<PAGE>



                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                    FORM 10-Q


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

                  For the quarterly period ended September 30, 1999
                                                 ------------------



[   ]             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 0-28674
                                               -------

                        CADUS PHARMACEUTICAL CORPORATION
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

           Delaware                                     13-3660391
---------------------------------         ------------------------------------
(State or Other Jurisdiction              (I.R.S. Employer Identification No.)
of Incorporation or Organization)

  767 Fifth Avenue, New York, New York                 10153
----------------------------------------             ----------
(Address of Principal Executive Offices)             (Zip Code)

Registrant's Telephone Number, Including Area Code (212) 702-4366
                                                   --------------


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

                        Yes   X                  No
                             -----                   -----


The number of shares of registrant's common stock, $.01 par value, outstanding
as of October 31, 1999 was 13,068,940.

                                       1
<PAGE>



                        CADUS PHARMACEUTICAL CORPORATION

                                      INDEX
<TABLE>
<CAPTION>
                                                                                                    Page No.
                                                                                                    --------
<S>                                                                                                 <C>
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS                                                         3

PART I        --   CONDENSED FINANCIAL INFORMATION

              Item 1.       Condensed Financial Statements

                            Condensed Balance Sheets - September 30, 1999 (Unaudited) and
                            December 31, 1998                                                             4

                            Condensed Statements of Operations - Three and nine months
                            ended September 30, 1999 and 1998 (Unaudited)                                 5

                            Condensed Statements of Cash Flows - Nine months ended
                            September 30, 1999 and 1998 (Unaudited)                                       6

                            Notes to Condensed Financial Statements (Unaudited)                         7-9


              Item 2.       Management's Discussion and Analysis of Financial
                            Condition and Results of Operations                                       10-13

              Item 3.       Quantitative and Qualitative Disclosures About Market Risk                   13


PART II       --   OTHER INFORMATION

              Item 1.       Legal Proceedings                                                            13

              Item 2.       Changes in Securities and Use of Proceeds                                    14

              Item 3.       Defaults Upon Senior Securities                                              14

              Item 4.       Submission of Matters to a Vote of Security Holders                          14

              Item 5.       Other Information                                                            14

              Item 6.       Exhibits and Reports on Form 8-K                                             14



SIGNATURES                                                                                               15


EXHIBIT INDEX                                                                                            16
</TABLE>


                                       2

<PAGE>


SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

      Certain statements in this Quarterly Report on Form 10-Q constitute
      "forward-looking statements" within the meaning of Section 21E of the
      Securities Exchange Act of 1934, as amended. Such forward-looking
      statements involve known and unknown risks, uncertainties, and other
      factors which may cause the actual results, performance, or achievements
      of the Company to be materially different from any future results,
      performance or achievements expressed or implied by such forward-looking
      statements. Factors that could cause or contribute to such differences
      include, but are not limited to, technological uncertainties regarding the
      Company's technologies, the Company's capital needs and uncertainty of
      future funding, risks and uncertainties relating to the Company's ongoing
      litigation with SIBIA Neurosciences, Inc. ("SIBIA"), including
      uncertainties relating to the outcome of appeals and the re-examination of
      SIBIA's patent at issue in the litigation, risks and uncertainties
      relating to the Company's ability to realize value from its assets, the
      Company's dependence on proprietary technology and the unpredictability of
      patent protection, intense competition in the pharmaceutical and
      biotechnology industries, rapid technological development that may result
      in the Company's technologies becoming obsolete, as well as other risks
      and uncertainties discussed in the Company's prospectus dated July 17,
      1996.


                                       3

<PAGE>


                        CADUS PHARMACEUTICAL CORPORATION

                            CONDENSED BALANCE SHEETS


<TABLE>
<CAPTION>

                                                           September 30,        December 31,
                                                               1999                1998
                                                           -------------        -----------
                                                           (Unaudited)
<S>                                                        <C>                  <C>
                                     ASSETS

Current assets:
  Cash and cash equivalents                                $  5,710,254         $ 10,975,528
  Restricted cash                                                12,702              286,000
  Note due from related party (note 6)                          286,000                 --
  Prepaid and other current assets                              102,540              298,319
                                                           ------------         ------------
       Total current assets                                   6,111,496           11,559,847


Restricted cash-noncurrent (note 3)                          18,830,736           18,500,000
Fixed assets, net of accumulated
  depreciation and amortization of
  $24,694 at September 30, 1999 and
  $2,254,840 at December 31, 1998                               391,617            2,792,268
Investments in other ventures                                 1,353,329            2,334,081
Other assets, net                                             1,193,785            1,400,870
                                                           ------------         ------------
       Total assets                                        $ 27,880,963         $ 36,587,066
                                                           ============         ============

        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                         $    192,827         $    217,414
  Accrued expenses and other current liabilities                135,724            1,730,021
  Deferred revenue                                               28,500              150,584
                                                           ------------         ------------
       Total current liabilities                                357,051            2,098,019

  Reserve for litigation damages (note 3)                    18,830,736           18,500,000
                                                           ------------         ------------
       Total liabilities                                     19,187,787           20,598,019

Commitments and contingencies
Stockholders' equity:
  Common stock                                                  132,106              132,106
  Additional paid-in capital                                 59,689,446           59,689,446
  Accumulated deficit                                       (50,828,301)         (43,532,430)
  Treasury stock                                               (300,075)            (300,075)
                                                           ------------         ------------
       Total stockholders' equity                             8,693,176           15,989,047
                                                           ------------         ------------
       Total liabilities and stockholders' equity          $ 27,880,963         $ 36,587,066
                                                           ============         ============
</TABLE>


          See accompanying notes to the condensed financial statements

                                       4

<PAGE>


           CADUS PHARMACEUTICAL CORPORATION
          CONDENSED STATEMENTS OF OPERATIONS




<TABLE>
<CAPTION>
                                                     Three Months Ended                  Nine Months Ended
                                                       September 30,                       September 30,
                                                 1999               1998               1999               1998
                                             ------------       ------------       ------------       ------------
                                              (Unaudited)        (Unaudited)        (Unaudited)        (Unaudited)
<S>                                          <C>                <C>                <C>                <C>
Revenues, principally from
    related parties                          $    949,992       $  2,508,213       $  6,027,544       $  9,948,238

Costs and expenses:
    Research and development costs              1,711,630          3,743,488          8,891,517         10,980,568
    General and administrative expenses           864,022          2,703,682          3,306,205          5,716,983
                                             ------------       ------------       ------------       ------------
       Total costs and expenses                 2,575,652          6,447,170         12,197,722         16,697,551
                                             ------------       ------------       ------------       ------------

Operating loss                                 (1,625,660)        (3,938,957)        (6,170,178)        (6,749,313)
                                             ------------       ------------       ------------       ------------
Other income (expense):
Net interest income                                76,868            470,968            493,670          1,440,222
Loss of equity in other ventures, net            (299,820)          (248,111)          (980,752)          (850,836)
Loss on sale of assets to OSI (note 7)           (805,555)              --             (805,555)              --
Gain on sale of equipment                         118,179             12,460            150,585              1,746
                                             ------------       ------------       ------------       ------------
       Total other income (expense)              (910,328)           235,317         (1,142,052)           591,132
                                             ------------       ------------       ------------       ------------

Loss before income taxes                       (2,535,988)        (3,703,640)        (7,312,230)        (6,158,181)
State and local taxes                               1,332             44,289            (16,359)            86,563
                                             ------------       ------------       ------------       ------------
Net loss                                     $ (2,537,320)      $ (3,747,929)      $ (7,295,871)      $ (6,244,744)
                                             ============       ============       ============       ============
Basic net loss per share (note 2)            $      (0.19)      $      (0.29)      $      (0.56)      $      (0.49)
                                             ============       ============       ============       ============
Shares used in calculation of basic net
    loss per share (note 2)                    13,068,940         13,068,857         13,068,940         12,725,720
                                             ============       ============       ============       ============

</TABLE>

          See accompanying notes to the condensed financial statements

                                       5

<PAGE>


                        CADUS PHARMACEUTICAL CORPORATION

                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                Nine Months Ended
                                                                                  September 30,
                                                                             1999                 1998
                                                                         ------------         ------------
                                                                          (Unaudited)          (Unaudited)
<S>                                                                      <C>                  <C>
Cash flows from operating activities:
Net loss                                                                 $ (7,295,871)        $ (6,244,744)
Adjustments to reconcile net loss to net cash
     used in operating activities:
       Depreciation and amortization                                          678,466              716,686
       Loss of equity in other ventures                                       980,752              850,836
       Other non-cash gain                                                   (150,585)              (1,746)
       Reserve for litigation damages                                         330,735                 --
       Loss on sale of assets to OSI                                          805,555                 --
       Changes in assets and liabilities:
          Increase in prepaid and other current assets                        (90,221)            (215,878)
          Decrease (increase) in other assets                                 117,521              (87,570)
          Increase in deferred revenue                                         28,500              780,000
          Decrease in accounts payable                                        (24,587)            (199,331)
          (Decrease) increase in accrued expenses and
            other current liabilities                                      (1,594,297)             389,172
                                                                         ------------         ------------
              Net cash used in operating activities                      $ (6,214,032)        $ (4,012,575)
                                                                         ------------         ------------
Cash flows from investing activities:
       Acquisition of fixed assets                                           (470,378)          (2,407,654)
       Proceeds from sale of assets and patents                             1,644,073            1,336,092
       Investments in other ventures                                             --             (2,000,000)
       Increase in restricted cash                                            (57,437)            (286,000)
       Patent costs                                                          (167,500)            (301,506)
                                                                         ------------         ------------
              Net cash provided by (used in) investing activities             948,758           (3,659,068)
                                                                         ------------         ------------
Cash flows from financing activities:
       Proceeds from issuance of common stock                                    --                179,032
       Proceeds from issuance of restricted stock                                --              5,000,000
                                                                         ------------         ------------
              Net cash provided by financing activities                          --              5,179,032
                                                                         ------------         ------------
              Net decrease in cash and cash equivalents                    (5,265,274)          (2,492,611)
                                                                         ------------         ------------
 Cash and cash equivalents at beginning of period                          10,975,528           36,761,516
                                                                         ------------         ------------
 Cash and cash equivalents at end of period                              $  5,710,254         $ 34,268,905
                                                                         ============         ============
</TABLE>


          See accompanying notes to the condensed financial statements

                                       6
<PAGE>

                        Cadus Pharmaceutical Corporation
                     Notes to Condensed Financial Statements
                                   (Unaudited)

(1)    Organization and Basis of Preparation

       The information presented as of September 30, 1999 and for the three and
       nine-month periods then ended, is unaudited, but includes all adjustments
       (consisting only of normal recurring accruals) that the Company's
       management believes to be necessary for the fair presentation of results
       for the periods presented. Certain information and footnote disclosures
       normally included in financial statements prepared in accordance with
       generally accepted accounting principles have been omitted pursuant to
       the requirements of the Securities and Exchange Commission, although the
       Company believes that the disclosures included in these financial
       statements are adequate to make the information not misleading. The
       December 31, 1998 balance sheet was derived from audited financial
       statements. These financial statements should be read in conjunction with
       the Company's annual report on Form 10-K for the year ended December 31,
       1998.

       The results of operations for the three and nine month periods ended
       September 30, 1999 are not necessarily indicative of the results to be
       expected for the year ending December 31, 1999.

(2)    Net Loss Per Share

       For the three and nine-month periods ended September 30, 1999 and 1998,
       basic net loss per share is computed by dividing the net loss by the
       weighted average number of common shares outstanding. Diluted net loss
       per share is the same as basic net loss per share since the inclusion of
       potential common stock equivalents (stock options and warrants) in the
       computation would be anti-dilutive.

(3)    Patent Litigation

       In July 1996, SIBIA commenced a patent infringement action against the
       Company alleging infringement by the Company of a patent concerning the
       use of cells, engineered to express any type of cell surface receptor and
       a reporter gene, used to report results in the screening of compounds
       against target assays, and seeking injunctive relief and monetary
       damages. After trial, on December 18, 1998, the jury issued a verdict in
       favor of SIBIA and awarded SIBIA $18.0 million in damages. On January 29,
       1999, the United States District Court granted SIBIA's request for
       injunctive relief that precludes the Company from using the method
       claimed in SIBIA's patent. On February 26, 1999, the United States
       District Court denied the Company's motions to set aside the jury
       verdict, to grant a new trial and to reduce or set aside the $18.0
       million damage award by the jury. The Company has appealed the judgment.
       The appeal will be heard by the Court of Appeals for the Federal Circuit
       in Washington, D.C. In order to stay execution pending appeal of the
       $18.0 million judgment obtained by SIBIA, in March 1999, the Company
       deposited $18.5 million in escrow to secure payment of the judgment in
       the event the Company were to lose the appeal. Such $18.5 million was
       classified, as of December 31, 1998, as "restricted cash noncurrent" and
       the Company's "cash and cash equivalents" were reduced by $18.5 million.
       The Company recorded a reserve for litigation damages of $18.5 million in
       the statement of operations for the year ended December 31, 1998.
       Interest earned on the restricted cash has been added to the reserve for
       litigation damages.

       In January 1999, the U.S. Patent and Trademark Office granted the
       Company's request to re-examine the patent issued to SIBIA that was the
       subject of the litigation. The re-examination by the Patent and Trademark
       Office is independent of the litigation and a final decision by the
       Patent Office that SIBIA's patent is invalid would take precedence over
       the jury verdict. There can be no assurance that the Patent and Trademark
       Office will find SIBIA's patent to be invalid.

                                       7
<PAGE>


                        Cadus Pharmaceutical Corporation
                     Notes to Condensed Financial Statements
                                   (Unaudited)

 (4)   Research Funding

       SmithKline Beecham Milestone

       In January 1999, the Company achieved a research milestone in its
       collaboration with SmithKline Beecham Corporation. The milestone involved
       the identification, during 1998, of ligands for orphan G-Protein coupled
       receptors identified from the human genome. The Company received a $1.0
       million payment for achieving the milestone, which payment was recorded
       as revenue in January 1999.


 (5)   Supplemental Cash Flow Information

                                      Nine months ended September 30,
                                          1999                1998
                                          ----                ----
        Cash payments for:

        Income taxes                     $15,476            $69,563
                                         =======            =======


(6)    Related Party Transaction

       In August 1998, the Company guaranteed the payment of a $286,000 loan
       made to the Director of Research of the Company (who is also a Board
       member) and secured its guarantee obligation with cash collateral of
       $286,000. In August 1999, the lender called on the guarantee and
       foreclosed on the cash collateral. The Director of Research has executed
       an interest bearing promissory note in the amount of $286,000 in favor of
       the Company, which is payable, together with accrued interest, on August
       31, 2000.

(7)    Company Restructuring and Asset Sale to OSI Pharmaceuticals

       In April 1999, the Company completed a restructuring by eliminating 23
       positions. The restructuring reduced operating expenses and concentrated
       the Company's resources on its internal drug discovery and genomics based
       programs.

       On July 30, 1999, the Company sold to OSI Pharmaceuticals, Inc. ("OSI"),
       pursuant to an asset purchase agreement, its drug discovery programs
       focused on G-protein-coupled receptors, its directed library of
       approximately 150,000 small molecule compounds specifically designed for
       drug discovery in the G protein-coupled receptor arena, its collaboration
       with Solvay Pharmaceuticals B.V. ("Solvay Pharmaceuticals"), its lease to
       its research facility in Tarrytown, New York together with the furniture
       and fixtures and its lease to equipment in the facility, and its
       inventory of laboratory supplies. Pursuant to such sale transaction, OSI
       assumed the Company's lease to the Company's research facility in
       Tarrytown, New York, the Company's equipment lease with General Electric
       Capital Corporation ("GECC") and the Company's research collaboration and
       license agreement with Solvay Pharmaceuticals. OSI also hired more than
       45 of the Company's scientific and administrative personnel. As
       consideration for the sale, the Company received approximately $1,500,000
       in cash and OSI assumed certain liabilities of the Company relating to
       employees hired by OSI aggregating approximately $133,000. In addition,
       the Company would be entitled to royalties and up to $3.0 million in
       milestone payments on the first product derived from compounds sold to
       OSI or from the collaboration with Solvay Pharmaceuticals. The Company
       licensed to OSI on a non-exclusive basis certain technology solely to
       enable OSI to fulfill its obligations under the collaboration with Solvay

                                       8
<PAGE>



                        Cadus Pharmaceutical Corporation
                     Notes to Condensed Financial Statements
                                   (Unaudited)

       and up to $3.0 million in milestone payments on the first product derived
       from compounds sold to OSI or from the collaboration with Solvay
       Pharmaceuticals. The Company licensed to OSI on a non-exclusive basis
       certain technology solely to enable OSI to fulfill its obligations under
       the collaboration with Solvay Pharmaceuticals. The Company also licensed
       to OSI on a non-exclusive basis certain proprietary software and
       technology relating to chemical resins in order to enable OSI to fully
       benefit from the compounds it acquired from the Company. The Company is
       retaining ownership of all its other assets, including its core yeast
       technology for developing drug discovery assays, its collection of over
       25,000 proprietary yeast strains, human and mammalian cell lines, and
       genetic engineering tools, its program to identify and isolate human
       orphan G protein-coupled receptors and elucidate their function, its
       proprietary software, its genomics databases related to G protein-coupled
       receptors, the LivingChip(TM) program, all assays and technologies
       reverting to it from its collaboration with Bristol-Myers Squibb Company,
       a 30% equity position in Axiom Biotechnologies Inc., the Company's
       current cash and cash equivalents, and the approximately $18.8 million
       being held in escrow pending appeal of the verdict in favor of SIBIA.

       The Company recognized a loss on the sale of assets to OSI in the
       three-month period ended September 30, 1999. A summary of the loss
       recognized is as follows:

                 Proceeds:
                      Purchase price                              $1,500,000
                      Liabilities assumed by OSI                     133,000
                                                                  ----------
                      Total                                        1,633,000
                 Less:
                      Net book value of patents sold                 183,000
                      Net book value of fixed assets sold          2,256,000
                                                                  ----------
                      Loss on sale of assets                      $  806,000
                                                                  ==========


       The Company ceased its drug discovery operations and research efforts for
       collaborators as a result of this transaction. Consequently, the Company
       has terminated all employees who were not hired by OSI or who did not
       voluntarily resign, except for the chief executive officer.

                                       9
<PAGE>


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

     Overview

     The Company was incorporated in 1992 and until July 30, 1999, devoted
     substantially all of its resources to the development and application of
     novel yeast-based and other drug discovery technologies. On July 30, 1999,
     the Company sold its drug discovery assets to OSI and ceased its internal
     drug discovery operations and research efforts for collaborative partners.
     Pursuant to such sale transaction, OSI assumed the Company's lease to its
     research facility in Tarrytown, New York, the Company's equipment lease
     with GECC, and the Company's research collaboration and license agreement
     with Solvay Pharmaceuticals. OSI hired more than 45 of the Company's
     scientific and administrative personnel. The Company has terminated all
     employees who were not hired by OSI or who did not voluntarily resign,
     except for the chief executive officer.

     The Company has incurred operating losses in each year since its inception
     including net losses of approximately $7.3 million during the nine-month
     period ended September 30, 1999. At September 30, 1999, the Company had an
     accumulated deficit of approximately $50.8 million which includes an $18.8
     million reserve for litigation damages with respect to the patent
     infringement litigation with SIBIA Neurosciences, Inc. ("SIBIA"), which was
     accrued as of December 31, 1998. The Company's losses have resulted
     principally from costs incurred in connection with its research and
     development activities and from general and administrative expenses
     associated with the Company's operations. These costs have exceeded the
     Company's revenues and interest income. As a result of the sale of its drug
     discovery assets to OSI and the cessation of its internal drug discovery
     operations and research efforts for collaborative partners, the Company
     will cease to have revenues but also expects to substantially reduce its
     operating expenses.

     Results of Operations

     Nine Months Ended September 30, 1999 and September 30, 1998

     Revenues

     Revenues for the nine months ended September 30, 1999 decreased to $6.0
     million from $9.9 million for the same period in 1998. This decrease was
     attributable primarily to the Company only receiving a research milestone
     payment of $1.0 million from SmithKline Beecham ("SmithKline") in the first
     quarter of 1999 as compared to the $2.0 million technology development fee
     it received from SmithKline in the first quarter of 1998; the termination
     in July 1999 of the research collaboration with Bristol-Myers Squibb; the
     termination in August 1999 of the research collaboration with SmithKline;
     and the sale to OSI of the research collaboration with Solvay
     Pharmaceuticals in July 1999.

     Operating Expenses

     The Company's research and development expenses for the nine months ended
     September 30, 1999 decreased to $8.9 million from $11.0 million due to the
     reduction in staff and research activities as a result of the asset sale to
     OSI on July 30, 1999.

     General and administrative expenses for the nine months ended September 30,
     1999 decreased to $3.3 million from $5.7 million for the same period in
     1998. This decrease is attributable primarily to the decrease in litigation
     expenses and the sale of drug discovery operations to OSI.

     Net Interest Income

     Net interest income for the nine months ended September 30, 1999 decreased
     to $494,000 from $1.4 million for the same period in 1998. This decrease is
     attributable primarily to the decrease in the Company's unrestricted cash
     balances as compared to the prior year's nine-month period.

                                       10
<PAGE>

     Equity in Other Ventures

     Equity in other ventures reflects losses and gains associated with the
     Company's two investments. For the nine months ended September 30, 1999 and
     1998, the Company recognized gains of $7,320 and $9,955, respectively,
     related to its investment in Laurel Partners Limited Partnership. For the
     nine months ended September 30, 1999 and 1998, the Company recognized
     $988,072 and $860,791, respectively, in losses generated by Axiom
     Biotechnologies Inc. ("Axiom"). The Company's investment in Axiom is
     accounted for under the equity method with the Company recognizing 100% of
     Axiom's net losses prior to an investment made by JAFCO Co., Ltd.,
     ("JAFCO") in Axiom in June 1998. Following the JAFCO investment, the
     Company began recognizing 50% of the net losses generated by Axiom which is
     the extent to which the Company is deemed to be funding such losses.

     Net Loss

     The net loss for the nine months ended September 30, 1999 increased to $7.3
     million from $6.2 million for the same period in 1998. The loss for the
     nine months ended September 30, 1999 includes approximately $806,000 of
     loss related to the asset sale to OSI. This increase is attributable
     primarily to the decrease in the Company's revenues and interest income
     which was somewhat offset by the reduction in the Company's operating
     expenses.

     Three Months Ended September 30, 1999 and September 30,1998

     Revenues

     Revenues for the three months ended September 30, 1999 decreased to
     $950,000 from $2.5 million for the same period in 1998. This decrease is
     attributable primarily to the termination of the research collaborations
     with Bristol-Myers Squibb and SmithKline Beecham Corporation and the sale
     to OSI Pharmaceuticals of the research collaboration with Solvay
     Pharmaceuticals.

     Operating Expenses

     The Company's research and development expenses for the three months ended
     September 30, 1999 decreased to $1.7 million from $3.7 million for the same
     period in 1998. This decrease is attributable primarily to a decrease in
     operating expenses resulting from the reduction in research personnel.

     General and administrative expenses for the three months ended September
     30, 1999 decreased to $864,000 from $2.7 million for the same period in
     1998. This decrease is attributable primarily to a decrease in litigation
     expenses and the sale of drug discovery operations to OSI.

     Net Interest Income

     Net interest income for the three months ended September 30, 1999 decreased
     to $77,000 from $471,000 for the same period in 1998. This decrease is
     attributable primarily to the decrease in the Company's unrestricted cash
     balances as compared to the prior year's three-month period.

     Equity in Other Ventures

     Equity in other ventures reflects losses and gains associated with the
     Company's two investments. For the three months ended September 30, 1999
     and 1998, the Company recognized gains of $4,363 and $2,361, respectively,
     related to its investment in Laurel Partners Limited Partnership. For the
     three months ended September 30, 1999 and 1998, the Company recognized
     $304,183 and $250,472, respectively, in losses generated by Axiom. The
     Company's investment in Axiom is accounted for under the equity method with
     the Company recognizing 100% of Axiom's net losses prior to an investment
     made by JAFCO in Axiom in June

                                       11
<PAGE>


     1998. Following the JAFCO investment, the Company began recognizing 50% of
     the net losses generated by Axiom which is the extent to which the Company
     is deemed to be funding such losses.

     Net Loss

     The net loss for the three months ended September 30, 1999 decreased to
     $2.5 million from $3.7 million for the same period in 1998. The loss for
     the three months ended September 30, 1999 includes approximately $806,000
     of loss related to the asset sale to OSI. This decrease is attributable
     primarily to the decrease in operating expenses as a result of the asset
     sale to OSI on July 30, 1999.

     Liquidity and Capital Resources

     At September 30, 1999, the Company held cash and cash equivalents,
     exclusive of restricted cash, of $5.7 million. The Company's working
     capital at September 30, 1999 was $5.5 million.

     For the nine-month period ended September 30, 1999, the Company invested
     approximately $470,000 in property and equipment.

     On July 30, 1999, the Company sold its drug discovery assets to OSI and
     ceased its internal drug discovery operations and research efforts for
     collaborative partners. Pursuant to such sale transaction, OSI assumed the
     Company's lease to the Company's research facility in Tarrytown, New
     York, the Company's equipment lease with GECC, and the Company's research
     collaboration and license agreement with Solvay Pharmaceuticals. OSI hired
     more than 45 of the Company's scientific and administrative personnel. The
     Company also terminated all employees who were not hired by OSI or who did
     not voluntarily resign, except for the chief executive officer. As a result
     of the foregoing, the Company will cease to have revenues but will also
     substantially reduce its operating expenses.

     The Company believes that its existing capital resources, together with
     interest income, will be sufficient to support its operations through the
     end of 2000. This forecast of the period of time through which the
     Company's financial resources will be adequate to support its operations is
     a forward-looking statement that may not prove accurate and, as such,
     actual results may vary. The Company's capital requirements may vary as a
     result of a number of factors, including the transactions, if any, arising
     from the Company's efforts to realize value from its assets, expenses of
     pursuing such transactions, severance payments and obligations under
     employment contracts to employees, and the outcome of the appeal of the
     judgement in the SIBIA patent litigation.

     Year 2000

     The Company is aware of challenges associated with the inability of certain
     computer systems to properly format information after December 31, 1999
     (the "Year 2000 Challenge"). The Company is modifying its computer systems
     to address the Year 2000 Challenge and does not expect that the cost of
     modifying such systems will be material. The Company believes it will fully
     remediate any of its Year 2000 Challenges in advance of the year 2000 and
     does not anticipate any material disruption in its operations as the result
     of any failure by the Company to fully remediate such challenges. The
     Company does not have any information concerning the status of Year 2000
     challenges of its suppliers.

     The above comments on the Year 2000 issue contain forward-looking
     statements relating to the Company's plans, strategies, expectations,
     intentions, and resources that should be read in conjunction with the
     Company's disclosures on forward-looking statements.

     New Accounting Pronouncements

     In June 1999, the Financial Accounting Standard Board issued SFAS 137,
     "Accounting for Derivative Instruments and Hedging Activities - Deferral of
     the Effective Date of FASB Statement No. 133." SFAS 137 amends SFAS 133,
     "Accounting for Derivative Instruments and Hedging Activities," which was
     issued in June

                                       12
<PAGE>

     1998 and was to be effective for all fiscal quarters of fiscal years
     beginning after June 15, 1999. SFAS 137 defers the effective date of SFAS
     133 to all fiscal quarters of fiscal years beginning after June 15, 2000.
     Earlier application is permitted. SFAS 133 establishes accounting and
     reporting standards for derivative instruments, including certain
     derivative instruments embedded in other contracts and for hedging
     activities. It requires that an entity recognize all derivatives as either
     assets or liabilities in the statement of financial position and measures
     those instruments at fair value. The Company does not believe that the
     implementation of SFAS 133 will have a material effect on its financial
     position or results of operations.

      ITEM 3. QUANTITIATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's earnings and cash flows are subject to fluctuations due to
     changes in interest rates primarily from its investment of available cash
     balances in money market funds with portfolios of investment grade
     corporate and U.S. government securities and, secondarily, its long-term
     debt arrangements. The Company does not believe it is materially exposed to
     changes in interest rates. Under its current policies the Company does not
     use interest rate derivative instruments to manage exposure to interest
     rate changes.

      PART II - OTHER INFORMATION

Item 1.           Legal Proceedings

                  The Company is not a party to any material legal proceedings
                  other than SIBIA Neurosciences, Inc. v. Cadus Pharmaceutical
                  Corporation and an arbitration proceeding commenced by Philip
                  N. Sussman, the former Senior Vice President, Finance and
                  Corporate Development, and Chief Financial Officer of the
                  Company.

                  (a) SIBIA commenced an action on July 9, 1996 in the United
                  States District Court for the Southern District of California
                  alleging infringement by the Company of a patent covering the
                  use of cells, engineered to express any type of cell surface
                  receptor and a reporter gene, used to report results in the
                  screening of compounds against target assays, and seeking
                  injunctive relief and monetary damages. After trial, on
                  December 18, 1998, the jury issued a verdict in favor of SIBIA
                  and awarded SIBIA $18.0 million in damages. On January 29,
                  1999, the United States District Court granted SIBIA's request
                  for injunctive relief that precludes the Company from using
                  the method claimed in SIBIA's patent. On February 26, 1999,
                  the United States District Court denied the Company's motions
                  to set aside the jury verdict, to grant a new trial and to
                  reduce or set aside the $18.0 million damage award by the
                  jury. The Company has appealed the judgment. The appeal will
                  be heard by the Court of Appeals for the Federal Circuit in
                  Washington, D.C. All briefs have been filed but the Court of
                  Appeals has not yet set a date for oral argument. In order to
                  stay execution pending appeal of the $18.0 million judgment
                  obtained by SIBIA, in March 1999, the Company deposited $18.5
                  million in escrow to secure payment of the judgment in the
                  event the Company were to lose the appeal. Such $18.5 million
                  was classified, as of December 31, 1998, as "restricted cash
                  noncurrent" and the Company's "cash and cash equivalents" was
                  reduced by $18.5 million. If the Company is not successful in
                  materially reducing or setting side the $18.0 million damage
                  award on appeal, the business, financial condition and results
                  of operations of the Company will be materially adversely
                  affected. The costs of and the diversion of Company resources
                  associated with this litigation have had a material adverse
                  effect on the business, financial condition, results of
                  operations and liquidity of the Company.

                  In January 1999, the U.S. Patent and Trademark Office granted
                  the Company's request to reexamine the patent issued to SIBIA
                  that was the subject of the litigation. The re-examination by
                  the Patent and Trademark Office is independent of the
                  litigation and a final decision by the Patent and Trademark
                  Office that SIBIA's patent is invalid would take precedence
                  over the jury verdict. There can be no assurance that the
                  Patent Office will find SIBIA's patent to be invalid.

                  (b) On October 4, 1999, Philip N. Sussman, the former Senior
                  Vice President, Finance and Corporate Development, and Chief
                  Financial Officer of the Company, commenced an arbitration
                  proceeding against the Company seeking severance pay of
                  approximately $525,000. The Company believes that Mr. Sussman
                  is not entitled to such severance pay and intends to
                  vigorously defend the action.

                                       13
<PAGE>


Item 2.           Changes in Securities and Use of Proceeds

                  The information provided below represents a reasonable
                  estimate of the application through September 30, 1999 of the
                  net proceeds of $19,783,140 which were received from the
                  Company's initial public offering on July 17, 1996:
<TABLE>

<S>                                                                                                      <C>
                            Construction of plant, building and facilities                                  $849,515
                            Purchase and installation of machinery and equipment                          $2,776,203
                            Research and license payments to others                                       $1,954,843
                            Investment in companies complementary to the
                                 Company's business                                                       $2,150,000
                            Working capital used to fund operations                                      $12,052,579
</TABLE>

                  Except for payments described in the following sentence, the
                  application of the net offering proceeds listed above
                  represents direct payments to others. No payments were made to
                  directors or officers or to their associates except for
                  payments made in the ordinary course of business which
                  include, but may not be limited to, the payment of officer
                  salaries, fringe benefits, and expense reimbursements or
                  compensation paid to directors for their services provided to
                  the Company under consulting arrangements. At September 30,
                  1999, the Company had utilized all of its offering proceeds.

Item 3.           Defaults Upon Senior Securities

                  Nothing to report.

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

                  Nothing to report.

Item 5.           Other Information

                  Nothing to report

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

                  (a)      The exhibits listed in the Exhibit Index are included
                           in this report.

                  (b)      Reports on Form 8-K

                           None

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<PAGE>




                                   SIGNATURES


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






                                  CADUS PHARMACEUTICAL CORPORATION
                                  (Registrant)




Date: November 12, 1999        By /s/ Charles Woler
                                  -----------------
                                  Charles Woler
                                  President and Chief Executive Officer
                                  (Authorized Officer and Principal Financial
                                  Officer)

                                       15
<PAGE>


                                  EXHIBIT INDEX



  The following exhibit is filed as part of this Quarterly Report on Form 10-Q:


                     Exhibit No.                Description
                     -----------                -----------
                          27                    Financial Data Schedule

                                       16