yield on our available cash balances.

(b)  Liquidity and Capital Resources

At September 30, 2001, we had cash and cash equivalents of approximately
$38,090,000 with working capital of approximately $23,497,000 primarily
representing the net proceeds of our private placements of equity securities
and our public offerings, payments from BMS which included equity investments,
royalties received from Celgene, proceeds from secured borrowing, the sale of
royalty rights and various grants.

We anticipate incurring substantial additional losses over at least the
next several years due to, among other factors, the need to expend substantial
amounts on our ongoing and planned clinical trials, manufacturing, additional
research and development activities, and related business development and
general corporate expenses. From inception through September 30, 2001, we have
financed our operations primarily from:

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| |  |  | the net proceeds of approximately $17,000,000 from private placements
of equity securities prior to becoming a public company;                                                                                                           
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | payments from BMS of approximately $29,200,000 (of which $11,500,000
was an equity investment);                                                                                                                                          
|
| |  |  | various grants of approximately $1,851,000 from the World Health
Organization and SBIR;                                                                                                                                                  
|
| |  |  | net royalty revenues of approximately $5,670,000 recognized from
Celgenes sales of THALOMID®;                                                                                                                                           
|
| |  |  | net proceeds of approximately $43,541,000 from our initial public
offering;                                                                                                                                                              
|
| |  |  | net proceeds of approximately $28,400,000 from a private offering
completed on July 27, 1999 of 1,478,118 shares of our common stock,
Series 1 Warrants and Series 2 Warrants.;                                                          
|
| |  |  | net proceeds of $17,818,000 from exercise of Series 2 Warrants and
$6,402,000 from exercise of Series 1 Warrants issued in connection with
the July 27, 1999 private offering;                                                           
|
| |  |  | proceeds of $3,000,000 from a borrowing in December 1999 secured by
our equipment;                                                                                                                                                       
|
| |  |  | net proceeds of approximately $20,680,000 from a public offering
completed on June 19, 2000 of 1,000,000 shares of our common stock;                                                                                                     
|
| |  |  | net proceeds of approximately $24,534,000 from a public offering
completed on March 2, 2001 of 1,450,000 shares of our common stock;                                                                                                     
|
| |  |  | net proceeds of approximately $1,692,000 from the March 28, 2001 sale
of 100,000 shares of our common stock resulting from the exercise of the
underwriter over-allotment pursuant to the public offering completed on
March 2, 2001; and
|
| |  |  | net proceeds of approximately $22,410,000 from the August 6, 2001
sale of our right to receive future THALOMID® royalties.                                                                                                               

In addition to the items detailed above, on March 15, 2001 our subsidiary
MaxCyte received net proceeds of approximately $2,185,000 from the issuance of
convertible promissory notes with a maturity date of December 31, 2003. The
notes accrue simple interest at 8% per annum, payable upon maturity. The
notes, plus the accrued interest, are convertible to common stock at any time
at the option of the holder and are subject to a mandatory conversion to Series
B Convertible Preferred Stock upon the occurrence of certain specified events.
Holders of the promissory notes also received warrants to purchase a total of
10,925 shares of common stock of EntreMed.

The Series 1 Warrants issued in connection with the private offering
completed on July 27, 1999 are terminable by us at any time after January 27,
2002 if our common stock trades at a per share price greater than $61.91 for
ten consecutive trading days and such Warrants are not exercised within a
specified period after our delivery of a written notice. If the remaining
Series 1 Warrants were fully exercised, they would result in us receiving
$18,001,000 in aggregate exercise proceeds. We terminated the remaining Series
2 Warrants under a similar provision on June 1, 2000.

Our cash resources have been used to finance research and development,
including sponsored research, drug manufacturing for clinical trials, stock
repurchases, capital expenditures, including leasehold improvements to our
current facility, and general and administrative expenses. Over the next
several years, we expect to incur substantial additional research and
development costs, including costs related to early-stage research, preclinical
and clinical trials, product candidate manufacturing, increased administrative

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expenses to support our research and development operations and increased
capital expenditures for expanded research capacity, various equipment needs
and facility improvements.

At September 30, 2001, we were a party to the following agreements
requiring our funding: sponsored research in an aggregate of approximately
$2,580,000 through 2002 (including $1,433,000 to Childrens Hospital, Boston);
clinical trials of approximately $1,366,000; manufacturing of product
candidates for clinical trials of approximately $10,000,000; future potential
milestone payments of up to $3,435,000 and additional payments upon attainment
of regulatory milestones.

In December 2000 and 1999, we exercised our option to repurchase shares of
our common stock from BMS for $13.143 per share. Shares repurchased totaled
291,666 and 291,667 for repurchase prices of $3,833,367 and $3,833,379 in 2000
and 1999 respectively. Shares repurchased from BMS are accounted for as
treasury stock. BMS remaining 291,666 shares held in connection with the
collaborative research and development agreement are subject to certain
restrictions and we may exercise our right to repurchase these remaining shares
for $13.143 per share (approximately BMS cost per share) at any time prior to
November 30, 2001.

We will require additional funds in addition to our existing working
capital to meet our currently planned expenditures over the next twelve months
and to complete the development of our product candidates and fully meet our
business objectives. Unless we raise additional funds, we may be required to
delay or postpone the manufacturing of one or more of our product candidates or
delay, reduce the scope of, or eliminate one or more of our research and
development programs. Our working capital requirements will depend upon
numerous factors including:



| |  |  | the progress of our research and development programs;                                                                                                    
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to contain our manufacturing costs;                                                                                                           
|
| |  |  | preclinical testing and clinical trials;                                                                                                                  
|
| |  |  | achievement of regulatory milestones;                                                                                                                     
|
| |  |  | the timing and cost of seeking regulatory approvals;                                                                                                      
|
| |  |  | the level of resources that we devote to the development of manufacturing, marketing and sales
capabilities, if any;                                      
|
| |  |  | technological advances;                                                                                                                                   
|
| |  |  | the status of competing products; and                                                                                                                     
|
| |  |  | our ability to maintain existing and establish new collaborative arrangements with other
companies to provide us with funding to support these activities.

We will require substantial funds in addition to the present existing
working capital to develop our product candidates and to fully meet our
business objectives. In addition to additional equity offerings, we are
exploring other opportunities to raise funds. We cannot predict whether any of
our efforts to raise additional capital will be successful.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of our investment activities is to preserve our
capital until it is required to fund operations while at the same time
maximizing the income we receive from our investments without incurring
investment market volatility risk. Our investment income is sensitive to the
general level of U.S. interest rates. In this regard, changes in the U.S.
interest rates affect the interest earned our cash and cash equivalents. Due
to the short term nature of our cash and cash equivalent holdings, a 10%
movement in market interest rates would not materially impact on the total fair
market value of our portfolio as of September 30, 2001.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

This information as set forth in Note 2 of Notes to Consolidated
Financial Statements appearing in Item 1 of Part I of this report is
incorporated herein by reference.

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable.

Item 3. DEFAULT UPON SENIOR SECURITIES

Not applicable.

Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

Not applicable.

Item 5. OTHER INFORMATION

Not applicable.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

None

(b)  Reports on Form 8-K

None

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SIGNATURES

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

|                         |  |                                                                  
|------------------------ |  | -----------------------------------------------------------------
|                         |  | ENTREMED, INC.
(Registrant)                                      
|                        
|                        
|Date: November 13, 2001  |  | /s/ John W. HoladayJohn W. Holaday, Ph.D.
Chief Executive Officer
|                        
|                        
|Date:  November 13, 2001 |  | /s/ Dane R. SaglioDane R. Saglio
Chief Accounting Officer        

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