##### 









UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|           |   |  |  |                                                                                             
|---------- | - |  |  | --------------------------------------------------------------------------------------------
|(Mark One) |   |  | 
|           | þ |  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |   |  |  | For the year ended December 31, 2004 or                                                     
|          
|           | o |  |  | 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: 0-23736


Guilford Pharmaceuticals Inc.


(Exact name of Registrant as Specified in Its Charter)


|                                                   |                                          |                                       |            |      
|-------------------------------------------------- | ---------------------------------------- | ------------------------------------- | ---------- | -----
|Delaware                                           |                                          | 52-1841960                           
|(State or Other Jurisdiction
    of Incorporation) |                                          | (IRS Employer
    Identification No.)
|                                                  
|                                                   |                                          | 6611 Tributary Street                 |            | 21224
|                                                   | (Address of Principal Executive Offices) |                                       | (Zip Code)

Registrants Telephone Number, Including Area Code:
(410) 631-6300


Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, $.01 par value


(Title of Class)


þ o


o


þ o






DOCUMENTS INCORPORATED BY REFERENCE















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TABLE OF CONTENTS


|         |  |                                                                                                                      |  |  |      |  |  | 
|-------- |  | -------------------------------------------------------------------------------------------------------------------- |  |  | ---- |  |  | 
|Item     |  |                                                                                                                      |  |  | Page | 
|         |  |                                                                                                                      |  |  |      | 
|PART I  
|1        |  | Business                                                                                                             |  |  | 2    | 
|1A       |  | Executive Officers of the Registrant                                                                                 |  |  | 21   | 
|2        |  | Properties                                                                                                           |  |  | 23   | 
|3        |  | Legal Proceedings                                                                                                    |  |  | 23   | 
|4        |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |  | 23   | 
|PART II 
|5        |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |  | 24   | 
|6        |  | Selected Consolidated Financial Data                                                                                 |  |  | 25   | 
|7        |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |  | 26   | 
|7A       |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |  |  | 65   | 
|8        |  | Financial Statements and Supplementary
    Data                                                                      |  |  | 65   | 
|9        |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |  | 65   | 
|9A       |  | Controls and Procedures                                                                                              |  |  | 65   | 
|9B       |  | Other Information                                                                                                    |  |  | 68   | 
|PART III
|10       |  | Directors and Executive Officers of the
    Registrant                                                               |  |  | 69   | 
|11       |  | Executive Compensation                                                                                               |  |  | 69   | 
|12       |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |  | 69   | 
|13       |  | Certain Relationships and Related
    Transactions                                                                   |  |  | 70   | 
|14       |  | Principal Accountant Fees and Services                                                                               |  |  | 70   | 
|PART IV 
|15       |  | Exhibits and Financial Statement
    Schedules                                                                       |  |  | 71   | 



1



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##### 



FORWARD LOOKING STATEMENTS


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


All of these items involve significant risks and
uncertainties. These and any of the other statements we make in
this annual report that are forward-looking are made pursuant to
the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. We caution you that our actual results may
differ significantly from the results we discuss in the
forward-looking statements.


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





PART I







|        |          
|------- | ---------
|Item 1. | Business.



http://www.guilfordpharm.com


http://www.sec.gov




2



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##### 



Overview




| |             
| | ------------
| | Our Business



|                                                |  |                                                                                                                 |  |                                                                                                                | 
|----------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------- | 
|                                                | 
|Marketed Products (1)                           | 
|                                                | 
|Product                                         |  | Indication/Condition                                                                                            |  | Status                                                                                                         | 
|                                                |  |                                                                                                                 |  |                                                                                                                | 
|GLIADEL® Wafer(2)                               |  | Recurrent glioblastoma multiforme (GBM)                                                                         |  | Currently approved for sale in the United States and in over 21
    other countries throughout the world.      | 
|                                                |  | Malignant glioma at the time of initial surgery                                                                 |  | Currently approved for sale in the United States, Canada and the
    European Union.                           | 
|                                                | 
|                                               
|AGGRASTAT® Injection(2)                         |  | Acute Coronary Syndrome                                                                                         |  | Marketed by us in the United States and its territories and by
    Merck & Co. Inc., in the rest of the world. | 
|                                                |  | Percutaneous coronary intervention (PCI)                                                                        |  | Phase III                                                                                                      | 
|                                                | 
|                                               
|Product Candidates (1)                          | 
|                                                | 
|AQUAVAN® Injection(2)                           |  | Procedural sedation for patients undergoing colonoscopy or other
    brief diagnostic or therapeutic procedures |  | Phase III                                                                                                      | 
|                                                | 
|                                               
|GPI 1485(3)(rights held by SNDC)                |  | Parkinsons disease; peripheral nerve injury, including
    post prostatectomy erectile dysfunction             |  | Phase II                                                                                                       | 
|                                                |  | HIV-neuropathy; HIV-dementia                                                                                    |  | Pre-clinical                                                                                                   | 
|                                                | 
|                                               
|DOPASCAN® Injection(4)                          |  | Imaging agent to diagnose and monitor Parkinsons disease                                                       |  | Phase III                                                                                                      | 
|                                                | 
|                                               
|Early Development and Pre-clinical Programs (1) | 
|                                                | 
|NAALADase inhibitors(5)                         |  | Neuropathic pain and chemotherapy induced neuropathy                                                            |  | Phase I/Pre-clinical                                                                                           | 
|                                                |  | Drug addiction                                                                                                  |  | Phase I/Pre-clinical                                                                                           | 
|                                                | 
|                                               
|PARP inhibitors                                 |  | Cancer chemosensitization and radiosensitization                                                                |  | Pre-clinical                                                                                                   | 
|                                                |  | Cerebral and cardiac ischemia                                                                                   |  | Pre-clinical                                                                                                   | 
|                                                | 






|    |                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Marketed means that a product is being sold and
    marketed under applicable regulatory approval for the
    indications shown, except for AGGRASTAT® Injection, which
    is not being marketed for PCI. A product candidate
    is a product that has not received regulatory approval and is
    being used in human

3



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##### 



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | clinical trials. Early Development means a compound
    that is appropriate for Phase I clinical trials, but for
    which such testing has not yet commenced.
    Pre-clinical means the compound has not been used in
    humans, but rather includes testing in vitro,in
    animal models and pharmacology and toxicology testing in animals.                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(2) | GLIADEL® Wafer, AGGRASTAT® Injection, AQUAVAN®
    Injection, and DOPASCAN® Injection are our registered
    trademarks. Throughout this annual report, we refer to each as
    Gliadel, Aggrastat, Aquavan, and Dopascan, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(3) | In June 2004, we licensed our rights in the United States to GPI
    1485 to Symphony Neuro Development Company (or SNDC), a
    newly-formed Delaware corporation funded for the purpose of
    advancing the development of this compound in the United States
    for the following four indications: Parkinsons disease;
    peripheral nerve injury; HIV-related neuropathy; and HIV-related
    dementia. We have the option to purchase SNDC for between
    $75.1 million to $119.8 million beginning in April
    2005, as described in more detail in Item 7 below,
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations. If we do not exercise
    this option we will not regain these rights to GPI 1485.
|   
|(4) | We are not currently pursuing regulatory approval for Dopascan
    in the United States. Our corporate partner, Daiichi
    Radioisotope Laboratories, Ltd. (or DRL) is pursuing regulatory
    approval for the product candidate in Japan and has completed
    Phase III testing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(5) | We conducted a Phase I clinical trial with GPI 5693, a
    NAALADase inhibitor compound, in 2000 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



| |                         
| | ------------------------
| | Developments during 2004





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Had significant changes to our senior management team with the
    hiring of Dean J. Mitchell as our President and Chief Executive
    Officer, who succeeded Craig R. Smith, M.D., a founder and
    our former Chairman, President and Chief Executive Officer, and
    the hiring of William F. Spengler as our Executive Vice
    President and Chief Financial Officer. Our new senior management
    team, in conjunction with our Board of Directors, is currently
    undertaking an evaluation of our business strategy and
    organization to seek to further enhance shareholder value.
|
| |  | Appointed George L. Bunting, Jr., our non-executive Chairman of
    the Board.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Re-launched Aggrastat, our GP IIb/ IIIa receptor antagonist
    that we acquired from Merck & Co., Inc. (or Merck) in
    October 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Licensed the United States rights for GPI 1485, an
    investigational new drug in Phase II clinical development
    for the treatment of Parkinsons disease and
    post-prostatectomy erectile dysfunction, to SNDC.                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Completed a secondary offering of 10,340,000 shares of our
    common stock, resulting in proceeds to us of approximately
    $43.7 million, net of offering costs.                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Received regulatory approval in the European Union to market
    Gliadel, our proprietary treatment for brain cancer, for newly
    diagnosed patients with high-grade malignant glioma, as an
    adjunct to surgery and radiation.                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Commenced the Phase III clinical program for Aquavan, a
    water-soluble prodrug of propofol, for procedural sedation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Launched a Phase III clinical program for Aggrastat for the
    purpose of expanding the label of Aggrastat to include use at
    the time of percutaneous coronary intervention (or PCI) in the
    cardiac catheterization laboratory.                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Completed a sale and lease back of our facilities to BioMed
    Realty Trust, Inc., resulting in net proceeds to us of
    approximately $20.8 million.                                                                                                                                                                                                                                                                                                                                                                                                                                            

4



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##### 





| |   |                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reported Gliadel net product revenue of $27.7 million and
    Aggrastat net product revenue of $12.5 million, for total
    net product revenue of $40.2 million.                                                                                                          
|
| |  | Entered into a transaction pursuant to which Angiodevice
    International GmbH (or Angiotech) obtained licenses to patents
    previously licensed by us related to certain polymer
    technologies for which we received net proceeds of approximately
    $6.0 million.
|
| |  | Acquired ProQuest Pharmaceuticals, Inc. (or ProQuest) for
    approximately $6.9 million of our common stock, thereby
    obtaining an irrevocable, royalty-free, fully-paid, exclusive,
    worldwide license to the intellectual property rights for
    Aquavan.        

Marketed Products




| |               
| | --------------
| | GLIADEL® Wafer



| |        
| | -------
| | General









| |                                
| | -------------------------------
| | Manufacturing and Raw Materials





5



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| |                     
| | --------------------
| | AGGRASTAT® Injection



| |        
| | -------
| | General







| |                                
| | -------------------------------
| | Manufacturing and Raw Materials





| |                        
| | -----------------------
| | Clinical Trial Programs







| |                      
| | ---------------------
| | Commercial Operations



6



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##### 









|                                               |           |               |      |      |                    |   |      |      |  |   |      |      |  |      |     |    |      |  |     |    |   |  |     |    |  
|---------------------------------------------- | --------- | ------------- | ---- | ---- | ------------------ | - | ---- | ---- |  | - | ---- | ---- |  | ---- | --- | -- | ---- |  | --- | -- | - |  | --- | -- | -
|                                               |           | Total Revenue |      |      | % of Total Revenue |  
|                                               |           |               |      |      |                    |  
|                                               |           | 2004          |      |      | 2003               |   |      | 2002 |  |   | 2004 |      |  | 2003 |     |    | 2002 | 
|($ in millions)                                |           |               |      |      |                    |   |      |      |  |   |      |      |  |      |     |    |      | 
|Net product revenue:                           |           |               |      |      |                    |   |      |      |  |   |      |      |  |      |     |    |      |  |     |    |   |  |     |   
|                                               | Gliadel   |               | $    | 27.7 |                    |   | $    | 19.2 |  |   | $    | 14.5 |  |      |     | 58 | %    |  |     | 70 | % |  |     | 99 | %
|                                               | Aggrastat |               |      | 12.5 |                    |   |      | 2.5  |  |   |      |     |  |      |     | 26 | %    |  |     | 9  | % |  |     |   |  
|Revenue from license fees and other milestones |           |               | 7.7  |      |                    |   | 5.9  |      |  |   | 0.2  |      |  |      | 16  | %  |      |  | 21  | %  |   |  | 1   | % 
|                                               |           |               |      |      |                    |   |      |      |  |   |      |      |  |      |     |    |      | 
|Total                                          |           | $             | 47.9 |      |                    | $ | 27.6 |      |  | $ | 14.7 |      |  |      | 100 | %  |      |  | 100 | %  |   |  | 100 | % 
|                                               |           |               |      |      |                    |   |      |      |  |   |      |      |  |      |     |    |      | 







Product Candidates




| |                   
| | ------------------
| | AQUAVAN® Injection



7



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##### 





|                                                    |  |                                                                               |  |          
|--------------------------------------------------- |  | ----------------------------------------------------------------------------- |  | ---------
|Aquavan Study                                       |  | Brief Description                                                             |  | Phase    
|                                                    |  |                                                                               |  |          
|Colonoscopy  general                               |  | Fentanyl/Aquavan vs. Fentanyl/Midazolam                                       |  | Phase III
|Colonoscopy  pilot                                 |  | Fentanyl/Aquavan vs. Fentanyl/Placebo                                         |  | N/A      
|Colonoscopy  pivotal                               |  | Design pending outcome of pilot study                                         |  | Phase III
|Bronchoscopy                                        |  | Fentanyl/Aquavan vs. Fentanyl/Midazolam                                       |  | Phase III
|Minor surgical procedures                           |  | Fentanyl/Aquavan vs. Fentanyl/Midazolam                                       |  | Phase III
|Cardiac procedures                                  |  | Fentanyl/Aquavan vs. Fentanyl/Midazolam                                       |  | Phase III
|ICU                                                 |  | Aquavan vs. Propofol                                                          |  | Phase II 
|Burn debridement                                    |  | Fentanyl/Aquavan vs. Fentanyl/Midazolam once a day for 5
    consecutive days |  | Phase II 
|Upper GI endoscopy in hepatically impaired patients |  | Fentanyl/Aquavan                                                              |  | Phase II 
|A/V Shunt placement in renally impaired patients    |  | Fentanyl/Aquavan                                                              |  | Phase II 
|Colonoscopy  elderly                               |  | Fentanyl/Aquavan                                                              |  | Phase II 
|Drug Interaction                                    |  | Aquavan with concomitant medications                                          |  | Phase I  
|QT Prolongation                                     |  | Potential cardiac effects of Aquavan                                          |  | Phase I  











8



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| |         
| | --------
| | GPI 1485



|               |          |                     |  |                                         |  |                              
|-------------- | -------- | ------------------- |  | --------------------------------------- |  | -----------------------------
|Phase of Trial |          | Clinical Indication |  | Sponsor                                
|               |          |                     |  |                                        
|               | Phase II |                     |  | Parkinsons disease                     |  | SNDC                         
|               | Phase II |                     |  | Post-prostatectomy erectile dysfunction |  | SNDC                         
|               | Phase II |                     |  | Parkinsons disease                     |  | National Institutes of Health
|               | Phase I  |                     |  | HIV-related dementia and neuropathy     |  | Johns Hopkins University     



| |                    
| | -------------------
| | History of GPI 1485





| |                        
| | -----------------------
| | The Amgen Collaboration





| |                                  
| | ---------------------------------
| | Following the Amgen Collaboration





9



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##### 







| |                                   
| | ----------------------------------
| | Symphony Neuro Development Company





| |                        
| | -----------------------
| | Other GPI 1485 Research





| |                    
| | -------------------
| | DOPASCAN® Injection







10



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##### 





Early Development and Pre-clinical Programs




| |                              
| | -----------------------------
| | NAALADase Inhibitor Compounds









| |                         
| | ------------------------
| | PARP Inhibitor Compounds





Reorganization and the PPE Program




11



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##### 







Government Regulation and Product Testing








| |                                            
| | -------------------------------------------
| | FDA Clinical Testing and Other Requirements



12



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##### 

















13



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##### 









| |                 
| | ----------------
| | Other Regulation







Intellectual Property Rights




14



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##### 





United
States Patent Portfolio:


|                     |  |              |    |                     |              |  |    | 
|-------------------- |  | ------------ | -- | ------------------- | ------------ |  | -- | 
|                     |  |              |    | # of pending patent |             
|Technology           |  | # of Patents |    |                     | applications | 
|                     |  |              |    |                     |              | 
|GLIADEL® Wafer       |  |              | 3  |                     |              |  |   | 
|AGGRASTAT® Injection |  |              | 11 |                     |              |  | 1  | 
|AQUAVAN® Injection   |  |              | 1  |                     |              |  | 8  | 
|GPI 1485             |  |              | 5  |                     |              |  | 8  | 
|DOPASCAN® Injection  |  |              | 10 |                     |              |  | 5  | 
|NAALADase Inhibitors |  |              | 41 |                     |              |  | 13 | 
|PARP Inhibitors      |  |              | 20 |                     |              |  | 8  | 

International
Patent Portfolio:


|                     |  |              |    |                     |              |  |    | 
|-------------------- |  | ------------ | -- | ------------------- | ------------ |  | -- | 
|                     |  |              |    | # of pending patent |             
|Technology           |  | # of Patents |    |                     | applications | 
|                     |  |              |    |                     |              | 
|GLIADEL® Wafer       |  |              | 36 |                     |              |  |   | 
|AGGRASTAT® Injection |  |              |   |                     |              |  |   | 
|AQUAVAN® Injection   |  |              | 5  |                     |              |  | 67 | 
|GPI 1485             |  |              | 7  |                     |              |  | 54 | 
|DOPASCAN® Injection  |  |              | 36 |                     |              |  | 11 | 
|NAALADase Inhibitors |  |              | 24 |                     |              |  | 83 | 
|PARP Inhibitors      |  |              | 4  |                     |              |  | 11 | 





| |                                
| | -------------------------------
| | Technology Licensing Agreements





| |               
| | --------------
| | GLIADEL® Wafer



15



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##### 











| |                   
| | ------------------
| | AQUAVAN® Injection





| |                    
| | -------------------
| | DOPASCAN® Injection





16



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##### 











| |                                           
| | ------------------------------------------
| | GPI 1485/ Neuroimmunophilin Ligand Program







United States Government Rights




17



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##### 





Competition














18



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##### 







Research and Development Expenses




|                            |  |                        |      |  |      |   |      |      |  |   |      | 
|--------------------------- |  | ---------------------- | ---- |  | ---- | - | ---- | ---- |  | - | ---- | 
|                            |  | Year ended December 31 |     
|                            |  |                        |     
|                            |  | 2004                   |      |  | 2003 |   |      | 2002 | 
|($ in millions)             |  |                        |      |  |      |   |      |      | 
|Pharmaceutical technologies |  | $                      | 34.9 |  |      | $ | 21.8 |      |  | $ | 20.8 | 
|Biopolymer technologies     |  |                        | 0.9  |  |      |   | 1.4  |      |  |   | 5.0  | 
|Indirect expenses           |  |                        | 10.8 |  |      |   | 10.4 |      |  |   | 20.3 | 
|                            |  |                        |      |  |      |   |      |      | 
|Total                       |  | $                      | 46.6 |  |      | $ | 33.6 |      |  | $ | 46.1 | 
|                            |  |                        |      |  |      |   |      |      | 





| |                            
| | ---------------------------
| | Pharmaceutical Technologies





| |   |                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $6.7 million for Aggrastat, acquired in late 2003, for the
    preparation and initiation of the Phase III clinical trials
    of Aggrastat for use in PCI;                                                                                                                                 
|
| |  | $4.0 million on Aquavan primarily as a result of costs
    incurred for the analysis of the two Phase II clinical
    trials results, and for costs associated with the planning for
    and the initiation of the Phase III clinical trial which we
    began in the third quarter of 2004;
|
| |  | $0.6 million for the GPI 1485 program primarily due to
    increased investigator fees as we continue the Phase II
    clinical trial for Parkinsons disease; and                                                                                                                          
|
| |  | $0.6 million for the PARP inhibitor program, which was
    inactive in 2003, and has been redirected in 2004 toward lead
    compound identification for possible cancer indications.                                                                                                       

19



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##### 







| |   |                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increased expenditures of $3.8 million in connection with
    further clinical development of GPI 1485; and                                                                                                                                                                                  
|
| |  | partially offset by reduced expenditures of $2.2 million in
    our Aquavan project as in 2002 we incurred preparation and
    initiation costs related to the Phase II colonoscopy
    clinical trial in progress during 2003, and a $0.8 million
    milestone payment to ProQuest in 2002.



| |                        
| | -----------------------
| | Biopolymer Technologies







| |                  
| | -----------------
| | Indirect Expenses





Product Liability and Insurance






Employees




20



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##### 










Item 1A.Executive
Officers of the Registrant.




|                            |  |     |    |  |                               |                                                                                                                                                                                                                                   
|--------------------------- |  | --- | -- |  | ----------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                        |  | Age |    |  | Title and Business Experience
|                            |  |     |    |  |                              
|Dean J. Mitchell            |  |     | 49 |  |                               | Current Experience:
    December 2004  present: President and Chief
    Executive Officer.                                                                                                                                       
|                            |  |     |    |  |                               | Past Experience:
    2001  2004: President, International Pharmaceuticals;
    President, U.S. Primary Care; Vice President, Strategy for
    Bristol-Myers Squibb Company.                                                      
|                            |  |     |    |  |                               | 1987  2001: Various senior management positions,
    including most recently, Senior Vice President, Clinical
    Development and Product Strategy for GlaxoSmithKline and
    predecessor businesses.                           
|                            |  |     |    |  |                               | Education:
    M.B.A. from City University Business School in London; B.Sc.
    with Honors in Applied Biology from Coventry University.                                                                                          
|William F. Spengler         |  |     | 50 |  |                               | Current Experience:
    July 2004  present: Executive Vice President and
    Chief Financial Officer.                                                                                                                            
|                            |  |     |    |  |                               | Past Experience:
    2002  2004: President, COO and Director of
    Osteoimplant Technology, Inc.                                                                                                                                
|                            |  |     |    |  |                               | 2000  2002: Principal of North Charles Investment
    Company.                                                                                                                                                                   
|                            |  |     |    |  |                               | Education:
    M.B.A. from New York University; B.A. in Economics from Yale
    University.                                                                                                                                       
|Nancy J. Linck, Ph.D., J.D. |  |     | 63 |  |                               | Current Experience:
    February 2004  present: Senior Vice President,
    Intellectual Property and Regulatory Affairs, Chief Compliance
    Counsel.                                                                           
|                            |  |     |    |  |                               | Past Experience:
    February 2002  February 2004: Senior Vice President,
    General Counsel and Secretary in February 2002.                                                                                                    
|                            |  |     |    |  |                               | February 2001  February 2002: Senior Vice President,
    Intellectual Property and Deputy General Counsel.                                                                                                                       
|                            |  |     |    |  |                               | November 1998  February 2001: Vice President,
    Intellectual Property.                                                                                                                                                         
|                            |  |     |    |  |                               | Education:
    B.S. in Chemistry from the University of California, Berkeley;
    M.S. and Ph.D. in Inorganic Chemistry from the University of
    California, San Diego; J.D. from Western New England
    College School of Law.

21



---



##### 



|                          |  |     |    |  |                               |                                                                                                                                                                                                                                                       
|------------------------- |  | --- | -- |  | ----------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                      |  | Age |    |  | Title and Business Experience
|                          |  |     |    |  |                              
|Asher M. Rubin            |  |     | 34 |  |                               | Current Experience:
    February 2004  present: Senior Vice President,
    General Counsel and Secretary.                                                                                                                                            
|                          |  |     |    |  |                               | Past Experience:
    February 2003  February 2004: Vice President, Deputy
    General Counsel and Secretary.                                                                                                                                         
|                          |  |     |    |  |                               | February 2002  February 2003: Deputy General Counsel
    and Assistant Secretary.                                                                                                                                                                    
|                          |  |     |    |  |                               | August 2001  February 2002: Associate General Counsel
    and Assistant Secretary.                                                                                                                                                                   
|                          |  |     |    |  |                               | October 2000  August 2001: Senior Corporate Counsel
    and Assistant Secretary.                                                                                                                                                                     
|                          |  |     |    |  |                               | Education:
    J.D. from the University of Maryland School of Law; A.B. in
    Policy Sciences and Public Affairs from Duke University.                                                                                                               
|Barbara S. Slusher, Ph.D. |  |     | 40 |  |                               | Current Experience:
    August 2002  present: Senior Vice President,
    Research, Toxicology and Animal Sciences.                                                                                                                                   
|                          |  |     |    |  |                               | Past Experience:                                                                                                                                                                                                                                      
|                          |  |     |    |  |                               | March 2001  July 2002: Vice President, Biology.                                                                                                                                                                                                      
|                          |  |     |    |  |                               | January 1997  February 2001: Principal Scientist and
    Group Leader.                                                                                                                                                                               
|                          |  |     |    |  |                               | January 1995  December 1997: Director of Neurobiology.                                                                                                                                                                                               
|                          |  |     |    |  |                               | Education:
    Ph.D. in Pharmacology and Molecular Sciences from the Johns
    Hopkins School of Medicine; Masters degree in Management
    from the Johns Hopkins School of Continuing Studies; B.S. degree
    in Chemistry from Dickinson College.
|William C. Vincek, Ph.D.  |  |     | 57 |  |                               | Current Experience:                                                                                                                                                                                                                                   
|                          |  |     |    |  |                               | February 2004  present: Senior Vice President,
    Development.                                                                                                                                                                                      
|                          |  |     |    |  |                               | Past Experience:
    February 2002  February 2004: Senior Vice President,
    Pharmaceutical and Chemical Development.                                                                                                                               
|                          |  |     |    |  |                               | August 1999  February 2002: Vice President,
    Pharmaceutical & Chemical Development.                                                                                                                                                               
|                          |  |     |    |  |                               | August 1997  August 1999: Vice President, Corporate
    Quality.                                                                                                                                                                                     
|                          |  |     |    |  |                               | Education:
    Ph.D. and M.S. in Medicinal Chemistry from the University of
    Kansas; B.S. in Chemistry from Colorado State University.                                                                                                             

22



---



##### 



|                         |  |     |    |  |                               |                                                                                                                                   
|------------------------ |  | --- | -- |  | ----------------------------- | ----------------------------------------------------------------------------------------------------------------------------------
|Name                     |  | Age |    |  | Title and Business Experience
|                         |  |     |    |  |                              
|Michael Kelly            |  |     | 40 |  |                               | Current Experience:
    September 2003  present: Vice President, Commercial
    Operations.                                      
|                         |  |     |    |  |                               | Past Experience:                                                                                                                  
|                         |  |     |    |  |                               | December 2002  August 2003: Vice President,
    Sales and Marketing.                                                             
|                         |  |     |    |  |                               | January 2001  December 2002: Vice President of Sales,
    Viropharma Incorporated.                                               
|                         |  |     |    |  |                               | January 2000  December 2000: Vice President of
    Marketing, Viropharma Incorporated.                                           
|                         |  |     |    |  |                               | Education:
    M.B.A. from Rider College; B.S. in Marketing from the Trenton
    State College.                                   
|Andrew J. Jeanneret, CPA |  |     | 40 |  |                               | Current Experience:
    August 2004  present: Vice President, Controller and
    Chief Accounting Officer.                       
|                         |  |     |    |  |                               | Past Experience:
    November 2002  August 2004: Vice President of Finance
    for Osteoimplant Technology, Inc.                 
|                         |  |     |    |  |                               | April 2002  November 2002: Director of Accounting for
    United Healthcare.                                                     
|                         |  |     |    |  |                               | January 2001  April 2002: Vice President of
    Accounting for PSINet.                                                           
|                         |  |     |    |  |                               | Education:
    M.B.A. in international business from the George Washington
    University; B.S. in Accounting from Boston College.






|        |            
|------- | -----------
|Item 2. | Properties.










|        |                   
|------- | ------------------
|Item 3. | Legal Proceedings.








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



23



---



##### 






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities

GLFD




|                        |  |      |      |  |      |   |      |      |  |   |      |  |  |   |      | 
|----------------------- |  | ---- | ---- |  | ---- | - | ---- | ---- |  | - | ---- |  |  | - | ---- | 
|                        |  | 2004 |      |  | 2003 |  
|                        |  |      |      |  |      |  
|                        |  | High |      |  | Low  |   |      | High |  |   | Low  | 
|                        |  |      |      |  |      |   |      |      |  |   |      | 
|January 1 - March 31    |  | $    | 9.62 |  |      | $ | 6.37 |      |  | $ | 4.09 |  |  | $ | 2.65 | 
|April 1 - June 30       |  |      | 7.75 |  |      |   | 4.36 |      |  |   | 6.25 |  |  |   | 3.72 | 
|July 1 - September 30   |  |      | 5.88 |  |      |   | 3.90 |      |  |   | 7.40 |  |  |   | 4.07 | 
|October 1 - December 31 |  |      | 5.74 |  |      |   | 4.12 |      |  |   | 8.21 |  |  |   | 5.65 | 

Recent Sales of Unregistered
Securities




24



---



##### 








|        |                                     
|------- | ------------------------------------
|Item 6. | Selected Consolidated Financial Data



|                                                                                    |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|----------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                                    |  | Year Ended December 31 |        
|                                                                                    |  |                        |        
|                                                                                    |  | 2004                   |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|($ in thousands, except per share data)                                             |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |        
|STATEMENT OF OPERATIONS DATA:                                                       |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total revenue                                                                       |  | $                      | 47,911  |   |      | $ | 27,605  |      |  | $ | 14,665  |   |  | $    | 20,534  |   |  | $ | 18,056  |  
|Costs and expenses:                                                                 |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cost of sales                                                                       |  |                        | 5,578   |   |      |   | 4,110   |      |  |   | 2,836   |   |  |      | 2,836   |   |  |   | 1,358   |  
|Research and development                                                            |  |                        | 46,584  |   |      |   | 33,624  |      |  |   | 46,103  |   |  |      | 54,272  |   |  |   | 46,900  |  
|Selling, general and administrative                                                 |  |                        | 58,758  |   |      |   | 32,076  |      |  |   | 29,005  |   |  |      | 29,273  |   |  |   | 14,004  |  
|Intangible amortization                                                             |  |                        | 6,854   |   |      |   | 1,912   |      |  |   | 840     |   |  |      | 840     |   |  |   | 140     |  
|Merger costs                                                                        |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   | 1,403   |  
|Acquired in-process research and development(1)                                     |  |                        | 13,951  |   |      |   | 8,093   |      |  |   |        |   |  |      |        |   |  |   |        |  
|                                                                                    |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |        
|Total costs and expenses                                                            |  |                        | 131,725 |   |      |   | 79,815  |      |  |   | 78,784  |   |  |      | 87,221  |   |  |   | 63,805  |  
|                                                                                    |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |        
|Operating loss                                                                      |  |                        | (83,814 | ) |      |   | (52,210 | )    |  |   | (64,119 | ) |  |      | (66,687 | ) |  |   | (45,749 | )
|Other income/ (expenses), net                                                       |  |                        | (11,820 | ) |      |   | (1,737  | )    |  |   | 4,849   |   |  |      | 6,370   |   |  |   | 7,247   |  
|                                                                                    |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |        
|Loss before minority interest and the cumulative effect of an
    accounting change |  |                        | (95,634 | ) |      |   | (53,947 | )    |  |   | (59,270 | ) |  |      | (60,317 | ) |  |   | (38,502 | )
|Minority interest                                                                   |  |                        | 7,756   |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Cumulative effect of an accounting change                                           |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   | (8,625  | )
|                                                                                    |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |        
|Net loss                                                                            |  | $                      | (87,878 | ) |      | $ | (53,947 | )    |  | $ | (59,270 | ) |  | $    | (60,317 | ) |  | $ | (47,127 | )
|                                                                                    |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |        
|Basic and diluted loss per common share(2):                                         |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Loss before the cumulative effect of an accounting change                           |  | $                      | (2.25   | ) |      | $ | (1.82   | )    |  | $ | (1.99   | ) |  | $    | (2.14   | ) |  | $ | (1.64   | )
|Cumulative effect of an accounting change                                           |  |                        |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   | (0.36   | )
|                                                                                    |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |        
|Basic and diluted loss per common share                                             |  | $                      | (2.25   | ) |      | $ | (1.82   | )    |  | $ | (1.99   | ) |  | $    | (2.14   | ) |  | $ | (2.00   | )
|                                                                                    |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |        
|Basic and dilutive equivalent shares outstanding                                    |  |                        | 39,037  |   |      |   | 29,689  |      |  |   | 29,805  |   |  |      | 28,249  |   |  |   | 23,517  |  
|                                                                                   
|BALANCE SHEET DATA:                                                                 |  |                        |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cash and cash equivalents, marketable securities and restricted
    investments(3)  |  | $                      | 109,493 |   |      | $ | 101,943 |      |  | $ | 101,803 |   |  | $    | 154,738 |   |  | $ | 109,450 |  
|Investments  held by SNDC                                                          |  |                        | 32,062  |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total assets(3)                                                                     |  |                        | 237,135 |   |      |   | 221,323 |      |  |   | 121,086 |   |  |      | 181,841 |   |  |   | 135,633 |  
|Long-term debt, excluding current portion                                           |  |                        | 87,393  |   |      |   | 88,885  |      |  |   | 3,720   |   |  |      | 4,137   |   |  |   | 5,130   |  
|Revenue interest obligation                                                         |  |                        | 44,932  |   |      |   | 42,155  |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total stockholders equity                                                          |  |                        | 36,893  |   |      |   | 67,200  |      |  |   | 99,258  |   |  |      | 157,629 |   |  |   | 116,829 |  






|    |                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In December 2004, we recorded a charge to write-off acquired
    in-process research and development of $6.8 million related
    to the acquisition of ProQuest, the licensor of Aquavan because
    at the acquisition date, the development of Aquavan was not
    complete, had not reached technological feasibility and had no
    known alternative use.

25



---



##### 





| |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In September 2004, we wrote off our total investment in ProQuest
    of $1.9 million as acquired in-process research and
    development expense, as it was determined, based on a discounted
    cash flow analysis, that the carrying value of our investment
    was impaired and that the impairment was other than temporary.                                                                                                   
|
| | In June 2004, we recorded a charge to write-off acquired
    in-process research and development of $5.2 million in
    connection with the license agreement entered into with SNDC,
    because the licensed technology had not reached technological
    feasibility and had no known alternative future purposes.                                                                                                                
|
| | In 2003, as part of the purchase price allocation of Aggrastat,
    we recorded a charge to write-off acquired in-process research
    and development of $8.1 million. The in-process research
    and development represented an estimate of the fair value of
    purchased in-process technology for a project that, as of the
    acquisition date, had not reached technological feasibility and
    no alternative future use.



|    |                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | For information concerning the calculation of loss per share,
    see Note 4 to Consolidated Financial Statements.                                                                                                                                            
|   
|(3) | Includes restricted investments of $19.9 million,
    $21.7 million, $18.6 million, $16.5 million and
    $18.3 million at December 31, 2004, 2003, 2002, 2001
    and 2000, respectively (see Note 10 to the Notes to
    Consolidated Financial Statements).






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations



OVERVIEW








26



---



##### 







| |                   
| | ------------------
| | AQUAVAN® Injection









| |         
| | --------
| | GPI 1485





27



---



##### 









| |                     
| | --------------------
| | AGGRASTAT® Injection







| |                              
| | -----------------------------
| | Additional Product Candidates



28



---



##### 



RESULTS OF OPERATIONS


Revenue




|                                                |  |      |      |      |      |  |     |      |      |   |      |   |  |      |     |  |  |   |      |   |  |  |    | 
|----------------------------------------------- |  | ---- | ---- | ---- | ---- |  | --- | ---- | ---- | - | ---- | - |  | ---- | --- |  |  | - | ---- | - |  |  | -- | 
|                                                |  | 2004 |      |      | 2003 |  |     | 2002 |     
|                                                |  |      |      |      |      |  |     |      |     
|                                                |  |      |      | %(1) |      |  |     |      | %(1) |   |      |   |  | %(1) |    
|                                                |  |      |      |      |      |  |     |      |      |   |      |   |  |      |    
|($ in millions)                                 |  |      |      |      |      |  |     |      |      |   |      |  
|Gross Gliadel product revenue                   |  | $    | 30.4 |      |      |  |     |      |      | $ | 21.4 |   |  |      |     |  |  | $ | 16.2 |   |  |  |    | 
|Product returns                                 |  |      | (1.9 | )    |      |  | 6%  |      |      |   | (1.5 | ) |  |      | 7%  |  |  |   | (1.3 | ) |  |  | 8% | 
|Early payment discounts                         |  |      | (0.7 | )    |      |  | 2%  |      |      |   | (0.5 | ) |  |      | 2%  |  |  |   | (0.4 | ) |  |  | 2% | 
|Other(2)                                        |  |      | (0.1 | )    |      |  | 0%  |      |      |   | (0.2 | ) |  |      | 1%  |  |  |   |     |   |  |  |    | 
|                                                |  |      |      |      |      |  |     |      |      |   |      |   |  |      |     |  |  |  
|Net Gliadel product revenue                     |  | $    | 27.7 |      |      |  |     |      |      | $ | 19.2 |   |  |      |     |  |  | $ | 14.5 |   |  |  |    | 
|                                                |  |      |      |      |      |  |     |      |      |   |      |   |  |      |     |  |  |  
|Gross Aggrastat product revenue                 |  | $    | 14.4 |      |      |  |     |      |      | $ | 3.0  |   |  |      |     |  |  | $ |     |   |  |  |    | 
|Chargebacks(3)                                  |  |      | (1.4 | )    |      |  | 10% |      |      |   | (0.3 | ) |  |      | 10% |  |  |   |     |   |  |  |    | 
|Product returns                                 |  |      | (0.2 | )    |      |  | 1%  |      |      |   | (0.1 | ) |  |      | 5%  |  |  |   |     |   |  |  |    | 
|Early payment discounts                         |  |      | (0.3 | )    |      |  | 2%  |      |      |   | (0.1 | ) |  |      | 2%  |  |  |   |     |   |  |  |    | 
|                                                |  |      |      |      |      |  |     |      |      |   |      |   |  |      |     |  |  |  
|Net Aggrastat product revenue                   |  | $    | 12.5 |      |      |  |     |      |      | $ | 2.5  |   |  |      |     |  |  | $ |     |   |  |  |    | 
|                                                |  |      |      |      |      |  |     |      |      |   |      |   |  |      |     |  |  |  
|Net product revenue                             |  | $    | 40.2 |      |      |  |     |      |      | $ | 21.7 |   |  |      |     |  |  | $ | 14.5 |   |  |  |    | 
|Revenue from license fees, milestones and other |  |      | 7.7  |      |      |  |     |      |      |   | 5.9  |   |  |      |     |  |  |   | 0.2  |   |  |  |    | 
|                                                |  |      |      |      |      |  |     |      |      |   |      |   |  |      |     |  |  |  
|Total revenue                                   |  | $    | 47.9 |      |      |  |     |      |      | $ | 27.6 |   |  |      |     |  |  | $ | 14.7 |   |  |  |    | 
|                                                |  |      |      |      |      |  |     |      |      |   |      |   |  |      |     |  |  |  






|    |                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------
|(1) | % is calculated as a % to respective gross product revenue.                                                  
|   
|(2) | Other reserves for Gliadel consist of Federal and Medicare
    discounts.                                    
|   
|(3) | Chargebacks for Aggrastat consist of Federal discounts and
    contracted discounts under certain agreements.



| |                    
| | -------------------
| | Net Product Revenue





| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the FDA and the EU approving expanded labeling for the product
    in 2003 and 2004, respectively, to permit the use of the product
    at the time of initial surgery for malignant glioma as an
    adjunct to surgery and radiation;
|
| |  | a list price increase of 7%;                                                                                                                                                                                                           
|
| |  | an increased sales force;                                                                                                                                                                                                              
|
| |  | a targeted marketing program;                                                                                                                                                                                                          
|
| |  | the use in a clinical trial; and                                                                                                                                                                                                       
|
| |  | a greater international presence.                                                                                                                                                                                                      

29



---



##### 







| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | directly to a specialty distributor;                                                              
|
| |  | directly to hospitals;                                                                            
|
| |  | by drop shipment to hospitals pursuant to purchase orders from
    wholesalers;                   
|
| |  | to distributors located outside the United States for resale in
    non-United States markets; and
|
| |  | directly to a corporation for use in clinical trials for 2004
    and 2003.                       

Revenue  Gliadel
net product revenue


|                                                                 |  |      |      |   |      |   |      |      |  |   |      |  
|---------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                                 |  | 2004 |      |   | 2003 |   |      | 2002 | 
|($ in millions)                                                  |  |      |      |   |      |   |      |      | 
|Specialty distributor revenue                                    |  | $    | 20.6 |   |      | $ | 14.5 |      |  | $ | 10.1 |  
|Direct hospital revenue                                          |  |      | 3.7  |   |      |   | 3.3  |      |  |   | 3.3  |  
|International revenue                                            |  |      | 2.3  |   |      |   | 1.1  |      |  |   | 0.4  |  
|Gliadel Advantage Program                                        |  |      |     |   |      |   |     |      |  |   | 0.7  |  
|Other                                                            |  |      | 1.1  |   |      |   | 0.3  |      |  |   |     |  
|                                                                 |  |      |      |   |      |   |      |      | 
|Total Gliadel net product revenue                                |  | $    | 27.7 |   |      | $ | 19.2 |      |  | $ | 14.5 |  
|                                                                 |  |      |      |   |      |   |      |      | 
|Revenue within United States                                     |  | $    | 25.4 |   |      | $ | 18.1 |      |  | $ | 14.1 |  
|% of total Gliadel net product revenue within United States      |  |      | 92   | % |      |   | 94   | %    |  |   | 97   | %
|% of total Gliadel net product revenue outside of United States* |  |      | 8    | % |      |   | 6    | %    |  |   | 3    | %






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



| |                              
| | -----------------------------
| | Specialty Distributor Revenue







| |                        
| | -----------------------
| | Direct Hospital Revenue



30



---



##### 







| |                      
| | ---------------------
| | International Revenue





| |                          
| | -------------------------
| | Gliadel Advantage Program





| |      
| | -----
| | Other





| |                                        
| | ---------------------------------------
| | Revenue  Aggrastat net product revenue





| |                                                
| | -----------------------------------------------
| | Revenue from license fees, milestones and other



31



---



##### 





Cost of Sales and Gross Margin


|                                               |                                                 |      |    |     |      |  |    |      |   |  |    |     |  
|---------------------------------------------- | ----------------------------------------------- | ---- | -- | --- | ---- |  | -- | ---- | - |  | -- | --- | -
|                                               |                                                 | 2004 |    |     | 2003 |  |    | 2002 |  
|($ in millions)                                |                                                 |      |    |     |      |  |    |      |  
|Cost of sales:                                 |                                                 |      |    |     |      |  |    |      |   |  |    |    
|                                               | Gliadel *                                       |      | $  | 4.1 |      |  | $  | 3.9  |   |  | $  | 2.8 |  
|                                               | Aggrastat                                       |      |    | 1.5 |      |  |    | 0.2  |   |  |    |    |  
|                                               |                                                 |      |    |     |      |  |    |      |  
|                                               | Total cost of sales                             |      | $  | 5.6 |      |  | $  | 4.1  |   |  | $  | 2.8 |  
|                                               |                                                 |      |    |     |      |  |    |      |  
|Cost of sales as % to net product revenue:     |                                                 |      |    |     |      |  |    |      |   |  |    |    
|                                               | Gliadel *                                       |      |    | 15  | %    |  |    | 21   | % |  |    | 20  | %
|                                               | Aggrastat                                       |      |    | 12  | %    |  |    | 6    | % |  |    |    |  
|                                               |                                                 |      |    |     |      |  |    |      |  
|                                               | Total cost of sales as % to net product revenue |      |    | 14  | %    |  |    | 19   | % |  |    | 20  | %
|                                               |                                                 |      |    |     |      |  |    |      |  
|Total gross margin as % to net product revenue |                                                 |      | 86 | %   |      |  | 81 | %    |   |  | 80 | %  
|                                               |                                                 |      |    |     |      |  |    |      |  






|  |                                                                                                                                         
|- | ----------------------------------------------------------------------------------------------------------------------------------------
|* | Gliadel cost of sales includes the cost of materials, labor,
    overhead and royalties paid to MIT pursuant to a license
    agreement.









32



---



##### 







| |                                  
| | ---------------------------------
| | Research and Development Expenses



|                             |                                                   |             |              |        |         
|---------------------------- | ------------------------------------------------- | ----------- | ------------ | ------ | --------
|                             |                                                   | Development |              |       
|                             |                                                   | Stage       |              | Status
|                             |                                                   |             |              |       
|Pharmaceutical technologies: |                                                   |             |              |       
|                             | Aggrastat for PCI indication                      |             | Phase III    |        | Active  
|                             | Aquavan                                           |             | Phase III    |        | Active  
|                             | GPI 1485 (neuroimmunophilin ligand)               |             | Phase II     |        | Active  
|                             | Propofol prodrug (non-IV)                         |             | Phase I      |        | Active  
|                             | NAALADase inhibitors                              |             | Phase I      |        | Active  
|                             | PARP inhibitors                                   |             | Pre-clinical |        | Active  
|                             | Other neuroimmunophilin ligands                   |             | Research     |        | Active  
|                             | Other research projects                           |             | Research     |        | Active  
|Biopolymer technologies:     |                                                   |             |              |       
|                             | PACLIMER® Microspheres (Ovarian Cancer)           |             | Phase I/ II  |        | Inactive
|                             | PACLIMER® Microspheres (Lung Cancer)              |             | Phase I/ II  |        | Inactive
|                             | Lidocaine-PE (formerly
    LIDOMERtmMicrospheres) |             | Phase I      |        | Inactive
|                             | Other biopolymer projects                         |             | Research     |        | Inactive



33



---



##### 





|                             |                                                   |                                         |   |      |      |  |   |      |      |  |   |      |      | 
|---------------------------- | ------------------------------------------------- | --------------------------------------- | - | ---- | ---- |  | - | ---- | ---- |  | - | ---- | ---- | 
|                             |                                                   | Year Ended December 31                  |  
|                             |                                                   |                                         |  
|                             |                                                   | 2004                                    |   |      | 2003 |  |   | 2002 |     
|($ in millions)              |                                                   |                                         |   |      |      |  |   |      |     
|Pharmaceutical technologies: |                                                   |                                         |   |      |      |  |   |      |      |  |   |     
|                             | Aquavan                                           |                                         | $ | 10.1 |      |  | $ | 6.1  |      |  | $ | 8.3  |     
|                             | GPI 1485 (neuroimmunophilin ligand)               |                                         |   | 8.4  |      |  |   | 7.8  |      |  |   | 4.0  |     
|                             | Aggrastat for PCI indication                      |                                         |   | 6.9  |      |  |   | 0.2  |      |  |   |     |     
|                             | NAALADase inhibitors                              |                                         |   | 1.8  |      |  |   | 2.8  |      |  |   | 4.0  |     
|                             | Propofol prodrug                                  |                                         |   | 1.4  |      |  |   |     |      |  |   |     |     
|                             | Other neuroimmunophilin ligands                   |                                         |   | 1.2  |      |  |   | 2.2  |      |  |   | 2.2  |     
|                             | PARP inhibitors                                   |                                         |   | 1.1  |      |  |   | 0.5  |      |  |   | 1.6  |     
|                             | Other research projects                           |                                         |   | 4.0  |      |  |   | 2.2  |      |  |   | 0.7  |     
|                             |                                                   |                                         |   |      |      |  |   |      |     
|                             |                                                   | Total pharmaceutical technologies       |   |      | 34.9 |  |   |      | 21.8 |  |   |      | 20.8 | 
|                             |                                                   |                                         |   |      |      |  |   |      |     
|Biopolymer technologies:     |                                                   |                                         |   |      |      |  |   |      |      |  |   |     
|                             | PACLIMER® Microspheres (Ovarian Cancer)           |                                         |   |     |      |  |   | 0.1  |      |  |   | 0.3  |     
|                             | PACLIMER® Microspheres (Lung Cancer)              |                                         |   |     |      |  |   |     |      |  |   | 0.1  |     
|                             | Lidocaine-PE (formerly
    LIDOMERtmMicrospheres) |                                         |   |     |      |  |   |     |      |  |   | 0.4  |     
|                             | Other biopolymer projects                         |                                         |   | 0.9  |      |  |   | 1.3  |      |  |   | 4.2  |     
|                             |                                                   |                                         |   |      |      |  |   |      |     
|                             |                                                   | Total biopolymer technologies           |   |      | 0.9  |  |   |      | 1.4  |  |   |      | 5.0  | 
|                             |                                                   |                                         |   |      |      |  |   |      |     
|                             | Indirect expenses                                 |                                         |   | 10.8 |      |  |   | 10.4 |      |  |   | 20.3 |     
|                             |                                                   |                                         |   |      |      |  |   |      |     
|                             |                                                   | Total research and development expenses |   | $    | 46.6 |  |   | $    | 33.6 |  |   | $    | 46.1 | 
|                             |                                                   |                                         |   |      |      |  |   |      |     



| |                            
| | ---------------------------
| | Pharmaceutical Technologies





| |   |                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $6.7 million for Aggrastat, acquired in late 2003, for the
    preparation and initiation of the Phase III clinical trials
    of Aggrastat for use in PCI;                                                                                                                                                                                       
|
| |  | $4.0 million on Aquavan primarily as a result of costs
    incurred for the analysis of the two Phase II clinical
    trials results that were completed in the fourth quarter of
    2003, and for costs associated with the planning for and the
    initiation of the Phase III clinical trial which we began
    in the third quarter of 2004;
|
| |  | $0.6 million for the GPI 1485 program primarily due to
    increased investigator fees as we continue the Phase II
    clinical trial for Parkinsons disease; and                                                                                                                                                                                
|
| |  | $0.6 million for the PARP inhibitor program, which was
    inactive in 2003, and has been redirected in 2004 toward lead
    compound identification for possible cancer indications.                                                                                                                                                             





| |   |                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increased expenditures of $3.8 million in connection with
    further clinical development of GPI 1485;                                                                                                                                                                                         
|
| |  | partially offset by reduced expenditures of $2.2 million in
    our Aquavan project because in 2002 we incurred preparation and
    initiation costs related to the Phase II colonoscopy
    clinical trial in progress during 2003, and $0.8 million
    milestone payment to ProQuest in 2002.

34



---



##### 





| |                        
| | -----------------------
| | Biopolymer Technologies







| |                  
| | -----------------
| | Indirect Expenses





Selling, General and Administrative Expenses


|                                              |                                                    |      |   |      |      |  |   |      |  |  |   |      | 
|--------------------------------------------- | -------------------------------------------------- | ---- | - | ---- | ---- |  | - | ---- |  |  | - | ---- | 
|                                              |                                                    | 2004 |   |      | 2003 |  |   | 2002 | 
|($ in millions)                               |                                                    |      |   |      |      |  |   |      | 
|Selling, general and administrative expenses: |                                                    |      |   |      |      |  |   |      |  |  |   |     
|                                              | Marketing, selling and distribution expenses       |      | $ | 33.0 |      |  | $ | 14.3 |  |  | $ | 13.8 | 
|                                              | General and administrative expenses                |      |   | 25.8 |      |  |   | 17.8 |  |  |   | 15.2 | 
|                                              |                                                    |      |   |      |      |  |   |      | 
|                                              | Total selling, general and administrative expenses |      | $ | 58.8 |      |  | $ | 32.1 |  |  | $ | 29.0 | 
|                                              |                                                    |      |   |      |      |  |   |      | 





| |   |                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase of $11.7 million in expenses related to an
    increased sales force focused on selling two products, the
    training of the sales team and the marketing efforts to launch
    Aggrastat;                                  
|
| |  | an increase of $4.0 million in medical education expenses
    as a result of the several conferences held during 2004 to
    educate the members of the medical community as to the benefits
    of the use of Gliadel and Aggrastat; and
|
| |  | increased external costs of $1.2 million primarily related
    to Aggrastat commercial operations.                                                                                                                                       





35



---



##### 









| |   |                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase of $2.5 million related to a separation
    agreement with our former chief executive officer;                                                                                                                                                                                                    
|
| |  | an increase in legal and professional services expenses of
    $2.2 million related to SEC filings and supporting
    activity, an implementation of expanded evaluation procedures
    for assessing internal controls and procedures for financial
    reporting mandated by the Sarbanes-Oxley Act of 2002;
|
| |  | an increase in recruiting related expenses of $1.1 million
    to expand the sales force and the development teams in
    preparation for the Phase III clinical trials of Aggrastat
    and Aquavan and the recruitment of our new chief executive
    officer; and                                          
|
| |  | an increase in patent-related costs of $0.8 million.                                                                                                                                                                                                                                                          





Intangible Amortization




Acquired In-Process Research and Development






36



---



##### 









Other Income and Expenses










| |   |                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the issuance of $69.4 million of 5% convertible notes
    and the proceeds from an $18.8 million term loan
    arrangement with Wachovia Bank, National Association (or
    Wachovia), both of which occurred in the second quarter of
    2003; and
|
| |  | the amortization of the deferred financing costs of the
    foregoing transactions.                                                                                                                                                                 





| |   |                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |  | loans from a commercial bank for the purchase of our research
    and development facility and the purchase of certain furniture
    and equipment;
|
| |  | capital leases entered into for the purchases of various
    equipment; and                                                                        
|
| |  | a note payable to a commercial bank primarily used to repay a
    $2.4 million account payable to CHSMS.                                           

37



---



##### 



Liquidity and Capital Resources


Overview






| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | fund our research and development programs;                                                
|
| |  | support our sales and marketing efforts;                                                   
|
| |  | obtain regulatory approvals;                                                               
|
| |  | prosecute, defend and enforce any patent claims and other
    intellectual property rights;
|
| |  | fund general corporate overhead; and                                                       
|
| |  | support our debt service requirements and contractual
    obligations.                     







| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | the issuances of equity securities and convertible subordinated
    notes;
|
| |  | revenue from Gliadel and more recently of Aggrastat;                      
|
| |  | funding pursuant to collaborative agreements;                             
|
| |  | a revenue interest obligation with PRF;                                   
|
| |  | a sale and leaseback transaction; and                                     
|
| |  | proceeds from loans or other borrowings.                                  





Sources and Uses of Cash




| |                     
| | --------------------
| | Operating Activities



38



---



##### 











| |                                   
| | ----------------------------------
| | Investing and Financing Activities











39



---



##### 





















| |   |                            
| | - | ---------------------------
| |  | PRF is entitled to receive:



| |   |                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | from October 28, 2003 through December 31,
    2006  10% of our combined net revenue from Gliadel
    and Aggrastat up to $75.0 million and 2.5% of those annual
    net revenues in excess of $75.0 million;                                                                 
|
| |  | from January 1, 2007 through December 31, 2012 (the
    end of the term of the financing arrangement with
    PRF)  17.5% of our combined net revenue from Gliadel
    and Aggrastat up to $75.0 million and 3.5% of those annual
    net revenues in excess of $75.0 million;

40



---



##### 





| |   |                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the revenue interest percentages can increase if we fail to meet
    contractually specified levels of annual net revenue from
    products for which PRF is entitled to receive its revenue
    interest; and                                                                                                                                                     
|
| |  | minimum payments, payable quarterly totaling $5.0 million
    in 2004, $6.3 million in 2005, $7.5 million in 2006,
    $10.0 million per year from 2007 through 2009, and
    $12.5 million per year from 2010 through 2012. We paid
    $5.8 million and $0.1 million to PRF, related to the
    minimum payments requirement, during 2004 and 2003, respectively.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | During each year of the term of the Revenue Agreement, PRF will
    be entitled to receive a portion of revenue from products that
    we may acquire in the future or of our product candidates
    Aquavan and GPI 1485, in the case that our calculated annual
    obligation(s) to make royalty payments under the Revenue
    Agreement (based upon the combined net revenue from Gliadel and
    Aggrastat) are less than $6.4 million for 2004,
    $7.6 million for 2005, $8.3 million for 2006,
    $15.3 million for 2007, $15.5 million for 2008,
    $15.8 million for 2009, $16.0 million for 2010, or
    $15.9 million for 2011 and 2012, respectively.
|
| |  | PRF received five-year warrants to
    purchase 300,000 shares of our common stock at an
    exercise price of $9.15 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | PRF received a security interest in the assets related to
    Gliadel and Aggrastat. As a result of this security interest, we
    may not be free to utilize those assets at our discretion, such
    as selling or outlicensing rights to part or all of those
    assets, without first obtaining the permission of PRF. This
    requirement could delay, hinder or condition, our ability to
    enter into corporate partnerships or strategic alliances with
    respect to these assets.                                                                                                                                                                      
|
| |  | PRF may be entitled to require us to repurchase its revenue
    interest under the following circumstances:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



| |   |                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | if we fail to maintain an escrow account funded with eight
    quarters of minimum payments to PRF in the aggregate of
    $13.8 million and $11.3 million as of
    December 31, 2004 and 2003, respectively, or fail to
    maintain at least $20.0 million of net working capital;
|
| |  | if we fail to make our minimum payments to PRF;                                                                                                                                                                                                                                      
|
| |  | if we sell Gliadel and Aggrastat (with PRF having partial rights
    to make us repurchase its interest in the event of the sale of
    one, but not both products);                                                                                                                 
|
| |  | upon the occurrence of a bankruptcy or similar event; or                                                                                                                                                                                                                             
|
| |  | upon certain conditions related to a change of control of us.                                                                                                                                                                                                                        



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





41



---



##### 









Future Cash Needs












| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | the revenue from Gliadel and Aggrastat;                                                                                                     
|
| |  | the substantial future expenditures we expect to make to
    increase revenue from Aggrastat;                                               
|
| |  | the progress of our research and development programs;                                                                                      
|
| |  | the progress of pre-clinical and clinical testing;                                                                                          
|
| |  | the time and cost involved in obtaining regulatory approval;                                                                                
|
| |  | the cost of filing, prosecuting, defending and enforcing any
    patent claims and other intellectual property rights;                      
|
| |  | the changes in our existing research relationships, competing
    technological and marketing developments;                                 
|
| |  | our ability to establish collaborative arrangements and to enter
    into licensing agreements and contractual arrangements with
    others;
|
| |  | the conversion of the long-term convertible notes;                                                                                          
|
| |  | the costs of servicing debt;                                                                                                                
|
| |  | the costs of product in-licensing; and                                                                                                      
|
| |  | any future change in our business strategy.                                                                                                 

42



---



##### 







| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | the amount of our revenue from Gliadel and Aggrastat;                                                                      
|
| |  | the costs and outcomes of pre-clinical testing and clinical
    trials and the time when those outcomes will be determined;
|
| |  | obtaining future corporate partnerships;                                                                                   
|
| |  | the time and expense of obtaining regulatory approval;                                                                     
|
| |  | the competing products potentially coming to market; and                                                                   
|
| |  | obtaining protection and freedom to operate for our patented
    technologies.                                             







| |   |                         
| | - | ------------------------
| |  | Aggrastat;              
|
| |  | Aquavan;                
|
| |  | NAALADase inhibitors;   
|
| |  | PARP inhibitors; and    
|
| |  | other research projects.







| |   |                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | significantly delay, curtail or eliminate one or more of our
    research, development and clinical programs;                                                                                                                                                                                  
|
| |  | reduce the scope of our efforts to market and sell Gliadel
    and/or Aggrastat;                                                                                                                                                                                                               
|
| |  | reduce our workforce;                                                                                                                                                                                                                                                                          
|
| |  | reduce the scope of our intellectual property protection;                                                                                                                                                                                                                                      
|
| |  | enter into corporate partnerships or co-promotions to market and
    sell Gliadel and/or Aggrastat;                                                                                                                                                                                            
|
| |  | divest Gliadel and/or Aggrastat; or                                                                                                                                                                                                                                                            
|
| |  | enter into arrangements with collaborative partners or others
    that may require us to relinquish certain rights to our
    technologies, product candidates or future products, including
    licensing or transferring rights to our research or development
    programs to third parties.



43



---



##### 



Off-Balance Sheet Arrangements




Contractual Obligations




|                                         |  |                        |         |  |                  |   |        |           |  |   |           |  |  |                   |         |  |  |   |        | 
|---------------------------------------- |  | ---------------------- | ------- |  | ---------------- | - | ------ | --------- |  | - | --------- |  |  | ----------------- | ------- |  |  | - | ------ | 
|Contractual Obligations(1)               |  | Payments due by Period |        
|                                         |  |                        |        
|                                         |  | Total                  |         |  | Less than 1 Year |   |        | 1-3 Years |  |   | 3-5 Years |  |  | More than 5 Years |        
|($ in thousands)                         |  |                        |         |  |                  |   |        |           |  |   |           |  |  |                   |        
|Long-term debt(2)                        |  | $                      | 88,481  |  |                  | $ | 1,751  |           |  | $ | 2,755     |  |  | $                 | 83,975  |  |  | $ |       | 
|Capital lease obligations                |  |                        | 1,828   |  |                  |   | 1,165  |           |  |   | 620       |  |  |                   | 43      |  |  |   |       | 
|Revenue interest obligation(3)           |  |                        | 81,250  |  |                  |   | 6,250  |           |  |   | 17,500    |  |  |                   | 20,000  |  |  |   | 37,500 | 
|Operating equipment leases               |  |                        | 719     |  |                  |   | 558    |           |  |   | 161       |  |  |                   |        |  |  |   |       | 
|Operating facility leases(2)             |  |                        | 47,665  |  |                  |   | 2,628  |           |  |   | 5,496     |  |  |                   | 5,830   |  |  |   | 33,711 | 
|Manufacturing commitment for Aggrastat   |  |                        | 6,621   |  |                  |   | 1,573  |           |  |   | 2,949     |  |  |                   | 2,099   |  |  |   |       | 
|Research and development arrangements(4) |  |                        | 42,997  |  |                  |   | 26,052 |           |  |   | 16,945    |  |  |                   |        |  |  |   |       | 
|                                         |  |                        |         |  |                  |   |        |           |  |   |           |  |  |                   |        
|Total contractual obligations            |  | $                      | 269,561 |  |                  | $ | 39,977 |           |  | $ | 46,426    |  |  | $                 | 111,947 |  |  | $ | 71,211 | 
|                                         |  |                        |         |  |                  |   |        |           |  |   |           |  |  |                   |        






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | This table does not include any milestone payments under
    agreements we have entered into in relation to our in-licensed
    technology, as the timing and likelihood of such payments are
    not known. Also, minimum annual research expenditures pursuant
    to such license agreements have been excluded from this table as
    we expect to spend those amounts as we progress the development
    of the underlying technologies.



| |                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Similarly, we have excluded the royalty payments due to Merck in
    connection with the Aggrastat acquisition, as the amount and
    timing are not determinable. Under the terms of the asset
    agreement with Merck, Merck is entitled to royalty payments on
    net revenue from Aggrastat through October 23, 2016. The
    royalty payments to be paid to Merck are calculated as follows:

|                           |     |                       |                                                        
|-------------------------- | --- | --------------------- | -------------------------------------------------------
|Royalty Payment %          |     | Aggrastat Net Revenue
|                           |     |                      
|Years 2004 to 2006:        |     |                      
|                           | 0%  |                       | up to $40.0 million                                    
|                           | 10% |                       | in excess of $40.0 million and less than $50.0 million 
|                           | 12% |                       | in excess of $50.0 million and less than $75.0 million 
|                           | 14% |                       | in excess of $75.0 million and less than $100.0 million
|                           | 20% |                       | in excess of $100.0 million                            
|Years 2007 and thereafter: |     |                      
|                           | 5%  |                       | up to $28.0 million                                    
|                           | 10% |                       | in excess of $28.0 million and less than $50.0 million 
|                           | 12% |                       | in excess of $50.0 million and less than $75.0 million 
|                           | 14% |                       | in excess of $75.0 million and less than $100.0 million
|                           | 20% |                       | in excess of $100.0 million                            



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | In December 2004, we sold our corporate and research and
    development facilities for $20.8 million, net of expenses,
    and concurrently leased back the properties for an initial term
    of 15 years. We had acquired the research and development
    facility in May 2003, and had entered into a five-year
    $18.8 million term loan with Wachovia in order to finance
    the acquisition. Subsequent to December 31, 2004, we paid
    off the remaining principal balance outstanding on the Wachovia
    term loan of $17.3 million.

44



---



##### 





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | We granted PRF a revenue interest in Gliadel, Aggrastat and
    certain other products that provides for PRF to receive 10%,
    during each year through December 31, 2006, on the first
    $75.0 million of Gliadel and Aggrastat combined annual net
    revenue, plus 2.5% of annual net revenue exceeding
    $75.0 million. From January 1, 2007 through
    December 31, 2012, the percentages increase to 17.5% and
    3.5%, respectively. In addition, PRF receives a revenue interest
    in other Guilford products to the extent that specified future
    Gliadel and Aggrastat net revenue is not achieved. At a minimum,
    we will pay PRF $6.3 million in 2005, $7.5 million in
    2006, $10.0 million in each of 2007-2009 and
    $12.5 million in each of 2010-2012. Though actual payments
    to PRF under the agreement may be higher, we have included the
    minimum payments as contractual commitments.
|   
|(4) | Research and development arrangements include commitments into
    which we have entered as of December 31, 2004 to engage
    third parties to perform various aspects of our research and
    development efforts subsequent to that date. Additionally,
    research and development arrangements of approximately
    $6.6 million, which represent commitments entered into by
    SNDC as of December 31, 2004, are included.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Critical Accounting Policies and Estimates




Revenue Recognition.








| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | not accept purchase orders from the distributor, or                                                      
|
| |  | not ship additional products until these levels are
    reduced, or                                      
|
| |  | defer recognition of revenue if we determine that there is
    excess channel inventory for our products.





Research and Development Expenses.


45



---



##### 







Intangible Assets.


Long-lived Assets.


Revenue Interest Obligation.


Consolidation of SNDC.


New Accounting Pronouncements


Statement of Financial Accounting Standards (or SFAS)
No. 123R.




46



---



##### 





SFAS 151.


SFAS 153.


Risk Factors


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


We have a history of losses and our future profitability is
uncertain.








| |   |                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our sale and distribution of Gliadel and more recently of
    Aggrastat;                                                                                                                
|
| |  | payments from Aventis, Amgen and Pfizer under now terminated
    agreements with each of them, supporting the research,
    development and commercialization of our product candidates;
|
| |  | royalty payments from Aventis sale and distribution of
    Gliadel; and                                                                                                                
|
| |  | payments relating to patent licensing agreements from Angiotech.                                                                                                                        

47



---



##### 









| |   |                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to successfully market, sell, distribute and obtain
    additional regulatory approvals for Gliadel and Aggrastat;                                                                       
|
| |  | the successful development of our other product candidates
    either on our own, or together with future corporate partners
    with whom we enter into collaborative or license
    agreements; and
|
| |  | the ability to in-license or acquire additional products in our
    targeted markets.                                                                                                                

We will depend on Gliadel and Aggrastat for revenues.








We will require substantial funds in addition to our existing
working capital to develop our product candidates, carry out our
sales and marketing plans and otherwise to meet our business
objectives.




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




48



---



##### 







| |   |                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the timing and amount of revenue from Gliadel and Aggrastat;                                                                                                                                       
|
| |  | the timing and realization of milestone and other payments from
    existing and future corporate partners;                                                                                        
|
| |  | the timing and amount of expenses relating to our research and
    development, product development, and manufacturing
    activities; and                                                         
|
| |  | the extent and timing of costs related to our activities to
    obtain patents on our inventions and to extend, enforce and/or
    defend our patent and other rights to our intellectual property.



We may not be able to generate sufficient cash to satisfy our
existing and future debt obligations.








We cannot be certain that we will be able to maintain or
increase revenue from Aggrastat, nor can we be certain that we
will be able to expand the labeled indications for Aggrastat.




49



---



##### 



Revenue from Gliadel, Aggrastat or future products, if any,
depends in part on reimbursement from health care payors, which
is uncertain.








Our Gliadel sales outside of the United States depend on
third parties to test, release, store, distribute and market the
product. If we are not successful in obtaining a new party to
test and release Gliadel in the European Union, we may not be
able to sell Gliadel in the territory.






European regulatory agencies may impose restrictions on our
ability to import Gliadel to the European Union.




50



---



##### 



Paul Royalty Fund, L.P. and Paul Royalty Fund
Holdings II (collectively, PRF), is entitled to
a portion of our revenues, which may limit our ability to fund
some of our operations. If we do not achieve certain revenue
targets for Gliadel and Aggrastat, PRF may be entitled to a
greater percentage of our revenue, revenue from future products
we may acquire or certain of our product candidates.






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




We have pledged our assets related to Gliadel and Aggrastat
to PRF; therefore, we may not be free to utilize those assets at
our discretion.




51



---



##### 





The integration of Aggrastat into our business and our
clinical development plans for Aggrastat and Aquavan will
require significant additional capital.




We have licensed some of our GPI 1485 development and
commercialization rights to Symphony Neuro Development Company
(or SNDC) and will not receive any future royalties or revenues
with respect to this intellectual property unless we exercise an
option to acquire SNDC in the future. We may not have the
financial resources to exercise this option or sufficient
clinical data in order to determine whether we should exercise
this option.






52



---



##### 



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






| |   |                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | expend substantial capital and effort to develop our product
    candidates further, which includes conducting extensive and
    expensive pre-clinical animal studies and human clinical trials;
|
| |  | apply for and obtain regulatory clearance to develop, market and
    sell such product candidates; and                                                                                           
|
| |  | conduct other costly activities related to preparation for
    product launch.                                                                                                                   







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



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






| |   |                                  
| | - | ---------------------------------
| |  | corporate and financial partners;
|
| |  | academic investigators;          
|
| |  | licensors of technologies; and   
|
| |  | licensees of our technologies.   



53



---



##### 









Our further development of our NAALADase inhibitor
technologies will probably depend on our ability to partner the
program.




We do not have manufacturing capabilities for commercial
quantities of any of our product candidates.






54



---



##### 



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






We depend upon Merck to supply us with the active
pharmaceutical ingredient for Aggrastat and for finished product
of Aggrastat in vials. We will depend upon Baxter Healthcare
Corporation (or Baxter) to provide us with finished product of
Aggrastat in bags.








Pre-clinical and clinical trial results for our products may
not be favorable.




55



---



##### 





We may be unable to obtain proprietary rights to protect our
products and services, permitting competitors to duplicate
them.












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






| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | these parties will not honor our confidentiality agreements;                                                                         
|
| |  | disputes will arise concerning the ownership of intellectual
    property or the applicability of confidentiality
    obligations; or
|
| |  | disclosure of our trade secrets will occur regardless of these
    contractual protections.                                          

We may not be able to acquire exclusive rights to inventions
or information resulting from work performed under consulting or
collaboration agreements.




56



---



##### 





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








We rely on licensed intellectual property for Gliadel and our
product candidates, the agreements for which impose requirements
on us.






| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | exercise diligence in the research and development of these
    technologies;                                 
|
| |  | achieve specified development and regulatory milestones;                                                      
|
| |  | expend minimum amounts of resources in bringing potential
    products to market;                             
|
| |  | make specified royalty and milestone payments to the party from
    which we have licensed the technology; and
|
| |  | reimburse patent costs to these parties.                                                                      







57



---



##### 







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






| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | adequate steps have not been taken to commercialize such
    inventions;                 
|
| |  | the grant is necessary to meet public health or safety
    needs; or                     
|
| |  | the grant is necessary to meet requirements for public use under
    federal regulations.





We are subject to extensive governmental regulation, which
may result in increased costs and significant delays in, or
ultimate denial of, approval for our product candidates.






58



---



##### 







| |   |                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we will not be able to satisfy the FDAs requirements with
    respect to any of our drug product candidates; or                                                                                                                     
|
| |  | even if the FDA does approve our product candidates, the FDA
    will approve less than the full scope of uses or labeling that
    we seek or otherwise will require special warnings or other
    restrictions on use or marketing.











59



---



##### 







Once we receive regulatory approval to market a product, our
promotional activities are subject to extensive regulation from
the FDA, the Federal Trade Commission (or FTC), the Office of
the Inspector General of the U.S. Department of Health and
Human Services (or OIG), or state Attorneys General. If we
violate any such regulations it could be damaging to our
reputation and restrict our ability to sell or market our
products, and our business condition could be adversely
affected.






| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | incurring substantial expenses, including fines, penalties,
    legal fees and costs to comply with the FDAs requirements;                                                    
|
| |  | changes in the methods of marketing and selling products;                                                                                                                      
|
| |  | taking FDA-mandated corrective action, which may include placing
    advertisements or sending letters to physicians, rescinding
    previous advertisements or promotions; and
|
| |  | disruption in the distribution of products and loss of revenue
    until compliance with the FDAs position is obtained.                                                       







Our competitors are pursuing alternative approaches to
prevent or treat the same conditions we are working on. Our
products use novel alternative technologies and therapeutic
approaches, which have not been widely studied.




60



---



##### 





Our business is dependent on our ability to keep pace with
the latest technological changes.








| |   |                                                            
| | - | -----------------------------------------------------------
| |  | the treatment of malignant glioma;                         
|
| |  | the treatment of acute cardiovascular conditions;          
|
| |  | the diagnosis and treatment of Parkinsons disease;        
|
| |  | the development of a water-soluble formulation of propofol;
|
| |  | the promotion of nerve growth and repair; and              
|
| |  | the treatment and prevention of neuronal damage.           



Our products must compete with others to gain market
acceptance.










| |   |                                                        
| | - | -------------------------------------------------------
| |  | capabilities of our collaborators;                     
|
| |  | product efficacy and safety;                           
|
| |  | timing and scope of regulatory approval;               
|
| |  | product availability;                                  
|
| |  | awareness and acceptance of our products by physicians;
|
| |  | manufacturing, marketing and sales capabilities;       

61



---



##### 





| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | reimbursement coverage from insurance companies and others;                         
|
| |  | the amount of clinical benefit of our product candidates
    relative to their cost;
|
| |  | the method of administering a product;                                              
|
| |  | price; and                                                                          
|
| |  | exclusivity, through patent protection or other legal means.                        



Our Chief Executive Officer and our Chief Financial Officer
have limited experience with us.




The loss of the services of any key personnel, or an
inability to attract new personnel, could harm our business.




The market price of our stock may be negatively affected by
market volatility.








| |   |                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | announcements by us or our competitors of clinical results,
    technological innovations, regulatory approvals, product sales,
    new products or product candidates;
|
| |  | developments or disputes concerning patent or proprietary rights;                                                                                                      
|
| |  | regulatory developments affecting our products;                                                                                                                        
|
| |  | period-to-period fluctuations in the results of our operations;                                                                                                        
|
| |  | market conditions for emerging growth companies and
    biopharmaceutical companies;                                                                                   
|
| |  | revenue received from Gliadel and Aggrastat; and                                                                                                                       
|
| |  | our expenditures.                                                                                                                                                      



62



---



##### 







The large number of shares of common stock eligible for
future sale could depress our stock price.




We are subject to risks of product liability both because of
our product line and our limited insurance coverage.




We depend on qualified personnel and consultants.








| |   |                                                    
| | - | ---------------------------------------------------
| |  | medicinal chemistry and other research specialties;
|
| |  | pre-clinical testing;                              
|
| |  | clinical trial management;                         
|
| |  | regulatory affairs;                                
|
| |  | intellectual property;                             
|
| |  | sales and marketing;                               
|
| |  | manufacturing; and                                 
|
| |  | business development.                              



63



---



##### 



Our business involves using hazardous and radioactive
materials and animal testing, all of which may result in
environmental liability.








Effecting a change of control of Guilford would be difficult,
which may discourage offers for shares of our common stock,
which may prevent or frustrate any attempt by shareholders to
change our direction or management.






| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | our Board of Directors approves of the transaction before the
    third party acquires 15% of our common stock;                              
|
| |  | the third party acquires at least 85% of our common stock at the
    time its ownership goes past the 15% level; or                          
|
| |  | our Board of Directors and two-thirds of the shares of our
    common stock not held by the third-party vote in favor of the
    transaction.







64



---



##### 








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk



1 2 5 8













|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure








|         |                         
|-------- | ------------------------
|Item 9A. | Controls and Procedures.

Disclosure Controls and Procedures:




65



---



##### 



Changes in Internal Control over Financial Reporting:




Managements Annual Report on Internal Control Over
Financial Reporting:






| |   |                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Pertain to the maintenance of records that in reasonable detail
    accurately and fairly reflect the transactions and dispositions
    of the assets of the Company;                                                                                                                                                                                         
|
| |  | Provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that receipts and expenditure of the Company are being made only
    in accordance with authorizations of management and directors of
    the Company; and
|
| |  | Provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of the
    Companys assets that could have a material effect on the
    financial statements.                                                                                                                                      





| |                                      
| | -------------------------------------
| | /s/ Dean J. Mitchell                 
| |                                      
| | Dean J. Mitchell                     
| | President and Chief Executive Officer



| |                                                     
| | ----------------------------------------------------
| | /s/ William F. Spengler                             
| |                                                     
| | William F. Spengler                                 
| | Executive Vice President and Chief Financial Officer

66



---



##### 



Report of Independent Registered Public Accounting Firm






Internal Control  Integrated Framework








Internal Control  Integrated Framework Internal Control  Integrated Framework


67



---



##### 







|                 | 
|---------------- | 
|/s/ KPMG LLP     | 
|                
|McLean, Virginia | 
|March 3, 2005    | 






|         |                  
|-------- | -----------------
|Item 9B. | Other Information



68



---



##### 






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant



http://www.guilfordpharm.com.







|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters



Securities Authorized for Issuance Under Equity Compensation
Plans


|                                                           |       |                   |           |           |                   |            |               |                      |  |  |           |           | 
|---------------------------------------------------------- | ----- | ----------------- | --------- | --------- | ----------------- | ---------- | ------------- | -------------------- |  |  | --------- | --------- | 
|                                                           |       |                   |           |           |                   | Number of  |              
|                                                           |       |                   |           |           |                   | securities |              
|                                                           |       | Number of         |           |           |                   |            | remaining for |                     
|                                                           |       | securities to be  |           |           | Weighted-         |            |               | future issuance      | 
|                                                           |       | issued upon       |           |           | average           |            |               | under equity         | 
|                                                           |       | exercise of       |           |           | exercise price    |            |               | compensation         | 
|                                                           |       | outstanding       |           |           | of outstanding    |            |               | plans (excluding     | 
|                                                           |       | options, warrants |           |           | options, warrants |            |               | securities reflected | 
|                                                           |       | and rights        |           |           | and rights        |            |               | in column (A))       | 
|                                                           |       |                   |           |           |                   |            |               |                      | 
|                                                           |       | (A)               |           |           | (B)               |            |               | (C)                  | 
|Equity compensation plans approved by security holders     |       |                   | 4,907,979 | (a)       |                   | $          | 12.46         |                      |  |  | 1,436,182 |          
|Equity compensation plans not approved by security holders |       |                   | 3,550,669 | (b)       |                   |            | 10.57         |                      |  |  | 500,000   |          
|                                                           |       |                   |           |           |                   |            |               |                      | 
|                                                           | Total |                   |           | 8,458,648 |                   |            | $             | 11.67                |  |  |           | 1,936,182 | 
|                                                           |       |                   |           |           |                   |            |               |                      | 






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Consists of shares to be issued upon exercise of outstanding
    options granted under the Guilford Pharmaceuticals Inc. The 1993
    Employee Share Option and Restricted Share Plan, as amended, the
    Guilford Pharmaceuticals Inc. Directors Stock Option Plan,
    and the Guilford Pharmaceuticals Inc. 2002 Plan (the 2002 Plan).
    Of these plans, the only plan under which options may be granted
    in the future is the 2002 Plan.                                                                                                                                                                                                                    
|   
|(b) |  | Consists of shares to be issued upon exercise of outstanding
    options granted under the Dean Mitchell Employment Inducement
    Equity Plan and the Guilford Pharmaceuticals Inc. The 1998
    Employee Share Option and Restricted Share Plan (the 1998 Plan),
    and shares issuable to the following consultants, in the amounts
    set forth beside each of their names (collectively, the
    Consultants Option Arrangements): Henry Brem
    (70,000 shares); Robert Langer (142,800 shares);
    Richard Casey (55,000 shares); Kam Leong
    (30,000 shares); Newman (35,000 shares); Solomon
    Snyder (90,000 shares); and Susan Smith (8,000 shares).

69



---



##### 



Equity Compensation Plans Not Approved by Security Holders









|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services



70



---



##### 






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules

Financial Statements




|                                                                                                                        |  |        |     | 
|----------------------------------------------------------------------------------------------------------------------- |  | ------ | --- | 
|                                                                                                                        |  | Page # |    
|                                                                                                                        |  |        |    
|Report of Independent Registered Public
    Accounting Firm                                                             |  |        | F-1 | 
|Consolidated Balance Sheets as of
    December 31, 2004 and 2003                                                        |  |        | F-2 | 
|Consolidated Statements of Operations for
    the Years Ended December 31, 2004, 2003 and 2002                          |  |        | F-3 | 
|Consolidated Statements of Cash Flows for
    the Years Ended December 31, 2004, 2003 and 2002                          |  |        | F-4 | 
|Consolidated Statements of Changes in
    Stockholders Equity for the Years Ended December 31,
    2004, 2003 and 2002 |  |        | F-5 | 
|Notes to Consolidated Financial
    Statements                                                                          |  |        | F-6 | 
|                                                                                                                       
|(a)(2) Financial Statements Schedules                                                                                   |  |        |     | 
|The following Schedule is filed as part of this report:                                                                 |  |        |     | 
|Schedule II  Valuation and
    Qualifying Accounts                                                                     |  |        | S-1 | 

Exhibits




|        |         |             |  |                                                                                                                                                                                                              
|------- | ------- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |            
|Number  |         | Description
|        |         |            
|        | 3.01A   |             |  | Amended and Restated Certificate of Incorporation of the Company
    (incorporated by reference to the Registrants Registration
    Statement on Form S-1 (No. 33-76938)).                                  
|        | 3.01B   |             |  | Certificate of Amendment of Amended and Restated Certificate of
    Incorporation dated April 1, 1997 (incorporated by
    reference to the Registrants current Report on Form 8-K
    filed April 4, 1997).
|        | 3.01C   |             |  | Certificate of Amendment of Amended and Restated Certificate of
    Incorporation dated May 19, 1998 (incorporated by reference
    to the Registrants Form 10-K for the year ended
    December 31, 2002). 
|        | 3.01D   |             |  | Certificate of Amendment of Amended and Restated Certificate of
    Incorporation dated May 5, 2004 (incorporated by reference
    to the Registrants Form 8-K filed May 20, 2004).                         
|        | 3.02    |             |  | Amended and Restated Bylaws as of September 2004 (incorporated
    by reference to the Registrants Form 8-K filed
    September 3, 2004).                                                                   
|        | 4.01    |             |  | Specimen Stock Certificate (incorporated by reference to the
    Registrants Registration Statement on Form S-1 (No.
    33-76938)).                                                                        
|        | 4.02A   |             |  | Stockholder Rights Agreement dated September 26, 1995
    (incorporated by reference to the Registrants Form 8-K
    filed October 10, 1995).                                                               
|        | 4.02B   |             |  | Form of Amendment No. 1 to Stockholder Rights Agreement
    (incorporated by reference to the Registrants Form 8-K
    filed October 20, 1998).                                                             
|        | 10.01A* |             |  | 1993 Employee Share Option and Restricted Share Plan (or 1993
    Option Plan) (incorporated by reference to the Registrants
    Registration Statement on Form S-1 (No. 33-76938)).                        
|        | 10.01B* |             |  | Amendment to 1993 Option Plan (incorporated by reference to the
    Registrants Registration Statement on Form S-1 (No.
    33-94530)).                                                                     
|        | 10.01C* |             |  | Amendment to 1993 Option Plan (incorporated by reference to the
    Registrants Form 10-Q for the quarter ended June 30,
    1996).                                                                         
|        | 10.01D* |             |  | Amendment to 1993 Option Plan (incorporated by reference to the
    Registrants Form 10-K for the year ended December 31,
    1996).                                                                        

71



---



##### 



|        |         |  |             |                                                                                                                                                                                                                       
|------- | ------- |  | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |  |            
|Number  |         |  | Description
|        |         |  |            
|        | 10.01E* |  |             | Amendment to 1993 Option Plan (incorporated by reference to the
    Registrants Registration Statement on Form S-8 (No.
    333-56092))                                                                              
|        | 10.01F* |  |             | Amendment to 1993 Option Plan (incorporated by reference to the
    Registrants Form 10-K for the year ended December 31,
    2002).                                                                                 
|        | 10.01G* |  |             | Form of Stock Option Agreement under the 1993 Option Plan
    (incorporated by reference to the Registrants Form 10-K
    for the year ended December 31, 2002).                                                     
|        | 10.02A* |  |             | 1998 Employee Share Option and Restricted Share Plan, as amended
    (or 1998 Option Plan) (incorporated by reference to the
    Registrants Form S-8 (No. 333-30814)).                                              
|        | 10.02B* |  |             | Amendment to 1998 Option Plan (incorporated by reference to the
    Registrants Form 10-K for the year ended December 31,
    1998).                                                                                 
|        | 10.02C* |  |             | Form of Stock Option Agreement under the 1998 Option Plan
    (incorporated by reference to the Registrants Form 10-K
    for the year ended December 31, 2002).                                                     
|        | 10.03A* |  |             | Guilford Pharmaceuticals Inc. Directors Stock Option Plan
    (or Directors Plan) (incorporated by reference to the
    Registrants Registration Statement on Form S-1 (No.
    33-76938)).                        
|        | 10.03B* |  |             | Amendment to Directors Plan (incorporated by reference to
    the Registrants Form 10-K for the year ended
    December 31, 1998).                                                                                  
|        | 10.03C* |  |             | Amendment to Directors Plan (incorporated by reference to
    the Registrants Form 10-Q for the quarter ended
    March 31, 1999).                                                                                  
|        | 10.03D* |  |             | Form of Stock Option Agreement under the Directors Plan
    (incorporated by reference to the Registrants Form 10-K
    for the year ended December 31, 2002).                                                      
|        | 10.04*  |  |             | Guilford Pharmaceuticals Inc. Compensation Plan for Outside
    Directors (incorporated by reference to the Registrants
    Form 8-K filed October 5, 2004).                                                         
|        | 10.05*  |  |             | Guilford Pharmaceuticals Inc. 2002 Employee Stock Purchase Plan
    (incorporated by reference to the Registrants Form 10-K
    for the year ended December 31, 2002).                                               
|        | 10.06A* |  |             | Guilford Pharmaceuticals Inc. 2002 Stock Award and Incentive
    Plan (or 2002 Award Plan) (incorporated by reference to the
    Registrants Form 10-K for the year ended December 31,
    2002).                    
|        | 10.06B* |  |             | Form of Stock Option Agreement under 2002 Stock Award Plan
    (incorporated by reference to the Registrants Form 10-K
    for the year ended December 31, 2002).                                                    
|        | 10.06C* |  |             | Form of Director Stock Unit Agreement under 2002 Stock Award
    Plan (incorporated by reference to the Registrants Form
    10-Q for the quarter ended September 30, 2004).                                         
|        | 10.06D* |  |             | Form of Employee Stock Unit Agreement under 2002 Stock Award
    Plan (incorporated by reference to the Registrants Form
    8-K filed January 26, 2005).                                                            
|        | 10.07*  |  |             | Consulting Services and Separation Agreement dated
    September 3, 2004 by and between the Company and Craig R.
    Smith, M.D. (incorporated by reference to the
    Registrants Form 8-K filed September 3, 2004).
|        | 10.08*  |  |             | Employment Agreement dated November 16, 2004, by and
    between the Company and Dean J. Mitchell (incorporated by
    reference to the Registrants Form 8-K filed
    November 19, 2004).                           
|        | 10.09*  |  |             | Form of Executive Change in Control Severance Agreement for Dean
    J. Mitchell (incorporated by reference to the Registrants
    Form 8-K filed November 19, 2004).                                                
|        | 10.10*  |  |             | Employment Agreement dated June 15, 2004, by and between
    the Company and William F. Spengler (incorporated by reference
    to the Registrants Form 10-Q for the quarter ended
    June 30, 2004).               
|        | 10.11*  |  |             | Form of Change in Control Severance Agreement (incorporated by
    reference to the Registrants Form 10-Q for the quarter
    ended September 30, 1998).                                                             
|        | 10.12*  |  |             | Form of Severance Agreement (incorporated by reference to the
    Registrants Form 10-K for the year ended December 31,
    2002).                                                                                   
|        | 10.13*  |  |             | Form of Director and Officer Indemnification Agreement
    (incorporated by reference to the Registrants Registration
    Statement on Form S-1 (No. 33-76938)).                                                     

72



---



##### 



|        |         |  |             |                                                                                                                                                                                                                                                                                                       
|------- | ------- |  | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |  |            
|Number  |         |  | Description
|        |         |  |            
|        | 10.14   |  |             | Form of Tax Indemnity Agreement (incorporated by reference to
    the Registrants Registration Statement on Form S-1
    (No. 33-76938)).                                                                                                                                                            
|        | 10.15   |  |             | Amendment No. 2 to Consulting Agreement, dated
    August 31, 2003, between the Company and Solomon H.
    Snyder, M.D. (incorporated by reference to the
    Registrants Form 10-Q for the quarter ended March 31,
    2004).                                                                       
|        | 10.16A |  |             | License Agreement, effective March 18, 1994, between the
    Company and Research Triangle Institute, a not-for-profit
    Corporation existing under the laws of North Carolina
    (incorporated by reference to the Registrants Registration
    Statement on Form S-1 (No. 33-76938)).           
|        | 10.16B  |  |             | Appendix A to RTI Agreement (incorporated by reference to the
    Registrants Registration Statement on Form S-1 (No.
    33-76938)).                                                                                                                                                                
|        | 10.17  |  |             | License Agreement, dated March 15, 1994, between the
    Company and Scios Nova (incorporated by reference to the
    Registrants Registration Statement on Form S-1 (No.
    33-76938)).                                                                                                            
|        | 10.18  |  |             | License Agreement, dated December 20, 1993, between the
    Company and The Johns Hopkins University (incorporated by
    reference to the Registrants Registration Statement on
    Form S-1 (No. 33-76938)).                                                                                       
|        | 10.19  |  |             | Amended and Restated License Agreement, effective
    November 25, 1998, between the Company and The Johns
    Hopkins University (incorporated by reference to the
    Registrants Form 10-K filed March 30, 1999).                                                                                 
|        | 10.20  |  |             | License Agreement, dated December 9, 1995, by and between
    the Company and Daiichi Radioisotope Laboratories, Ltd
    (incorporated by reference to the Registrants Form 10-K
    for the year ended December 31, 1995).                                                                          
|        | 10.21   |  |             | Distribution Agreement, dated September 27, 2001, between
    the Company and National Specialty Services, Inc. (incorporated
    by reference to the Registrants Form 10-Q for the quarter
    ended March 31, 2002).                                                                               
|        | 10.22   |  |             | Amended and Restated Single Tenant Absolute Net Lease, dated
    December 17, 2004, between BMR-6611 Tributary Street LLC
    and Guilford Pharmaceuticals Inc. (incorporated by reference to
    the Registrants Form 8-K filed December 22,
    2004).                                             
|        | 10.23   |  |             | Amended and Restated Single Tenant Absolute Net Lease, dated
    December 17, 2004, between Guilford Real Estate Trust
    1998-1 and Guilford Pharmaceuticals Inc. (incorporated by
    reference to the Registrants Form 8-K filed
    December 22, 2004).                                         
|        | 10.24  |  |             | Asset Transfer and License Agreement between the Company and
    Merck & Co., Inc., dated as of October 28, 2003
    (incorporated by reference to the Registrants Form 8-K
    filed November 12, 2003).                                                                                            
|        | 10.25  |  |             | Supply Agreement between the Company and Merck Sharp Dohme
    (Ireland) Limited, dated as of October 28, 2003
    (incorporated by reference to the Registrants Form 8-K
    filed November 12, 2003).                                                                                              
|        | 10.26  |  |             | Revenue Interest Assignment Agreement by among the Company,
    Artery, LLC, GPI Holdings, Inc., Paul Royalty Fund, L.P., and
    Paul Royalty Fund Holdings II, dated as of October 28,
    2003 (incorporated by reference to the Registrants Form
    8-K filed November 12, 2003).               
|        | 10.27   |  |             | Manufacturing and Supply Agreement, dated July 1, 2004,
    between the Company and Baxter Healthcare Corporation
    (incorporated by reference to the Registrants Form 10-Q/A
    for the quarter ended June 30, 2004, filed
    November 24, 2004).                                               
|        | 10.28   |  |             | Purchase Option Agreement, dated June 17, 2004, by and
    among Guilford Pharmaceuticals Inc., SNDC Holdings LLC and
    Symphony Neuro Development Company (incorporated by reference to
    the Registrants Form 8-K filed on June 21, 2004).                                                     
|        | 10.29   |  |             | Novated and Restated Technology License Agreement, dated
    June 17, 2004, between GPI NIL Holdings, Inc., Guilford
    Pharmaceuticals Inc., Symphony Neuro Development Company and
    SNDC Holdings LLC (incorporated by reference to the
    Registrants Form 8-K/A filed on November 24, 2004).
|        | 10.30A  |  |             | License Agreement, dated April 2, 1999, between The
    University of Kansas Center for Research, Inc. and ProQuest
    Pharmaceuticals, Inc. (filed herewith).                                                                                                                                       

73



---



##### 



|        |        |  |             |                                                                                                                                                                                                                
|------- | ------ |  | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |  |            
|Number  |        |  | Description
|        |        |  |            
|        | 10.30B |  |             | First Amendment to License Agreement, dated April 26, 2002,
    between The University of Kansas Center for Research, Inc. and
    ProQuest Pharmaceuticals, Inc. (filed herewith).                            
|        | 10.30C |  |             | Second Amendment to License Agreement, dated August 20,
    2004, between The University of Kansas Center for Research, Inc.
    and ProQuest Pharmaceuticals, Inc. (filed herewith).                          
|        | 10.30D |  |             | Third Amendment to License Agreement, dated November 23,
    2004, between The University of Kansas Center for Research, Inc.
    and ProQuest Pharmaceuticals, Inc. (filed herewith).                         
|        | 21.01  |  |             | Subsidiaries of Registrant (filed herewith).                                                                                                                                                                   
|        | 23.01  |  |             | Consent of KPMG LLP, Independent Registered Public Accounting
    Firm (filed herewith).                                                                                                                       
|        | 31.01  |  |             | Certification of Chief Executive Officer Pursuant to Rule
    13a-14(a) under the Securities Exchange Act of 1934 as Adopted
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    (filed herewith)
|        | 31.02  |  |             | Certification of Chief Financial Officer Pursuant to Rule
    13a-14(a) under the Securities Exchange Act of 1934 as Adopted
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    (filed herewith)
|        | 32.01  |  |             | Certification of Chief Executive Officer Pursuant to
    18 U.S.C. Section 1350 as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002 (filed
    herewith)                                  
|        | 32.02  |  |             | Certification of Chief Financial Officer Pursuant to
    18 U.S.C. Section 1350 as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002 (filed
    herewith)                                  






|  |                                          
|- | -----------------------------------------
|* | Management contract or compensatory plan.



|  |                                                                                                                               
|- | ------------------------------------------------------------------------------------------------------------------------------
| | Confidential treatment of certain portions of these agreements
    has been granted by the Securities and Exchange Commission.

74



---



##### 



SIGNATURES






| |                                  
| | ---------------------------------
| | Guilford
    Pharmaceuticals Inc.

|              |  |                                                      
|------------- |  | -----------------------------------------------------
|March 4, 2005 |  | By: /s/ Dean J.
    Mitchell                         
|              |  |                                                      
|              |  | Dean J. MitchellPresident and Chief Executive Officer



|                                                                 |  |                                                                                                |  |               |  | 
|---------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | ------------- |  | 
|Signature                                                        |  | Title                                                                                          |  | Date         
|                                                                 |  |                                                                                                |  |              
|                                                                
|/s/ Dean J. MitchellDean
    J. Mitchell                         |  | President, Chief Executive Officer and Director (Principal
    Executive Officer)              |  | March 4, 2005
|                                                                
|/s/ William F. SpenglerWilliam
    F. Spengler                   |  | Executive Vice President and Chief Financial Officer
    (Principal Financial Officer)         |  | March 4, 2005
|                                                                
|/s/ Andrew J. JeanneretAndrew
    J. Jeanneret                   |  | Vice President, Controller and
    Chief Accounting Officer
    (Principal Accounting Officer) |  | March 4, 2005
|                                                                
|/s/ George L. Bunting,
    Jr.George
    L. Bunting, Jr.         |  | Director                                                                                       |  | March 4, 2005
|                                                                
|/s/ Joseph R. ChinniciJoseph
    R. Chinnici                     |  | Director                                                                                       |  | March 4, 2005
|                                                                
|/s/ Elizabeth M.
    GreethamElizabeth
    M. Greetham           |  | Director                                                                                       |  | March 4, 2005
|                                                                
|/s/ Joseph Klein, IIIJoseph
    Klein, III                       |  | Director                                                                                       |  | March 4, 2005
|                                                                
|/s/ Ronald M. NordmannRonald
    M. Nordmann                     |  | Director                                                                                       |  | March 4, 2005
|                                                                
|/s/ Solomon H. Snyder,
    M.D.Solomon
    H. Snyder, M.D.       |  | Director                                                                                       |  | March 4, 2005
|                                                                
|/s/ Craig R. Smith,
    M.D.Craig
    R. Smith, M.D.             |  | Director                                                                                       |  | March 4, 2005
|                                                                
|/s/ David C.
    UPrichard, Ph.D.David
    C. UPrichard, Ph.D. |  | Director                                                                                       |  | March 4, 2005

75



---



##### 



Report of Independent Registered Public Accounting Firm












Internal Control 
Integrated Framework








F1



---



##### 



GUILFORD PHARMACEUTICALS INC.


CONSOLIDATED BALANCE SHEETS


($ in thousands, except share data)


|                                     |                                                              |                                                                                                                      |                            |        |          |         |   |        |          |         | 
|------------------------------------ | ------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------ | -------- | ------- | - | ------ | -------- | ------- | 
|                                     |                                                              | December 31,                                                                                                         |                           
|                                     |                                                              |                                                                                                                      |                           
|                                     |                                                              | 2004                                                                                                                 |                            |        | 2003     |        
|                                     |                                                              |                                                                                                                      |                            |        |          |        
|ASSETS                              
|                                     | Cash and cash equivalents                                    |                                                                                                                      | $                          | 61,889 |          |         | $ | 29,939 |         
|                                     | Marketable securities                                        |                                                                                                                      |                            | 27,705 |          |         |   | 50,261 |         
|                                     | Investments  held by Symphony Neuro Development
    Company |                                                                                                                      |                            | 32,062 |          |         |   |       |         
|                                     | Accounts receivable, net                                     |                                                                                                                      |                            | 4,666  |          |         |   | 3,460  |         
|                                     | Inventories, net                                             |                                                                                                                      |                            | 2,373  |          |         |   | 2,504  |         
|                                     | Prepaid expenses and other current assets                    |                                                                                                                      |                            | 4,744  |          |         |   | 1,787  |         
|                                     |                                                              |                                                                                                                      |                            |        |          |        
|                                     |                                                              | Total current assets                                                                                                 |                            |        | 133,439  |         |   |        | 87,951   |        
|                                     | Investments  restricted                                     |                                                                                                                      |                            | 19,899 |          |         |   | 21,743 |         
|                                     | Property and equipment, net                                  |                                                                                                                      |                            | 1,758  |          |         |   | 22,395 |         
|                                     | Intangibles, net                                             |                                                                                                                      |                            | 75,943 |          |         |   | 82,796 |         
|                                     | Other assets                                                 |                                                                                                                      |                            | 6,096  |          |         |   | 6,438  |         
|                                     |                                                              |                                                                                                                      |                            |        |          |        
|                                     |                                                              | Total assets                                                                                                         |                            | $      | 237,135  |         |   | $      | 221,323  |        
|                                     |                                                              |                                                                                                                      |                            |        |          |        
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY
|                                     | Accounts payable                                             |                                                                                                                      | $                          | 15,333 |          |         | $ | 8,549  |         
|                                     | Current portion of long-term debt                            |                                                                                                                      |                            | 2,916  |          |         |   | 3,394  |         
|                                     | Accrued payroll related costs                                |                                                                                                                      |                            | 2,932  |          |         |   | 4,538  |         
|                                     | Accrued contracted services                                  |                                                                                                                      |                            | 3,929  |          |         |   | 1,909  |         
|                                     | Accrued expenses and other current liabilities               |                                                                                                                      |                            | 6,355  |          |         |   | 3,590  |         
|                                     |                                                              |                                                                                                                      |                            |        |          |        
|                                     |                                                              | Total current liabilities                                                                                            |                            |        | 31,465   |         |   |        | 21,980   |        
|                                     | Long-term debt, excluding current portion                    |                                                                                                                      |                            | 87,393 |          |         |   | 88,885 |         
|                                     | Revenue interest obligation                                  |                                                                                                                      |                            | 44,932 |          |         |   | 42,155 |         
|                                     | Other liabilities                                            |                                                                                                                      |                            | 8,320  |          |         |   | 1,103  |         
|                                     |                                                              |                                                                                                                      |                            |        |          |        
|                                     |                                                              |                                                                                                                      | Total liabilities          |        |          | 172,110 |   |        |          | 154,123 | 
|                                     |                                                              |                                                                                                                      |                            |        |          |        
|                                     | Minority interest                                            |                                                                                                                      |                            | 28,132 |          |         |   |       |         
|                                     | Commitments and contingencies                                |                                                                                                                      |                            |       |          |         |   |       |         
|                                    
|                                     | STOCKHOLDERS EQUITY:                                        |                                                                                                                      |                            |        |          |         |   |        |         
|                                     |                                                              | Preferred stock, par value $0.01 per share; authorized
    4,700,000 shares, none issued                             |                            |        |         |         |   |        |         |        
|                                     |                                                              | Series A junior participating preferred stock, par value
    $0.01 per share; authorized 300,000 shares, none issued |                            |        |         |         |   |        |         |        
|                                     |                                                              | Common stock, par value $0.01 per share; authorized
    125,000,000 shares, 46,638,788 and 34,908,076 issued         |                            |        | 466      |         |   |        | 349      |        
|                                     |                                                              | Additional paid-in capital                                                                                           |                            |        | 435,130  |         |   |        | 377,168  |        
|                                     |                                                              | Accumulated deficit                                                                                                  |                            |        | (391,416 | )       |   |        | (303,538 | )      
|                                     |                                                              | Accumulated other comprehensive loss                                                                                 |                            |        | (2,130   | )       |   |        | (1,485   | )      
|                                     |                                                              | Note receivable from officer                                                                                         |                            |        |         |         |   |        | (85      | )      
|                                     |                                                              | Unearned compensation                                                                                                |                            |        | (3,653   | )       |   |        |         |        
|                                     |                                                              | Treasury stock, at cost; 304,336 and 1,055,816 shares                                                                |                            |        | (1,504   | )       |   |        | (5,209   | )      
|                                     |                                                              |                                                                                                                      |                            |        |          |        
|                                     |                                                              |                                                                                                                      | Total stockholders equity |        |          | 36,893  |   |        |          | 67,200  | 
|                                     |                                                              |                                                                                                                      |                            |        |          |        
|                                     |                                                              | Total liabilities and stockholders equity                                                                           |                            | $      | 237,135  |         |   | $      | 221,323  |        
|                                     |                                                              |                                                                                                                      |                            |        |          |        



F2



---



##### 



GUILFORD PHARMACEUTICALS INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


($ in thousands, except per share data)


|                                                                               |                                                 |                             |         |        |         |   |         |        |        |   |         |        |        |  
|------------------------------------------------------------------------------ | ----------------------------------------------- | --------------------------- | ------- | ------ | ------- | - | ------- | ------ | ------ | - | ------- | ------ | ------ | -
|                                                                               |                                                 | Year Ended December 31,     |        
|                                                                               |                                                 |                             |        
|                                                                               |                                                 | 2004                        |         |        | 2003    |   |         | 2002   |       
|                                                                               |                                                 |                             |         |        |         |   |         |        |       
|Revenue:                                                                       |                                                 |                             |         |        |         |   |         |        |        |   |         |       
|                                                                               | Net product revenue                             |                             | $       | 40,172 |         |   | $       | 21,717 |        |   | $       | 14,538 |       
|                                                                               | Revenue from license fees, milestones and other |                             |         | 7,739  |         |   |         | 5,888  |        |   |         | 127    |       
|                                                                               |                                                 |                             |         |        |         |   |         |        |       
|                                                                               |                                                 | Total revenue               |         |        | 47,911  |   |         |        | 27,605 |   |         |        | 14,665 |  
|                                                                               |                                                 |                             |         |        |         |   |         |        |       
|Costs and Expenses:                                                            |                                                 |                             |         |        |         |   |         |        |        |   |         |       
|                                                                               | Cost of sales                                   |                             | $       | 5,578  |         |   | $       | 4,110  |        |   | $       | 2,836  |       
|                                                                               | Research and development                        |                             |         | 46,584 |         |   |         | 33,624 |        |   |         | 46,103 |       
|                                                                               | Selling, general and administrative             |                             |         | 58,758 |         |   |         | 32,076 |        |   |         | 29,005 |       
|                                                                               | Intangible amortization                         |                             |         | 6,854  |         |   |         | 1,912  |        |   |         | 840    |       
|                                                                               | Acquired in-process research and development    |                             |         | 13,951 |         |   |         | 8,093  |        |   |         |       |       
|                                                                               |                                                 |                             |         |        |         |   |         |        |       
|                                                                               |                                                 | Total costs and expenses    |         |        | 131,725 |   |         |        | 79,815 |   |         |        | 78,784 |  
|                                                                               |                                                 |                             |         |        |         |   |         |        |       
|Operating Loss                                                                 |                                                 |                             | (83,814 | )      |         |   | (52,210 | )      |        |   | (64,119 | )     
|Other Income/(Expenses):                                                       |                                                 |                             |         |        |         |   |         |        |        |   |         |       
|                                                                               |                                                 | Investment and other income |         |        | 2,213   |   |         |        | 3,002  |   |         |        | 5,350  |  
|                                                                               |                                                 | Revenue interest expense    |         |        | (8,781  | ) |         |        | (1,557 | ) |         |        |       |  
|                                                                               |                                                 | Interest expense            |         |        | (5,252  | ) |         |        | (3,182 | ) |         |        | (501   | )
|                                                                               |                                                 |                             |         |        |         |   |         |        |       
|Loss before Minority Interest                                                  |                                                 |                             | (95,634 | )      |         |   | (53,947 | )      |        |   | (59,270 | )     
|                                                                              
|Minority Interest                                                              |                                                 |                             | 7,756   |        |         |   |        |        |        |   |        |       
|                                                                               |                                                 |                             |         |        |         |   |         |        |       
|Net Loss                                                                       |                                                 | $                           | (87,878 | )      |         | $ | (53,947 | )      |        | $ | (59,270 | )     
|                                                                               |                                                 |                             |         |        |         |   |         |        |       
|Basic and Diluted Loss per Common Share                                        |                                                 | $                           | (2.25   | )      |         | $ | (1.82   | )      |        | $ | (1.99   | )     
|                                                                               |                                                 |                             |         |        |         |   |         |        |       
|Weighted-average shares used to calculate basic
    and diluted loss per share |                                                 |                             | 39,037  |        |         |   | 29,689  |        |        |   | 29,805  |       
|                                                                               |                                                 |                             |         |        |         |   |         |        |       



F3



---



##### 



GUILFORD PHARMACEUTICALS INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


($ in thousands)


|                                                      |                                                                                 |                                                            |                                                     |         |        |         |        |         |        |         |         |         |        |         |  
|----------------------------------------------------- | ------------------------------------------------------------------------------- | ---------------------------------------------------------- | --------------------------------------------------- | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ------- | ------- | ------ | ------- | -
|                                                      |                                                                                 | Year Ended December 31,                                    |                                                    
|                                                      |                                                                                 |                                                            |                                                    
|                                                      |                                                                                 | 2004                                                       |                                                     |         | 2003   |         |        | 2002    |       
|                                                      |                                                                                 |                                                            |                                                     |         |        |         |        |         |       
|Cash Flows From Operating Activities:                 |                                                                                 |                                                            |                                                     |         |        |         |        |         |        |         |         |        
|                                                      | Net loss                                                                        |                                                            | $                                                   | (87,878 | )      |         | $      | (53,947 | )      |         | $       | (59,270 | )     
|                                                      | Adjustments to reconcile net loss to net cash used in operating
    activities: |                                                            |                                                     |         |        |         |        |         |        |         |         |         |       
|                                                      | Acquired in-process research and development                                    |                                                            |                                                     | 13,951  |        |         |        | 8,093   |        |         |         |        |       
|                                                      | Depreciation and amortization                                                   |                                                            |                                                     | 11,565  |        |         |        | 6,582   |        |         |         | 5,433   |       
|                                                      | Minority interest                                                               |                                                            |                                                     | (7,756  | )      |         |        |        |        |         |         |        |       
|                                                      | Non-cash imputed revenue interest expense                                       |                                                            |                                                     | 2,623   |        |         |        | 1,500   |        |         |         |        |       
|                                                      | Non-cash compensation expense                                                   |                                                            |                                                     | 1,658   |        |         |        | 546     |        |         |         | 620     |       
|                                                      | Loss/ (gain) on sale of marketable securities                                   |                                                            |                                                     | 429     |        |         |        | (153    | )      |         |         | (394    | )     
|                                                      | Changes in assets and liabilities:                                              |                                                            |                                                     |         |        |         |        |         |        |         |         |         |       
|                                                      |                                                                                 | Accounts receivable                                        |                                                     |         | (1,206 | )       |        |         | (2,692 | )       |         |         | 2,451  |        
|                                                      |                                                                                 | Prepaid expenses and other current assets and other assets |                                                     |         | (4,297 | )       |        |         | (970   | )       |         |         | 2,512  |        
|                                                      |                                                                                 | Inventories                                                |                                                     |         | 131    |         |        |         | 489    |         |         |         | (306   | )      
|                                                      |                                                                                 | Accounts payable and other liabilities                     |                                                     |         | 12,062 |         |        |         | 5,337  |         |         |         | (1,004 | )      
|                                                      |                                                                                 |                                                            |                                                     |         |        |         |        |         |       
|                                                      |                                                                                 |                                                            | Net cash used in operating activities               |         |        | (58,718 | )      |         |        | (35,215 | )       |         |        | (49,958 | )
|                                                      |                                                                                 |                                                            |                                                     |         |        |         |        |         |       
|Cash Flows From Investing Activities:                 |                                                                                 |                                                            |                                                     |         |        |         |        |         |        |         |         |        
|                                                      | Purchases of investments held by SNDC                                           |                                                            |                                                     | (43,000 | )      |         |        |        |        |         |         |        |       
|                                                      | Proceeds from sale of investments held by SNDC                                  |                                                            |                                                     | 10,938  |        |         |        |        |        |         |         |        |       
|                                                      | Purchases of property and equipment                                             |                                                            |                                                     | (1,095  | )      |         |        | (18,766 | )      |         |         | (282    | )     
|                                                      | Proceeds from disposal of property and equipment                                |                                                            |                                                     | 20,819  |        |         |        |        |        |         |         |        |       
|                                                      | Purchases of available-for-sale securities                                      |                                                            |                                                     | (11,412 | )      |         |        | (93,374 | )      |         |         | (72,428 | )     
|                                                      | Proceeds from maturities and sales of available-for-sale
    securities         |                                                            |                                                     | 32,550  |        |         |        | 106,964 |        |         |         | 83,425  |       
|                                                      | Purchase of intangible assets                                                   |                                                            |                                                     |        |        |         |        | (86,212 | )      |         |         |        |       
|                                                      |                                                                                 |                                                            |                                                     |         |        |         |        |         |       
|                                                      |                                                                                 |                                                            | Net cash flows from/ (used in) investing activities |         |        | 8,800   |        |         |        | (91,388 | )       |         |        | 10,715  |  
|                                                      |                                                                                 |                                                            |                                                     |         |        |         |        |         |       
|Cash Flows From Financing Activities:                 |                                                                                 |                                                            |                                                     |         |        |         |        |         |        |         |         |        
|                                                      | Net proceeds from issuances of common stock                                     |                                                            |                                                     | 44,021  |        |         |        | 26,191  |        |         |         | 19      |       
|                                                      | Net proceeds from sale of preferred stock by SNDC                               |                                                            |                                                     | 40,000  |        |         |        |        |        |         |         |        |       
|                                                      | Proceeds from issuances of debt                                                 |                                                            |                                                     | 1,095   |        |         |        | 88,527  |        |         |         | 3,389   |       
|                                                      | Proceeds from revenue interest obligation                                       |                                                            |                                                     |        |        |         |        | 42,000  |        |         |         |        |       
|                                                      | Proceeds from sale of treasury stock                                            |                                                            |                                                     | 518     |        |         |        |        |        |         |         | 524     |       
|                                                      | Purchase of treasury stock                                                      |                                                            |                                                     |        |        |         |        | (5,280  | )      |         |         |        |       
|                                                      | Principal payments on debt and revenue interest obligation                      |                                                            |                                                     | (3,661  | )      |         |        | (4,443  | )      |         |         | (6,696  | )     
|                                                      | Debt issuance costs                                                             |                                                            |                                                     | (105    | )      |         |        | (5,230  | )      |         |         |        |       
|                                                      |                                                                                 |                                                            |                                                     |         |        |         |        |         |       
|                                                      |                                                                                 |                                                            | Net cash flows from/ (used in) financing activities |         |        | 81,868  |        |         |        | 141,765 |         |         |        | (2,764  | )
|                                                      |                                                                                 |                                                            |                                                     |         |        |         |        |         |       
|Net increase/ (decrease) in cash and cash equivalents |                                                                                 |                                                            | 31,950                                              |         |        |         | 15,162 |         |        |         | (42,007 | )      
|Cash and cash equivalents at the beginning of year    |                                                                                 |                                                            | 29,939                                              |         |        |         | 14,777 |         |        |         | 56,784  |        
|                                                      |                                                                                 |                                                            |                                                     |         |        |         |        |         |       
|Cash and cash equivalents at the end of year          |                                                                                 | $                                                          | 61,889                                              |         |        | $       | 29,939 |         |        | $       | 14,777  |        
|                                                      |                                                                                 |                                                            |                                                     |         |        |         |        |         |       
|Supplemental cash flow data:                          |                                                                                 |                                                            |                                                     |         |        |         |        |         |        |         |         |        
|                                                      | Net interest paid                                                               |                                                            | $                                                   | 10,535  |        |         | $      | 859     |        |         | $       | 447     |       
|                                                      | Stock distributed to 401(k) and ESP plans                                       |                                                            |                                                     | 854     |        |         |        | 664     |        |         |         | 1,066   |       
|                                                      | Non-cash investing and financing activities:                                    |                                                            |                                                     |         |        |         |        |         |        |         |         |         |       
|                                                      |                                                                                 | Acquisition of ProQuest                                    |                                                     |         | 6,781  |         |        |         |       |         |         |         |       |        
|                                                      |                                                                                 | Capital lease obligations                                  |                                                     |         | 596    |         |        |         | 1,086  |         |         |         | 1,475  |        



| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | During 2002, the Company converted a $2,473 accounts payable to
    Cardinal to a note payable.



F4



---



##### 



GUILFORD PHARMACEUTICALS INC.


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY


($ in thousands, except share data)


|                           |                                                                          |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         |         |         |        |  
|-------------------------- | ------------------------------------------------------------------------ | ------------------------------ | --------------------------------------------------- | ---------- | ---------- | - | ------- | ------- | ----------- | ----------- | ------- | ------ | ------------- | ------------- | -------- | ---- | ------- | -------- | -------- | ------------ | ----- | ------ | ------- | --- | ------------- | ------ | ------ | ------ | - | - | ------ | ------ | - | - | ------- | ------- | ------- | ------ | -
|                           |                                                                          | Common Stock                   |                                                     |            |            |   |         |         | Accumulated |             |         | Note   |               |               |          |      |         |          |         
|                           |                                                                          |                                |                                                     |            | Additional |   |         |         |             | Other       |         |        | Receivable    |               |          |      |         | Treasury |          |              | Total |       
|                           |                                                                          | Number of                      |                                                     |            |            |   | Paid-In |         |             | Accumulated |         |        | Comprehensive |               |          | From |         |          | Unearned |              |       | Stock, |         |     | Stockholders |       
|                           |                                                                          | shares                         |                                                     |            | Amount     |   |         | Capital |             |             | Deficit |        |               | Income (Loss) |          |      | Officer |          |          | Compensation |       |        | at Cost |     |               | Equity |       
|                           |                                                                          |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |       
|Balance, December 31, 2001 |                                                                          |                                | 29,975,063                                          |            |            | $ | 300     |         |             | $           | 351,553 |        |               | $             | (190,321 | )    |         | $        | (452     | )            |       | $      | (60     | )   |               | $      | (52    | )      |   | $ | (3,339 | )      |   | $ | 157,629 |        
|                           | Comprehensive loss:                                                      |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         |         |        
|                           |                                                                          | Net loss                       |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      | (59,270 | )        |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         |         | (59,270 | )     
|                           |                                                                          | Other comprehensive loss:      |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         |         |         |       
|                           |                                                                          |                                | Unrealized loss on interest rate swap agreements    |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       | (452   | )       |     |               |        |        |        |   |   |        |        |   |   |         |         |         | (452   | )
|                           |                                                                          |                                | Unrealized gain on available-for-sale securities    |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       | 217    |         |     |               |        |        |        |   |   |        |        |   |   |         |         |         | 217    |  
|                           |                                                                          |                                | Equity adjustment from foreign currency translation |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       | (4     | )       |     |               |        |        |        |   |   |        |        |   |   |         |         |         | (4     | )
|                           |                                                                          |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |       
|                           |                                                                          | Total other comprehensive loss |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         |         | (239    | )     
|                           |                                                                          |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |       
|                           | Total comprehensive loss                                                 |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         | (59,509 | )      
|                           |                                                                          |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |       
|                           | Exercise of stock options                                                |                                |                                                     | 5,000      |            |   |         |         |             |             |         | 19     |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         | 19      |        
|                           | Distribution of 71,693 shares to 401(k) plan                             |                                |                                                     |            |            |   |         |         |             |             |         | (390   | )             |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        | 932    |   |   |         | 542     |        
|                           | Distribution of 99,986 shares to ESP plan                                |                                |                                                     |            |            |   |         |         |             |             |         | (775   | )             |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        | 1,299  |   |   |         | 524     |        
|                           | Distribution of 6,197 shares to consultant                               |                                |                                                     |            |            |   |         |         |             |             |         | (55    | )             |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        | 81     |   |   |         | 26      |        
|                           | Extension of note receivable to officer                                  |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         | (25 | )             |        |        |        |   |   |        |        |   |   |         | (25     | )      
|                           | Amortization of unearned compensation                                    |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        | 52     |   |   |        |        |   |   |         | 52      |        
|                           |                                                                          |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |       
|Balance, December 31, 2002 |                                                                          |                                | 29,980,063                                          |            |            |   | 300     |         |             |             | 350,352 |        |               |               | (249,591 | )    |         |          | (691     | )            |       |        | (85     | )   |               |        |       |        |   |   | (1,027 | )      |   |   | 99,258  |        
|                           | Comprehensive loss:                                                      |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         |         |        
|                           |                                                                          | Net loss                       |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      | (53,947 | )        |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         |         | (53,947 | )     
|                           |                                                                          | Other comprehensive loss:      |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         |         |         |       
|                           |                                                                          |                                | Unrealized gain on interest rate swap agreements    |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       | 510    |         |     |               |        |        |        |   |   |        |        |   |   |         |         |         | 510    |  
|                           |                                                                          |                                | Unrealized loss on available-for-sale securities    |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       | (1,304 | )       |     |               |        |        |        |   |   |        |        |   |   |         |         |         | (1,304 | )
|                           |                                                                          |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |       
|                           |                                                                          | Total other comprehensive loss |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         |         | (794    | )     
|                           |                                                                          |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |       
|                           | Total comprehensive loss                                                 |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         | (54,741 | )      
|                           |                                                                          |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |       
|                           | Issuance of common stock                                                 |                                |                                                     | 4,868,713  |            |   |         | 48      |             |             |         | 25,888 |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         | 25,936  |        
|                           | Issuance of warrants                                                     |                                |                                                     |            |            |   |         |         |             |             |         | 1,226  |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         | 1,226   |        
|                           | Purchase of 1,100,000 shares of treasury stock                           |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        | (5,280 | ) |   |         | (5,280  | )      
|                           | Exercise of stock options                                                |                                |                                                     | 59,300     |            |   |         | 1       |             |             |         | 254    |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         | 255     |        
|                           | Distribution of 110,537 shares to 401(k) plan                            |                                |                                                     |            |            |   |         |         |             |             |         | (489   | )             |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        | 975    |   |   |         | 486     |        
|                           | Distribution of 12,677 shares to consultant                              |                                |                                                     |            |            |   |         |         |             |             |         | (63    | )             |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        | 123    |   |   |         | 60      |        
|                           |                                                                          |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |       
|Balance, December 31, 2003 |                                                                          |                                | 34,908,076                                          |            |            |   | 349     |         |             |             | 377,168 |        |               |               | (303,538 | )    |         |          | (1,485   | )            |       |        | (85     | )   |               |        |       |        |   |   | (5,209 | )      |   |   | 67,200  |        
|                           | Comprehensive loss:                                                      |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         |         |        
|                           |                                                                          | Net loss                       |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      | (87,878 | )        |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         |         | (87,878 | )     
|                           |                                                                          | Other comprehensive loss:      |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         |         |         |       
|                           |                                                                          |                                | Unrealized gain on interest rate swap agreements    |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       | 484    |         |     |               |        |        |        |   |   |        |        |   |   |         |         |         | 484    |  
|                           |                                                                          |                                | Unrealized loss on available-for-sale securities    |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       | (1,129 | )       |     |               |        |        |        |   |   |        |        |   |   |         |         |         | (1,129 | )
|                           |                                                                          |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |       
|                           |                                                                          | Total other comprehensive loss |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         |         | (645    | )     
|                           |                                                                          |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |       
|                           | Total comprehensive loss                                                 |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         | (88,523 | )      
|                           |                                                                          |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |       
|                           | Issuance of common stock                                                 |                                |                                                     | 11,668,517 |            |   |         | 117     |             |             |         | 50,432 |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         | 50,549  |        
|                           | Issuance of 1.5 million warrants                                         |                                |                                                     |            |            |   |         |         |             |             |         | 5,238  |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        |        |   |   |         | 5,238   |        
|                           | Issuance of 500,000 shares of restricted stock                           |                                |                                                     |            |            |   |         |         |             |             |         | 335    |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        | (2,800 | ) |   |        | 2,465  |   |   |         |        |        
|                           | Unearned compensation resulting from grant of restricted stock
    units |                                |                                                     |            |            |   |         |         |             |             |         | 1,706  |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        | (1,706 | ) |   |        |        |   |   |         |        |        
|                           | Issuance of 50,000 shares under equity compensation plan                 |                                |                                                     |            |            |   |         |         |             |             |         | 36     |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        | 246    |   |   |         | 282     |        
|                           | Amortization of unearned compensation                                    |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        | 853    |   |   |        |        |   |   |         | 853     |        
|                           | Exercise of stock options (12,933 shares)                                |                                |                                                     | 62,195     |            |   |         |         |             |             |         | 245    |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        | 64     |   |   |         | 309     |        
|                           | Distribution of 65,962 shares to 401(k) plan                             |                                |                                                     |            |            |   |         |         |             |             |         | 67     |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        | 325    |   |   |         | 392     |        
|                           | Distribution of 115,013 shares to ESP plan                               |                                |                                                     |            |            |   |         |         |             |             |         | (105   | )             |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        | 567    |   |   |         | 462     |        
|                           | Distribution of 7,572 shares to consultant                               |                                |                                                     |            |            |   |         |         |             |             |         | 8      |               |               |          |      |         |          |          |              |       |        |         |     |               |        |        |        |   |   |        | 38     |   |   |         | 46      |        
|                           | Forgiveness of note receivable from officer                              |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         | 85  |               |        |        |        |   |   |        |        |   |   |         | 85      |        
|                           |                                                                          |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |       
|Balance, December 31, 2004 |                                                                          |                                | 46,638,788                                          |            |            | $ | 466     |         |             | $           | 435,130 |        |               | $             | (391,416 | )    |         | $        | (2,130   | )            |       | $      |        |     |               | $      | (3,653 | )      |   | $ | (1,504 | )      |   | $ | 36,893  |        
|                           |                                                                          |                                |                                                     |            |            |   |         |         |             |             |         |        |               |               |          |      |         |          |          |              |       |        |         |     |               |        |       



F5



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                                         
|-- | ----------------------------------------
|1. | Organization and Description of Business





|   |                     
|-- | --------------------
|2. | Symphony Transaction











F6



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|   |                      
|-- | ---------------------
|3. | ProQuest Transactions









|   |                                                         
|-- | --------------------------------------------------------
|4. | Summary of Significant Accounting Policies and Practices



| |                      
| | ---------------------
| | Basis of Presentation





| |                 
| | ----------------
| | Use of Estimates



F7



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                    
| | -------------------
| | Segment Information





| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                                     
| | ------------------------------------
| | Investments in Marketable Securities









| |                                                  
| | -------------------------------------------------
| | Investment in Equity Securities  Cost
    Method





| |                              
| | -----------------------------
| | Interest Rate Swap Agreements



F8



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








| |                    
| | -------------------
| | Accounts Receivable







| |          
| | ---------
| | Inventory









| |                       
| | ----------------------
| | Property and Equipment



|                                                         |  |            |      | 
|-------------------------------------------------------- |  | ---------- | ---- | 
|                                                         |  | # of Years |     
|                                                         |  |            |     
|Building and improvements                                |  |            | 5-30 | 
|Laboratory, manufacturing, computer and office equipment |  |            | 2-10 | 



F9



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








| |                  
| | -----------------
| | Intangible Assets





| |   |                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the cost to reacquire the rights to market, sell and distribute
    Gliadel from Aventis S.A. and                                                                                                                        
|
| |  | the patent, trademark, customer contracts and related customer
    relationship costs related to the product rights acquisition of
    Aggrastat from Merck & Co., Inc. (or Merck) during the
    fourth quarter of 2003.







| |                            
| | ---------------------------
| | Revenue Interest Obligation





| |               
| | --------------
| | Treasury Stock





| |                    
| | -------------------
| | Revenue Recognition





| |   |                                                                
| | - | ---------------------------------------------------------------
| |  | the Company has persuasive evidence that an arrangement exists;
|
| |  | the price is fixed and determinable;                           
|
| |  | the title has passed; and                                      
|
| |  | the collection is reasonably assured.                          

F10



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | not accept purchase orders from the distributor, or                                                      
|
| |  | not ship additional products until these levels are
    reduced, and                                     
|
| |  | defer recognition of revenue if it determines that there is
    excess channel inventory for the product.



|                 |  |                   |     |  |                   |   |   | 
|---------------- |  | ----------------- | --- |  | ----------------- | - | - | 
|                 |  | December 31, 2004 |     |  | December 31, 2003 |  
|($ in thousands) |  |                   |     |  |                   |  
|Gliadel          |  | $                 | 415 |  |                   | $ |  | 
|Aggrastat        |  |                   | 336 |  |                   |   |  | 
|                 |  |                   |     |  |                   |  
|Total            |  | $                 | 751 |  |                   | $ |  | 
|                 |  |                   |     |  |                   |  







| |                                              
| | ---------------------------------------------
| | Research and Development and Royalty Expenses





F11



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |             
| | ------------
| | Income Taxes





| |                         
| | ------------------------
| | Stock-Based Compensation







|                                                                                                               |                                |                        |         |       |      |   |         |       |   |   |         |       |  
|-------------------------------------------------------------------------------------------------------------- | ------------------------------ | ---------------------- | ------- | ----- | ---- | - | ------- | ----- | - | - | ------- | ----- | -
|                                                                                                               |                                | Year Ended December 31 |        
|                                                                                                               |                                |                        |        
|                                                                                                               |                                | 2004                   |         |       | 2003 |   |         | 2002  |  
|($ in thousands, except per share data)                                                                        |                                |                        |         |       |      |   |         |       |  
|Net loss, as reported                                                                                          |                                | $                      | (87,878 | )     |      | $ | (53,947 | )     |   | $ | (59,270 | )    
|Add:     Stock-based employee
    compensation expense included in reported net loss                           |                                |                        | 1,136   |       |      |   |        |       |   |   |        |      
|Deduct:  Total stock-based employee compensation
    expense determined under fair value method for all awards |                                |                        | (9,138  | )     |      |   | (11,911 | )     |   |   | (13,542 | )    
|                                                                                                               |                                |                        |         |       |      |   |         |       |  
|Pro forma net loss                                                                                             |                                | $                      | (95,880 | )     |      | $ | (65,858 | )     |   | $ | (72,812 | )    
|                                                                                                               |                                |                        |         |       |      |   |         |       |  
|Loss per share:                                                                                                |                                |                        |         |       |      |   |         |       |   |   |         |      
|                                                                                                               | Basic and diluted, as reported |                        | $       | (2.25 | )    |   | $       | (1.82 | ) |   | $       | (1.99 | )
|                                                                                                               | Basic and diluted, pro forma   |                        | $       | (2.46 | )    |   | $       | (2.22 | ) |   | $       | (2.44 | )



| |                            
| | ---------------------------
| | Comprehensive Income (Loss)



F12



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                          
| | -------------------------
| | Earnings (Loss) per Share





| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments





| |   |                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cash and cash equivalents, accounts receivable, prepaid expenses
    and other current assets, accounts payable and accrued expenses
    are short duration in nature and are based on cost as of
    December 31, 2004 and 2003.                                                              
|
| |  | Investments in debt securities are based on quoted market prices
    as of December 31, 2004 and 2003 for those or similar
    investments.                                                                                                                                                    
|
| |  | Long-term debt is based on discounted future cash flows of each
    instrument at current rates offered to the Company as of
    December 31, 2004 and 2003 for similar debt instruments
    offered by the financial institutions and is not materially
    different than the carrying value.
|
| |  | Interest rate swap agreements are based on using current market
    pricing models.                                                                                                                                                                                                            



| |                             
| | ----------------------------
| | Concentration of Credit Risk





F13



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                         
| | ------------------------
| | New Accounting Standards



| |           
| | ----------
| | SFAS 123R:









| |          
| | ---------
| | SFAS 151:





| |          
| | ---------
| | SFAS 153:



F14



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|   |                                                 
|-- | ------------------------------------------------
|5. | Marketable Securities and Investments-Restricted



|                                                    |       |           |        |        |                |   |        |                  |  |   |        |        |  |      |     |     |  |   |        |        |  
|--------------------------------------------------- | ----- | --------- | ------ | ------ | -------------- | - | ------ | ---------------- |  | - | ------ | ------ |  | ---- | --- | --- |  | - | ------ | ------ | -
|                                                    |       |           |        |        |                |   |        | Gross Unrealized | 
|                                                    |       | Principal |        |        | Cost/          |   |        |                  |  |   |       
|                                                    |       | Amount    |        |        | Amortized Cost |   |        | Fair Value       |  |   | Gain   |        |  | Loss |    
|($ in thousands)                                    |       |           |        |        |                |   |        |                  |  |   |        |        |  |      |    
|December 31, 2004:                                  |       |           |        |        |                |   |        |                  |  |   |        |        |  |      |     |     |  |   |        |       
|U.S. Government and agencies                        |       | $         | 11,384 |        |                | $ | 11,107 |                  |  | $ | 10,717 |        |  | $    | 6   |     |  | $ | (396   | )     
|Corporate debt securities                           |       |           | 18,427 |        |                |   | 17,601 |                  |  |   | 16,433 |        |  |      |    |     |  |   | (1,168 | )     
|Other debt securities                               |       |           | 568    |        |                |   | 602    |                  |  |   | 555    |        |  |      |    |     |  |   | (47    | )     
|Restricted money market and certificate deposits(a) |       |           | 19,899 |        |                |   | 19,899 |                  |  |   | 19,899 |        |  |      |    |     |  |   |       |       
|                                                    |       |           |        |        |                |   |        |                  |  |   |        |        |  |      |    
|                                                    | Total |           | $      | 50,278 |                |   | $      | 49,209           |  |   | $      | 47,604 |  |      | $   | 6   |  |   | $      | (1,611 | )
|                                                    |       |           |        |        |                |   |        |                  |  |   |        |        |  |      |    
|December 31, 2003:                                  |       |           |        |        |                |   |        |                  |  |   |        |        |  |      |     |     |  |   |        |       
|U.S. Government and agencies                        |       | $         | 24,575 |        |                | $ | 24,598 |                  |  | $ | 24,498 |        |  | $    | 106 |     |  | $ | (206   | )     
|Corporate debt securities                           |       |           | 25,280 |        |                |   | 25,064 |                  |  |   | 24,708 |        |  |      | 32  |     |  |   | (388   | )     
|Other debt securities                               |       |           | 1,052  |        |                |   | 1,075  |                  |  |   | 1,055  |        |  |      |    |     |  |   | (20    | )     
|Restricted money market and certificate deposits(a) |       |           | 21,743 |        |                |   | 21,743 |                  |  |   | 21,743 |        |  |      |    |     |  |   |       |       
|                                                    |       |           |        |        |                |   |        |                  |  |   |        |        |  |      |    
|                                                    | Total |           | $      | 72,650 |                |   | $      | 72,480           |  |   | $      | 72,004 |  |      | $   | 138 |  |   | $      | (614   | )
|                                                    |       |           |        |        |                |   |        |                  |  |   |        |        |  |      |    






|    |                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Investments in marketable securities of $19.9 million and
    $21.7 million at December 31, 2004 and 2003,
    respectively, are classified as
    Investments-restricted in the Consolidated Balance
    Sheets.



|                             |       |                     |        |        |                      |   |      |       |   |   |            |        |  |       |        |        |            |   |        |        |  |   |        |        |  
|---------------------------- | ----- | ------------------- | ------ | ------ | -------------------- | - | ---- | ----- | - | - | ---------- | ------ |  | ----- | ------ | ------ | ---------- | - | ------ | ------ |  | - | ------ | ------ | -
|                             |       | Less Than 12 Months |        |        | 12 Months or Greater |   |      | Total |  
|                             |       |                     |        |        |                      |   |      |       |  
|($ in thousands)             |       | Fair                |        |        | Unrealized           |   |      | Fair  |   |   | Unrealized |        |  | Fair  |        |        | Unrealized |  
|Description of Securities    |       | Value               |        |        | Loss                 |   |      | Value |   |   | Loss       |        |  | Value |        |        | Loss       |  
|                             |       |                     |        |        |                      |   |      |       |   |   |            |        |  |       |        |        |            |  
|December 31, 2004:           |       |                     |        |        |                      |   |      |       |   |   |            |        |  |       |        |        |            |   |        |        |  |   |        |       
|U.S. Government and agencies |       | $                   | 2,505  |        |                      | $ | (33  | )     |   | $ | 7,286      |        |  | $     | (363   | )      |            | $ | 9,791  |        |  | $ | (396   | )     
|Corporate debt securities    |       |                     | 3,300  |        |                      |   | (155 | )     |   |   | 13,134     |        |  |       | (1,013 | )      |            |   | 16,434 |        |  |   | (1,168 | )     
|Other debt securities        |       |                     |       |        |                      |   |     |       |   |   | 491        |        |  |       | (47    | )      |            |   | 491    |        |  |   | (47    | )     
|                             |       |                     |        |        |                      |   |      |       |   |   |            |        |  |       |        |        |            |  
|                             | Total |                     | $      | 5,805  |                      |   | $    | (188  | ) |   | $          | 20,911 |  |       | $      | (1,423 | )          |   | $      | 26,716 |  |   | $      | (1,611 | )
|                             |       |                     |        |        |                      |   |      |       |   |   |            |        |  |       |        |        |            |  
|December 31, 2003:           |       |                     |        |        |                      |   |      |       |   |   |            |        |  |       |        |        |            |   |        |        |  |   |        |       
|U.S. Government and agencies |       | $                   | 15,557 |        |                      | $ | (206 | )     |   | $ |           |        |  | $     |       |        |            | $ | 15,557 |        |  | $ | (206   | )     
|Corporate debt securities    |       |                     | 16,812 |        |                      |   | (256 | )     |   |   | 4,400      |        |  |       | (132   | )      |            |   | 21,212 |        |  |   | (388   | )     
|Other debt securities        |       |                     | 1,030  |        |                      |   | (20  | )     |   |   |           |        |  |       |       |        |            |   | 1,030  |        |  |   | (20    | )     
|                             |       |                     |        |        |                      |   |      |       |   |   |            |        |  |       |        |        |            |  
|                             | Total |                     | $      | 33,399 |                      |   | $    | (482  | ) |   | $          | 4,400  |  |       | $      | (132   | )          |   | $      | 37,799 |  |   | $      | (614   | )
|                             |       |                     |        |        |                      |   |      |       |   |   |            |        |  |       |        |        |            |  

U.S. Government and Agencies.


F15



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




Corporate and Other Debt Securities.




|                                 |       |                   |        |        |                   |   |        |           |  |   |        |        |  |   |        |        | 
|-------------------------------- | ----- | ----------------- | ------ | ------ | ----------------- | - | ------ | --------- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                 |       | December 31, 2004 |        |        | December 31, 2003 |  
|                                 |       |                   |        |        |                   |  
|                                 |       | Amortized         |        |        | Fair              |   |        | Amortized |  |   | Fair   |       
|                                 |       | Cost              |        |        | Value             |   |        | Cost      |  |   | Value  |       
|($ in thousands)                 |       |                   |        |        |                   |   |        |           |  |   |        |       
|Due in 1 year or less(b)         |       | $                 | 29,273 |        |                   | $ | 27,831 |           |  | $ | 24,255 |        |  | $ | 24,162 |       
|Due after 1 year through 5 years |       |                   | 19,677 |        |                   |   | 19,516 |           |  |   | 48,225 |        |  |   | 47,842 |       
|Due after 5 years                |       |                   | 259    |        |                   |   | 257    |           |  |   |       |        |  |   |       |       
|                                 |       |                   |        |        |                   |   |        |           |  |   |        |       
|                                 | Total |                   | $      | 49,209 |                   |   | $      | 47,604    |  |   | $      | 72,480 |  |   | $      | 72,004 | 
|                                 |       |                   |        |        |                   |   |        |           |  |   |        |       






|    |                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Investments due in 1 year or less of $5.8 million and
    $7.6 million at December 31, 2004 and 2003,
    respectively, are classified as
    Investments-restricted in the Consolidated Balance
    Sheets.



|                 |  |          |         |       |                |          |         |            |  |   |              |  |  |                 |      |   |  |   |      |  
|---------------- |  | -------- | ------- | ----- | -------------- | -------- | ------- | ---------- |  | - | ------------ |  |  | --------------- | ---- | - |  | - | ---- | -
|                 |  |          |         |       |                | Realized |        
|                 |  |          |         | Cost/ |                |          |         |           
|                 |  | Proceeds |         |       | Amortized Cost |          |         | Gross gain |  |   | Gross (loss) |  |  | Net gain/(loss) |     
|($ in thousands) |  |          |         |       |                |          |         |            |  |   |              |  |  |                 |     
|2004             |  | $        | 32,550  |       |                | $        | 32,979  |            |  | $ | 72           |  |  | $               | (501 | ) |  | $ | (429 | )
|2003             |  |          | 106,964 |       |                |          | 106,811 |            |  |   | 479          |  |  |                 | (326 | ) |  |   | 153  |  
|2002             |  |          | 83,425  |       |                |          | 83,031  |            |  |   | 828          |  |  |                 | (434 | ) |  |   | 394  |  



|    |          
|--- | ---------
|(6) | Inventory



|                 |                      |             |       |       |      |   |       |       | 
|---------------- | -------------------- | ----------- | ----- | ----- | ---- | - | ----- | ----- | 
|                 |                      | December 31 |      
|                 |                      |             |      
|                 |                      | 2004        |       |       | 2003 |  
|($ in thousands) |                      |             |       |       |      |  
|Raw materials    |                      | $           | 354   |       |      | $ | 191   |      
|Work-in-process  |                      |             | 314   |       |      |   | 275   |      
|Finished goods   |                      |             | 1,705 |       |      |   | 2,038 |      
|                 |                      |             |       |       |      |  
|                 | Total inventory, net |             | $     | 2,373 |      |   | $     | 2,504 | 
|                 |                      |             |       |       |      |  



F16



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


(7)     Property and Equipment




|                                                |                                                  |             |       |         |      |   |        |         |  
|----------------------------------------------- | ------------------------------------------------ | ----------- | ----- | ------- | ---- | - | ------ | ------- | -
|                                                |                                                  | December 31 |      
|                                                |                                                  |             |      
|                                                |                                                  | 2004        |       |         | 2003 |  
|($ in thousands)                                |                                                  |             |       |         |      |  
|Land                                            |                                                  | $           |      |         |      | $ | 350    |        
|Building                                        |                                                  |             |      |         |      |   | 18,346 |        
|Laboratory equipment                            |                                                  |             | 6,016 |         |      |   | 6,565  |        
|Manufacturing equipment                         |                                                  |             | 2,484 |         |      |   | 2,612  |        
|Computer and office equipment                   |                                                  |             | 5,594 |         |      |   | 5,907  |        
|Leasehold improvements                          |                                                  |             |      |         |      |   | 16,245 |        
|                                                |                                                  |             |       |         |      |  
|                                                | Total gross property and equipment               |             |       | 14,094  |      |   |        | 50,025  |  
|                                                |                                                  |             |       |         |      |  
|Less accumulated depreciation and amortization: |                                                  |             |       |         |      |   |        |        
|                                                | Property and equipment, excluding capital leases |             |       | (9,076  | )    |   |        | (24,876 | )
|                                                | Capital leases                                   |             |       | (3,260  | )    |   |        | (2,754  | )
|                                                |                                                  |             |       |         |      |  
|                                                | Total accumulated depreciation                   |             |       | (12,336 | )    |   |        | (27,630 | )
|                                                |                                                  |             |       |         |      |  
|                                                | Total property and equipment, net                |             | $     | 1,758   |      |   | $      | 22,395  |  
|                                                |                                                  |             |       |         |      |  





|                                       |                                                  |                        |       |       |      |   |       |       |  |   |       |       | 
|-------------------------------------- | ------------------------------------------------ | ---------------------- | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                       |                                                  | Year Ended December 31 |      
|                                       |                                                  |                        |      
|                                       |                                                  | 2004                   |       |       | 2003 |   |       | 2002  | 
|($ in thousands)                       |                                                  |                        |       |       |      |   |       |       | 
|Depreciation and amortization expense: |                                                  |                        |       |       |      |   |       |       |  |   |       |      
|                                       | Property and equipment, excluding capital leases |                        | $     | 2,114 |      |   | $     | 2,789 |  |   | $     | 3,026 | 
|                                       | Capital leases                                   |                        |       | 907   |      |   |       | 1,202 |  |   |       | 1,028 | 
|                                       |                                                  |                        |       |       |      |   |       |       | 
|                                       | Total depreciation and amortization expense      |                        | $     | 3,021 |      |   | $     | 3,991 |  |   | $     | 4,054 | 
|                                       |                                                  |                        |       |       |      |   |       |       | 
|Repairs and maintenance expense        |                                                  | $                      | 2,536 |       |      | $ | 1,947 |       |  | $ | 2,320 |      
|                                       |                                                  |                        |       |       |      |   |       |       | 

F17



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|   |                                                                       
|-- | ----------------------------------------------------------------------
|8. | Intangible Assets and Acquired In-process Research and
    Development



|                                                      |                              |               |    |  |                   |   |         |                   |  |   |        |        | 
|----------------------------------------------------- | ---------------------------- | ------------- | -- |  | ----------------- | - | ------- | ----------------- |  | - | ------ | ------ | 
|                                                      |                              | Estimated     |    |  |                   |   |        
|                                                      |                              | Life in Years |    |  | December 31, 2004 |   |         | December 31, 2003 | 
|($ in thousands)                                      |                              |               |    |  |                   |   |         |                   | 
|Gliadel rights reacquisition                          |                              |               | 10 |  |                   | $ | 8,412   |                   |  | $ | 8,412  |       
|                                                      |                              |               |    |  |                   |   |         |                   | 
|Aggrastat Patents                                     |                              |               | 13 |  |                   |   | 53,390  |                   |  |   | 53,390 |       
|Trademarks                                            |                              |               | 13 |  |                   |   | 9,750   |                   |  |   | 9,750  |       
|Customer contracts and related customer relationships |                              |               | 13 |  |                   |   | 14,712  |                   |  |   | 14,712 |       
|Other                                                 |                              |               | 11 |  |                   |   | 267     |                   |  |   | 267    |       
|                                                      |                              |               |    |  |                   |   |         |                   | 
|                                                      | Total Aggrastat              |               |    |  |                   |   |         | 78,119            |  |   |        | 78,119 | 
|                                                      |                              |               |    |  |                   |   |         |                   | 
|Less accumulation amortization                        |                              |               |    |  |                   |   | (10,588 | )                 |  |   | (3,735 | )     
|                                                      |                              |               |    |  |                   |   |         |                   | 
|                                                      | Total intangible assets, net |               |    |  |                   |   | $       | 75,943            |  |   | $      | 82,796 | 
|                                                      |                              |               |    |  |                   |   |         |                   | 







F18



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










|   |                                               
|-- | ----------------------------------------------
|9. | Accrued Expenses and Other Current Liabilities



|                         |  |                   |       |  |                   |   |       | 
|------------------------ |  | ----------------- | ----- |  | ----------------- | - | ----- | 
|                         |  | December 31, 2004 |       |  | December 31, 2003 |  
|($ in thousands)         |  |                   |       |  |                   |  
|Accrued interest payable |  | $                 | 1,818 |  |                   | $ | 1,967 | 
|Accrued sales returns    |  |                   | 1,107 |  |                   |   | 880   | 
|Other                    |  |                   | 3,430 |  |                   |   | 743   | 
|                         |  |                   |       |  |                   |  
|Total                    |  | $                 | 6,355 |  |                   | $ | 3,590 | 
|                         |  |                   |       |  |                   |  



|    |               
|--- | --------------
|10. | Long-term Debt



|                                                                                              |                                                 |                   |        |        |                   |   |        |        | 
|--------------------------------------------------------------------------------------------- | ----------------------------------------------- | ----------------- | ------ | ------ | ----------------- | - | ------ | ------ | 
|                                                                                              |                                                 | December 31, 2004 |        |        | December 31, 2003 |  
|($ in thousands)                                                                              |                                                 |                   |        |        |                   |  
|5% convertible subordinated note, due July 2008, interest
    paid semi-annually              |                                                 | $                 | 69,354 |        |                   | $ | 69,354 |       
|Term loan due to Wachovia Bank National Association, due May
    2008, variable interest rate |                                                 |                   | 17,312 |        |                   |   | 18,252 |       
|Commercial bank note, due April 2006, variable interest rate                                  |                                                 |                   | 1,500  |        |                   |   | 2,250  |       
|Maryland Economic Development Corporation Bond, due December
    2004, variable interest      |                                                 |                   |       |        |                   |   | 941    |       
|2% note payable to City of Baltimore, due December 2009                                       |                                                 |                   | 315    |        |                   |   | 370    |       
|Capital leases, interest of 4.5% to 9.6% (See Note 14)                                        |                                                 |                   | 1,828  |        |                   |   | 946    |       
|4% other note payable, due April 2004                                                         |                                                 |                   |       |        |                   |   | 166    |       
|                                                                                              |                                                 |                   |        |        |                   |  
|                                                                                              | Total long-term debt, including current portion |                   |        | 90,309 |                   |   |        | 92,279 | 
|Less: current portion of long-term debt and capital lease
    obligations                     |                                                 |                   | (2,916 | )      |                   |   | (3,394 | )     
|                                                                                              |                                                 |                   |        |        |                   |  
|                                                                                              | Total long-term debt, net of current portion    |                   | $      | 87,393 |                   |   | $      | 88,885 | 
|                                                                                              |                                                 |                   |        |        |                   |  



|                 |       |   |        |        | 
|---------------- | ----- | - | ------ | ------ | 
|($ in thousands) |       |  
|2005             |       | $ | 2,916  |       
|2006             |       |   | 2,297  |       
|2007             |       |   | 1,078  |       
|2008             |       |   | 83,952 |       
|2009             |       |   | 66     |       
|                 |       |   |       
|                 | Total |   | $      | 90,309 | 
|                 |       |   |       

F19



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                               
| | ------------------------------
| | Convertible Subordinated Notes





| |          
| | ---------
| | Term Loan







| |                
| | ---------------
| | Commercial Loan





| |                                               
| | ----------------------------------------------
| | Maryland Economic Development Corporation Bond





| |                      
| | ---------------------
| | Restrictive Covenants



F20



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|    |                                
|--- | -------------------------------
|11. | PRF Revenue Interest Obligation





| |   |                            
| | - | ---------------------------
| |  | PRF is entitled to receive:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | from October 28, 2003 through December 31,
    2006  10% of the Companys combined net revenue
    from Gliadel and Aggrastat up to $75.0 million and 2.5% of
    those annual net revenues in excess of $75.0 million;                                                                                                                                                                                
|
| |  | from January 1, 2007 through December 31, 2012 (the
    end of the term of the financing arrangement with
    PRF)  17.5% of the Companys combined net
    revenue from Gliadel and Aggrastat up to $75.0 million and
    3.5% of those annual net revenues in excess of
    $75.0 million;                                                                                                           
|
| |  | the revenue interest percentages can increase if the Company
    fails to meet contractually specified levels of annual net
    revenue from products for which PRF is entitled to receive its
    revenue interest; and                                                                                                                                                                                
|
| |  | minimum payments payable quarterly totaling $5.0 million in
    2004, $6.3 million in 2005, $7.5 million in 2006,
    $10.0 million per year in 2007 through 2009, and
    $12.5 million per year in 2010 through 2012. The Company
    paid $5.8 million and $0.1 million to PRF, related to
    the minimum payments requirement, during the years ended
    December 31, 2004 and 2003, respectively.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | During each year of the term of the Revenue Agreement, PRF will
    be entitled to receive a portion of revenue from products that
    we may acquire in the future or of our product candidates
    Aquavan and GPI 1485, in the case that our calculated annual
    obligation(s) to make royalty payments under the Revenue
    Agreement (based upon the combined net revenue from Gliadel and
    Aggrastat) are less than $6.4 million for 2004,
    $7.6 million for 2005, $8.3 million for 2006,
    $15.3 million for 2007, $15.5 million for 2008,
    $15.8 million for 2009, $16.0 million for 2010, or
    $15.9 million for 2011 and 2012, respectively.
|
| |  | PRF received five-year warrants to
    purchase 300,000 shares of the Companys common
    stock at an exercise price of $9.15 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | PRF received a security interest in the assets related to
    Gliadel and Aggrastat. As a result of this security interest,
    the Company may not be free to utilize those assets at its
    discretion, such as selling or outlicensing rights to part or
    all of those assets, without first obtaining the permission of
    PRF. This requirement could delay, hinder or condition, the
    Companys ability to enter into corporate partnerships or
    strategic alliances with respect to these assets.                                                                                                                                                   
|
| |  | PRF may be entitled to require the Company to repurchase its
    revenue interest under the following circumstances:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



| |   |                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | if the Company fails to maintain an escrow account funded with
    eight quarters of minimum payments to PRF in the aggregate of
    $13.8 million and $11.3 million as of
    December 31, 2004 and 2003, respectively, or fails to
    maintain at least $20.0 million of net working capital;
|
| |  | if the Company fails to make its minimum payments to PRF;                                                                                                                                                                                                                                       

F21



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | if the Company sells Gliadel and Aggrastat (with PRF having
    partial rights to make the Company repurchase its interest in
    the event of the sale of one, but not both products);
|
| |  | upon the occurrence of a bankruptcy or similar event; or                                                                                                                               
|
| |  | upon certain conditions related to a change of control of the
    Company.                                                                                                             



| |                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The repurchase amount guarantees PRF a return in an amount over
    its initial investment and is reduced based on payments that the
    Company has previously made to PRF prior to the time that its
    interest is repurchased, but the repurchase price may never
    exceed three and a half times PRFs initial investment, or
    $147.0 million.





|    |                              
|--- | -----------------------------
|12. | Interest Rate Swap Agreements









|    |              
|--- | -------------
|13. | Restructuring





|    |       
|--- | ------
|14. | Leases



F22



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|                                                      |  |                  |        |  |                |   |        |  
|----------------------------------------------------- |  | ---------------- | ------ |  | -------------- | - | ------ | -
|                                                      |  | Operating Leases |        |  | Capital Leases |  
|($ in thousands)                                      |  |                  |        |  |                |  
|2005                                                  |  | $                | 3,186  |  |                | $ | 1,266  |  
|2006                                                  |  |                  | 2,869  |  |                |   | 575    |  
|2007                                                  |  |                  | 2,788  |  |                |   | 82     |  
|2008                                                  |  |                  | 2,872  |  |                |   | 44     |  
|2009                                                  |  |                  | 2,958  |  |                |   |       |  
|Remainder                                             |  |                  | 33,711 |  |                |   |       |  
|                                                      |  |                  |        |  |                |  
|Total minimum lease payments                          |  | $                | 48,384 |  |                |   | 1,967  |  
|                                                      |  |                  |        |  |                |  
|Less: imputed interest                                |  |                  |        |  |                |   | (139   | )
|                                                      |  |                  |        |  |                |  
|Present value of net minimum lease payments           |  |                  |        |  |                |   | 1,828  |  
|Less: current maturities of capital lease obligations |  |                  |        |  |                |   | (1,165 | )
|                                                      |  |                  |        |  |                |  
|Capital lease obligations, excluding current portion  |  |                  |        |  |                | $ | 663    |  
|                                                      |  |                  |        |  |                |  





|    |             
|--- | ------------
|15. | Income Taxes



F23



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                                         |       |                                |         |   |      |   |         |      |  |   |         |   | 
|-------------------------------------------------------- | ----- | ------------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - | 
|                                                         |       | For the Year Ended December 31 |        
|                                                         |       |                                |        
|                                                         |       | 2004                           |         |   | 2003 |   |         | 2002 | 
|($ in thousands)                                         |       |                                |         |   |      |   |         |      | 
|Computed expected tax benefit at statutory rate          |       | $                              | (29,879 | ) |      | $ | (18,342 | )    |  | $ | (20,152 | )
|State income tax, net of Federal benefit                 |       |                                | (3,389  | ) |      |   | (2,098  | )    |  |   | (3,330  | )
|SNDC NOL                                                 |       |                                | (4,584  | ) |      |   |        |      |  |   |        |  
|Research and development and other permanent differences |       |                                | 4,671   |   |      |   | 3,064   |      |  |   |        |  
|Maryland NOL and other adjustments                       |       |                                | 2,127   |   |      |   |        |      |  |   |        |  
|General business credit generated                        |       |                                | (1,449  | ) |      |   | (1,130  | )    |  |   | (1,292  | )
|Other, net                                               |       |                                | 149     |   |      |   | 425     |      |  |   | (318    | )
|                                                         |       |                                |         |   |      |   |         |      | 
|                                                         |       |                                | (32,354 | ) |      |   | (18,081 | )    |  |   | (25,092 | )
|Increase in valuation allowance                          |       |                                | 32,354  |   |      |   | 18,081  |      |  |   | 25,092  |  
|                                                         |       |                                |         |   |      |   |         |      | 
|                                                         | Total |                                | $       |  |      |   | $       |     |  |   | $       |  | 
|                                                         |       |                                |         |   |      |   |         |      | 



|                          |                                                       |                           |          |         |         |   |          |         |         | 
|------------------------- | ----------------------------------------------------- | ------------------------- | -------- | ------- | ------- | - | -------- | ------- | ------- | 
|                          |                                                       | December 31               |         
|                          |                                                       |                           |         
|                          |                                                       | 2004                      |          |         | 2003    |  
|($ in thousands)          |                                                       |                           |          |         |         |  
|Deferred tax assets:      |                                                       |                           |          |         |         |   |          |        
|                          | Net operating loss carryforwards                      |                           | $        | 137,084 |         |   | $        | 114,961 |        
|                          | SNDC NOL                                              |                           |          | 4,584   |         |   |          |        |        
|                          | Research and experimentation credits                  |                           |          | 13,107  |         |   |          | 11,721  |        
|                          | Compensatory stock grants                             |                           |          | 1,951   |         |   |          | 887     |        
|                          | Depreciation                                          |                           |          | 1,382   |         |   |          | 1,286   |        
|                          | Amortization                                          |                           |          | 798     |         |   |          | 438     |        
|                          | Accrued expenses                                      |                           |          | 2,397   |         |   |          | 1,091   |        
|                          | Contribution carryover and capitalized start-up costs |                           |          | 246     |         |   |          | 249     |        
|                          | Deferred revenue                                      |                           |          | 2,345   |         |   |          |        |        
|                          | Other                                                 |                           |          | 515     |         |   |          | 499     |        
|                          |                                                       |                           |          |         |         |  
|                          |                                                       | Total deferred tax assets |          |         | 164,409 |   |          |         | 131,132 | 
|Deferred tax liabilities: |                                                       |                           |          |         |         |   |          |        
|                          | Prepaid expenses and other                            |                           |          | (1,296  | )       |   |          | (374    | )      
|                          |                                                       |                           |          |         |         |  
|Net deferred tax assets   |                                                       |                           | 163,113  |         |         |   | 130,758  |        
|Valuation allowance       |                                                       |                           | (163,113 | )       |         |   | (130,758 | )      
|                          |                                                       |                           |          |         |         |  
|Net deferred tax assets   |                                                       | $                         |         |         |         | $ |         |        
|                          |                                                       |                           |          |         |         |  



F24



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|    |        
|--- | -------
|16. | Capital

















|                                    |  |               |       |  |                |   |      |                 |  |  |               | 
|----------------------------------- |  | ------------- | ----- |  | -------------- | - | ---- | --------------- |  |  | ------------- | 
|                                    |  | Total         |       |  | Exercise Price |   |      |                
|                                    |  | # of Warrants |       |  | Per Warrant    |   |      | Expiration Date | 
|(shares in thousands)               |  |               |       |  |                |   |      |                 | 
|Paul Royalty Fund, L.P.             |  |               | 300   |  |                | $ | 9.15 |                 |  |  | October 2008  | 
|Symphony Neuro Development Company  |  |               | 1,500 |  |                | $ | 7.48 |                 |  |  | June 2009     | 
|Private Investment in Public Equity |  |               | 962   |  |                | $ | 7.55 |                 |  |  | December 2010 | 



|    |                        
|--- | -----------------------
|17. | Stockholder Rights Plan



F25



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








|    |                          
|--- | -------------------------
|18. | Equity Compensation Plans









|                                            |  |                                                                                       
|------------------------------------------- |  | --------------------------------------------------------------------------------------
|Plan                                        |  | Description                                                                           
|                                            |  |                                                                                       
|Active Plans:                               |  |                                                                                       
|2002 Stock Option and Restricted Share Plan |  | Provide Share Options to employees, directors
    and consultants of the Company      
|Dean J. Mitchell Employment Inducement Plan |  | Provide Share Options to Dean Mitchell, the
    Chief Executive Officer of the Company
|Inactive Plans*:                            |  |                                                                                       
|1998 Stock Option and Restricted Share Plan |  | Provide Share Options to employees, directors
    and consultants of the Company      
|1993 Stock Option and Restricted Share Plan |  | Provide Share Options to employees, directors
    and consultants of the Company      
|Directors Stock Option Plan                |  | Provide Share Options to directors of the Company                                     




|  |                                                                                                                                                                                                                                                                                                                                                           
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Pursuant to adoption of 2002 Stock Option and Restricted Share
    Plan in 2002, these plans were terminated with respect to any
    future grants, although any awards previously granted would
    continue to remain outstanding. Any forfeitures and
    cancellations under these plans are added to 2002 Stock Option
    and Restricted Share Plan.



F26



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |               
| | --------------
| | Stock Options:







|                                            |  |              |        |   |                  |   |       | 
|------------------------------------------- |  | ------------ | ------ | - | ---------------- | - | ----- | 
|                                            |  | Total        |        |   | Weighted-Average |  
|                                            |  | # of Options |        |   | Exercise Price   |  
|(shares in thousands)                       |  |              |        |   |                  |  
|December 31, 2001                           |  |              | 5,455  |   |                  | $ | 18.66 | 
|Granted                                     |  |              | 2,131  |   |                  |   | 7.55  | 
|Exercised                                   |  |              | (5     | ) |                  |   | 3.09  | 
|Forfeited                                   |  |              | (1,726 | ) |                  |   | 16.94 | 
|                                            |  |              |        |   |                  |  
|December 31, 2002                           |  |              | 5,855  |   |                  |   | 15.14 | 
|                                            |  |              |        |   |                  |  
|Granted                                     |  |              | 1,171  |   |                  |   | 3.88  | 
|Exercised                                   |  |              | (59    | ) |                  |   | 4.30  | 
|Forfeited                                   |  |              | (974   | ) |                  |   | 12.63 | 
|                                            |  |              |        |   |                  |  
|December 31, 2003                           |  |              | 5,993  |   |                  |   | 13.45 | 
|                                            |  |              |        |   |                  |  
|Granted                                     |  |              | 2,359  |   |                  |   | 6.49  | 
|Exercised                                   |  |              | (75    | ) |                  |   | 4.11  | 
|Forfeited                                   |  |              | (536   | ) |                  |   | 10.12 | 
|                                            |  |              |        |   |                  |  
|December 31, 2004                           |  |              | 7,741  |   |                  | $ | 11.65 | 
|                                            |  |              |        |   |                  |  
|Exercisable balance as of December 31, 2004 |  |              | 4,676  |   |                  | $ | 15.13 | 
|                                            |  |              |        |   |                  |  

F27



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                      |  |                     |       |           |                     |   |           |                  |  |  |              |           |  |          |       |  |  |   |       | 
|--------------------- |  | ------------------- | ----- | --------- | ------------------- | - | --------- | ---------------- |  |  | ------------ | --------- |  | -------- | ----- |  |  | - | ----- | 
|                      |  | Options Outstanding |       |           | Options Exercisable |  
|                      |  |                     |       |           |                     |  
|                      |  |                     |       | Weighted- |                     |   | Weighted- |                  |  |  |              | Weighted- | 
|                      |  | As of               |       |           | Average             |   |           | Average          |  |  | As of        |           |  | Average  |      
|                      |  | December 31,        |       |           | Exercise            |   |           | Remaining        |  |  | December 31, |           |  | Exercise |      
|                      |  | 2004                |       |           | Price               |   |           | Contractual Life |  |  | 2004         |           |  | Price    |      
|(shares in thousands) |  |                     |       |           |                     |   |           |                  |  |  |              |           |  |          |      
|$ 0.01  $ 5.00       |  |                     | 1,158 |           |                     | $ | 3.70      |                  |  |  | 8.0          |           |  |          | 585   |  |  | $ | 3.67  | 
|5.01   10.00         |  |                     | 3,415 |           |                     |   | 7.16      |                  |  |  | 8.4          |           |  |          | 956   |  |  |   | 8.11  | 
|10.01   15.00        |  |                     | 853   |           |                     |   | 13.49     |                  |  |  | 2.5          |           |  |          | 851   |  |  |   | 13.49 | 
|15.01   20.00        |  |                     | 1,632 |           |                     |   | 18.76     |                  |  |  | 4.5          |           |  |          | 1,601 |  |  |   | 18.75 | 
|20.01   30.00        |  |                     | 676   |           |                     |   | 28.27     |                  |  |  | 4.6          |           |  |          | 676   |  |  |   | 28.28 | 
|30.01   40.00        |  |                     | 7     |           |                     |   | 30.63     |                  |  |  | 2.7          |           |  |          | 7     |  |  |   | 30.63 | 
|                      |  |                     |       |           |                     |   |           |                  |  |  |              |           |  |          |      
|                      |  |                     | 7,741 |           |                     | $ | 11.65     |                  |  |  | 6.5          |           |  |          | 4,676 |  |  | $ | 15.13 | 
|                      |  |                     |       |           |                     |   |           |                  |  |  |              |           |  |          |      



| |                             
| | ----------------------------
| | Pro Forma Option Information



|                        |  |      |      |   |      |  |      |      |  |  |      |  
|----------------------- |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                        |  | 2004 |      |   | 2003 |  |      | 2002 | 
|                        |  |      |      |   |      |  |      |      | 
|Expected dividend yield |  |      | 0    | % |      |  | 0    | %    |  |  | 0    | %
|Risk-free interest rate |  |      | 3.4  | % |      |  | 2.8  | %    |  |  | 2.6  | %
|Volatility              |  |      | 70.6 | % |      |  | 77.3 | %    |  |  | 76.0 | %
|Expected life in years  |  |      | 4    |   |      |  | 4    |      |  |  | 4    |  



| |                                             
| | --------------------------------------------
| | Restricted Stock and Restricted Stock Units:







| |                              
| | -----------------------------
| | Employee Stock Purchase Plans



F28



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                            |  |                        |     |  |                    |  |     | 
|--------------------------- |  | ---------------------- | --- |  | ------------------ |  | --- | 
|Plan (shares in thousands)  |  | Authorized # of Shares |     |  | # of Shares Issued | 
|                            |  |                        |     |  |                    | 
|2002 Stock Purchase Plan(a) |  |                        | 300 |  |                    |  | 203 | 
|2001 Stock Purchase Plan(b) |  |                        | 300 |  |                    |  | 73  | 






|    |                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------
|(a) | Approved by shareholders and therefore, is intended to comply
    with the requirements of Section 423 of the Internal
    Revenue Code.



|    |  |                                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | Not subject to shareholder approval and therefore, does not
    currently comply with the requirements of Sections 421 and
    423 of the Internal Revenue Code.



|    |                           
|--- | --------------------------
|19. | 401(k) Profit Sharing Plan







|    |                          
|--- | -------------------------
|20. | Related Party Transaction



| |                                                          
| | ---------------------------------------------------------
| | Mr. Dean J. Mitchells Employment Letter of
    Agreement





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | options to purchase 1,000,000 shares of the
    Companys common stock with an exercise price equal to the
    fair market value of the Companys common stock on the day
    immediately preceding the date of the grant, 25% of which will
    vest on the first anniversary of the grant, and the remainder of
    which will vest in equal monthly installments over the next
    36 months;                                               
|
| |  | 50,000 shares of common stock, fully vested as of the date
    of grant;                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | 250,000 restricted shares of common stock that will vest on the
    first anniversary of his employment with the Company or earlier
    upon a certain acceleration event (to mean death, disability,
    termination without cause or termination by Mr. Mitchell
    for good reason, as defined per the letter of agreement);                                                                                                               
|
| |  | 250,000 restricted shares of common stock, vesting seven years
    from the commencement of his employment or in 2007, 2008 and
    2009 if certain performance milestones to be determined are met;                                                                                                                                                                                                                                           
|
| |  | options to purchase 250,000 shares in February 2006
    and 250,000 shares in February 2007 of the Companys
    common stock with an exercise price equal to the fair market
    value of the Companys common stock on the day immediately
    preceding the date of grant, 25% of which will vest on the first
    anniversary of the grant, the remainder of which will vest in
    equal monthly installments over the next 36 months; and

F29



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |   |                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a restricted stock unit grant that will vest on the earlier of
    February 12, 2011 or the date of a change of control of the
    Company, which represents the right to receive $1.0 million
    worth of common stock on that date (not to exceed
    100,000 shares of common stock).









| |                                                             
| | ------------------------------------------------------------
| | Dr. Craig R. Smiths Consulting and Separation
    Agreement







| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | pay a consulting fee equal to his last base salary and benefits
    for an additional thirty-six months in consideration of one
    years consulting services;
|
| |  | pay a cash payment equal to 50% of his last base salary as Chief
    Executive Officer, payable:                                                               



| |   |                                                       
| | - | ------------------------------------------------------
| |  | 50% on January 3, 2005 and                            
|
| |  | 50% at the one-year anniversary of his retirement; and



| |   |                                      
| | - | -------------------------------------
| |  | grant 100,000 restricted stock units.





| |       
| | ------
| | Others



F30



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|    |                              
|--- | -----------------------------
|21. | Commitments and Contingencies



| |                                       
| | --------------------------------------
| | Merck Royalty on Aggrastat Net Revenue



|                           |     |                       |                                                        
|-------------------------- | --- | --------------------- | -------------------------------------------------------
|Royalty Payment %          |     | Aggrastat Net Revenue
|                           |     |                      
|Years 2004 to 2006:        |     |                      
|                           | 0%  |                       | up to $40.0 million                                    
|                           | 10% |                       | in excess of $40.0 million and less than $50.0 million 
|                           | 12% |                       | in excess of $50.0 million and less than $75.0 million 
|                           | 14% |                       | in excess of $75.0 million and less than $100.0 million
|                           | 20% |                       | in excess of $100.0 million                            
|Years 2007 and thereafter: |     |                      
|                           | 5%  |                       | up to $28.0 million                                    
|                           | 10% |                       | in excess of $28.0 million and less than $50.0 million 
|                           | 12% |                       | in excess of $50.0 million and less than $75.0 million 
|                           | 14% |                       | in excess of $75.0 million and less than $100.0 million
|                           | 20% |                       | in excess of $100.0 million                            



| |                                     
| | ------------------------------------
| | Research and Development Commitments





F31



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                                       
| | --------------------------------------
| | Manufacturing Commitment for Aggrastat





| |                                                         
| | --------------------------------------------------------
| | Cardinal Health Sales and Marketing Services
    Dispute







| |        
| | -------
| | General





|    |                                     
|--- | ------------------------------------
|22. | Quarterly Financial Data (unaudited)



|                                        |  |                |         |   |               |   |         |                    |  |   |                   |   |  |   |         |  
|--------------------------------------- |  | -------------- | ------- | - | ------------- | - | ------- | ------------------ |  | - | ----------------- | - |  | - | ------- | -
|($ in thousands, except per share data) |  |                |         |   |               |   |        
|Quarter Ended                           |  | March 31, 2004 |         |   | June 30, 2004 |   |         | September 30, 2004 |  |   | December 31, 2004 |  
|                                        |  |                |         |   |               |   |         |                    |  |   |                   |  
|Revenue                                 |  | $              | 8,928   |   |               | $ | 11,149  |                    |  | $ | 17,322            |   |  | $ | 10,512  |  
|Gross margin(1)                         |  |                | 7,736   |   |               |   | 9,515   |                    |  |   | 8,370             |   |  |   | 8,973   |  
|Net loss                                |  |                | (18,068 | ) |               |   | (21,267 | )                  |  |   | (14,461           | ) |  |   | (34,082 | )
|Net loss per common share               |  | $              | (0.53   | ) |               | $ | (0.63   | )                  |  | $ | (0.33             | ) |  | $ | (0.76   | )

|                             |  |                |         |   |               |   |        |                    |  |   |                   |   |  |   |         |  
|---------------------------- |  | -------------- | ------- | - | ------------- | - | ------ | ------------------ |  | - | ----------------- | - |  | - | ------- | -
|Quarter Ended                |  | March 31, 2003 |         |   | June 30, 2003 |   |        | September 30, 2003 |  |   | December 31, 2003 |  
|                             |  |                |         |   |               |   |        |                    |  |   |                   |  
|Revenue                      |  | $              | 3,463   |   |               | $ | 10,602 |                    |  | $ | 5,420             |   |  | $ | 8,120   |  
|Gross margin(1)              |  |                | 2,511   |   |               |   | 3,971  |                    |  |   | 4,327             |   |  |   | 6,798   |  
|Net loss                     |  |                | (11,193 | ) |               |   | (5,354 | )                  |  |   | (13,282           | ) |  |   | (24,118 | )
|Net loss per common share(2) |  | $              | (0.37   | ) |               | $ | (0.18  | )                  |  | $ | (0.46             | ) |  | $ | (0.80   | )

F32



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##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)







|    |                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Gross margin is calculated as net product revenue less cost of
    sales.                                                                                         
|   
|(2) | Due to rounding, the net loss per common share for the four
    quarters does not agree to the net loss per common share for the
    year ended December 31, 2003.



F33



---



##### 



GUILFORD PHARMACEUTICALS INC. AND SUBSIDIARIES


SCHEDULE II


($ in thousands)


|                                                                            |  |              |     |           |                 |   |       |                  |  |            |   |         |               |   |        |      |  |   |     | 
|--------------------------------------------------------------------------- |  | ------------ | --- | --------- | --------------- | - | ----- | ---------------- |  | ---------- | - | ------- | ------------- | - | ------ | ---- |  | - | --- | 
|                                                                            |  |              |     | Additions |                 |   |       |                 
|                                                                            |  |              |     |           |                 |   |       |                 
|Description                                                                 |  | Balance      |     |           | Charge to Costs |   |       |                  |  |            |   | Balance |              
|(Balance sheet caption)                                                     |  | Jan. 1, 2002 |     |           | and Expenses    |   |       | Charged to Other |  | Deductions |   |         | Dec. 31, 2002 |  
|                                                                            |  |              |     |           |                 |   |       |                  |  |            |   |         |               |  
|Allowance for doubtful accounts (Accounts receivable)                       |  | $            | 152 |           |                 | $ | (125  | )                |  | $          |  |         |               | $ |       |      |  | $ | 27  | 
|Product return reserve (Accrued expenses and other current
    liabilities) |  |              | 751 |           |                 |   | 1,314 | (a)              |  |            |  |         |               |   | (1,773 | )(b) |  |   | 292 | 

|                                                                            |  |              |     |           |                 |   |       |                  |  |            |   |         |               |   |        |      |  |   |     | 
|--------------------------------------------------------------------------- |  | ------------ | --- | --------- | --------------- | - | ----- | ---------------- |  | ---------- | - | ------- | ------------- | - | ------ | ---- |  | - | --- | 
|                                                                            |  |              |     | Additions |                 |   |       |                 
|                                                                            |  |              |     |           |                 |   |       |                 
|Description                                                                 |  | Balance      |     |           | Charge to Costs |   |       |                  |  |            |   | Balance |              
|(Balance sheet caption)                                                     |  | Jan. 1, 2003 |     |           | and Expenses    |   |       | Charged to Other |  | Deductions |   |         | Dec. 31, 2003 |  
|                                                                            |  |              |     |           |                 |   |       |                  |  |            |   |         |               |  
|Allowance for doubtful accounts (Accounts receivable)                       |  | $            | 27  |           |                 | $ | 799   |                  |  | $          |  |         |               | $ | (10    | )    |  | $ | 816 | 
|Product return reserve (Accrued expenses and other current
    liabilities) |  |              | 292 |           |                 |   | 1,639 | (a)              |  |            |  |         |               |   | (1,051 | )(b) |  |   | 880 | 

|                                                                            |  |              |     |           |                 |   |       |                  |  |            |   |         |               |   |        |      |  |   |       | 
|--------------------------------------------------------------------------- |  | ------------ | --- | --------- | --------------- | - | ----- | ---------------- |  | ---------- | - | ------- | ------------- | - | ------ | ---- |  | - | ----- | 
|                                                                            |  |              |     | Additions |                 |   |       |                 
|                                                                            |  |              |     |           |                 |   |       |                 
|Description                                                                 |  | Balance      |     |           | Charge to Costs |   |       |                  |  |            |   | Balance |              
|(Balance sheet caption)                                                     |  | Jan. 1, 2004 |     |           | and Expenses    |   |       | Charged to Other |  | Deductions |   |         | Dec. 31, 2004 |  
|                                                                            |  |              |     |           |                 |   |       |                  |  |            |   |         |               |  
|Allowance for doubtful accounts (Accounts receivable)                       |  | $            | 816 |           |                 | $ | 39    |                  |  | $          |  |         |               | $ | (829   | )    |  | $ | 26    | 
|Product return reserve (Accrued expenses and other current
    liabilities) |  |              | 880 |           |                 |   | 2,054 | (a)              |  |            |  |         |               |   | (1,827 | )(b) |  |   | 1,107 | 






|    |                                                                               
|--- | ------------------------------------------------------------------------------
|(a) | The provision for product returns is a reduction of gross
    product revenue.



|    |  |                                                                                          
|--- |  | -----------------------------------------------------------------------------------------
|(b) |  | Product returned pursuant to the Companys return policy
    and charged to this reserve.

S1