<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, 1998
                                                        ------------------

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

                   For the transition period from           to          .
                                                  ---------    --------

                       Commission file number 0-28674 .
                                              -------

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

              Delaware                                     13-3660391
-----------------------------------------   ------------------------------------
   (State or Other Jurisdiction of          (I.R.S. Employer Identification No.)
    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) 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, 1998 was 12,403,753.



<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, 1998 and December 31,                    4
                           1997

                           Condensed Statements of Operations - Three months ended March
                           31, 1998 and 1997                                                             5

                           Condensed Statements of Cash Flows - Three months ended
                           March 31, 1998 and 1997                                                       6

                           Notes to Condensed Financial Statements                                     7-9

             Item 2.       Management's Discussion and Analysis of Financial
                           Condition and Results of Operations                                       10-12

PART II      --   OTHER INFORMATION

             Item 1.       Legal Proceedings                                                            13

             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, 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, 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>
                       Cadus Pharmaceutical Corporation

                                Balance Sheets
<TABLE>
<CAPTION>
                                                                               March 31,       December 31,
                                                                                 1998              1997
                                                                            --------------    --------------
<S>                                                                         <C>               <C>          
                                    Assets

Current assets:
     Cash and cash equivalents                                              $  36,891,851     $  36,761,516
     Prepaid and other current assets                                             493,873           405,597
                                                                            --------------    --------------
               Total current assets                                            37,385,724        37,167,113

Fixed assets, net of accumulated depreciation and amortization of

    $1,881,954 at March 31, 1998 and $2,582,661 at December 31, 1997            2,055,441         2,646,936
Investments in other ventures (note 3)                                          1,061,744         1,478,229
Other assets, net                                                               1,022,904           948,912
                                                                            --------------    --------------

               Total assets                                                 $  41,525,813     $  42,241,190
                                                                            ==============    ==============


                     Liabilities and Stockholders' Equity

Current liabilities:
       Deferred revenue                                                        $  124,261         $  94,190
       Accounts payable                                                           107,979           892,636
       Accrued expenses and other current liabilities                             595,130           604,146
       Note payable to partnership                                                150,000           150,000
                                                                            --------------    --------------
               Total current liabilities                                          977,370         1,740,972

Commitments and contingencies

Stockholders' equity:
Common stock                                                                      125,340           125,001
Additional paid-in capital                                                     54,660,221        54,517,519
Accumulated deficit                                                           (13,937,043)      (13,842,227)
Treasury stock                                                                   (300,075)         (300,075)
                                                                            --------------    --------------
               Total stockholders' equity                                      40,548,443        40,500,218
                                                                            --------------    --------------

               Total liabilities and stockholders' equity                   $  41,525,813     $  42,241,190
                                                                            ==============    ==============
</TABLE>


               See accompanying notes to the condensed financial statements


                                      4
<PAGE>

                               Cadus Pharmaceutical Corporation

                                   Statements of Operations

<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                                                      March 31,
                                                              1998                 1997
                                                          ------------         ------------
<S>                                                       <C>                  <C>        
Revenues, principally from
    related parties                                       $ 4,931,812          $ 1,889,921


Costs and expenses:
    Research and development costs                          3,749,184            2,239,568
    General and administrative expenses                     1,236,585              882,408
                                                          ------------         ------------

       Total costs and expenses                             4,985,769            3,121,976
                                                          ------------         ------------

Operating loss                                                (53,957)          (1,232,055)
                                                          ------------         ------------
Other income and (expenses):
Net interest income                                           371,358              543,958
Equity in other ventures                                     (416,485)             (16,112)
Gain on sale of equipment                                       7,903                  --
                                                          ------------         ------------

       Total other income and (expenses)                      (37,224)             527,846
                                                          ------------         ------------
Loss before income taxes                                      (91,181)            (704,209)

State and local taxes                                           3,635                  --
                                                          ------------         ------------

Net loss                                                  $   (94,816)         $  (704,209)
                                                          ============         ============

Basic net loss per share (note 2)                         $     (0.01)         $     (0.06)

Shares used in calculation of basic net
    loss per share (note 2)                                12,375,245           12,087,997
</TABLE>


         See accompanying notes to the condensed financial statements


                                      5
<PAGE>

                       Cadus Pharmaceutical Corporation

                           Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                               Three Months Ended
                                                                                                    March 31,
                                                                                             1998              1997
                                                                                      --------------     --------------
<S>                                                                                   <C>                <C>         

Cash flows from operating activities:
Net loss                                                                                 $  (94,816)       $  (704,209)

Equity in other ventures                                                                    416,485             16,112
Adjustments to reconcile net loss to net cash used in operating activities:
           Depreciation and amortization                                                    234,066            291,460
           Gain on sale of equipment                                                        (37,974)               --
           Amortization of gain on sale of equipment                                          7,903                --
           Changes in assets and liabilities:                                                                      --
                Increase in prepaid and other current assets                                (88,276)           (26,342)
                Increase in research support receivable                                         --            (243,056)
                (Increase) decrease in other assets                                         (17,514)            42,501
                Increase (decrease) in deferred revenue                                      22,168         (1,000,000)
                (Decrease) increase in accounts payable, accrued expenses and
                      other current liabilities                                            (793,673)            69,375
                                                                                      --------------     --------------

                         Net cash used in operating activities                             (351,631)        (1,554,159)
                                                                                      --------------     --------------

Cash flows from investing activities:
            Acquisition of fixed assets                                                    (292,965)          (619,666)
            Sale of fixed assets                                                            704,661                --
            Decrease in restricted cash                                                         --              18,000
            Repayment of stockholder's loan                                                     --               1,941
            Patent costs                                                                    (72,771)          (121,996)
                                                                                      --------------     --------------

                         Net cash provided by/(used in) investing activities                338,925           (721,721)
                                                                                      --------------     --------------

Cash flows from financing activities:
            Payments on bank loans                                                              --              (3,498)
            Proceeds from issuance of common stock upon exercise of stock options           143,041            149,220
                                                                                      --------------     --------------

                         Net cash provided by financing activities                          143,041            145,722
                                                                                      --------------     --------------

                         Net increase (decrease) in cash and cash equivalents               130,335         (2,130,158)

Cash and cash equivalents at beginning of period                                         36,761,516         43,152,677
                                                                                      --------------     --------------

 Cash and cash equivalents at end of period                                           $  36,891,851      $  41,022,519
                                                                                      ==============     ==============
</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, 1998 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, 1997 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, 1997.

      The results of operations for the three-month period ended March 31,
      1998 are not necessarily indicative of the results to be expected for
      the year ending December 31, 1998.

(2)   Net Loss Per Share

      At December 31, 1997, the Company adopted the provisions of Statement of
      Financial Accounting Standards No. 128, Earnings per Share. For the
      three month periods ended March 31, 1998 and 1997, 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)   Investments in Other Ventures

      In December 1996, the Company issued 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 shareholder of the Company is the general
      partner. An interest payment of $10,500 was accrued at December 31,
      1997 and paid in January 1998. The principal amount and interest
      accrued thereon is payable on December 26, 1998. In addition, the
      Company purchased for $160,660 a 47% limited partnership interest in
      Laurel from Tortoise Corporation, a corporation wholly owned by the
      shareholder. Laurel's purpose is to invest, directly or indirectly, in
      securities of biotechnology companies. The Company has the right to
      require the shareholder to match any future investment made by the
      Company in Laurel up to an aggregate investment on the part of the
      shareholder of $5.0 million. This right expires on the earlier of
      December 31, 1999 or such time that neither the shareholder nor one of
      his affiliates is the general partner of Laurel. The Company is not
      required to make any additional investment in Laurel. The investment is
      accounted for under the equity method with the recognition of losses

      limited to the Company's capital contributions. For the three-month
      periods ended March 31, 1998 and 1997, the Company recognized a gain
      and a loss of $7,515 and $16,112, respectively. The remaining
      investment in Laurel of $144,211 is included in investments in other
      ventures on the balance sheet.

      In May 1997, the Company purchased $2.0 million of convertible
      preferred stock in Axiom Biotechnologies Inc. ("Axiom"), representing
      approximately 26% of the outstanding shares of Axiom on an as converted
      basis. As part of the arrangement, Axiom has agreed to deliver and
      license to the Company its first High Throughput Pharmacology System
      (HT-PS(TM)). The Company has agreed to purchase an additional $2.0
      million of convertible preferred stock in Axiom if the Company receives
      and accepts Axiom's HT-PS(TM)) on or prior to May 29, 1998. This would
      increase the Company's equity interest in Axiom to approximately


                                     7
<PAGE>


                       Cadus Pharmaceutical Corporation

                    Notes to Condensed Financial Statements

      38% of Axiom's then outstanding shares (assuming no additional shares
      of common stock or securities convertible into common stock are issued
      by Axiom in the interim) on an as converted basis. The investment is
      accounted for under the equity method with the Company recognizing 100%
      of Axiom's net losses to the extent that the Company's investment is
      funding those losses. For the three-month period ended March 31, 1998,
      the Company recognized $424,000 in losses generated by Axiom. The
      remaining investment in Axiom of $917,533 is included in investments in
      other ventures on the balance sheet.

(4)   Research Collaborations

      In accordance with the Bristol-Myers Squibb Company Research
      Collaboration and License Agreement the Company received and recognized
      revenue of approximately $1,067,000 for the three-month period ended
      March 31, 1998. The Company also received and recognized revenue of
      approximately $661,000 from a Research Collaboration and License
      Agreement with Solvay Pharmaceuticals B.V. Pursuant to the SmithKline
      Beecham p.l.c. Research Collaboration and License Agreement, the
      Company received and recognized a one-time technology development fee
      of $2.0 million and approximately $1,204,000 in research funding during
      the three-month period ended March 31, 1998.

(5)   Research Agreement

      In January 1998, the Company entered into a sponsored research agreement
      with Massachusetts Institute of Technology ("M.I.T.") pursuant to which
      M.I.T. will use its expertise in micro-robotics to co-develop the Living
      Chip(TM), a novel drug discovery screening tool that would miniaturize and

      automate the Company's proprietary hybrid yeast cell technology. If
      developed, the Living Chip(TM) could ultimately accommodate at least
      100,000 yeast-based drug discovery assays on a single CD-sized synthetic
      disc and could permit the testing of thousands of compounds on multiple
      assays at the individual scientist's lab bench. The Company is only
      obligated to provide M.I.T. with research funding for 1998 but has the
      option to extend the arrangement through 1999. The Company also entered
      into a license agreement with M.I.T. pursuant to which the Company
      obtained exclusive worldwide rights, for use in pharmaceutical, animal
      health and agricultural businesses, to the technology developed under
      the sponsored research arrangement. In order to maintain its exclusive
      license, the Company must provide M.I.T. with research funding in 1998
      and 1999 and make a minimum level of expenditures thereafter to
      commercialize the technology until the technology is commercialized. The
      Company is required to pay M.I.T. an annual license fee, royalties on
      the sale or lease of Living Chip(TM) systems, royalties on the sale of
      therapeutics and diagnostics developed using the Living Chip(TM) and
      royalties on services rendered based on the Living Chip(TM). In lieu of
      royalty payments on sales by sublicensees of drugs initially identified
      by sublicensees through the use of licensed technology, the Company pays
      an annual fee for each sublicense in effect, provided that a license to
      other technology owned or licensed by the Company was granted to the
      sublicensee at the same time.


                                      8
<PAGE>


                       Cadus Pharmaceutical Corporation

                    Notes to Condensed Financial Statements

(6)  Supplemental Cash Flow Information

                                             Three Months
                                            ended March 31,
                                           ---------------
                                           1998        1997
                                        ----------------------
        Cash payments for:
        Interest......................     $0         $1,403
                                           ==         ======

        Income taxes..................   $43,635     $39,000
                                         =======     =======



(7)   Subsequent Event

      On May 8, 1998, the Company exercised its option to sell to SmithKline
      Beecham Corporation 660,962 shares of its common stock for approximately
      $7.56 per share or an aggregate consideration of $5.0 million. Such

      sale is scheduled to close on May 15, 1998.


                                      9
<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 including net losses of approximately $95,000 during the
      three-month period ended March 31, 1998. At March 31, 1998, the Company
      had an accumulated deficit of approximately $13.9 million. 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 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, 1998 and March 31, 1997

      Revenues

      Revenues for the three months ended March 31, 1998 increased to $4.9
      million from $1.9 million for the same period in 1997. This increase was
      attributable primarily to a one time $2.0 million technology development
      fee and a contractual increase in the level research funding from
      SmithKline Beecham ("SmithKline"), one of the Company's collaborative
      partners. The research collaboration with SmithKline began in February
      1997.

      Operating Expenses

      The Company's research and development expenses for the three months
      ended March 31, 1998 increased to $3.7 million from $2.2 million for the
      same period in 1997. This increase was attributable primarily to
      expenses in connection with the Company's sponsored research agreement
      with M.I.T. which began in January of 1998, as well as increases in
      staffing and supplies for the SmithKline collaboration and the Company's
      internal programs, including expansion of its bioinformatics
      capabilities.


      General and administrative expenses for the three months ended March 31,
      1998 increased to $1.2 million from $882,000 for the same period in
      1997. This increase was attributable primarily to increased legal
      expenses and the increase in facilities expenses in connection with the
      lease extension.

      Net Interest Income

      Net interest income for the three months ended March 31, 1998 decreased
      to $371,000 from $544,000 for the same period in 1997. This decrease
      related primarily to the decrease in the Company's cash reserves.


                                      10
<PAGE>


      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, 1998 and
      1997, the Company recognized a gain and a loss of $7,515 and $16,112,
      respectively, related to its investment in Laurel Partners Limited
      Partnership. For the three months ended March 31, 1998 and 1997, the
      Company recognized $424,000 and $0, 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 to
      the extent that the Company's investment is funding those losses.

      Net Loss

      The net loss for the three months ended March 31, 1998 decreased to
      $95,000 from $704,000 for the same period in 1997. This decrease can be
      attributed to an increase in the Company's revenues, which was partially
      offset by an increase in operating expenses and a decrease in net
      interest income as described above.

      Liquidity and Capital Resources

      At March 31, 1998, the Company held cash and cash equivalents of $36.9
      million. The Company's working capital at March 31, 1998 was $36.4
      million.

      In May 1997, the Company purchased $2.0 million of convertible preferred
      stock in Axiom Biotechnologies Inc. ("Axiom"). The Company has agreed to
      purchase an additional $2.0 million of convertible preferred stock in
      Axiom if the Company receives and accepts Axiom's High Throughput
      Pharmacological Screening system on or prior to May 29, 1998.

      On May 8, 1998, the Company exercised its option to sell to SmithKline
      Beecham Corporation 660,962 shares of its common stock for approximately
      $7.56 per share or an aggregate consideration of $5.0 million. Such sale
      is scheduled to close on May 15, 1998. This statement as to the

      anticipated closing of such transaction is a forward-looking statement
      that may not prove accurate and, as such, actual results may vary.

      For the three-month period ended March 31, 1998, the Company invested
      approximately $293,000 in property and equipment and refinanced
      approximately $704,000 of equipment through a sale leaseback arrangement
      with GE Capital Corporation. 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
      expects to finance the majority of these capital expenditures using its
      existing lease line of credit with GE Capital Corporation or other
      similar arrangements.

      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. 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 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.


                                      11

<PAGE>


      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 and
      customers.



                                      12
<PAGE>



PART II - OTHER INFORMATION

Item 1.           Legal Proceedings

                  Nothing to report.

Item 2.           Changes in Securities

                  Nothing to report.

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


                                      13

<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 15, 1998     By /s/ James S. Rielly
                          ------------------------------------------------------
                          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