UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


  X         Quarterly report pursuant to Section 13 or 15(d) of the Securities
_____       Exchange Act of 1934. For the quarterly period ended December 31,
            1998.

_____       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
                                     0-27410


                                     INTERCARDIA, INC.
             (Exact Name of Registrant as Specified in its Charter)


            Delaware                                   56-1924222
            --------                                   ----------
(State  or  other jurisdiction of
  incorporation or organization)        (I.R.S. Employer Identification Number)

P.O. Box 14287
3200 East Highway 54
Cape Fear Building, Suite 300
Research Triangle Park, NC                                    27709
--------------------------                                    -----
(Address of Principal Executive Office)                     (Zip Code)

Registrant's Telephone Number, Including Area Code      919-558-8688
                                                       ---------------

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 such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.   YES  [X]     NO  [ ]

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


            Class                         Outstanding as of February 10, 1999
        ------------                      -----------------------------------
Common Stock, par value $.001                      7,304,453 Shares

<PAGE>
                                INTERCARDIA, INC.

                               INDEX TO FORM 10-Q


                                                                            PAGE
PART I.     FINANCIAL INFORMATION

            Item 1.           Financial Statements

            Consolidated Balance Sheets as of December 31, 1998 (unaudited )
            and September 30, 1998............................................ 3

            Consolidated Statements of Operations for the Three Months
            ended December 31, 1998 and 1997 (unaudited)...................... 4

            Consolidated Statements of Cash Flows for the Three Months ended
            December 31, 1998 and 1997 (unaudited)............................ 5

            Notes to Unaudited Consolidated Financial Statements.............. 6


            Item 2.     Management's Discussion and Analysis of Financial
                        Condition and Results of Operations................... 8


PART II.    OTHER INFORMATION

            Item 6.     Exhibits and Reports on Form 8-K......................15

            SIGNATURE.........................................................16

                                       2

<PAGE>

                                 INTERCARDIA, INC.

                            CONSOLIDATED BALANCE SHEETS
                   (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                        December 31,    September 30,
                                                           1998            1998
                                                        ------------    ------------
<S>                                                         <C>            <C>
                                                        (Unaudited)
                                   ASSETS
Current assets:
     Cash and cash equivalents                              $ 8,241        $ 10,647
     Marketable securities                                    7,690           9,314
     Accounts receivable                                        333           1,096
     Prepaids and other current assets                           98             117
                                                        ------------    ------------
                  Total current assets                       16,362          21,174

Marketable securities                                         2,042           3,601
Property and equipment, net                                   3,050           2,976
Other assets                                                     84              85
                                                        -----------     -----------
                                                           $ 21,538        $ 27,836
                                                        ===========     ===========

                        LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                       $ 1,436           $ 752
     Accrued expenses                                         2,178           3,191
     Current portion of capital lease obligations               383             565
     Current portion of notes payable                           200             194
     Accounts payable to Interneuron                          1,751           1,865
                                                        ------------    ------------
                 Total current liabilities                    5,948           6,567

Long-term portion of capital lease obligations                  919             816
Long-term portion of notes payable                              738             777

Stockholders' equity:
     Common stock, $.001 par value per share, 40,000,000
         shares authorized, 7,304,453 and 7,289,153
         shares issued and outstanding at December 31,
         1998 and September 30, 1998, respectively                7               7
     Additional paid-in capital                              78,569          78,399
     Deferred compensation                                     (878)         (1,086)
     Accumulated deficit                                    (63,765)        (57,644)
                                                        ------------    ------------
                 Total stockholders' equity                  13,933          19,676
                                                        ------------    ------------
                                                           $ 21,538        $ 27,836
                                                        ============    ============
</TABLE>


The accompanying notes are an integral part of these unaudited consolidated
financial statements.

                                       3
<PAGE>

                                INTERCARDIA, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                Three Months Ended
                                                    December 31,
                                              ------------------------
                                                 1998          1997
                                              ----------   -----------
<S>                                               <C>           <C>
Revenue:
    Contract and license fee revenue              $ 191         $ 534
                                              ----------   -----------
Costs and expenses:
    Research and development                      5,818         2,656
    General and administrative                      647         1,005
                                              ----------   -----------
         Total costs and expenses                 6,465         3,661
                                              ----------   -----------
Loss from operations                             (6,274)       (3,127)
Investment income, net                              153           141
                                              ----------   -----------
Net loss                                       $ (6,121)     $ (2,986)
                                              ==========   ===========
Net loss per common share:
   Basic                                        $ (0.67)      $ (0.43)
                                              ==========   ===========
   Diluted                                      $ (0.67)      $ (0.43)
                                              ==========   ===========
Weighted average common shares
    outstanding                                   7,297         6,998
                                              ==========   ===========
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
financial statements.

                                       4
<PAGE>

                                INTERCARDIA, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                 Three Months Ended
                                                    December 31,
                                                 --------------------
                                                  1998        1997
                                                 --------   ---------
<S>                                             <C>         <C>
Cash flows from operating activities:
    Net loss                                    $ (6,121)   $ (2,986)
    Adjustments to reconcile net loss to net
    cash used in operating activities:
      Depreciation and amortization                  191         264
      Noncash compensation                           329          88
      Interest expense on notes payable to
        Interneuron                                    -         311
      Change in assets and liabilities:
        Accounts receivable                          763          45
        Prepaids and other assets                     20          (4)
        Accounts payable and accrued expenses       (329)     (8,367)
        Deferred revenue                               -        (167)
                                                 --------   ---------
Net cash used in operating activities             (5,147)    (10,816)
                                                 --------   ---------
Cash flows from investing activities:
    Proceeds from sales and maturities of
      marketable securities                        4,227       7,915
    Purchases of marketable securities            (1,044)    (10,211)
    Purchases of property and equipment             (265)       (448)
                                                 --------   ---------
Net cash provided by (used in) investing
    activities                                     2,918      (2,744)
                                                 --------   ---------
Cash flows from financing activities:
    Net proceeds from exercise of stock options       49          53
    Proceeds from notes payable                        -           2
    Principal payments on notes payable              (33)         (7)
    Principal payments on capital lease obligations  (79)       (196)
    Advances from (payments to) Interneuron, net    (114)      1,559
                                                 --------   ---------
Net cash provided by (used in) financing
    activities                                      (177)      1,411
                                                 --------   ---------
Net decrease in cash and cash equivalents         (2,406)    (12,149)
Cash and cash equivalents at beginning of period  10,647      18,186
                                                 -------    --------
Cash and cash equivalents at end of period       $ 8,241     $ 6,037
                                                 ========   =========
</TABLE>

The accompanying notes are integral part of these unaudited consolidated
financial statements.

                                       5
<PAGE>

                                INTERCARDIA, INC.

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


A.    Basis of Presentation

      The "Company" refers collectively to Intercardia, Inc. ("Intercardia") and
its majority-owned subsidiaries, CPEC, Inc., a Nevada corporation ("CPEC"),
Aeolus Pharmaceuticals, Inc., a Delaware corporation ("Aeolus"), and Renaissance
Cell Technologies, Inc., a Delaware corporation ("Renaissance"). As of December
31, 1998, Intercardia owned 80.1% of the outstanding stock of CPEC, 65.8% of the
outstanding stock of Aeolus and 79.6% of the outstanding stock of Renaissance.
Intercardia is a majority-owned subsidiary of Interneuron Pharmaceuticals, Inc.
("Interneuron"). As of December 31, 1998, Interneuron owned 61.8% of the
outstanding capital stock of Intercardia and the 19.9% of the outstanding stock
of CPEC not owned by Intercardia.

      All significant intercompany activity has been eliminated in the
preparation of the consolidated financial statements. The consolidated financial
statements included herein have been prepared by the Company without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the consolidated
financial position, results of operations and cash flows of the Company. The
consolidated balance sheet at September 30, 1998 was derived from the Company's
audited financial statements included in the Company's Annual Report on Form
10-K. The unaudited consolidated financial statements included herein should be
read in conjunction with the audited consolidated financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1998 and in the Company's other SEC filings.
Results for the interim period are not necessarily indicative of the results for
any other interim period or for the full fiscal year. The Company's financial
statements for the three-month period ended December 31, 1997 have been restated
to reflect the merger (the "Transcell Merger") of Transcell Technologies, Inc.
("Transcell") and the Company in May 1998. The former Transcell operation, which
is now a division of Intercardia, is referred to as Intercardia Research
Laboratories ("IRL").

      The Company focuses on development of therapeutics for the treatment of
cardiovascular, infectious and other diseases. The Company's most advanced
product is BEXTRA(R), a compound currently in Phase III clinical trials for the
treatment of congestive

                                       6
<PAGE>

heart failure ("CHF"). The Company's other programs are in the early stages of
development.

B.    Recent Accounting Pronouncements

      The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," effective October
1, 1998. The Company had no items of comprehensive income for the three months
ended December 31, 1998 and 1997.

      The Company will adopt SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," for the fiscal year ending September 30,
1999. SFAS No. 131 specifies revised guidelines for determining an entity's
operating segments and the type and level of financial information to be
disclosed. Management believes its current disclosures will not be materially
affected by the adoption of SFAS No. 131.


                                       7
<PAGE>

Item 2.     Management's Discussion and Analysis of Financial Condition and
Results of Operations.

Introduction

      This Report contains, in addition to historical information, statements by
the Company with respect to expectations about its business and future financial
results, which are "forward-looking" statements under the Private Securities
Litigation Reform Act of 1995. These statements and other statements made
elsewhere by the Company or its representatives, which are identified or
qualified by words such as "likely," "will," "suggests," "expects," "may,"
"believe," "could," "should," "would," "anticipates" or "plans," or similar
expressions, are based on a number of assumptions that are subject to risks and
uncertainties. Actual results could differ materially from those currently
anticipated or suggested due to a number of factors, including those set forth
herein, those set forth in the Company's Annual Report on Form 10-K and in the
Company's other SEC filings, and including, in particular, risks relating to
funding requirements, dependence on collaborative partners, dependence on one
product, competition, the early stage of products under development, the results
of clinical trials and regulatory filings. All forward-looking statements are
based on information available as of the date hereof, and the Company does not
assume any obligation to update such forward-looking statements.

      The Company focuses on development of therapeutics for the treatment of
cardiovascular, infectious and other diseases. The Company's most advanced
product is BEXTRA(R), a compound currently in Phase III clinical trials for the
treatment of congestive heart failure. The Company's other programs are in 
earlier stages of development.

        As a result of the Transcell Merger in May 1998, the Company's financial
statements for the three months ended December 31, 1997 have been restated to
include the results of operations of Transcell.

Results of Operations

      The Company incurred net losses of $6,121,000 and $2,986,000 for the three
months ended December 31, 1998 and 1997, respectively.

      Contract and license fee revenue decreased by $343,000 (64%) to $191,000
for the three months ended December 31, 1998 from $534,000 for the three months
ended December 31, 1997, due to the termination in September 1998 of a
collaboration which the Company had with Astra Merck Inc. ("Astra Merck") for
the U.S. development and commercialization of bucindolol (the "Astra Merck
Collaboration"). Contract and license fee revenue of $191,000 for the three
months ended December 31, 1998 consisted primarily of contract revenue payments
from Merck & Co., Inc. ("Merck") pursuant to a collaboration (the "Merck
Collaboration") between Intercardia and Merck related to the carbohydrate
combinatorial chemistry technology of IRL. Contract and license fee revenue of
$534,000 for the three


                                       8
<PAGE>

months ended December 31, 1997 consisted primarily of contract revenue payments
received from both the Merck Collaboration and the Astra Merck Collaboration.

      Research and development ("R&D") expenses increased by $3,162,000 (119%)
to $5,818,000 from $2,656,000 primarily due to increases in bucindolol expenses
borne by the Company, and increased expenses incurred at IRL

      Bucindolol and general R&D expenses increased by $1,928,000 (290%) to
$2,593,000 for the three months ended December 31, 1998 from $665,000 for the
three months ended December 31, 1997. This increase was primarily due to
increases in the Company's share of bucindolol clinical trial costs associated
with the Bucindolol Evaluation after Acute myocardial infraction Trial ("BEAT")
in Europe and the Beta-blocker Evaluation of Survival Trial ("BEST") in the
United States. In June 1998, BASF Pharma/Knoll AG ("Knoll"), the Company's
international partner for BEXTRA, initiated BEAT in Denmark and the United
Kingdom. BEST commenced in June 1995, however, the Company's share of costs for
BEST for the three months ended December 31, 1998 increased significantly over
prior quarters, due to the termination of the Astra Merck Collaboration in
September 1998. For the three months ended December 31, 1997 Astra Merck had
assumed approximately $1,219,000 of BEST and U.S. bucindolol development costs.

      IRL R&D expenses increased by $1,130,000 (84%) to $2,471,000 for the three
months ended December 31, 1998 from $1,341,000 for the three months ended
December 31, 1997. This increase was primarily due to increases in license fees
to Princeton University, payroll costs, patent fees and consultant noncash
compensation.

      Aeolus R&D expenses increased by $65,000 (13%) to $576,000 for the three
months ended December 31, 1998 from $511,000 for the three months ended December
31, 1997. This increase was primarily due to an increase in sponsored research
expenses.

      Renaissance R&D expenses for its liver stem cell program increased by
$39,000 (28%) to $178,000 for the three months ended December 31, 1998 from
$139,000 for the three months ended December 31, 1997. This increase was
primarily due to increases in sponsored research and patent expenses.

      General and administrative expenses decreased by $358,000 (36%) to
$647,000 for the three months ended December 31, 1998 from $1,005,000 for the
three months ended December 31, 1997, primarily due to the elimination of
certain IRL administrative personnel and functions after the Transcell Merger.


                                       9
<PAGE>

Liquidity and Capital Resources

      As of December 31, 1998, the Company had cash, cash equivalents and
marketable securities of $17,973,000, which was $5,589,000 less than the balance
at September 30, 1998. This decrease was primarily due to the funding of the
Company's operations for the three-month period ended December 31, 1998. The
Company believes it has sufficient cash for planned expenditures through the
fiscal year ending September 30, 1999, without raising additional capital or
finding a U.S. development and marketing partner. However, the Company's capital
requirements may change due to numerous factors, including the progress of the
Company's research and development programs, the terms of collaborative
arrangements and other factors, many of which are beyond the Company's control.

      Following termination of the Astra Merck Collaboration in September 1998,
the Company has been responsible for all U.S. bucindolol development and
marketing costs. This has resulted in increased expenses to the Company, and a
lower accounts receivable balance, because Astra Merck had funded a large
portion of such costs over the period of the Astra Merck Collaboration from
December 1995 through September 1998. The Company estimates that it could incur
additional U.S. bucindolol study costs of up to $6,000,000 during fiscal 1999,
primarily to support BEST. The Company is evaluating opportunities to share
bucindolol development and marketing responsibilities and costs in the United
States with other potential partners.

      Pursuant to a collaboration with Knoll (the "Knoll Collaboration") for the
development, manufacturing and marketing of bucindolol in countries other than
the United States and Japan (the "Knoll Territory"), the Company is responsible
for approximately 40% of the development and marketing costs of bucindolol for
the Knoll Territory, subject to certain maximum dollar limitations. The
remaining portion of the Company's obligation for development and clinical
trials costs of the twice-daily formulation of bucindolol for the Knoll
Territory is estimated to be $9,000,000, which is expected to be incurred over
the two years. The Company's portion of marketing costs prior to product launch
is estimated to be $4,000,000. Upon product launch, the Company will receive 40%
of the net income and will be responsible for 40% of the net loss in the Knoll
Territory, if any, as defined. The Company is also responsible for approximately
40% of the costs incurred to develop a once-daily formulation of bucindolol for
the Knoll Territory and approximately 67% of the once-daily development costs
that have a worldwide benefit.

      The Company's future prospects substantially depend on favorable results
of BEST. The Phase III studies of three other beta-blockers have terminated
before their scheduled completion date because of positive results. However,
bucindolol differs in some respects from those other compounds and the results
of the other studies may not be predictive of the results of BEST. BEST is
sponsored by the National Institutes of Health (the "NIH") and the Department of
Veterans Affairs (the "VA"), and the schedule, conduct and analysis of the study
is not under the control of the Company. Once the study ends, the NIH and VA
plan to submit the data for publication in a scientific journal, and the Company
is not entitled to receive the data from the trial before a manuscript is
accepted for publication. The Company


                                       10
<PAGE>

cannot control the timing of the publication's preparation or review, and the
timing of its receipt of the BEST database therefore cannot be predicted. If the
BEST results are positive, the Company must obtain approval of the U.S. Food and
Drug Administration (the "FDA") before bucindolol can be marketed in the United
States. The Company currently intends to submit a New Drug Application (an
"NDA") for BEXTRA to the FDA within six months after it receives the BEST data,
if the study results are favorable. The U.S. submission would be used as the
basis for an equivalent submission by Knoll in Europe. There can be no assurance
that the Company will meet this planned schedule, that any regulatory authority
will review the regulatory submissions for bucindolol in a timely manner, or
that BEXTRA will receive marketing approval in any country. Failure of BEST to
demonstrate the safety and efficacy of bucindolol, or the failure of the Company
to obtain regulatory approvals in major markets, would materially adversely
affect the Company. Even assuming successful completion of BEST and regulatory
approval of BEXTRA, the Company does not expect that BEXTRA will be commercially
available before fiscal 2001.

      The Company faces competition in all the therapeutic areas in which it has
development programs. One beta-blocker has been approved by the FDA for use in
treating CHF, and positive results for two other beta-blockers have been
announced from pivotal CHF patient clinical trials. If the BEST results are
positive and the Company is able to obtain regulatory approval of BEXTRA,
bucindolol could be the third or fourth beta-blocker to be introduced in the
U.S. market for CHF therapies. The Company expects competition to be intense.
The other companies who currently market, or who are expected to market,
competitive beta-blockers are large, multinational pharmaceutical companies who
have greater marketing resources and experience than the Company.

      The Company will incur additional charges to operations relating to its
1994 acquisition of CPEC in the event that certain milestones are achieved in
the development and commercialization of bucindolol. The Company will be
required to issue to the former CPEC stockholders shares of Interneuron's common
stock upon achieving the milestones of filing an NDA and receiving an approval
letter (an "Approval Letter") from the FDA to market bucindolol. Each additional
payment would have minimum and maximum charges to the Company of $750,000 and
$1,875,000, respectively. The value of these additional shares was not included
in the purchase price because their issuance is contingent upon achieving these
milestones. In exchange for Interneuron providing such shares, Intercardia will
pay Interneuron the value of such shares, either in cash or Intercardia Common
Stock, at Intercardia's option. In the event the Company files an NDA for
bucindolol, the Company expects it would recognize the expense immediately, and
in the event an Approval Letter for bucindolol is received, the Company expects
it would capitalize the amount and amortize it over the expected life of the
product.

      In conjunction with the Transcell Merger, Intercardia must issue
additional shares of Intercardia Common Stock to the former Transcell
stockholders. Additional installments consisting of $3,000,000 of Intercardia
Common Stock, as valued at each issuance date, will be issued in August 1999 and
February 2000. The impact of the issuance of these additional shares has not
been reflected in Intercardia's Common Stock outstanding or its earnings per
share calculations, but was included in the determination of the value of the
purchase price consideration of Transcell. Because of its prior majority
ownership of Transcell, Interneuron will receive the majority of the shares
issued in these future installments.

      Intercardia may be subject to various risks arising from Interneuron's
influence over Intercardia, including conflicts of interest relating to new
business opportunities that could be pursued by Intercardia or by Interneuron
and its other affiliates, and significant corporate transactions for which
stockholder approval is required. Because Interneuron owns 61.9% of the
outstanding Common Stock of Intercardia, Interneuron has the ability to elect
all of the


                                       11
<PAGE>

directors of Intercardia and control voting with respect to other matters
submitted to a vote of the stockholders, including extraordinary corporate
transactions such as a merger or sale of substantially all of the Company's
assets. Interneuron's voting control over Intercardia may have the effect of
delaying or preventing sales of additional securities or other financing of
Intercardia, a sale of the Company, or other change of control supported by the
other stockholders of Intercardia. Pursuant to an inter-company services
agreement between Intercardia and Interneuron, Interneuron has the right to
purchase from Intercardia additional shares of Intercardia's Common Stock at
fair market value, if necessary to provide that Interneuron's equity ownership
in Intercardia does not fall below 51.0%. In the event that all or part of the
shares of Intercardia Common Stock held by Interneuron are sold or otherwise
transferred, the market price of the Intercardia Common Stock could be adversely
affected. Interneuron is entitled to receive royalties based on sales of certain
products being developed by IRL under the Merck Agreement, which are payable in
Intercardia Common Stock unless Intercardia and Interneuron agree that the
royalty may be paid in cash. Interneuron also owns directly 19.9% of CPEC,
Intercardia's 80.1% owned subsidiary. As of December 31, 1998, the Company owed
Interneuron $1,751,000 from net advances by Interneuron to the Company.

      The Company expects to incur substantial additional costs and losses over
the next few years. The Company's working capital and capital requirements will
depend upon numerous factors, including: the progress of the development and
clinical trials of bucindolol; the timing and cost of obtaining regulatory
approvals; the effect of competitive drugs on commercialization of bucindolol;
and the ability of the Company to establish additional collaborative
arrangements with other companies to provide research or development funding to
the Company and to conduct clinical trials, obtain regulatory approvals, and
manufacture and market certain of the Company's products. The Company may
acquire other products, technologies or businesses that complement the Company's
existing and planned products, although the Company currently has no
understanding, commitment or agreement with respect to any such acquisitions.

      Although the Company believes it has adequate funds to finance operations
through fiscal 1999, the Company will require additional financing to fund
operating activities beyond fiscal 1999, to complete its clinical trials, to
make payments to fund 40% of development and marketing costs of bucindolol in
the Knoll Territory pursuant to the Knoll Collaboration and to fund new business
opportunities and growth. The Company intends to raise additional capital
through collaborative partnering arrangements, debt financing or equity
financing during fiscal 1999. However, there can be no assurance that adequate
funds


                                       12
<PAGE>

will be available on terms acceptable or favorable to the Company, if at all. It
is currently difficult for biotechnology companies to raise funds in the equity
markets and, if the results of BEST are delayed or are not positive, raising
funds in the equity markets will be even more difficult. Any additional equity
financing, if available, would result in dilution to Intercardia's stockholders.
The Company does not have any commitments to obtain any additional funds and has
not established banking arrangements through which it can obtain additional debt
financing. If the Company is unable to enter into additional collaborations or
raise additional capital to support its current level of operations after
fiscal 1999, the Company would be required to reduce or discontinue one or more
of its research and development programs, or obtain funds through strategic
alliances on terms that are not favorable to the Company or its existing
stockholders.

Year 2000

      The Company recognizes the need to ensure that "Year 2000" hardware and
software issues will not adversely impact its operations. In 1998, the Company
initiated a program, and subsequently established a Year 2000 committee, to
assess the expected impact of the Year 2000 date recognition problem on its
existing internal systems, those which it intends to implement and the systems
of its key business vendors. The purpose of this program is to attempt to ensure
that this problem does not have a material adverse effect on the Company's
business operations or its financial condition. The Company has initiated an
assessment of its internal information systems which support business
applications leading to the process of modifying or replacing those portions of
software, hardware and other equipment that are determined to be non-compliant.
Key financial, information and operational systems, including equipment with
embedded microprocessors, will continue to be inventoried and assessed, and
detailed plans have been finalized to ready the Company's internal operating
systems. As of December 31, 1998, the Company believes its Year 2000 compliance
programs were approximately 25% complete. The Company's goal is to continue
upgrading its personal computer hardware and software to become fully Year 2000
compliant by the end of calendar 1999.

      In addition, the Company is beginning to assess its key business vendors'
Year 2000 compliance so as to minimize the likelihood that non-compliance of any
vendor would significantly impact the Company's operations. Informational
requests will be distributed and/or formal discussions with key business vendors
will be held, and replies and readiness will be evaluated pending receipt or
completion of these inquiries and/or discussions. Key business vendors will be
requested to provide assurances regarding their Year 2000 compliance. Risk
assessment, readiness evaluation and action and contingency plans related to
these vendors are expected to be completed by October 1999. Due to the Company's
evolving internal systems and reliance on third parties, the Company anticipates
periodic re-evaluation and maintenance regarding its internal systems and
business vendors throughout 1999.

      Due to the Company's relatively short operating history and evolving
internal systems, the modification or replacement of internal systems has not
been, nor is it expected


                                       13
<PAGE>

to be, a material expenditure for the Company. Total expenditures to date for
Year 2000 compliance have been less than $25,000 and future expenditures are
expected to be less than $50,000. Expenditures required to make the Company Year
2000 compliant have been and will continue to be expensed as incurred. The
Company does not believe it has a risk of loss of significant revenues due to
the Year 2000 because the Company does not expect that any of its potential
pharmaceutical products are likely to have attained FDA approval prior to
January 2000.


                                       14
<PAGE>

Item 6. Exhibits and Reports on Form 8-K

(a)   Exhibits
      10.12    Intercardia, Inc. 1995 Employee Stock Purchase Plan, as amended.
      10.38    Employment Agreement between Michael J. Sofia and Intercardia,
               Inc., dated December 10, 1998.
      11.1     Statement re computation of net loss per share
      27       Financial Data Schedule, which is submitted electronically to the
               Securities and Exchange Commission for information only and not
               filed.

(b)   No reports on Form 8-K were filed by the Company during the three months
      ended December 31, 1998.


                                       15
<PAGE>

                                    SIGNATURE

      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.


                                INTERCARDIA, INC.



Date: February 12, 1999         By:   /s/ Richard W. Reichow
                                      ----------------------------------------
                                      Richard W. Reichow, Executive Vice
                                      President, Chief Financial Officer
                                      and Treasurer (Principal Financial
                                      and Accounting Officer)


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