SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X]     Quarterly Report pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934 for the quarterly period ended September 30, 1999

[ ]     Transition report pursuant to section 13 or 15(d) of the Securities
        Exchange Act of 1934 for the transition period from _______ to _______

Commission File Number     0-24760

                              Orphan Medical, Inc.
                              --------------------
             (Exact name of registrant as specified in its charter)

             Minnesota                                 41-1784594
             ---------                                 ----------
  (State or other jurisdiction of        (I.R.S. Employer Identification Number)
  incorporation or organization)

   13911 Ridgedale Drive, Suite 250,
         Minnetonka, MN 55305                        (612) 513-6900
         --------------------                        --------------
(Address of principal executive offices       (Registrant's telephone number,
             and zip code)                         including area code)

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, and (2) has been subject to such filing requirements
for the past 90 days.
           Yes      X                    No
                 --------                     --------

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.

   Common Stock, $.01 par value                         6,593,707
   ----------------------------                         ---------
              (Class)                       (Outstanding at November 5, 1999)


<PAGE>


                                      INDEX

                             ORPHAN MEDICAL, INC.(R)

<TABLE>
<CAPTION>
                                                                                                Page No.
                                                                                                --------
<S>                                                                                              <C>
PART I.  FINANCIAL INFORMATION
------------------------------

Item 1.  Financial Statements (Unaudited)

Balance Sheets - September 30, 1999 and December 31, 1998.                                         3

Statements of Operations - Three and nine months ended September 30, 1999 and September 30,
1998.                                                                                              4

Statements of Cash Flows - Nine months ended September 30, 1999 and September 30, 1998.            5

Notes to Financial Statements                                                                      6

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of
Operations.                                                                                        8


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

Items 1, 3, 4, 5 have been omitted since all items are inapplicable or answers
negative.

Item 2.  Changes in securities and use of proceeds                                                 15
Item 6.  Exhibits and Reports on Form 8-K                                                          16
         Signature                                                                                 17
</TABLE>


Antizol(R), Antizol-Vet(R), Caprogel(TM), Busulfex(R), Intrachol(TM),
Colomed(TM), Cystadane(R), Elliotts B(R) Solution, Sucraid(R), Xyrem(R), "The"
Orphan Drug Company(TM), Orphan Medical, Inc.(R) and Dedicated to Patients with
Uncommon Diseases(R) are trademarks of the Company.


<PAGE>

                         PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements
                                 BALANCE SHEETS
                              ORPHAN MEDICAL, INC.

<TABLE>
<CAPTION>
                                                                                 September 30,           December 31,
                                                                                     1999                    1998
                                                                                 -------------           ------------
     ASSETS                                                                       (Unaudited)               (Note)
<S>                                                                              <C>                     <C>
     Current assets:
        Cash and cash equivalents                                                $  2,895,765            $  2,980,342
        Available-for-sale securities                                               2,797,894               4,541,141
        Accounts receivable, less allowance for doubtful
          accounts and returns of $85,000 and $48,620                                 773,511                 989,339
        Other receivables                                                               5,425                   6,925
        Inventories                                                                   413,659                 112,725
        Prepaid expenses                                                               68,041                 115,231
                                                                                 ------------            ------------
     Total current assets                                                           6,954,295               8,745,703

     Property and equipment:
        Property and equipment                                                        590,025                 556,358
        Accumulated depreciation                                                     (334,862)               (255,331)
                                                                                 ------------            ------------
                                                                                      255,163                 301,027

                                                                                 ------------            ------------
     Total assets                                                                $  7,209,458            $  9,046,730
                                                                                 ============            ============

     LIABILITIES AND SHAREHOLDERS' EQUITY
     Current liabilities:
        Accounts payable                                                         $    410,205            $    586,816
        Accrued outdated product return allowance                                     412,978                 304,582
        Accrued expenses                                                            2,013,523               2,579,755
                                                                                 ------------            ------------
     Total current liabilities                                                      2,836,706               3,471,153

     Commitments

     Shareholders' equity:
        Senior Convertible Preferred Stock, $.01 par value; 14,000 shares
          authorized; 8,088 and 7,500 shares issued and
          outstanding, respectively                                                        81                      75
        Series B Convertible Preferred Stock, $.01 par value; 5,000
          shares authorized; 2,950 shares issued and outstanding                           30                      --
        Series C Convertible Preferred Stock, $.01 par value; 4,000
          shares authorized; 0 shares issued and outstanding                               --                      --
        Series D Non-Voting Preferred Stock, $.01 par value; 1,500,000
          shares authorized; 0 shares issued and outstanding                               --                      --
        Common Stock, $.01 par value; 25,000,000 shares authorized; 6,569,207
          and 6,560,096 shares issued and outstanding,
          respectively                                                                 65,927                  65,601
        Additional paid-in capital                                                 43,592,290              39,946,113
        Accumulated deficit                                                       (39,282,054)            (34,433,640)
                                                                                 ------------            ------------
                                                                                    4,376,274               5,578,149
        Unrealized gain (loss) on available-for-sale securities                        (3,522)                 (2,572)
                                                                                 ------------            ------------
     Total shareholders' equity                                                     4,372,752               5,575,577
                                                                                 ------------            ------------
     Total liabilities and shareholders' equity                                  $  7,209,458            $  9,046,730
                                                                                 ============            ============
</TABLE>

NOTE: THE BALANCE SHEET AT DECEMBER 31, 1998 HAS BEEN DERIVED FROM THE AUDITED
FINANCIAL STATEMENTS AT THAT DATE BUT DOES NOT INCLUDE ALL OF THE INFORMATION
AND FOOTNOTES REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR COMPLETE
FINANCIAL STATEMENTS.

SEE ACCOMPANYING NOTES.



                                       3
<PAGE>



                            STATEMENTS OF OPERATIONS
                              ORPHAN MEDICAL, INC.

                                   (Unaudited)




<TABLE>
<CAPTION>
                                         For the Three Months Ended             For the Nine Months Ended
                                    -------------------------------------  -------------------------------------
                                      September 30,      September 30,      September 30,       September 30,
                                          1999               1998                1999               1998
                                    ------------------ ------------------  -----------------  ------------------
<S>                                     <C>                <C>                 <C>                 <C>
Revenues, net                           $ 1,427,649        $   897,515         $ 4,353,947         $ 3,543,324

Cost of sales                               213,608            265,255             739,938             805,599

                                        -----------        -----------         -----------         -----------
Gross Profit                              1,214,041            632,260           3,614,009           2,737,725

Operating expenses:
   Research and development               1,030,299          1,764,674           3,698,110           5,382,635
   Sales and marketing                      860,447            572,439           2,397,364           1,892,281
   General and administrative               628,692            616,457           1,995,787           1,887,551
                                        -----------        -----------         -----------         -----------
Total operating expenses                  2,519,438          2,953,570           8,091,261           9,162,467
                                        -----------        -----------         -----------         -----------
Loss from operations                     (1,305,397)        (2,321,310)         (4,477,252)         (6,424,743)

Other income:
   Interest, net                             76,183             79,811             223,465             114,091

                                        -----------        -----------         -----------         -----------
Net loss                                 (1,229,214)        (2,241,499)         (4,253,787)         (6,310,652)

Less:  Preferred stock dividends            186,147            107,877             474,209             107,877
                                        -----------        -----------         -----------         -----------

Net loss attributable to common
  shareholders                          $(1,415,361)       $(2,349,376)        $(4,727,996)        $(6,418,529)
                                        ===========        ===========         ===========         ===========

Basic and diluted loss per
   common share                         $     (0.21)       $     (0.38)        $     (0.72)        $     (1.04)
                                        ===========        ===========         ===========         ===========

Weighted average number of
   shares outstanding                     6,586,875          6,261,505           6,586,427           6,185,684
                                        ===========        ===========         ===========         ===========
</TABLE>




                                       4
<PAGE>



                            STATEMENTS OF CASH FLOWS
                              ORPHAN MEDICAL, INC.

                                   (Unaudited)



<TABLE>
<CAPTION>
                                                            For the Nine Months Ended
                                                      ---------------------------------------
                                                        September 30,        September 30,
                                                            1999                 1998
                                                      ------------------   ------------------

<S>                                                       <C>                  <C>
OPERATING ACTIVITIES
Net loss                                                  $(4,253,787)         $(6,310,652)
Adjustments to reconcile net loss to net cash used
   in operating activities:
     Depreciation and amortization                             79,532               72,518
     Compensatory options                                      51,195                   --
     Changes in operating assets and liabilities:
       Accounts payable and accrued expenses                 (634,447)             498,326
       Inventories                                           (300,934)             112,146
       Accounts receivable and current assets                 264,517             (125,401)
                                                          -----------          -----------
Net cash used in operating activities                      (4,799,555)          (5,753,063)

INVESTING ACTIVITIES
   Purchase of office equipment                               (33,667)             (52,436)
   Purchases of short-term investments                     (6,229,077)          (8,177,157)
   Maturities of short-term investments                     7,971,374            8,020,000
                                                          -----------          -----------
Net cash provided by (used in) investing activities         1,708,630             (209,593)

FINANCING ACTIVITIES:
   Chronimed Inc. obligation                                       --           (1,378,441)
   Stock option exercise proceeds                             802,414              270,597
   Proceeds from the issuance preferred stock               2,875,861            7,078,035
   Stock issued to Chronimed                                       --            1,440,942
   Common stock redeemed                                     (676,563)                  --
   Cash dividends on preferred stock                             (995)                  --
                                                          -----------          -----------
Net cash provided by financing activities                   3,006,349            7,411,133
                                                          -----------          -----------

Increase (decrease) in cash and cash equivalents               84,577            1,448,477
Cash and cash equivalents at beginning of
   Period                                                   2,980,342            2,150,877
                                                          -----------          -----------
Cash and cash equivalents at end of
   Period                                                 $ 2,895,765          $ 3,599,354
                                                          ===========          ===========

SUPPLEMENTAL CASH FLOW INFORMATION
   Cash interest received                                 $   204,611          $   330,525
                                                          ===========          ===========
</TABLE>

SEE ACCOMPANYING NOTES.


                                       5
<PAGE>



                              ORPHAN MEDICAL, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

1. BASIS OF PRESENTATION
Orphan Medical, Inc. (the "Company") acquires, develops, and markets products of
high medical value intended to address inadequately treated or uncommon diseases
within selected strategic therapeutic market segments. A drug has high medical
value if it offers a major improvement in the safety or efficacy of patient
treatment and has no substantial equivalent substitute. The Company has six
products that have been approved for marketing by the Food and Drug
Administration (the "FDA") and is currently developing one potential product.
The Company expects to seek additional products for development. In the first
quarter of 1999, the Company no longer considered itself to be in the
development stage.

The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, these financial statements do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal, recurring accruals) considered necessary for fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999. For further information, refer to
the audited financial statements and accompanying notes contained in the
Company's Annual Report filed on Form 10-K for the year ended December 31, 1998.

2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

3. COMMITMENTS
The Company has various commitments under agreements with outside consultants,
contract drug development companies, manufacturers, technical service companies,
license and research agreements, agreements with drug distributors, and other
sales and marketing agreements. At September 30, 1999, the Company estimates
that it could incur approximately $2,701,000 of additional expenditures in
subsequent periods under existing commitments. Commitments for research and
development expenditures will likely fluctuate from quarter to quarter and from
year to year depending on, among other factors, the timing of product
development and the progress of clinical development programs.



                                       6
<PAGE>



4. BORROWINGS
The Company has a commercial revolving line of credit with a bank, which expires
on May 15, 2000. The maximum amount available to the Company under this
arrangement is $500,000, subject to certain limitations. The Company's
indebtedness to the bank may not exceed the lesser of (1) 75 percent of the
Company's trade accounts receivable that have been outstanding for 90 days or
less or (2) $500,000. In addition, the Company must maintain a minimum balance
of at least $250,000 in accounts which the bank controls. Advances are charged a
variable rate of interest equal to the prime rate plus one half of a percent.
Through September 30, 1999, the Company has not borrowed under this arrangement.

5. FINANCING TRANSACTION
On August 2, 1999, the Company completed a $5.0 million financing transaction
with UBS Capital II, LLC, a subsidiary of UBS AG. The funding consisted of a
purchase of 2,950 shares of the Company's Series B Convertible Preferred Stock
for an aggregate purchase price of $2.95 million and $2.05 million of debt in
the form of a line of credit. The Series B Convertible Preferred Stock may be
converted prior to August 2, 2009 into common shares at a price of $6.50 per
share. Amounts outstanding under this line of credit bear an interest rate of
7.5% and mature on August 2, 2002. Through September 30, 1999 the company has
not borrowed under this arrangement.

In connection with the financing, UBS Capital also received two seven-year
warrants. One of the warrants entitles UBS Capital to receive, upon payment of
the $2.05 million exercise price, either 2,950 shares of Series C Convertible
Preferred Stock (which is similar to the Series B Convertible Preferred Stock
and which is convertible to shares of the Company's Series D Non-Voting
Preferred Stock at a conversion price of $6.50 per share) or 315,385 shares of
Series D Non-Voting Preferred Stock (which is equivalent to common stock except
that it has no voting rights) or a combination of Series C Convertible Preferred
Stock and Series D Non-Voting Preferred Stock, so long as the combined purchase
price for the shares does not exceed $2.05 million. The second warrant, issued
in relation to the line of credit, entitled UBS Capital to purchase 282,353
shares of Series D Non-Voting Preferred Stock at an exercise price of $4.25 per
share. The Company can require the exercise of the warrants under certain
conditions. The value of the warrants is amortized over the term of the line of
credit to interest expense.

The financing triggered antidilution provisions relating to the $8.1 million of
the Senior Preferred Stock held by UBS Capital as of August 1 (after giving
effect to the semi-annual in-kind dividend distributions, the most recent of
which was August 1, 1999), which resulted in a decrease in the conversion price
of those shares from $8.50 to $8.14 per share.

6. RECLASSIFICATIONS
Certain prior period balances have been reclassified in order to conform with
the presentation for the period ended September 30, 1999. These
reclassifications have no impact on the net loss or shareholders' equity as
previously reported.



                                       7
<PAGE>



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


CAUTIONARY STATEMENT
This Quarterly Report on Form 10-Q contains statements that are not descriptions
of historical facts. The words or phrases "will likely result", "look for", "may
result", "will continue", "is anticipated", "expect", "project", or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
may be forward-looking statements that are subject to risks and uncertainties.
Actual results could differ materially from those currently anticipated due to a
number of factors, including those identified in the Company's "Cautionary
Statements" on Exhibit 99 to this Quarterly Report filed on Form 10-Q for the
quarterly period ended September 30, 1999.

GENERAL
Orphan Medical, Inc. was incorporated on June 17, 1994 in order to carry on the
business previously conducted by the Orphan Medical Division of Chronimed, Inc.
("Chronimed"). The Company's activities since inception have consisted primarily
of obtaining the rights for pharmaceutical products, hiring the personnel
required to implement the Company's business plan, managing the development of
these products, preparing for the commercial introduction of six products,
building the sales of these products, and fund raising. At September 30, 1999,
six of the Company's products have been approved by the Food and Drug
Administration ("FDA") for marketing and are commercially available and one
product was in active development. To date the Company has not generated
sufficient revenues from its approved products to fund its operating activities
and has sustained significant operating losses each year since inception. In
addition, the Company expects operating losses to continue through 2000.

RECENT DEVELOPMENTS
On August 2, 1999, the Company completed a $5.0 million financing transaction
with UBS Capital II, LLC, a subsidiary of UBS AG. The funding consisted of 2,950
shares of the Company's Series B Preferred Stock for an aggregate purchase
price of $2.95 million and $2.05 million of debt in the form of a line of
credit. The Series B Convertible Preferred Stock may be converted prior to
August 2, 2009 into common shares at a price of $6.50 per share and carries a
7.5% coupon. Amounts outstanding under this line of credit bear an interest rate
of 7.5% and mature on August 2, 2002. The Company has not drawn on this debt
however expects to in 2000.

In connection with the financing, UBS Capital also received two seven-year
warrants. One of the warrants entitles UBS Capital to receive, upon payment of
the $2.05 million exercise price, either 2,05o million of Series C Convertible
Preferred Stock (which is similar to the Series B Convertible Preferred Stock
and which is convertible into share of Series D Non-Voting Preferred Stock and
also has a conversion price of $6.50 per share) or 315,385 shares of Series D
Non-Voting Preferred Stock (which is equivalent to common stock except that it
has no voting rights) or a combination of Series C Convertible Preferred Stock
and Series D Non-Voting Preferred Stock, so long as the combined purchase price
for the shares does not exceed $2.05 million. The other warrant, issued in
relation to the debt, entitles UBS Capital to purchase 282,353 shares of Series
D



                                       8
<PAGE>

Non-Voting Preferred Stock at an exercise price of $4.25 per share. The Company
can require exercise of both warrants, in whole or in part, any time after July
23, 2002 in the event the last sale price of the Company's common stock is
greater or equal to $13 per share for ten (10) consecutive trading days
immediately preceding the date the Company gives notice to the holder of its
intention to require exercise of the warrant.

All series of stock and warrants issued in connection with the UBS financing
transaction have antidilution provisions.

The financing triggered antidilution provisions relating to the $8.1 million of
the Senior Preferred Stock held by UBS Capital as of August 1 (after giving
effect to the semi-annual in-kind dividend distributions, the most recent of
which was August 1, 1999), which resulted in a decrease in the conversion price
of those shares from $8.50 to $8.14 per share.

THREE MONTHS ENDED SEPTEMBER 30, 1999 VS. THREE MONTHS ENDED SEPTEMBER 30, 1998
Net loss applicable to common shareholders was $1.4 million for the three months
ended September 30, 1999 compared to $2.3 million for the three months ended
September 30, 1998. The decrease in the loss results principally from increases
in sales resulting from the commercialization of Busulfex(R) (busulfan)
Injection and lower research and development spending. In addition, the Company
had higher sales and marketing spending for Busulfex. The preferred stock
dividend increased the net loss applicable to common shareholders.

Net sales increased 73% to $1.4 million for the three months ended September 30,
1999 compared to $0.9 million the prior year. The increase in net sales reflects
the addition of Busulfex to the Company's commercialized products in February
1999. Sales of Busulfex are less than the Company's expectations as a result of
slower penetration into the market. This is a result of the FDA's approval of a
more restricted indication than planned, outpatient use of oral busulfan growing
faster than anticipated, and the complex, time-consuming process in getting
transplant centers to change their protocols. The Company is aware of an
academic study to evaluate once or twice a day dosing of Busulfex in order that
it might be used on an outpatient basis. The Company expects sales of Busulfex
to increase in future periods as more hospitals include Busulfex in their
treatment protocols, however United States market penetration will be slower
than anticipated. The Company has also signed a definitive agreement with Pierre
Fabre Medicament, granting the French company exclusive rights to market and
distribute Busulfex in 21 European countries, Argentina, and South Africa. The
Company also received approval from Canada's Therapeutic Products Programme
(TPP) to market Busulfex in that country. The approved indication provides for
use of Busulfex as a conditioning regimen prior to bone marrow or hematopoietic
progenitor cell transplantation, when used in combination with other
chemotherapeutic agents and/or radiotherapy. Indications under the approval
include acute lymphocytic leukemia, acute non-lymphocytic leukemia, acute
myeloid leukemia, chronic myeloid leukemia, non-Hodgkin's lymphoma, Hodgkin's
disease, multiple myeloma, myelodysplastic syndrome, breast cancer, ovarian
cancer and several genetic diseases. The sales of Antizol(R) (fomepizole)
Injection were slightly above the Company's expectations. Sales of Elliotts B
Solution, Cystadane, Antizol-Vet, and Sucraid are consistent with the Company's
expectations for 1999.



                                       9
<PAGE>

Gross profit margins increased to 85% for the 1999 quarter compared to 70% for
the 1998 quarter. Cost of sales was $0.2 million for the three months ended
September 30, 1999 compared to $0.3 million for the same period the prior year.
Cost of sales as a percentage of net sales will fluctuate from quarter to
quarter and from year to year depending on, among other factors, demand for the
Company's products, new product introductions and the mix of approved products
shipped.

Research and development expense decreased 42% from $1.8 million for the three
months ended September 30, 1998 to $1.0 million for three months ended September
30, 1999. The decrease results from lower research and development spending on
Busulfex offset by increased spending for Xyrem(R) (sodium oxybate) oral
solution. The prior year's quarter included research and development spending on
products whose clinical trials have been concluded, the most significant which
is busulfex. The Company met with the FDA in the third quarter to determine the
NDA requirements for Xyrem. Development activities were slowed until the outcome
of this meeting was known. The Company expects research and development expense
to increase significantly over current levels in subsequent quarters due to an
acceleration of the development plans for Xyrem. In February 1999, the Company
began shipping Xyrem for use in its Treatment IND trial and expects to charge
enrolled patients for the drug utilized in the trial. Any income generated by
the Treatment IND, which is not expected to be material, will be used to offset
development expense. Clinical spending for Xyrem will continue to be dependent
on a number of factors, including among others: the number of human subjects
required for a trial, the number of human subjects screened and enrolled in a
trial, and the number of active clinical sites.

Sales and marketing expense increased 50% from $0.6 million for the three months
ended September 30, 1998 to $0.9 million for the three months ended September
30, 1999. This increase is largely attributable to significantly higher spending
related to the commercialization of Busulfex. Sales and marketing expenses will
likely continue to increase in subsequent quarters.

General and administrative expense was consistent from period to period and
remained $0.6 million. General and administrative expenses are not expected to
increase significantly in subsequent quarters.

Other income is the sum of interest income from investment activities less
interest expense from financing activities. The decrease from the prior year is
the result of lower balances available for investment.

Preferred stock dividends relate to the Senior Convertible Preferred Stock that
was issued on July 23, 1998 and Series B Convertible Preferred Stock that was
issued on August 2, 1999. Each series has a dividend rate of 7.5%. Both
preferred stock dividends are cumulative and payable in arrears, when and as
declared by the Company's Board of Directors on August 1 and February 1 of each
year. Preferred stock dividends were $0.2 million for the three months ended
September 30, 1999 compared to $0.1 million for the same period the prior year.
The Company intends to satisfy its dividend payment obligations by the issuance
of additional preferred stock through August 1, 2000, which will cause preferred
stock dividends to increase in subsequent quarters.



                                       10
<PAGE>

NINE MONTHS ENDED SEPTEMBER 30, 1999 VS. NINE MONTHS ENDED SEPTEMBER 30, 1998
Net loss applicable to common shareholders was $4.7 million for the nine months
ended September 30, 1999 compared to $6.4 million for the nine months ended
September 30, 1998. The decrease in the loss results principally from higher
sales volume resulting from the commercialization of Busulfex and lower research
and development spending for Busulfex, offset by higher research and development
spending for Xyrem and increases in sales and marketing and general and
administrative expenses. The Company had higher sales and marketing spending for
Busulfex as a result of the commercialization of the product in February 1999.
The Company also had increased general and administrative expense resulting from
compensation expense associated with staffing increases.

Net sales increased 23% to $4.4 million for the nine months ended September 30,
1999 compared to $3.5 million for the nine months ended September 30, 1998. The
increase in net sales reflects the addition of Busulfex to the Company's
commercialized products in February 1999. As indicated above, sales of Busulfex
are less than anticipated as a result of slower than penetration into the
market. The Company expects sales of Busulfex to increase in future periods, as
more hospitals include Busulfex in their treatment protocols. The sales of
Antizol will be at lower levels on an annualized basis than in1998 since future
orders will most likely be based on use as poisonings occur. Sales of Elliotts B
Solution, Cystadane, Antizol-Vet, Antizol, and Sucraid are consistent with the
Company's expectations for 1999 and are not expected to increase significantly
in future periods.

Gross profit margins increased to 83% for the nine months ended September 30,
1999 compared to 77% for the same period the prior year. Cost of sales for the
period ended September 30, 1999 was $0.7 million compared to $0.8 million for
the same period the prior year. Cost of sales as a percentage of net sales will
fluctuate from quarter to quarter and from year to year depending on, among
other factors, demand for the Company's products, new product introductions and
the mix of approved products shipped.

Research and development expense decreased 31% to $3.7 million for the nine
months ended September 30, 1999 compared to $5.4 million for the same period the
prior year. This number largely reflects increased spending for Xyrem, and the
prior year's period included research and development spending on products whose
clinical trials have been concluded, the most significant being Busulfex. The
Company expects research and development expense to increase significantly over
current levels in subsequent quarters due to an acceleration of the development
plans for Xyrem. In February 1999, the Company began shipping Xyrem for use in
its Treatment IND trial and expects to charge enrolled patients for the drug
used in the trial. Any income generated by the Treatment IND, which is not
expected to be material, will be used to offset development expense. Clinical
spending for Xyrem will continue to be dependent on a number of factors,
including among others: the number of human subjects required for a trial, the
number of human subjects screened and enrolled in a trial, and the number of
active clinical sites.

Sales and marketing expense increased 27% to $2.4 million for the nine months
ended September 30, 1999 from $1.9 million for the nine months ended September
30, 1998. This increase is largely attributable to higher spending related to
the commercialization of Busulfex. Sales and marketing expenses will likely
increase in subsequent quarters.

General and administrative expense increased 6% to $2.0 million for the nine
months



                                       11
<PAGE>

ended September 30, 1999 from $1.9 million for the same period the prior year.
This increase is principally related to increased salary expense resulting from
staffing increases and salary adjustments. General and administrative expenses
are not expected to increase significantly in subsequent quarters.

Other income is the sum of interest income from investment activities less
interest expense from financing activities. The increase from the prior year is
the result of additional invested funds from the successful preferred stock
offering in the third quarter of 1998 and the settlement of the Company's
obligation to Chronimed in December 1998.

Preferred stock dividends relate to the Senior Convertible Preferred Stock that
was issued on July 23, 1998 and Series B Convertible Preferred Stock issued
August 2, 1999. Preferred stock dividends were $0.5 million for the nine months
ended September 30, 1999 compared to $0.1 million for the nine months ended
September 30, 1998.




                                       12
<PAGE>



LIQUIDITY AND CAPITAL RESOURCES
Since July 2, 1994, the effective date the Company was spun-off from Chronimed,
it has financed its operations principally from initial working capital
balances, the net proceeds from the 1995 and 1996 public offerings, the net
proceeds from the 1998 and 1999 private placements of preferred stock, interest
income and product sales. The 1995 and 1996 public offerings, and both private
placements, resulted in aggregate net proceeds, after commissions and expenses,
of $33.5 million.

Net working capital (current assets less current liabilities) decreased from
$5.3 million at December 31, 1998 to $4.1 million at September 30, 1999. Cash
and cash equivalents, and available-for-sale securities decreased from $7.5
million at December 31, 1998 to $5.7 million at September 30, 1999. The Company
continues to invest its excess cash in interest-bearing, investment grade
securities. The Company has a $0.5 million commercial revolving line of credit
with a bank, expiring on May 15, 2000. As discussed previously, the Company has
obtained a $2.05 million line of credit facility with UBS capital bearing
interest at 7.5% maturing on August 2, 2002.

The Company's commitments for outside development spending decreased from
approximately $3.4 million at December 31, 1998 to $2.7 million at September 30,
1999. The decrease resulted principally from the commercialization of Busulfex
offset by additional commitments for the development of Xyrem. The Company
expects additional future commitments for Xyrem as the product advances toward
NDA submission to the FDA.

The Company has experienced recurring losses from operations since inception,
with continuing losses expected through at least the end of fiscal 2000. The
Company believes that its current working capital and anticipated gross profits
from product sales will be sufficient to fund its operations through December
31, 2000. These assumptions are based upon the Company substantially increasing
development expenses and revenues from the sale of its six marketed products.
These conditions give rise to the question about the Company's ability to
generate positive cash flow and fund operations. Any material reduction in
projected revenues will require the Company to seek additional equity or debt
financing or substantially reduce the Company's expense structure through
reductions in personnel and development.

The Company's ability to raise additional capital and/or raise capital on
acceptable terms could be negatively affected in the event it no longer meets
the Nasdaq's requirements for continued listing on the National Market. For
continued listing on the Nasdaq National Market, a company must satisfy a number
of requirements, which in the Company's case includes either: (1) net tangible
assets in excess of $4.0 million as reported on Form 10-Q or Form 10-K or (2) a
market capitalization of at least $50.0 million. At September 30, 1999, the
Company's net tangible assets equaled $4.4 million and its market capitalization
was approximately $44.5 million (based on the last sale price of $6.75 and
6,588,707 shares outstanding). Net tangible assets are defined as total assets,
less any intangible assets, less total liabilities. The Company is continuing to
seek additional capital to ensure compliance with the Nasdaq requirements and
maintain its Nasdaq listing. As long as the Company meets at least one of the
aforementioned Nasdaq listing requirements, the Company's Common Stock would
qualify for listing on the Nasdaq National Market. If the Company did not meet
either of the Nasdaq requirements, the Company would qualify



                                       13
<PAGE>

for quotation on the Nasdaq Small Cap Market provided it had net tangible assets
in excess of $2.0 million.

IMPACT OF YEAR 2000 READINESS ISSUE
The Company has assessed and continues to assess the impact of the so called
"Year 2000 Readiness Issue" on its reporting systems and operations. The Year
2000 Readiness Issue relates to the ability of computer hardware, software, and
firmware products to accurately process date/time data (including calculating,
comparing, and sequencing) from, into, and between the twentieth and
twenty-first centuries, and the years 1999 and 2000 and leap year calculations.
The Year 2000 Readiness Issue also relates to the ability to properly exchange
time/date data between such products. When the year 2000 occurs, systems that
are not year 2000 compliant might recognize the year 2000 as the year 1900, or
not at all. This inability to recognize or properly treat the year 2000 may
cause the Company's systems, or the systems used by its suppliers, distributors,
customers or regulatory agencies (i.e., FDA) to process critical financial and
operational information incorrectly, or not at all.

The Company's information technology ("IT") systems consist of computer hardware
systems and software applications supplied by third parties. The Company's
strategy has been to replace its IT systems with current technology, which is
both year 2000 compliant and more efficient. The Company has also purchased and
implemented financial and operational software upgrades that are year 2000
compliant. For the three and nine months ended September 30, 1999, the Company
IT system purchases have not been material. The Company's IT systems are year
2000 compliant.

The Company's assessment of internal systems includes a review of
non-information technology ("non IT") systems. This assessment includes a review
of the Company's internal equipment and facilities. Based upon this review, the
Company believes that its processes and equipment are year 2000 compliant.

The Company has identified third parties with which it has material
relationships, including suppliers, distributors and other key vendors of
materials and services. The Company has confirmed with these parties or
organizations that they have implemented Year 2000 Readiness Programs. The
Company has not developed a contingency plan to provide for continuity of
business operations in the event material third parties experience a disruption
of service due to the Year 2000 Readiness Issue, which could include, but not
limited to, loss of electricity, loss of communications (data and voice), and
loss of transportation services. However, even if all material third parties
confirm that they are or expect to be year 2000 compliant by December 31, 1999,
it is not possible to state with certainty that such parties will be compliant.
If the Company's remediation plan is not successful, or if third party systems
on which the Company relies should fail, there could be a significant disruption
of the Company's ability to transact business with its customers and suppliers.
It is impossible to fully assess the potential consequences in the event service
interruptions from suppliers occur or in the event that there are disruptions in
such infrastructure areas as utilities, communications, transportation, banking
and government.



                                       14
<PAGE>


PART II  -  OTHER INFORMATION

Items 1, 3, 4 and 5 are not applicable.

Item 2. Changes in Securities and Use of Proceeds

On August 2, 1999, the Company issued 2,950 shares of Series B Convertible
Preferred Stock (the "Preferred Shares") in a private placement.

On August 2, 1999, the Company issued 2,950 shares of Series B Convertible
Preferred Stock (the "Series B Preferred Shares") in a private placement. The
private placement, which did not involve a public offering of the shares, was
exempt from registration under Section 4 (2) of the Securities Act of 1933, as
amended. These shares are entitled to receive cumulative dividends at $75.00 per
annum (or more in certain circumstances) and have both dividend and liquidation
preferences over the Common Stock. The Series B Preferred Shares are
convertible, at the option of the holder, into shares of the Company's Common
Stock at a price equal to $6.50 per share. On the tenth anniversary of the
issuance date, the Company must either (i) convert the shares into Common Stock,
subject to a $1.2 million conversion fee payable in additional Common Stock, or
(ii) redeem the shares for cash at $1,000 per share plus accrued dividends. In
addition, the Company may not take certain actions without the approval of the
Preferred Shares holders.

On August 2, 1999, the Company issued warrants to purchase 2,050 shares of
Series C Convertible Preferred Stock (the "Series C Preferred Shares") or to
purchase 315,385 shares of the Series D Convertible Preferred Stock (the "Series
D Preferred Shares") in a private. The Series C Preferred Shares, if issued, are
convertible, at the option of the holder, into shares of the Company's Common
Stock at a price equal to $6.50 per share. On the tenth anniversary of the
issuance date, the Company must either (i) convert the shares into Common Stock,
subject to a $0.8 million conversion fee payable in additional Common Stock, or
(ii) redeem the shares for cash at $1,000 per share plus accrued dividends. The
Series D Preferred Shares, if issued, automatically convert into shares of the
Company's Common Stock upon transfer to a permitted investor. If such shares are
subsequently transferred to a person that is not a permitted investor the shares
of common stock so transferred automatically convert back into shares of Series
D Non-Voting Preferred Stock. A permitted investor is defined in Article III,
Section % of the Certificate of Designation, which is attached to this report as
Exhibit 3.1. The Series C Preferred Shares, if issued, are entitled to receive
cumulative dividends at $75.00 per annum (or more in certain circumstances) and
have both dividend and liquidation preferences over the Common Stock. The Series
D Preferred Shares have no dividends and no liquidation preferences.




                                       15
<PAGE>





Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT INDEX
------------------- --------------------------------------------------------------------- ---------------------------
Exhibit Number                                                                            Sequentially
                    Description                                                           Numbered Page
------------------- --------------------------------------------------------------------- ---------------------------
<S>                 <C>                                                                    <C>
3.1                 Certificate of Designation for Series B, C and D Preferred Stock                  18
------------------- --------------------------------------------------------------------- ---------------------------
4.1                 Warrant to purchase shares of Series C Convertible Preferred Stock                38
                    or Series D Non-Voting Preferred Stock
------------------- --------------------------------------------------------------------- ---------------------------
4.2                 Warrant to purchase shares Series D Non-Voting Preferred Stock                    50
------------------- --------------------------------------------------------------------- ---------------------------
10.1                Stock Purchase Agreement between OMI and UBS Capital II LLC dated                 62
                    August 2, 1999
------------------- --------------------------------------------------------------------- ---------------------------
10.2                Promissory Note between OMI and UBS Capital II LLC dated August 2,               101
                    1999
------------------- --------------------------------------------------------------------- ---------------------------
99                  Cautionary Statements                                                            113
------------------- --------------------------------------------------------------------- ---------------------------
27                  Financial Data Schedule - For SEC EDGAR filing                                   126
------------------- --------------------------------------------------------------------- ---------------------------
</TABLE>

(b) Reports on Form 8-K

The Company filed a Form 8-K on August 10, 1999 pertaining to the announcement
of a financing transaction with UBS Capital.



                                       16
<PAGE>



SIGNATURE


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




                                                     Orphan Medical, Inc.
                                                     --------------------
                                                          Registrant


Date  November 12, 1999                       By     /s/ John H. Bullion
      -----------------                              -------------------
                                                       John H. Bullion
                                                    Chief Executive Officer
                                                 (principal executive officer)


                                       17