<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, 1997.
                                                            --------------------



[ ]      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)           

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) 345-3344
                                                          ----------------------

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 14, 1997 was 12,122,314.


<PAGE>

                        CADUS PHARMACEUTICAL CORPORATION

                                      INDEX

                                                                        Page No.
                                                                        --------

PART I -- FINANCIAL INFORMATION

         Item 1. Financial Statements                           

         Balance Sheets - March 31, 1997 and December 31, 1996                 3

         Statements of Operations - Three months ended March 31, 1997
         and 1996                                                              4

         Statements of Cash Flows - Three months ended March 31, 1997
         and 1996                                                              5

         Notes to Financial Statements                                       6-8

         Item 2. Management's Discussion and Analysis of Financial
         Condition and Results of Operations                                9-10

PART II -- OTHER INFORMATION

         Item 1. Legal Proceedings                                            11

         Item 2. Changes in Securities                                        11

         Item 3. Defaults Upon Senior Securities                              11

         Item 4. Submission of Matters to a Vote of Security Holders          11

         Item 5. Other Information                                            11

         Item 6. Exhibits and Reports on Form 8-K                             11

SIGNATURES                                                                    12

EXHIBIT INDEX                                                                 13

                                       2


<PAGE>
                        Cadus Pharmaceutical Corporation

                                 Balance Sheets

                                              March 31,      December 31,
                                                1997            1996
                                            --------------  --------------

           Assets

Current assets:
     Cash and cash equivalents              $  41,022,519   $  43,152,677
     Research support receivable                  243,056               -
     Prepaid and other current assets             289,394         263,052
                                            --------------  --------------
            Total current assets               41,554,969      43,415,729

Restricted cash                                   100,000         118,000
Fixed assets, net of accumulated 
    depreciation and amortization of
    $1,680,010 at March 31, 1997 and
    $1,488,015 at December 31, 1996             3,292,778       2,955,530
Deferred tax asset, less valuation
    allowance of $4,091,774 at
    March 31, 1997 and $3,787,000 at
    December 31, 1996                                   -               -
Due from stockholder                                4,033           5,974
Other assets, net                                 845,966         791,625
                                            --------------  --------------

            Total assets                    $  45,797,746   $  47,286,858
                                            ==============  ==============


Liabilities and Stockholders' Equity

Current liabilities:
       Deferred revenue                     $           -    $  1,000,000
       Accounts payable                           685,852         455,794
       Accrued expenses and other 
          current liabilities                     309,977         470,660
        Line of credit and loans 
           payable to bank-current 
           portion                                 11,206          12,601
                                            --------------  --------------
            Total current liabilities           1,007,035       1,939,055

        Loans payable to bank                      14,371          16,474
        Note payable to partnership               150,000         150,000
                                            --------------  --------------
            Total liabilities                   1,171,406       2,105,529

Commitments and contingencies


Stockholders' equity:
Common Stock, $.01 par value.
       Authorized 35,000,000 shares at
       March 31, 1997 and December 31,
       1996; issued 12,263,454 shares at
       March 31, 1997 and 12,202,900
       shares at December 31, 1996;
       outstanding 12,121,787 shares at
       March 31, 1997 and 12,061,233 
       shares at December 31, 1996                122,634         122,029
Additional paid-in capital                     53,939,319      53,790,704
Accumulated deficit                            (9,135,538)     (8,431,329)
Treasury stock, 141,667 shares of 
       common stock at March 31, 1997
       and December 31, 1996
       respectively, at cost;                    (300,075)       (300,075)
                                            --------------  --------------

            Total stockholders' equity         44,626,340      45,181,329
                                            --------------  --------------

            Total liabilities and 
              stockholders' equity          $  45,797,746   $  47,286,858
                                            ==============  ==============

               See accompanying notes to the financial statements

                                       3

<PAGE>

                        Cadus Pharmaceutical Corporation

                            Statements of Operations

                                                  Three Months Ended
                                                      March 31,
                                              1997                 1996
                                          --------------       --------------

Revenues, principally from
    related parties                        $ 1,889,921          $ 1,625,001
                                          --------------       --------------

Costs and expenses:
    Research and development costs           2,239,568            1,654,391
    General and administrative expenses        882,408              317,677
                                          --------------       --------------

       Total costs and expenses              3,121,976            1,972,068
                                          --------------       --------------

Operating loss                              (1,232,055)            (347,067)
                                          --------------       --------------

Interest income                                545,361              359,335
Interest expense                                 1,403               37,855
                                          --------------       --------------

       Interest income, net                    543,958              321,480

Equity in partnership investment (note 2)      (16,112)                   -
                                          --------------       --------------

Loss before income taxes                      (704,209)             (25,587)

State and local taxes                                -               17,580
                                          --------------       --------------

Net loss                                   $  (704,209)         $   (43,167)
                                          ==============       ==============

Net loss per share (note 3)                $     (0.06)         $     (0.00)

Shares used in calculation of net loss
    per share (note 3)                      12,087,997            9,076,960


               See accompanying notes to the financial statements

                                       4


<PAGE>

                        Cadus Pharmaceutical Corporation

                            Statements of Cash Flows

                                                 Three Months Ended
                                                     March 31,
                                               1997               1996
                                         ----------------  -----------------


Cash flows from operating activities:
Net loss                                    $  (704,209)        $  (43,167)
Equity in partnership investment                 16,112                  -
Adjustments to reconcile net loss to 
 net cash used in operating activities:
  Depreciation and amortization                 291,460            157,198
  Changes in assets and liabilities:
    Increase in prepaid and other 
     current assets                             (26,342)          (329,122)
    Increase in research support
     receivable                                (243,056)                 -
    Decrease (increase) in other assets          42,501            (97,895)
    Decrease in deferred revenue             (1,000,000)                 -
    Increase in accounts payable                230,058             57,465
    Decrease in accrued expenses and 
     other current liabilities                 (160,683)          (161,662)
                                         ----------------   ----------------

      Net cash used in operating
       activities                            (1,554,159)          (417,183)
                                         ----------------   ----------------

Cash flows from investing activities:
  Acquisition of fixed assets                  (619,666)          (197,957)
  Decrease in restricted cash                    18,000                  -
  Stockholder borrowing                           1,941              1,940
  Patent costs                                 (121,996)             9,045
                                         ----------------   ----------------
                                                                          
      Net cash used in investing 
       activities                              (721,721)          (186,972)
                                         ----------------   ----------------

Cash flows from financing activities:
  Payments on bank loans                         (3,498)            (4,212)
  Proceeds from issuance of common
   stock upon exercise of stock options         149,220             11,425
                                         ----------------   ----------------

      Net cash provided by financing 
       activities                               145,722              7,213
                                         ----------------   ----------------


      Net increase in cash and cash 
       equivalents                           (2,130,158)          (596,942)

Cash and cash equivalents at beginning
 of period                                   43,152,677         25,682,920
                                         ----------------   ----------------

Cash and cash equivalents at end 
 of period                                $  41,022,519      $  25,085,978
                                         ================   ================


               See accompanying notes to the financial statements

                                       5


<PAGE>

                        Cadus Pharmaceutical Corporation

                          Notes to Financial Statements

(1)   Organization and Basis of Preparation

      The information presented as of March 31, 1997 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 period
      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, 1996 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, 1996.

      Through December 31, 1996, the Company reported as a development stage 
      enterprise in accordance with the Financial Accounting Standards Board's 
      ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 7, 
      "Accounting and Reporting by Development Stage Enterprises". Management 
      believes it has commenced its principal operations and these operations 
      have generated significant revenues and, therefore, beginning with the 
      three-month period ended March 31, 1997, the Company will no longer report
      as a development stage enterprise.

      The results of operations for the three-month period ended March 31, 1997
      are not necessarily indicative of the results to be expected for the year
      ending December 31, 1997.

(2)   Investment in Partnership

      In December 1996, the Company contributed a $150,000 promissory note
      bearing interest at 7% per annum in exchange for a 42% limited partnership
      interest in Laurel Partners Limited Partnership ("Laurel"), a limited
      partnership of which a stockholder of the Company is the general partner.
      The investment is accounted for under the equity method with the
      recognition of losses limited to the Company's capital contributions. For
      the period ended March 31, 1997, the Company recognized $16,112 in losses
      related to the investment.

(3)   Net Loss Per Share

      Net loss per share for the three months ended March 31, 1997 is computed
      on the basis of the net loss for the period divided by the weighted
      average number of shares of common stock outstanding during the period.
      Common stock issuable upon exercise of outstanding stock options is
      excluded from the calculation as such inclusion would be anti-dilutive.


      Net loss per share for the three months ended March 31, 1996 is computed
      using the weighted average number of shares of common stock outstanding.
      Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
      No. 83, the Series B Convertible Preferred Stock (using the if-converted
      method) and stock options (using the treasury stock method and the initial
      public offering price) issued at prices substantially below the public
      offering price during the 12-month period prior to the offering have been
      included in the calculation. Furthermore, common equivalent shares from
      convertible preferred stock issued prior to the 12-month period preceding
      the offering that converted upon the completion of the Company's initial
      public offering are included in the calculation (using the if-converted
      method) from the original date of issuance. Common equivalent shares from
      stock options issued prior to the 12-month period preceding the offering
      are excluded from the computation as their effect is anti-dilutive.

                                       6

<PAGE>

                        Cadus Pharmaceutical Corporation

                          Notes to Financial Statements

(4)   Supplemental Cash Flow Information

                                                      Three Months
                                                     ended March 31,
                                                     ---------------
                                                 1997               1996
                                           ------------------------------------
Cash payments for:
      Interest.........................        $ 1,403             $37,855    
                                               =======             =======    

      Income taxes.....................        $39,000             $17,580
                                               =======             =======


(5)   Research Collaborations

      Bristol- Myers Squibb

      In accordance with its Research Collaboration and License Agreement dated
      July 26, 1994, Bristol-Myers Squibb Company ("BMS") has agreed to provide
      funding to the Company for the conduct of research programs in the amount
      of up to $4,000,000 each year during the term of the research programs
      which was due to expire in July 1997. In January 1997, BMS exercised its
      option to extend its collaboration with the Company for an additional two
      years through July 1999.

      SmithKline Beecham

      In February 1997, the Company entered into a research collaboration and
      license agreement with SmithKline Beecham ("SmithKline"). During the term

      of the research collaboration, which expires in February 2002, the Company
      will seek to identify ligands and to elucidate the function of orphan G
      protein-coupled receptors included within the collaboration and create
      high-throughput screens to discover small molecular agonists and
      antagonists to these receptors.

      During the term of the research collaboration, SmithKline is required to
      provide the Company with research funding of $3.0 million each year,
      adjusted for inflation, and certain other payments, including a $2.0
      million payment in February 1998. SmithKline is also required to make
      payments to the Company upon the achievement of certain research
      milestones and upon the achievement by SmithKline of certain drug
      development milestones. SmithKline is also required to pay the Company
      royalties on the sale of drugs developed through the use of the Company's
      drug discovery technologies. The Company has co-promotion rights in North
      America for certain products that may result from the collaboration and
      rights to certain potential products that SmithKline may choose not to
      develop.

      SmithKline has the right to extend the term of the research collaboration
      for between two and five years by notice to the Company given prior to
      February 25, 2001. SmithKline has the right to terminate the research
      collaboration after February 25, 1999 (or later under certain
      circumstances) ("Evaluation Date") if (i) the Company fails to meet
      certain scientific objectives in connection with the conduct of the
      research collaboration or (ii) fails to perform its obligations in the
      conduct of the research collaboration in any material respect and does not
      cure such failure within a period of 60 days after receiving notice
      thereof. In the event of such termination, SmithKline has no further
      obligation to provide the Company with funding for the research
      collaboration.

                                       7

<PAGE>

                        Cadus Pharmaceutical Corporation

                          Notes to Financial Statements

      In February 1997, the Company and SmithKline Beecham Corporation entered
      into a stock purchase agreement pursuant to which the Company has the
      option to sell to SmithKline Beecham Corporation (i) shares of the
      Company's common stock having a then fair market value of $5.0 million
      during a 90-day period commencing on February 25, 1998 and (ii) shares of
      the Company's common stock having a then fair value of $5.0 million,
      during a 90-day period commencing on the date certain scientific
      objectives are achieved (subject to the Company achieving such objectives
      prior to the Evaluation Date and meeting certain financial requirements).
      In addition, SmithKline Beecham Corporation has the right, at its option,
      to purchase up to $5.0 million worth of shares of the Company's common
      stock at 150% of the then fair market value in lieu of making certain
      research milestone payments. The Company granted SmithKline Beecham
      Corporation certain registration rights with respect to shares of the

      Company's Common Stock which SmithKline Beecham Corporation may purchase
      pursuant to the stock purchase agreement.

(6)   Recently Issued Accounting Standards

      In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share" and
      SFAS No. 129, "Disclosure of Information about Capital Structure". SFAS
      No. 128 specifies the computation, presentation, and disclosure
      requirements for earnings per share (EPS) for entities with publicly held
      common stock or potential common stock. SFAS No. 128 replaces the
      presentation of primary EPS and fully diluted EPS with basic EPS and
      diluted EPS. It also requires dual presentation of basic and diluted EPS
      on the face of the income statement for all entities with complex capital
      structures and requires reconciliation of the numerator and denominator of
      the basic EPS computation to the numerator and denominator of the diluted
      EPS computation.

      SFAS No. 129 was issued in connection with SFAS No. 128 and specifies the
      required disclosures about capital structure. Both SFAS No. 128 and No.
      129 are effective for financial statements for both interim and annual
      periods ending after December 31, 1997. It is not expected that the
      adoption of either of these statements will have a material impact on the
      Company's financial position or operating results.

                                       8

<PAGE>

                      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
      and net losses of approximately $704,000 during the three months ended
      March 31, 1997. At March 31, 1997, the Company had an accumulated deficit
      of approximately $9.1 million. The Company's losses have resulted
      principally from costs incurred in research and development and from
      general and administrative costs associated with the Company's operations.
      These costs have exceeded the Company's revenues and interest income. The
      Company expects to incur substantial additional operating losses over the
      next several years as a result of increases in its expenses for research
      and product development.

Results of Operations

      Three Months Ended March 31, 1997 and March 31, 1996


      Revenues

      Revenues for the three months ended March 31, 1997 increased to $1.9
      million from $1.6 million for the same period in 1996. This increase was
      attributable to the commencement in February 1997 of research funding from
      SmithKline Beecham, one of the Company's collaborative partners.

      Operating Expenses

      The Company's research and development expenses for the three months ended
      March 31, 1997 increased to $2.2 million from $1.7 million for the same
      period in 1996. This increase was attributable primarily to increases in
      staffing and supplies for the Company's internal programs, including
      expansion of its chemistry capabilities, as well as facilities expenses in
      connection with the Company's occupancy of additional laboratory space.

      General and administrative expenses for the three months ended March 31,
      1997 increased to $882,000 from $318,000 for the same period in 1996. This
      increase was attributable primarily to expenses in connection with the
      Company's ongoing patent infringement litigation, and the hiring of
      management personnel, as well as an increase in the Company's directors
      and officers liability insurance premium resulting from the Company's
      initial public offering.

      Interest Income

      Net interest income for the three months ended March 31, 1997 increased to
      $544,000 from $321,000 for the same period in 1996. This increase related
      primarily to interest earned on the net proceeds from Company's initial
      public offering as well as the reduction in interest expense on the line
      of credit, which was repaid in September 1996.

                                       9

<PAGE>

      Net Loss

      The net loss for the three months ended March 31, 1997 increased to
      $704,000 from $43,000 for the same period in 1996. The increase can be
      attributed to an increase in the operating expenses of the Company as
      described above, which was partially offset by increases in revenues and
      interest income.

Liquidity and Capital Resources

      At March 31, 1997, the Company's cash and cash equivalents totaled $41.0
      million. The Company's working capital at March 31, 1997 was $40.5
      million.

      The Company invested $620,000 in property and equipment during the
      three months ended March 31, 1997. The Company expects capital
      expenditures to increase over the next several years as it expands

      facilities to support the planned expansion of research and development
      efforts.

      The Company intends to increase its expenditures substantially over the
      next several years to enhance its technologies and pursue internal
      proprietary drug discovery programs. 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
      2000. The Company's capital requirements may vary as a result of a number
      of factors, including 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. The Company's forecast of the
      period of time through which its financial resources will be adequate to
      support its operations is forward-looking information, and, as such,
      actual results may vary.

                                       10


<PAGE>

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

         Nothing to report.

Item 2.  Changes in Securities

                  (c) In February 1997, the Company granted an option to acquire
200,000 shares of its Common Stock and an option to acquire 100,000 shares of
its Common Stock to its Chief Executive Officer pursuant to the Company's 1996
Incentive Plan, which options were not registered under the Securities Act of
1933, as amended (the "Act"), at the time of grant in reliance on an exemption
from required registration pursuant to section 4(2) of the Act. The option to
acquire 200,000 shares of the Company's Common Stock is exercisable at $13.375
per share, has a ten-year term and vests in equal monthly installments over a
three-year period. The option to acquire 100,000 shares of the Company's Common
Stock is exercisable at $20.00 per share, has a ten year term and vests on
February 5, 2000.

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

                  (a) On April 1, 1997, the Company amended its License
Agreement, dated November 1, 1994, with the National Jewish Center for
Immunology and Respiratory Medicine ("NJC") to obtain the right to license any
and all technologies useful in identifying compounds that regulate cellular
transduction pathways invented by Drs. Gary L. Johnson and/or John C. Cambier
from November 1, 1994, to the end of an option period. Once licensed, such
technologies will be subject to the terms of the License Agreement. The Company
obtained this right in return for certain payments to NJC.

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

                  On March 11, 1997, the Company filed a report on Form 8-K to
report that it had entered into a research collaboration and license agreement
with SmithKline Beecham Corporation and SmithKline Beecham p.l.c. (collectively,
"SmithKline") on February 25, 1997, pursuant to which (i) the Company will seek

to elucidate the function of orphan G protein-coupled receptors included within
the collaboration and to create high-throughput screens to discover chemical
compounds (i.e. potential drugs) that interact with these receptors and (ii)
SmithKline will provide the Company with research funding, payments upon the
achievement of certain research milestones and upon the achievement by
SmithKline of certain drug development milestones, and royalties upon the sale
of drugs developed through the use of the Company's drug discovery technologies.
The Report on Form 8-K also reports that, on February 25, 1997, the Company and
SmithKline Beecham Corporation entered into a stock purchase agreement pursuant
to which the Company has the option to sell to SmithKline Beecham Corporation
(i) shares of the Company's Common Stock valued at $5.0 million during a 90-day
period commencing on February 25, 1998 and (ii) shares of the Company's Common
Stock valued at $5.0 million if it achieves certain scientific objectives prior
to February 25, 1999 (or later under certain circumstances).

                                       11


<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 14, 1997     By /s/ JAMES S. RIELLY
                          ----------------------------------------------------
                          James S. Rielly
                          Director of Finance, Controller and Treasurer
                          (Authorized Officer and Principal Financial Officer)

                                       12


<PAGE>


                                  EXHIBIT INDEX

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

         Exhibit No.               Description

            10.1*                First Amendment to License Agreement dated
                                 April 1, 1997 between National Jewish Center
                                 for Immunology and Respiratory Medicine and 
                                 the Company.
            11                   Computation of Net Loss Per Share
            27                   Financial Data Schedule


* Certain information in this exhibit is subject to an application for
  confidential treatment.

                                       13