<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                March 31, 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 of                              (I.R.S. Employer
Incorporation or Organization)                               Identification No.)

777 Old Saw Mill River Road, Tarrytown, New York                 10591-6705
--------------------------------------------------------------------------------
   (Address of Principal Executive Offices)                      (Zip Code)

         Registrant's Telephone Number, Including Area Code      (914) 467-6200
                                                             -------------------



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 April 30, 1999 was 13,068,940.

<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 - March 31, 1999 and December 31,                    4
                           1998

                           Condensed Statements of Operations - Three months ended March
                           31, 1999 and 1998                                                             5

                           Condensed Statements of Cash Flows - Three months ended
                           March 31, 1999 and 1998                                                       6

                           Notes to Condensed Financial Statements                                     7-8

             Item 2.       Management's Discussion and Analysis of Financial
                           Condition and Results of Operations                                        9-11

             Item 3.       Quantitative and Qualitative Disclosures About Market Risk                   11

PART II      --   OTHER INFORMATION

             Item 1.       Legal Proceedings                                                            12

             Item 2.       Changes in Securities                                                        13

             Item 3.       Defaults Upon Senior Securities                                              13

             Item 4.       Submission of Matters to a Vote of Security Holders                          13

             Item 5.       Other Information                                                            13

             Item 6.       Exhibits and Reports on Form 8-K                                             13



SIGNATURES                                                                                              14

EXHIBIT INDEX                                                                                           15

</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, the Company's lack of developed
      pharmaceutical products and uncertainties regarding its ability to develop
      safe and efficacious pharmaceutical products, technological uncertainties
      regarding the Company's technologies including risks and uncertainties
      relating to the Company's development and commercial testing of
      alternative readout methodologies to replace that found to infringe a
      patent of SIBIA Neurosciences, Inc. ("SIBIA"), uncertainties regarding the
      Company's future acquisition and licensing of technologies, the Company's
      relationship with its collaborative partners and uncertainties regarding
      its ability to enter into future collaborative agreements, the Company's
      capital needs and uncertainty of future funding, risks and uncertainties
      relating to the Company's ongoing litigation with SIBIA, including
      uncertainties relating to the outcome of appeals and the re-examination of
      SIBIA's patent at issue in the litigation, the Company's history of
      operating losses, 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 and future
      products becoming obsolete, uncertainties regarding the Company's ability
      to attract and retain key officers, employees and consultants, as well as
      other risks and uncertainties discussed in the Company's prospectus dated
      July 17, 1996.


                                       3
<PAGE>

PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS


                        Cadus Pharmaceutical Corporation

                            Condensed Balance Sheets

<TABLE>
<CAPTION>
                                                                                       March 31,                December 31,
                                                                                         1999                       1998
                                                                                       ---------                ------------
                                                                                      (Unaudited)
<S>                                                                                <C>                        <C>

                                     Assets

Current assets:
     Cash and cash equivalents                                                     $   8,205,519              $  10,975,528
     Restricted cash                                                                     286,000                    286,000
     Prepaid and other current assets                                                    555,362                    298,319
                                                                                   -------------              -------------
               Total current assets                                                    9,046,881                 11,559,847

Restricted cash-noncurrent (note 3)                                                   18,500,000                 18,500,000
Fixed assets, net of accumulated depreciation and amortization of
    $2,503,814 at March 31, 1999 and $2,254,840 at December 31, 1998                   2,674,266                  2,792,268
Investments in other ventures                                                          2,012,293                  2,334,081
Other assets, net                                                                      1,461,200                  1,400,870
                                                                                   -------------              -------------
               Total assets                                                        $  33,694,640              $  36,587,066
                                                                                   =============              =============


                      Liabilities and Stockholders' Equity


Current liabilities:
       Accounts payable                                                                $  54,197                 $  217,414
       Accrued expenses and other current liabilities                                    600,428                  1,730,021
       Deferred revenue                                                                  714,072                    150,584
                                                                                       ---------                   --------   
               Total current liabilities                                               1,368,697                  2,098,019
                                                                                  
       Reserve for litigation damages                                                 18,500,000                 18,500,000
                                                                                   -------------              -------------
               Total liabilities                                                      19,868,697                 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                                                           (45,695,534)               (43,532,430)
       Treasury stock                                                                   (300,075)                  (300,075)
                                                                                   -------------              -------------

               Total stockholders' equity                                             13,825,943                 15,989,047
                                                                                   -------------              -------------
               Total liabilities and stockholders' equity                          $  33,694,640              $  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
                                                                     March 31,
                                                             1999                 1998
                                                           --------             ---------
                                                          (Unaudited)          (Unaudited)
<S>                                                       <C>                  <C>
Revenues, principally from
    related parties                                       $ 3,038,776          $ 4,931,812


Costs and expenses:
    Research and development costs                          3,912,482            3,749,184
    General and administrative expenses                     1,315,216            1,236,585
                                                          -----------          -----------
       Total costs and expenses                             5,227,698            4,985,769
                                                          -----------          -----------


Operating loss                                             (2,188,922)              (53,957)
                                                          -----------          -----------
Other income (expense):
Net interest income                                           337,175              371,358
Loss of equity in other ventures, net                        (321,788)            (416,485)
Gain on sale of equipment                                      16,203                7,903
                                                          -----------          -----------
       Total other income (expense)                          31,590              (37,224)
                                                          -----------          -----------
Loss before income taxes                                   (2,157,332)             (91,181)

State and local taxes                                           5,772                3,635
                                                          -----------          -----------
Net loss                                                  $(2,163,104)         $   (94,816)
                                                          ===========          ===========
Basic net loss per share (note 2)                             $ (0.17)         $     (0.01)
                                                          ===========          ===========
                                                        
Shares used in calculation of basic net
    loss per share (note 2)                                13,068,940           12,375,245
                                                          ===========          ===========
</TABLE>



     See accompanying notes to the condensed financial statements


                                       5
<PAGE>

                        Cadus Pharmaceutical Corporation

                       Condensed Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                              Three Months Ended
                                                                                                   March 31,
                                                                                           1999                1998
                                                                                         ---------           ---------
                                                                                        (Unaudited)         (Unaudited)
<S>                                                                                   <C>                <C>
Cash flows from operating activities:
Net loss                                                                              $  (2,163,104)     $     (94,816)
Adjustments to reconcile net loss to net cash used in operating activities:
           Depreciation and amortization                                                    274,404            234,066
           Loss of equity in other ventures                                                 321,788            416,485
           Other non-cash gain                                                              (16,203)            (7,903)
           Changes in assets and liabilities:
                Increase in prepaid and other current assets                               (257,043)           (88,276)
                Decrease (increase) in other assets                                          81,740            (17,514)
                Increase in deferred revenue                                                579,691                  -
                (Decrease) in accounts payable                                             (163,217)          (784,657)
                (Decrease) in accrued expenses and other current liabilities             (1,129,593)            (9,016)
                                                                                      -------------      --------------
                         Net cash used in operating activities                           (2,471,537)          (351,631)
                                                                                      -------------      --------------
Cash flows from investing activities:
            Acquisition of fixed assets                                                    (141,822)          (292,965)
            Sale of fixed assets                                                             10,850            704,661
            Patent costs                                                                   (167,500)           (72,771)
                                                                                      -------------      --------------
                         Net cash (used in) provided by investing activities               (298,472)           338,925
                                                                                      -------------      --------------
Cash flows from financing activities:
            Proceeds from issuance of common stock upon exercise of stock options                 -            143,041
                                                                                      -------------      --------------
                         Net cash provided by financing activities                                -            143,041
                                                                                      -------------      --------------
                         Net (decrease) increase in cash and cash equivalents            (2,770,009)           130,335

 Cash and cash equivalents at beginning of period                                        10,975,528         36,761,516
                                                                                      -------------      --------------
 Cash and cash equivalents at end of period                                           $   8,205,519      $  36,891,851
                                                                                      =============      ==============

</TABLE>



          See accompanying notes to the condensed financial statements




                                       6
<PAGE>


                        Cadus Pharmaceutical Corporation

                     Notes to Condensed Financial Statements

(1)     Organization and Basis of Preparation

       The information presented as of March 31, 1999 and for the three-month
       period 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-month period ended March 31, 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-month periods ended March 31, 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 Neurosciences, Inc. ("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 judgement. 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 judgement obtained by SIBIA, in March
       1999, the Company deposited $18.5 million in escrow to secure payment of
       the judgement 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. The Company recorded a reserve for litigation
       damages of $18.5 million in the statement of operations for the year
       ended December 31, 1998.

       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 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 is no evidence that the patent office will find SIBIA's
       patent to be invalid.


                                       7
<PAGE>

                        Cadus Pharmaceutical Corporation

                     Notes to Condensed Financial Statements

(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

                                                      Three Months
                                                     ended March 31,
                                                1999                 1998
                                             ------------------------------
          Cash payments for:

          Income taxes....................     $5,772              $43,635
                                               ======              =======



(6)     Subsequent Events

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

       In May 1999, the Company retained a financial advisor to explore
       strategic alternatives, including the possible sale or merger of the
       Company.

       Pursuant to its Master Lease with GECC, the Company must maintain
       unrestricted cash, cash equivalents and investment grade securities (the
       "Cash Equivalents") of at least $10,000,000. In March 1999, the Company
       ceased to maintain Cash Equivalents of at least $10,000,000. In
       accordance with the Master Lease, the Company notified GECC in April 1999
       of the amount of Cash Equivalents of the Company at March 31, 1999 and
       that the Company is not in compliance with the Master Lease. Pursuant to
       the Master Lease, on May 5, 1999, GECC demanded that Company deliver to
       GECC within thirty (30) days an irrevocable standby letter of credit (the
       "Letter of Credit") in the amount of the "stipulated loss value" of the
       equipment covered by the Master Lease (the "Equipment"), which amount is
       currently approximately $2.9 million, to secure the Company's obligations
       under the Master Lease. In order to obtain the Letter of Credit, the
       Company would have to provide to the issuer thereof cash collateral in
       the amount of the Letter of Credit. If the Letter of Credit is not
       delivered, the Company will be in default under the Master Lease. If the
       Company does not cure such default within thirty (30) days after written
       notice thereof from GECC, GECC may require the Company at its own cost
       and expense, to return the Equipment and to pay to GECC the stipulated
       loss value of the Equipment as liquidated damages and any rentals or
       other sums then due. GECC is not required to mitigate damages.

                                       8
<PAGE>


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

     Overview

     The Company was incorporated in 1992 and has devoted substantially all of
     its resources to the development and application of novel yeast-based and
     signal transduction drug discovery technologies. To date, all of the
     Company's revenues have resulted from research funding provided by its
     collaborative partners.

     The Company has incurred operating losses in each year since its inception
     including net losses of approximately $2.2 million during the three-month
     period ended March 31, 1999. At March 31, 1999, the Company had an
     accumulated deficit of approximately $45.7 million which includes an $18.5
     million reserve for litigation damages with respect to the patent
     infringement litigation with SIBIA Neurosciences, Inc. ("SIBIA"), which was
     accrued as of December, 1998. The Company's losses have resulted
     principally from costs incurred in research and development and from
     general and administrative expenses associated with the Company's
     operations. These costs have exceeded the Company's revenues and interest
     income. The Company expects to continue to incur substantial additional
     operating losses as a result of funding its research and product
     development.

     Results of Operations

     Three months Ended March 31, 1999 and March 31, 1998

     Revenues

     Revenues for the three months ended March 31, 1999 decreased to $3.0
     million from $4.9 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 rather than the  $2.0 million technology development fee it
     received from SmithKline in the first quarter of 1998. In addition, the 
     research funding received from Bristol-Myers Squibb for the first quarter 
     of 1999 was approximately $500,000 less than that received for the 
     first quarter of 1998.

     Operating Expenses

     The Company's research and development expenses for the three months ended
     March 31, 1999 increased to $3.9 million from $3.7 million for the same
     period in 1998. This increase was attributable primarily to an increase in
     research personnel and equipment leasing costs.

     General and administrative expenses for the three months ended March 31,
     1999 increased to $1.3 million from $1.2 million for the same period in
     1998. This increase was attributable primarily an increase in facility
     related expenses.

     Net Interest Income

     Net interest income for the three months ended March 31, 1999 decreased to
     $337,000 from $371,000 for the same period in 1998. This decrease related
     primarily to the decrease in the Company's cash reserves.

     Equity in Other Ventures

     Equity in other ventures reflects losses and gains associated with the
     Company's two investments. For the three months ended March 31, 1999 and
     1998, the Company recognized gains of $1,457 and $7,515, respectively,
     related to its investment in Laurel Partners Limited Partnership. For the
     three months ended March 31, 1999 and 1998, the Company recognized $323,245
     and $424,000, 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 


                                       9
<PAGE>

     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 March 31, 1999 increased to $2.2
     million from $95,000 for the same period in 1998. This increase can be
     attributed to a decrease in the Company's revenues and interest income
     accompanied by an increase in operating expenses as described above.

     Liquidity and Capital Resources

     At March 31, 1999, the Company held cash and cash equivalents of $8.5
     million. The Company's working capital at March 31, 1999 was $7.7 million.

     For the three-month period ended March 31, 1999, the Company invested
     approximately $142,000 in property and equipment.

     Pursuant to its Master Lease with GECC, the Company must maintain
     unrestricted cash, cash equivalents and investment grade securities (the
     "Cash Equivalents") of at least $10,000,000. In March 1999, the Company
     ceased to maintain Cash Equivalents of at least $10,000,000. In accordance
     with the Master Lease, the Company notified GECC in April 1999 of the
     amount of Cash Equivalents of the Company at March 31, 1999 and that the
     Company is not in compliance with the Master Lease. Pursuant to the Master
     Lease, on May 5, 1999, GECC demanded that Company deliver to GECC within
     thirty (30) days an irrevocable standby letter of credit (the "Letter of
     Credit") in the amount of the "stipulated loss value" of the equipment
     covered by the Master Lease (the "Equipment"), which amount is currently
     approximately $2.9 million, to secure the Company's obligations under the
     Master Lease. In order to obtain the Letter of Credit, the Company would
     have to provide to the issuer thereof cash collateral in the
     amount of the Letter of Credit. If the Letter of Credit is not delivered,
     the Company will be in default under the Master Lease. If the Company does
     not cure such default within thirty (30) days after written notice thereof
     from GECC, GECC may require the Company at its own cost and expense, to
     return the Equipment and to pay to GECC the stipulated loss value of the
     Equipment as liquidated damages and any rentals or other sums then due.
     GECC is not required to mitigate damages.

     The Company believes that its existing capital resources, together with
     interest income and future payments due under its research collaborations,
     will be sufficient to support its current and projected funding
     requirements through the end of 1999. The Company will seek to reduce its
     expenditures in order to preserve its financial resources and extend the
     period of time that its financial resources will be able to support its
     operations. In April 1999, the Company completed a restructuring by
     eliminating 23 positions. The restructuring will reduce operating expenses
     and concentrate the Company's resources on its internal drug discovery and
     genomics based programs. 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 outcome of the
     appeal of the judgement in the SIBIA patent litigation, the progress of its
     drug discovery programs, competitive and technological developments, the
     continuation of its existing collaborative agreements and the establishment
     of additional collaborative agreements, and the progress of the development
     efforts of the Company's corporate partners. The Company expects that it
     will require significant additional financing in the future, which it may
     seek to raise through public or private equity offerings, debt financing or
     additional corporate partnerships. No assurance can be given that such
     additional financing will be available when needed or that, if available,
     such financing will be obtained on terms favorable to the Company. To the
     extent that additional capital is raised through the sale of equity or
     convertible debt securities, the issuance of such securities could result
     in dilution to the Company's stockholders.

     In May 1999, the Company retained a financial advisor to explore strategic
     alternatives, including the possible sale or merger of the Company.

     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 


                                       10
<PAGE>

     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 is in the process of contacting all significant suppliers and
     financial institutions in order to identify potential areas of concern. It
     is anticipated that this inquiry will be complete by the second quarter of
     1999.

     Improper or inadequate remediation of Year 2000 problems by parties with
     whom the Company does business could adversely affect the Company's ability
     to conduct its research activities. In addition, administrative functions
     essential to day to day operations of the business could be impaired if
     Year 2000 remediation is not completed in a timely manner. Due to
     uncertainty of the Year 2000 readiness of parties with whom the Company
     does business, the Company is unable to determine at this time whether the
     consequences of Year 2000 failures will have a material adverse impact on
     the Company's results of operations, liquidity or financial condition.

     Based on the responses of its significant suppliers and financial
     institutions, the Company intends to develop a contingency plan to identify
     and document potential business disruptions and continuity planning
     procedures. The focus of this activity is on potential failures of external
     systems required to carry out normal business operations, including
     services provided by the public infrastructure such as electric power and
     telecommunications. The Company expects this activity to be an ongoing
     process well into the third quarter of 1999.

     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 1998, the Financial Accounting Standards Board issued Statement of
     Financial Accounting Standards No. 133, "Accounting for Derivative
     Instruments and Hedging Activities" (SFAS 133), which is effective for all
     quarters of fiscal years beginning after June 15, 1999. SFAS 133
     establishes accounting and reporting standards for derivative instruments,
     including certain derivative instruments embedded in other contracts, and
     for hedging activities. In accordance with SFAS 133, an entity is required
     to recognize all derivatives as either assets or liabilities in the
     statement of financial position and measure those instruments at fair
     value. SFAS 133 requires that changes in the derivatives' fair value be
     recognized currently in earnings unless specific hedge accounting criteria
     are met. Special accounting for qualifying hedges allows a derivative's
     gains and losses to offset related results on the hedged item in the income
     statement and requires that a company formally document, designate and
     assess the effectiveness of transactions that receive hedge accounting .
     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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not Applicable.
                                       11
<PAGE>

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. 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. The
                  injunction does not bar the Company form engaging in
                  development of screening assays. The injunction also does not
                  bar the Company from providing certain specified screening
                  assays to Bristol-Myers Squibb or SmithKline Beecham which
                  utilize a readout covered by the SIBIA patent, and does not
                  bar Bristol-Myers Squibb or SmithKline Beecham from using
                  those assays for screening purposes, up to a specified maximum
                  number of compounds and/or natural product samples.
                  Additionally, the injunction does not bar any action which is
                  wholly outside the United States by Solvay Pharmaceuticals or
                  any other entity. 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 judgement. 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
                  judgement obtained by SIBIA, in March 1999, the Company
                  deposited $18.5 million in escrow to secure payment of the
                  judgement 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. The Company has
                  begun implementing alternative readout methods in its
                  screening assays. Until these alternative readout methods are
                  further developed and commercially tested, certain aspects of
                  the drug discovery efforts of the Company and its
                  collaborative partners will be delayed. If there are delays in
                  further developing and commercially testing these alternative
                  readout methods, the Company's relationship with its
                  collaborative partners could be materially adversely affected.
                  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 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 Office will find SIBIA's patent to
                  be invalid.


                                       12
<PAGE>

Item 2.           Changes in Securities and Use of Proceeds

                  The information provided below represents a reasonable
                  estimate of the application through March 31, 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                                $829,101
                              Purchase and installation of machinery and equipment                        $2,468,061
                              Research and license payments to others                                     $1,928,843
                              Investment in companies complementary to the
                                   Company's business                                                     $2,150,000
                              Working capital used to fund operations                                     $9,328,567
</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 March 31, 1999,
                  the Company had $3,078,568 of net offering proceeds that were
                  still not utilized.

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

                  On May 3, 1999, the Company announced that it had retained
                  Hambrecht & Quist LLC as its financial advisor to explore
                  strategic alternatives that could enhance shareholder value,
                  including the possible sale or merger of the Company.

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: May 13, 1999      By
                           ----------------------------------------------
                           James S. Rielly
                           Vice President of Finance, Treasurer and Secretary
                           (Authorized Officer and Principal Financial Officer)


                                       14
<PAGE>

                                  EXHIBIT INDEX

The following exhibits are filed as part of this Quarterly Report on Form 10-Q:

                     Exhibit No.               Description

                          27                   Financial Data Schedule


                                       15