<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          June 30, 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 Incorporation         (I.R.S. Employer 
   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 July 22, 1998 was 13,068,940.


<PAGE>



                       CADUS PHARMACEUTICAL CORPORATION

                                     INDEX

                                                                        Page No.
                                                                        --------

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS                              3

PART I  --   CONDENSED FINANCIAL INFORMATION

        Item 1.   Condensed Financial Statements

                  Condensed Balance Sheets - June 30, 1998 
                  and December 31, 1997                                        4

                  Condensed Statements of Operations - 
                  Three and six months ended
                  June 30, 1998 and 1997                                       5

                  Condensed Statements of Cash Flows - Six months 
                  ended June 30, 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 and Use of Proceeds                   13

        Item 3.   Defaults Upon Senior Securities                             13

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

        Item 5.   Other Information                                           14

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


SIGNATURES                                                                    15

EXHIBIT INDEX                                                                 16


                                      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>
                                                                          June 30,        December 31,
                                                                            1998              1997
                                                                        -----------       ------------
<S>                                                                     <C>               <C>         
                                    ASSETS
Current assets:
     Cash and cash equivalents                                          $ 36,914,197      $ 36,761,516
     Prepaid and other current assets                                        692,101           405,597
                                                                        ------------      ------------
               Total current assets                                       37,606,298        37,167,113

Fixed assets, net of accumulated depreciation and amortization of
    $1,833,977 at June 30, 1998 and $2,582,661 at December 31, 1997        2,960,809         2,646,936
Investments in other ventures (note 3)                                     2,875,504         1,478,229
Other assets, net                                                          1,207,320           948,912
                                                                        ------------      ------------

               Total assets                                             $ 44,649,931      $ 42,241,190
                                                                        ============      ============


                     LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities:
       Deferred revenue                                                 $    113,279      $     94,190
       Accounts payable                                                      695,688           892,636
       Accrued expenses and other current liabilities                        509,279           604,146
       Note payable to partnership                                           150,000           150,000
                                                                        ------------      ------------
               Total current liabilities                                   1,468,246         1,740,972

Commitments and contingencies

Stockholders' equity:
       Common stock                                                          132,101           125,001
       Additional paidin capital                                          59,688,701        54,517,519
       Accumulated deficit                                               (16,339,042)      (13,842,227)
       Treasury stock                                                       (300,075)         (300,075)
                                                                        ------------      ------------

               Total stockholders' equity                                 43,181,685        40,500,218
                                                                        ------------      ------------

               Total liabilities and stockholders' equity               $ 44,649,931      $ 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                        Six Months Ended
                                                           June 30,                                  June 30,
                                                  1998                  1997                 1998                 1997
                                             ---------------      ---------------      ---------------      ---------------
<S>                                          <C>                  <C>                  <C>                  <C>            
Revenues, principally from
    related parties                          $     2,508,213      $     2,271,865      $     7,440,025      $     4,161,786


Costs and expenses:
    Research and development costs                 3,487,896            3,128,962            7,237,080            5,368,530
    General and administrative expenses            1,776,716            1,106,192            3,013,301            1,988,600
                                             ---------------      ---------------      ---------------      ---------------

       Total costs and expenses                    5,264,612            4,235,154           10,250,381            7,357,130
                                             ---------------      ---------------      ---------------      ---------------

Operating loss                                    (2,756,399)          (1,963,289)          (2,810,356)          (3,195,344)
                                             ---------------      ---------------      ---------------      ---------------

Other income and (expenses):
    Net interest income                              597,896              540,431              969,254            1,084,389
    Equity in other ventures                        (186,240)            (283,905)            (602,725)            (300,017)
    Gain/(loss) on sale of equipment                 (18,617)                 --               (10,714)                 --
                                             ---------------      ---------------      ---------------      ---------------

       Total other income and (expenses)             393,039              256,526              355,815              784,372
                                             ---------------      ---------------      ---------------      ---------------

Loss before income taxes                          (2,363,360)          (1,706,763)          (2,454,541)          (2,410,972)
                                             ---------------      ---------------      ---------------      ---------------

State and local taxes                                 38,639               23,117               42,274               23,117
                                             ---------------      ---------------      ---------------      ---------------

Net loss                                     $    (2,401,999)     $    (1,729,880)     $    (2,496,815)     $    (2,434,089)
                                             ===============      ===============      ===============      ===============

Basic net loss per share (note 2)            $         (0.19)     $         (0.14)     $         (0.20)     $         (0.20)

Shares used in calculation of basic net
    loss per share (note 2)                       12,733,059           12,174,009           12,554,152           12,131,003
</TABLE>




See accompanying notes to the condensed financial statements



                                      5
<PAGE>


                       CADUS PHARMACEUTICAL CORPORATION


                           STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                      Six Months Ended
                                                                                           June 30,
                                                                                    1998              1997
                                                                                ------------      ------------
<S>                                                                             <C>               <C>    
Cash flows from operating activities:
Net loss                                                                        $ (2,496,815)     $ (2,434,089)
Equity in other ventures                                                             602,725           300,017
Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization                                                   463,447           627,667
     Gain on sale of equipment                                                        (8,374)             --
     Amortization of gain on sale of equipment                                        18,885              --
     Changes in assets and liabilities:                                                 --                --
          (Increase) decrease in prepaid and other current assets                   (286,504)          104,165
          (Increase) decrease in other assets                                        (41,832)            4,355
          Increase (decrease) in deferred revenue                                        204        (1,000,000)
          (Decrease) increase in accounts payable                                   (196,948)          214,619
          (Decrease) in accrued expenses and other current liabilities               (94,867)         (213,668)
                                                                                ------------      ------------

              Net cash used in operating activities                               (2,040,079)       (2,396,934)
                                                                                ------------      ------------

Cash flows from investing activities:
     Acquisition of fixed assets                                                  (1,458,583)         (950,050)
     Sale of fixed assets                                                            724,661              --
     Decrease in restricted cash                                                        --              78,000
     Repayment of stockholder's loan                                                    --               3,881
     Investments in other ventures                                                (2,000,000)       (2,000,000)
     Patent costs                                                                   (251,598)         (254,539)
                                                                                ------------      ------------

              Net cash used in investing activities                               (2,985,520)       (3,122,708)
                                                                                ------------      ------------

Cash flows from financing activities:
     Payments on bank loans                                                             --             (29,075)
     Proceeds from issuance of common stock                                        5,178,280           450,390
                                                                                ------------      ------------

              Net cash provided by financing activities                            5,178,280           421,315
                                                                                ------------      ------------

              Net increase (decrease) in cash and cash equivalents                   152,681        (5,098,327)

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

 Cash and cash equivalents at end of period                                     $ 36,914,197      $ 38,054,350
                                                                                ============      ============
</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 June 30, 1998 and for the three and
      six-month periods then ended, is unaudited, but includes all adjustments
      (consisting only of normal recurring accruals) that the Company's
      management believes to be necessary for the fair presentation of results
      for the periods presented. Certain information and footnote disclosures
      normally included in financial statements prepared in accordance with
      generally accepted accounting principles have been omitted pursuant to
      the requirements of the Securities and Exchange Commission, although the
      Company believes that the disclosures included in these financial
      statements are adequate to make the information not misleading. The
      December 31, 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 and six-month periods ended June
      30, 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 and six-month periods ended June 30, 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 and six-month periods
      ended June 30, 1998, the Company recognized gains of $79 and $7,594,
      respectively. For the three and six-month periods ended June 30, 1997,
      the Company recognized losses of $126,092 and $142,204, respectively.
      The remaining investment in Laurel of $144,290 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 agreed to deliver and license
      to the Company its first High Throughput Pharmacology System
      (HT-PS)(TM). The Company purchased an additional $2.0 million 
      of convertible preferred stock in Axiom on June 5, 1998 after 
      the Company received and accepted Axiom's HT-PS(TM). 
      The Company also made a payment to Axiom for the HT-PS(TM) 
      which is included in fixed assets in the


                                      7
<PAGE>



                       Cadus Pharmaceutical Corporation

                    Notes to Condensed Financial Statements

      accompanying balance sheet at June 30, 1998. The additional investment
      increased the Company's equity interest in Axiom to approximately 30% of
      Axiom's outstanding shares on an as converted basis, after taking into
      account a recent investment in Axiom by JAFCO Co., Ltd., ("JAFCO"), an
      affiliate of the Nomura Group. The Company's investment is accounted for
      under the equity method with the Company recognizing 100% of Axiom's net
      losses prior to the JAFCO investment and 50% after such investment. Such
      percentage represents the extent to which the Company is deemed to be
      funding Axiom's losses. For the three and six-month periods ended June
      30, 1998, the Company recognized $186,319 and $610,319, respectively in
      losses generated by Axiom. For the three and six-month periods ended
      June 30, 1997, the Company recognized losses of $157,813. The remaining
      investment in Axiom of $2,731,214 is included in investments in other
      ventures on the balance sheet.

(4)   RESEARCH COLLABORATIONS

      Pursuant to the Bristol-Myers Squibb Company Research Collaboration and
      License Agreement, the Company received and recognized revenue of
      approximately $1.1 million and $2.1 million for the three and six-month
      periods ended June 30, 1998. The Company also received and recognized
      revenue of approximately $661,000 and $1.3 million, from a Research
      Collaboration and License Agreement with Solvay Pharmaceuticals B.V.,
      for the three and six-month periods ended June 30, 1998.

      Pursuant to the SmithKline Beecham Research Collaboration and License
      Agreement, the Company received and recognized research funding of
      approximately $780,000 and $2.0 million during the three and six-month
      periods ended June 30, 1998. In March 1998, the Company also received
      and recognized a one-time technology development fee of $2.0 million
      from SmithKline Beecham. On May 8, 1998, the Company exercised its
      option to sell 660,962 shares of its common stock to SmithKline Beecham
      p.l.c. and SmithKline Beecham Corporation for approximately $7.56 per
      share or an aggregate consideration of $5.0 million. The sale closed on
      May 15, 1998.

(5)   RESEARCH AGREEMENT

      In January 1998, the Company entered into a sponsored research agreement
      with the 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 ChipTM, a novel drug discovery screening tool that would
      miniaturize and automate the Company's proprietary hybrid yeast cell
      technology. If developed, the Living ChipTM 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 ChipTM systems, royalties on the sale of
      therapeutics and diagnostics developed using the Living ChipTM and
      royalties on services rendered based on the Living ChipTM . 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)  Commitments and Contingencies

     In July 1996, SIBIA Neurosciences, Inc. ("SIBIA") commenced a patent
     infringement action against the Company alleging infringement by the
     Company of a patent relating to an aspect of drug screening techniques and
     seeking injunctive relief and monetary damages. On August 1, 1996, the
     Company filed an Answer and Counterclaim, claiming that the patent is not
     infringed and is invalid and unenforceable, seeking a declaratory judgment
     of patent invalidity, unenforceability and noninfringement, and claiming
     unfair competition and intentional interference with prospective economic
     advantage by SIBIA with respect to the Company's initial public offering.

     On August 7, 1998, the court granted SIBIA's summary judgment motion to
     dismiss the Company's counterclaims for unfair competition and intentional
     interference with prospective economic advantage.


     Trial of the action is presently scheduled for November 3, 1998.
     
     The Company believes, based on advice of counsel, that none of its
     operations infringes any valid claim of the patent and intends to
     vigorously defend the action. The Company also believes that if its
     operations were found to infringe any valid claim of the patent, the
     Company has adequate technical alternatives that would not infringe this
     patent. If injuctive relief is granted, certain aspects of the drug
     discovery and development efforts of the Company and its collaborative
     partners could be delayed. If monetary damages are awarded, the business,
     financial condition and results of operations of the Company could be
     materially adversely affected.

    

(7)   SUPPLEMENTAL CASH FLOW INFORMATION

                                                       SIX MONTH
                                                     ENDED JUNE 30,
                                                     --------------
                                                1998                1997
                                         ------------------------------------
      Cash payments for:

      
      Interest...............                      $0              $2,754
                                                   ==              ======
      

      Income taxes...........                 $25,274             $23,117
                                              =======             =======




(8)   NEW ACCOUNTING PRONOUNCEMENTS

      Effective January 1, 1998, the Company adopted Statement of Financial
      Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
      Income" and Statement of Financial Accounting Standards No. 131 ("SFAS
      131"), "Disclosures about Segments of an Enterprise and Related
      Information". SFAS 130 requires that all items recognized under
      accounting standards as components of comprehensive income be reported
      in an annual financial statement that is displayed with the same
      prominence as other annual financial statements. Other comprehensive
      income may include foreign currency translation adjustments, minimum
      pension liability adjustments and unrealized gains and losses on
      marketable securities classified as available-for-sale. The adoption of
      SFAS 130 had no impact on the Company's financial statements. SFAS 131
      established standards to report information about operating segments and
      related discussions about products and services, geographic areas and
      major customers and requires that such information be included in the
      Company's 1998 annual report. The adoption of SFAS 131 is not expected
      to affect the Company's reporting of its results of operations and
      financial position.


                                      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 $2.5 million during the
      six-month period ended June 30, 1998. At June 30, 1998, the Company had
      an accumulated deficit of approximately $16.3 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

      Six months Ended June 30, 1998 and June 30, 1997

      Revenues

      Revenues for the six months ended June 30, 1998 increased to $7.4
      million from $4.2 million for the same period in 1997. This increase was
      attributable primarily to a one time $2.0 million technology development
      fee and an increase in the level of 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 six months ended
      June 30, 1998 increased to $7.2 million from $5.4 million for the same
      period in 1997. This increase was attributable to increases in staffing,
      supplies and facility expenses as well as expenses associated with the
      Company's sponsored research agreement with M.I.T., which began in
      January of 1998.

      General and administrative expenses for the six months ended June 30,
      1998 increased to $3.0 million from $2.0 million for the same period in
      1997. This increase was attributable primarily to increased litigation
      expenses.

      Net Interest Income

      Net interest income for the six months ended June 30, 1998 decreased to
      $1.0 from $1.1 million for the same period in 1997. This decrease
      related primarily to the decrease in the Company's cash reserves.

      Equity in Other Ventures

      Equity in other ventures reflects gains and losses associated with the
      Company's two investments. For the six months ended June 30, 1998 and
      1997, the Company recognized a gain and a loss of $7,594 and $142,204,
      respectively, related to its investment in Laurel Partners Limited
      Partnership. For the six months ended June 30, 1998 and 1997, the
      Company recognized $610,319 and $157,813, respectively, in losses
      generated by Axiom Biotechnologies Inc. ("Axiom"). The Company's
      investment in Axiom is accounted for under the 


                                      10
<PAGE>


      equity method with the Company recognizing 100% of Axiom's net losses
      prior to a recent investment made by JAFCO Co., Ltd., ("JAFCO") in
      Axiom. Following the JAFCO investment the Company began recognizing 50%
      of the net losses generated by Axiom which is the extent to which the
      Company is deemed to be funding such losses.

      Net Loss

      The net loss for the six months ended June 30, 1998 increased to $2.5
      million from $2.4 million for the same period in 1997. This increase can
      be attributed to an increase in the Company's expenses, which was
      partially offset by an increase in revenues as described above.

      Three months Ended June 30, 1998 and June 30, 1997

      Revenues

      Revenues for the three months ended June 30, 1998 increased to $2.5
      million from $2.3 million for the same period in 1997. This increase was
      attributable primarily to inflation based increases in research funding
      from the Company's research collaborations.

      Operating Expenses

      The Company's research and development expenses for the three months
      ended June 30, 1998 increased to $3.5 million from $3.1 million for the
      same period in 1997. This increase was attributable primarily to
      increases in staffing, supplies, and facility expenses.

      General and administrative expenses for the three months ended June 30,
      1998 increased to $1.8 million from $1.1 million for the same period in
      1997. This increase was attributable primarily to increased litigation
      expenses.

      Net Interest Income

      Net interest income for the three months ended June 30, 1998 increased
      to $598,000 from $540,000 for the same period in 1997. This increase
      related primarily to higher cash reserves resulting from the Company's
      sale to SmithKline Beecham Corporation of $5.0 million of its common
      stock in May of 1998.

      Equity in Other Ventures

      Equity in other ventures reflects losses and gains associated with the
      Company's two investments. For the three months ended June 30, 1998 and
      1997, the Company recognized a gain and a loss of $79 and $126,092,
      respectively, related to its investment in Laurel Partners Limited
      Partnership. For the three months ended June 30, 1998 and 1997, the
      Company recognized $186,319 and $157,813, respectively, in losses
      generated by Axiom. The Company's investment in Axiom is accounted for
      under the equity method with the Company recognizing 100% of Axiom's net
      losses prior to a recent investment made by JAFCO Co., Ltd., ("JAFCO")
      in Axiom. Following the JAFCO investment the Company began recognizing
      50% of the net losses generated by Axiom, which is the extent to which
      the Company is deemed to be funding such losses.

      Net Loss

      The net loss for the three months ended June 30, 1998 increased to $2.4
      million from $1.7 million for the same period in 1997. This increase can
      be attributed to an increase in the Company's expenses, which was
      partially offset by an increase in revenues and net interest income as
      described above.


                                      11
<PAGE>


      LIQUIDITY AND CAPITAL RESOURCES

      At June 30, 1998, the Company held cash and cash equivalents of $36.9
      million. The Company's working capital at June 30, 1998 was $36.1
      million.

      In May 1997, the Company purchased $2.0 million of convertible preferred
      stock in Axiom. On June 5, 1998 the Company purchased an additional $2.0
      million of convertible preferred stock in Axiom upon the receipt and
      acceptance of Axiom's High Throughput Pharmacological Screening System
      (HT-PS)(TM).

      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. The
      sale closed on May 15, 1998.

      For the six-month period ended June 30, 1998, the Company invested
      approximately $1,459,000 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.

      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.

      NEW ACCOUNTING PRONOUNCEMENTS

      The Financial Accounting Standards Board issued Statement of Financial
      Accounting Standards No. 132 ("SFAS 132"), "Employers' Disclosures about
      Pensions and Other Postretirement Benefits". SFAS No. 132 revises
      disclosures about pension an other postretirement benefit plans.
      Management of the Company does not believe that the implementation of
      SFAS No. 132 will have a significant impact on previously reported
      information regarding its employee retirement plans.


                                      12
<PAGE>


PART II - OTHER INFORMATION
---------------------------

Item 1.       Legal Proceedings

              This Company is not a party to any material legal proceedings
              other than SIBIA Neurosciences, Inc. v. Cadus Pharmaceutical
              Corporation. SIBIA Neurosciences, Inc. ("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 relating to an aspect of drug screening
              techniques and seeking injunctive relief and monetary damages. On
              August 1, 1996, the Company filed an Answer and Counterclaim,
              claiming that the patent is not infringed and is invalid and
              unenforceable, seeking a declaratory judgment of patent
              invalidity, unenforceability and noninfringement, and claiming
              unfair competition and intentional interference with prospective
              economic advantage by SIBIA with respect to the Company's initial
              public offering.

              On August 7, 1998, the court granted SIBIA's summary judgment
              motion to dismiss the Company's counterclaims for unfair
              competition and intentional interference with prospective economic
              advantage.

              Trial of the action is presently scheduled for November 3, 1998

              The Company believes, based on advice of counsel, that none of its
              operations infringes any valid claim of the patent and intends to
              vigorously defend the action. The Company also believes that if
              its operations were found to infringe any valid claim of the
              patent, the Company has adequate technical alternatives that would
              not infringe this patent. If injunctive relief is granted, certain
              aspects of the drug discovery and development efforts of the
              Company and its collaborative partners could be delayed. If
              monetary damages are awarded, the business, financial condition
              and results of operations of the Company could be materially
              adversely affected.
          
Item 2.       Changes in Securities and Use of Proceeds

              (a) On May 15, 1998, the Company sold 660,962 shares of its
                  common stock to SmithKline Beecham p.l.c. and SmithKline
                  Beecham Corporation at a price of approximately $7.56
                  per share or an aggregate price of $5.0 million. Such
                  shares of common stock were not registered under the
                  Securities Act of 1933, as amended (the "Act"), in
                  reliance on the exemption from registration under the
                  Act set forth in Section 4(2) of the Act.

              (b) Securities Act Rule 229.463 ("Rule 463") required
                  issuers to periodically report on Form SR their use of
                  proceeds from an initial public offering, until all such
                  proceeds were fully utilized. Effective September 2,
                  1997, pursuant to Release No. 34-38850, the Securities
                  and Exchange Commission amended Rule 463 to eliminate
                  Form SR and to require a registrant to report its use of
                  proceeds from an initial public offering in each of its
                  periodic reports filed pursuant to the requirements of
                  the Exchange Act until all such proceeds are fully
                  utilized. The Company has not reported, on previously
                  filed Forms SR or period reports, that it has utilized
                  any of the proceeds received from its initial public
                  offering. The information provided below represents a
                  reasonable estimate of the application through June 30,
                  1998 of the net proceeds of $19,783,140 which were
                  received from the Company's initial public offering on
                  July 17, 1996:

                         Construction of plant,
                         building and facilities               $300,440 
                         Purchase and installation of      
                         machinery and equipment               $863,353
                         Research and license              
                         payments to others                    $600,965
                         Investment in companies                       
                         complementary to the                
                         Company's business                  $2,000,000
                         Working capital used to               
                         fund operations                     $1,266,310

                  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 June 30, 1998, the
                  company had $14,752,072 of net offering proceeds that
                  were still not utilized.

Item 3.       Defaults Upon Senior Securities

              Nothing to report.


                                      13
<PAGE>


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

              On June 4, 1998, the Company held its annual meeting of
              stockholders in Tarrytown, New York. The holders of
              11,674,450 shares of Common Stock were present or
              represented by proxy and, accordingly, a quorum was present
              and matters were voted on as follows:

              (a) The following persons were elected directors of the Company:

                                              Votes For          Votes Withheld
                                              ---------          --------------
                Theodore Altman               11,464,059         210,391
                James R. Broach               11,627,442          47,008
                Harold First                  11,617,198          57,252
                Russell D. Glass              11,617,198          57,252
                Carl Icahn                    11,056,301         618,149
                William Koster                11,627,442          47,008
                Peter S. Liebert              11,617,198          57,252
                Robert Mitchell               11,617,198          57,252
                Siegfried G. Schaefer         11,617,198          57,252
                Nicole Vitullo                11,627,442          47,008
                Samuel D. Waksal              11,062,301         612,149
                Jack G. Wasserman             11,262,998         411,452



              (b) The proposal to approve the amendment to the Company's
                  1996 Incentive Plan (the "Plan") that increases the
                  maximum number of shares of Common Stock that may be the
                  subject of awards under the Plan by 1,000,000 from
                  833,334 shares to 1,833,334 shares was approved by the
                  stockholders. 8,104,326 shares of Common Stock voted for
                  the proposal, 209,142 shares voted against the proposal
                  and 5,735 shares abstained. There were 3,355,247 broker
                  non-votes with respect to the proposal.

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.

              (c) Reports on Form 8-K

              None


                                      14
<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: AUGUST 12, 1998        BY  James S. Rielly
                                ------------------------------
                                 James S. Rielly
                                 VICE PRESIDENT OF FINANCE, TREASURER AND
                                 SECRETARY (AUTHORIZED OFFICER AND PRINCIPAL
                                 FINANCIAL OFFICER)


                                      15
<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


                                      16