U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


                  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


                  For the Quarterly Period Ended March 31, 2004


                           Commission File No. 0-24972



                       INKINE PHARMACEUTICAL COMPANY, INC.
             (Exact name of Registrant as specified in its charter)


           New York                                     13-3754005
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)


                            1787 Sentry Parkway West
                             Building 18, Suite 440
                               Blue Bell, PA 19422
                    (Address of principal executive offices)

                                  215-283-6850
                         (Registrant's telephone number)


         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
                                             ---   ---
         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).  YES  X   NO
                                            ---    ---

         At May 7, 2004, the registrant had outstanding 48,666,674 shares of
common stock, par value $.0001 per share.


<PAGE>
<TABLE>
<CAPTION>

<S>                                                              <C>                                        <C>


                                                  INKINE PHARMACEUTICAL COMPANY, INC.

                                                                 INDEX

                                                                                                           Page
PART I - FINANCIAL INFORMATION

         Item 1.  Financial Statements

                  BALANCE SHEETS - as of March 31, 2004 (unaudited) and
                  December 31, 2003...............................................................................3

                  STATEMENTS OF OPERATIONS (unaudited) - for the Three-Months
                  Ended March 31, 2004 and 2003...................................................................4

                  STATEMENTS OF CASH FLOWS (unaudited) - for the Three-Months Ended March 31, 2004 and 2003.......5

                  NOTES TO FINANCIAL STATEMENTS (unaudited).......................................................6

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

         Item 3.  Quantitative and Qualitative Disclosures About Market Risks....................................20

         Item 4.  Controls and Procedures........................................................................21

PART II - OTHER INFORMATION......................................................................................21

         Item 1.  Legal Proceedings..............................................................................21

         Item 2.  Changes in Securities and Use of Proceeds......................................................21

         Item 3.  Defaults Upon Senior Securities................................................................21

         Item 4.  Submission of Matters to a Vote of Security Holders............................................21

         Item 5.  Other Information..............................................................................21

         Item 6.  Exhibits and Reports on Form 8-K...............................................................22

SIGNATURES.......................................................................................................23

EXHIBITS INDEX...................................................................................................24

</TABLE>

                                       2
<PAGE>


PART I -- FINANCIAL INFORMATION

Item 1.  Financial Statements
<TABLE>
<CAPTION>
<S>                                                                    <C>                 <C>

                                                  INKINE PHARMACEUTICAL COMPANY, INC.

                                                            BALANCE SHEETS

                                          (in thousands, except share and per share amounts)


                                                                          March 31, 2004    December 31, 2003
                                                                       ------------------- -------------------
        ASSETS                                                               (unaudited)

Current assets:
     Cash and cash equivalents........................................      $      10,244      $     10,442
     Accounts receivable..............................................              2,528             1,170
     Inventory........................................................              1,480               780
     Prepaid expenses and other current assets........................                536               727
                                                                            -------------      ------------
         Total current assets.........................................             14,788            13,119

Fixed assets..........................................................                393               124
Deposits .............................................................                 57                54
                                                                            -------------      ------------
         Total assets.................................................      $      15,238      $     13,297
                                                                            =============      ============

         LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable.................................................      $       1,639      $        805
     Accrued expenses.................................................              1,862             1,863
       Line of credit.................................................              1,000               ---
                                                                            -------------      ------------
              Total current liabilities...............................              4,501             2,668

Shareholders' equity:
     Preferred stock, $0.0001 par value; authorized 5,000,000
         shares; none issued and outstanding .........................               ---                ---
     Common stock, $0.0001 par value; authorized 75,000,000
         shares; issued 48,652,939 shares.............................                  5                 5
     Less common stock held in treasury (16,515 shares)...............               (37)               (37)
     Additional paid-in capital.......................................             82,797            82,587
     Deferred compensation............................................               (24)               ---
     Accumulated deficit..............................................           (72,004)           (71,926)
                                                                            -------------      ------------
         Total shareholders' equity ..................................             10,737            10,629
                                                                            -------------      ------------
         Total liabilities and shareholders' equity...................      $      15,238     $      13,297
                                                                            =============      ============

            See accompanying notes to unaudited financial statements.

</TABLE>
                                       3

<PAGE>

<TABLE>
<CAPTION>
<S>                                                                         <C>                <C>


                                                  INKINE PHARMACEUTICAL COMPANY, INC.

                                                       STATEMENTS OF OPERATIONS
                                                              (unaudited)

                                               (in thousands, except per share amounts)


                                                                             Three-Months Ended March 31,
                                                                            -------------------------------
                                                                                2004                2003
                                                                            -------------      ------------

Product revenue...........................................................  $       4,350             2,536
Other revenue.............................................................            283               ---
                                                                            -------------      ------------
   Revenue................................................................          4,633             2,536

Cost of goods sold........................................................           (491)             (389)
                                                                            -------------      ------------
   Gross profit...........................................................          4,142             2,147

Cost and expenses:
   Research and development...............................................            922               341
   Sales and marketing....................................................          1,949             1,420
   General and administrative.............................................            785               513
   Withdrawn public offering and litigation...............................            567               ---
                                                                            -------------      ------------
     Operating expenses...................................................          4,223             2,274
                                                                            -------------      ------------
   Loss from operations...................................................            (81)             (127)

Interest income...........................................................             10                14
Interest expense..........................................................             (7)             (351)
Non-cash accretion and cash premium.......................................            ---              (467)
                                                                            -------------      ------------
   Net loss...............................................................    $       (78)         $   (931)
                                                                            =============      ============
   Net loss per share - basic and diluted.................................    $      0.00          $  (0.02)
                                                                            =============      ============
    Weighted average shares outstanding - basic and diluted...............         48,547            37,796



            See accompanying notes to unaudited financial statements.
</TABLE>

                                       4

<PAGE>

<TABLE>
<CAPTION>
<S>                                                                         <C>                <C>



                                                  INKINE PHARMACEUTICAL COMPANY, INC.

                                                       STATEMENTS OF CASH FLOWS
                                                              (unaudited)

                                                             (in thousands)

                                                                               Three-Months Ended March 31,
                                                                            -------------------------------
                                                                                 2004              2003
                                                                            -------------      ------------
Operating activities:

   Net loss ..........................................................      $         (78)      $      (931)
   Adjustments to reconcile net loss to net cash used in
     operating activities:
     Depreciation.....................................................                 33                41
     Amortization of deferred compensation............................                  8               ---
     Amortization of beneficial conversion, warrant interest and premium
        accretion.....................................................                ---               467
   Changes in operating assets and liabilities:
     (Increase) in accounts receivable................................             (1,358)             (636)
     (Increase) in inventory .........................................               (700)              (25)
     (Increase) decrease in prepaid expenses and other assets ........                188              (352)
     Increase (decrease) in accounts payable and accrued expenses ....                833               (20)
                                                                            -------------      ------------
Net cash used in operating activities.................................             (1,074)           (1,456)
Investing activities:
     Capital expenditures.............................................               (302)              ---
                                                                            -------------      ------------
Net cash used in investing activities.................................               (302)              ---
Financing activities:
     Proceeds from exercise of options and warrants - net of expenses                 178               ---
     Borrowings, net of repayments on line of credit .................              1,000               (10)
                                                                            -------------      ------------
Net cash provided by (used in) financing activities ..................              1,178               (10)
Net decrease in cash and cash equivalents ............................               (198)           (1,466)
Cash and cash equivalents - beginning of period ......................             10,442            12,151
                                                                            -------------      ------------
Cash and cash equivalents - end of period ............................      $      10,244      $     10,685
                                                                            =============      ============



            See accompanying notes to unaudited financial statements.
</TABLE>


                                       5
<PAGE>


                       INKINE PHARMACEUTICAL COMPANY, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (unaudited)

         In this Quarterly Report, "InKine," "we," "us" and "our" refer to
InKine Pharmaceutical Company, Inc. and "Common Stock" refers to InKine's common
stock, par value $0.0001 per share.

1.  Organization and Business Activities

     We are a specialty pharmaceutical company focused on acquiring,  developing
and  commercializing  pharmaceutical  products  for use to  diagnose  and  treat
gastrointestinal  disorders.  Our  development  strategy  has  been  to  acquire
late-stage drug candidates with short expected time lines to  commercialization.
We  currently  market and sell three  pharmaceutical  products,  Visicol(R)  and
IB-Stat(R).   We  are  also  studying  Visicol(R),VSL#3  for  the  treatment  of
constipation  and for  use  prior  to  certain  pre-operative  gastrointestinal,
gynecological and urological  surgical  procedures.  In addition to our marketed
products,  we are studying  INKP-102 as a new generation  purgative  product and
Colirest(TM)  for the  treatment of patients  with  Inflammatory  Bowel  Disease
(IBD).

2.  Basis of Presentation

     The accompanying  financial statements are unaudited and have been prepared
by us in accordance with accounting  principles generally accepted in the United
States of America.

     Certain  information  and  footnote  disclosures  normally  included in our
audited  annual  financial  statements  have been  condensed  or  omitted in our
interim financial  statements.  We believe that the interim financial statements
reflect all adjustments  (consisting of normal recurring  adjustments) necessary
for a fair representation of the results for the interim periods presented.

     The results of operations  for the interim  periods may not  necessarily be
indicative  of the  results of  operations  expected  for the full  year.  These
interim  financial  statements  should be read in  conjunction  with the audited
financial  statements for the year ended December 31, 2003,  which are contained
in our most recent Annual Report on Form 10-K.

3.  Use of Estimates

     The  preparation of the financial  statements in conformity with accounting
principles  generally  accepted in the United  States of America  requires us to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date(s)
of the financial  statements  and the reported  amounts of revenues and expenses
during  the  reporting  period(s).   Actual  results  could  differ  from  those
estimates.

4.  Allowance for Sales Returns

     We maintain an allowance for potential future sales returns. This allowance
is evaluated on a quarterly basis based on product  characteristics,  wholesaler
stocking  patterns,  and prescription  trends. At March 31, 2004, we had a sales
returns  allowance  of $148,000  that was  included  in accrued  expenses on the
balance sheet.  The following is an analysis of the sales returns  allowance for
the three-month period ended March 31, 2004:

         Allowance at December 31, 2003               $126,000
         Provision for estimated sales returns          45,000
         Actual sales returns                          (23,000)
                                                       -------
                  Allowance at March 31, 2004         $148,000
                                                     =========

                                       6
<PAGE>



5.  Deferred Revenue

     For  IB-Stat(R),  we recognize  revenue based on  prescription  data.  This
practice will continue until such time as data becomes  available that indicates
that the product has achieved adequate market acceptance and that future product
returns can be reasonably  estimated.  As a result,  we have  recorded  deferred
revenue of $222,000  that was included in accrued  expenses on the balance sheet
as of March 31, 2004.

6.  Line of Credit

     We maintain a $7,500,000 line of credit with a financial institution, which
expires January 31, 2005. Monthly interest-only  payments are made at a variable
per annum rate of 2.20% plus the 30-day Dealer  Commercial  Paper Rate. At March
31, 2004,  $1,000,000  was  outstanding  under this line of credit at an average
interest rate of 3.21%.

7.  Withdrawn Public Offering and Litigation

     On March 15, 2004, we withdrew a public  offering of six million  shares of
our common stock.  We wrote off $379,000 of costs related to the offering during
the quarter ended March 31, 2004. The decision to withdraw the offering was made
when it came to our attention  that our  certificate of  incorporation  does not
contain any provision exempting the Company from providing  preemptive rights in
connection  with certain  securities  offerings.  On March 19, 2004, a purported
class  action  lawsuit for breach of  contract  was filed in the Court of Common
Pleas,  Philadelphia  County, on behalf of a putative class of holders of InKine
equity shares who have purportedly been denied certain claimed preemptive rights
during the last six years.  The lawsuit  names the Company as the  defendant and
seeks unspecified  compensatory damages. We have incurred approximately $188,000
in legal costs related to preemptive rights and the lawsuit. In our statement of
operations,  we have included both the $379,000 in written-off  costs related to
the  withdrawn  offering and the $188,000 in legal costs  related to  preemptive
rights  and  the  lawsuit  in the  line  item  "Withdrawn  public  offering  and
litigation."  On May 7, 2004, we received a $500,000  payment from a third-party
as  reimbursement  for these  costs.  We  believe  that we will  continue  to be
entitled  to  reimbursement  from  third-parties  for any  costs,  expenses  and
liabilities  incurred in  connection  with the purported  class action  lawsuit.
However,  no  assurance  can be  given  that  we  will  obtain  such  additional
reimbursement or that any such liability will not be material.

8.  Stock-Based Compensation

     We apply the intrinsic  method of accounting for all  stock-based  employee
compensation  in  accordance  with APB No. 25  "Accounting  for Stock  Issued to
Employees," and related  interpretations.  We record deferred  compensation  for
option grants to employees for the amount, if any, by which the market price per
share on the grant date exceeds the exercise price per share. We generally grant
our stock options with  exercise  prices equal to fair market value on the grant
date.

     We have elected to adopt the  disclosure  only  provisions of SFAS No. 123,
"Accounting  for Stock-Based  Compensation"  (SFAS No. 123"), as amended by SFAS
No. 148,  "Accounting for  Stock-Based  Compensation - Transition and Disclosure
(SFAS No. 148")." The following table illustrates the effect on our net loss and
basic and diluted loss per share if we had recorded compensation expense for the
estimated fair value of our stock-based employee  compensation,  consistent with
SFAS No. 123:
<TABLE>
<CAPTION>
       <S>                                                        <C>               <C>
                                                                        Three-Months Ended
                                                                      March 31,        March 31,
                                                                        2004            2003
                                                                        ----            ----
        Net loss - as reported..................................  $        (78)      $      (931)
        Deduct: Total stock based employee compensation.........          (718)             (739)
                                                                  -------------      ------------
        Net loss - pro forma....................................  $       (796)      $    (1,670)
                                                                  =============      ============

        Basis and diluted loss per share - as reported..........  $        0.00      $     (0.02)
                                                                  =============      ============
        Basis and diluted loss per share - pro forma............  $      (0.02)      $     (0.04)
                                                                  =============      ============
                                       7
<PAGE>

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
</TABLE>

     You should read the following discussion in conjunction with "Certain Risks
Related  to Our  Business"  and our  unaudited  condensed  financial  statements
included  elsewhere  in this report.  Some of the  statements  in the  following
discussion  are   forward-looking   statements.   See  "Special  Note  Regarding
Forward-Looking Statements."

General

     We are a specialty pharmaceutical company focused on acquiring,  developing
and  commercializing  pharmaceutical  products  for use to  diagnose  and  treat
gastrointestinal  disorders.  Our  development  strategy  has  been  to  acquire
late-stage drug candidates with short expected time lines to  commercialization.
We currently market and sell two pharmaceutical  products,  Visicol and IB-Stat.
We are also studying Visicol for the treatment of constipation and for use prior
to certain pre-operative gastrointestinal, gynecological and urological surgical
procedures.  In addition to our marketed products, we are studying INKP-102 as a
new generation purgative product and Colirest for the treatment of patients with
Inflammatory Bowel Disease (IBD).

     The following table outlines our current product pipeline, on which we have
focused the majority of our research,  development,  marketing and sales efforts
since inception. The table also sets forth the current development status of our
products and product candidates in each targeted therapeutic indication:
<TABLE>
<CAPTION>
<S>                             <C>                                     <C>

        Product                     Therapeutic Indications                   Development Status
        -------                --------------------------------------   -----------------------------------
 Visicol                       o    Colon cleansing prior               FDA approved; marketed product
                                    to colonoscopy

                               o    Constipation                        Post marketing study completed
                                                                        Phase IV completed

                               o    Pre-operative colonic               Phase IV will commence during 2004
                                    surgical procedures

INKP-102                       o    Colon cleansing prior               Phase II ongoing
(next generation purgative)         to colonoscopy

IB-Stat                        o    Symptoms associated                 Marketed product
                                    with Irritable Bowel Syndrome (IBS)

                               o    Reduction of bowel
                                    motility during certain diagnostic
                                    procedures

Colirest                       o    Crohn's disease and ulcerative      Phase II Crohn's disease complete
                                    colitis,collectively                Phase II ulcerative colitis
                                    complete IBD                        Phase IIb Crohn's disease on-going
</TABLE>


     In September  2000,  we received  notification  that our flagship  product,
Visicol, was approved for marketing as a preparation for colonoscopy.  Following
this notification,  we immediately  commenced marketing and sales efforts and in
January  2001,  we  began  shipping  Visicol  to  our  customers.  During  2001,
gastroenterologists  reported the  visualization of  microcrystalline  cellulose
(MCC) in some patients receiving Visicol tablets. MCC is a commonly used, inert,
but  highly  insoluble  substance  that  binds and fills  Visicol  tablets.  The
presence of MCC may lengthen the  colonoscopy  procedure and therefore  deterred
some  gastroenterologists  from prescribing  Visicol. As a result, 2001 revenues
were adversely affected.

     We adopted three  strategies for overcoming the issue of MCC  visualization
during a colonoscopy.  First,  in October 2001, we conducted a Phase IV clinical
study, which showed that Visicol's efficacy at a reduced dosing regimen (20% and
30% less tablets and clear liquid  volume) was  comparable  to the labeled dose,
with significantly  reduced MCC visualization.  Secondly, in March 2002, the FDA
approved a supplemental  new drug application  (SNDA),  for a new formulation of
Visicol  containing  approximately  50% less MCC. In May 2002, we began shipping
this new  formulation  to  customers,  and since that time,  we have  become the
fastest growing bowel  preparation for use in patients  undergoing  colonoscopy.
Finally,  during 2003 we developed  and filed a provisional  patent  application
with the U.S.  Patent  and  Trademark  office  for an  MCC-free  new  generation
purgative tablet (INKP-102).
                                       8
<PAGE>

Special Note Regarding Forward-Looking Statements

This  report,  and  other  oral  statements  made  from  time  to  time  by  our
representatives,  contain  forward-looking  statements  within  the  meaning  of
Section 27A of the Securities Act, Section 21E of the Securities Exchange Act of
1934, as amended and the Private  Securities  Litigation Reform Act of 1995 that
are subject to risks and  uncertainties.  You should not place undue reliance on
those statements because they are subject to numerous  uncertainties and factors
relating to our operations and business environment,  all of which are difficult
to predict and many of which are beyond our control.  Forward-looking statements
include  information  concerning  our  possible  or  assumed  future  results of
operations,  including descriptions of our business strategy.  These may include
statements regarding  anticipated  scientific progress on our research programs,
development of potential  pharmaceutical  products,  interpretation  of clinical
results,  prospects  for  regulatory  approval,  manufacturing  development  and
capabilities, market prospects for our products, sales and earnings projections,
and other  statements  regarding  matters that ar not  historical  facts.  These
statements often include words such as "may," "believe," "expect," "anticipate,"
"intend," "plan," "estimate" or similar expressions.  These statements are based
on assumptions that we have made in light of our industry  experience as well as
our  perceptions  of historical  trends,  current  conditions,  expected  future
developments   and  other   factors  we  believe  are   appropriate   under  the
circumstances.  As you read and consider this report, you should understand that
these  statements are not  guarantees of  performance  or results.  They involve
risks,   uncertainties   and   assumptions.   Although  we  believe  that  these
forward-looking  statements are based on reasonable  assumptions,  you should be
aware that many factors could affect our actual financial  results or results of
operations and could cause actual results to differ materially from those in the
forward-looking statements. These factors include but are not limited to:

     o    our limited history of profitability;

     o    our dependence on Visicol; o our ability to manage rapid growth;

     o    our limited sales and marketing experience;

     o    the highcost and uncertainties relating to clinical trials;

     o    market conditions and technological innovation;

     o    the  unpredictability  of the duration and results of clinical  trials
          and regulatory review;

     o    other risks and  uncertainties  discussed  under the caption  "Certain
          Risks  Related to Our  Business"  and elsewhere in this report and the
          documents   incorporated   by   reference;   and  o  other  risks  and
          uncertainties  as may be  detailed  from  time to  time in our  public
          announcements and SEC filings.

You should keep in mind that any  forward-looking  statement  made by us in this
report,  or  elsewhere,  speaks only as of the date on which we make it.  Actual
results could differ materially from those currently  anticipated as a result of
a number of factors,  including, but not limited to, the risks and uncertainties
discussed  under the caption  "Certain Risks Related to Our Business." New risks
and  uncertainties  come up from time to time,  and it is  impossible  for us to
predict  these  events or how they may affect us. We have no duty to, and do not
intend to, update or revise the forward-looking  statements in this report after
the date of this report. In light of these risks and  uncertainties,  you should
keep in mind that any forward-looking statement made in this report or elsewhere
might not occur.

Certain Risks Related to Our Business

Risks related to our business

We have  achieved  profitability  for  only  two  quarters  to date and were not
profitable  during the first  quarter of 2004. If we do not achieve and maintain
our  profitability or if we incur losses in the future,  the price of our common
stock is likely to fall.

     Our first sale of Visicol  occurred  in January  2001 and our first sale of
IB-Stat  occurred in June 2002.  We have a significant  accumulated  deficit and
have incurred  losses and negative cash flow from  operations in each year since
inception on July 1, 1993. We achieved profitability and positive cash flow from
operations  each of the  quarters  in the  second  half of 2003.  For the  first
quarter of 2004,  we were not  profitable  due to costs related to our withdrawn
public  offering and expenses  related to  preemptive  rights and the  purported
class action  lawsuit.  Visicol,  INKP-102,  IB-Stat and Colirest are in various
stages of marketing or development and require significant research, development
and testing.  Visicol provides  substantially all of our revenues. Our continued
success and growth is primarily  dependent on the performance of Visicol.  If we

                                       9
<PAGE>


are unsuccessful in achieving  increased revenues through the sale of Visicol or
through the sale of newly acquired or developed products or if we incur material
costs  related  to our  ongoing  litigation,  we will  not be  able  to  operate
profitably in the future.  Our common stock is likely to decrease in value if we
fail to achieve  and  maintain  profits or if the  market  believes  that we are
unable to achieve and maintain profits.


Our success and revenue  currently  depend on Visicol;  if we do not continue to
successfully  market Visicol,  our revenue might not grow, which could cause our
stock price to decline.

     We market  sodium  phosphate  tablets in the United  States under the brand
name  Visicol,  and if  approved by the FDA,  we intend to market  INKP-102  and
co-market  Colirest in the United  States.  Our prospects over the next three to
five years are substantially  dependent on the successful  commercialization  of
our  products  and  product  candidates.   We  expect  to  engage  in  expensive
advertising, educational programs and other means to market our future products.
The degree of market  acceptance  of our products  among  physicians,  patients,
healthcare payors and the medical community will depend upon a number of factors
including:

      o     demonstration of their clinical efficacy and safety;

      o     successful introduction for new indications;

      o     their cost effectiveness;

      o     their potential advantages over alternative treatment methods;

      o     the marketing and distribution support they receive; and

      o     reimbursement policies of government and third-party payors.

     Virtually all of our revenue to date has come from Visicol.  Our ability to
increase  revenue  in  the  future  will  depend  in  part  on  our  success  in
in-licensing  or  acquiring  additional  pharmaceutical  products.  We currently
intend to in-license or acquire pharmaceutical products that have been developed
beyond the initial  discovery phase and for which late-stage human clinical data
is already available or that have already received  regulatory  approval.  These
kinds of  pharmaceutical  products  might not be available  to us on  attractive
terms or at all.  To the extent we acquire  rights to  additional  products,  we
might incur  significant  additional  expense in connection with the development
and, if approved by the FDA, marketing of these products.

Failure  to manage  our growth  could  increase  our  expenses  faster  than our
revenue.

     We have experienced  significant  growth in the number of our employees and
the scope of our operations.  In support of the May 2002 re-launch of Visicol in
the United  States,  we have grown from 13  employees  on May 31,  2002 to 63 on
March 31, 2004.  This growth has placed a significant  strain on our  management
and  operations.  Our  continued  growth  might  place  further  strains  on our
management and operations.  Our ability to manage growth effectively will depend
upon our ability to broaden our management team and our ability to attract, hire
and retain skilled employees. Our success will also depend on the ability of our
officers and key employees to continue to implement and improve our operational,
management  information and financial  control systems and to expand,  train and
manage our employee base.

If we make any  acquisitions,  we will incur a variety of costs and might  never
successfully integrate the acquired product or business into ours.

     We might attempt to acquire  products or  businesses  that we believe are a
strategic  complement  to our  business  model.  We  might  encounter  operating
difficulties  and  expenditures  relating to integrating an acquired  product or
business. These acquisitions might require significant management attention that
would  otherwise  be  available  for ongoing  development  of our  business.  In
addition, we might never realize the anticipated benefits of any acquisition. We
might  also  make  dilutive  issuances  of  equity  securities,  incur  debt  or
experience a decrease in cash available for our operations,  or incur contingent
liabilities  and/or  amortization   expenses  relating  to  goodwill  and  other
intangible assets, in connection with future acquisitions.

If  third-party  payors do not provide  coverage or  reimburse  patients for our
products, then some patients may be unable or unwilling to purchase our products
and we will achieve less revenue from product sales.

                                       10
<PAGE>

     Successful  sales of our products in the United States and other  countries
depend  on the  availability  of  adequate  reimbursement  from the  government,
managed care organizations and private insurance plans. Pharmaceutical companies
often rely on  reimbursement  from  third  parties as the basis for the sales of
their products.  In the pharmaceutical  industry,  unlike other consumer product
industries, insurance companies, including managed care organizations, often pay

drug stores directly for part of the cost of covered pharmaceutical products. In
fact, the majority of prescription  drugs  prescribed to patients are ultimately
paid for at the  retail  level by these  organizations  and not by the  patient.
These organizations provide for reimbursement only after considering a number of
factors,  including product features such as safety, medical necessity, cost and
the experimental  nature of the product. We plan to spend significant amounts of
time  and  other  resources  to  obtain  reimbursement  for  our  products.  The
organizations  that provide  reimbursement  routinely  limit  reimbursement  and
attempt to exert significant pressure on medical suppliers to provide rebates to
help  offset the cost of covered  medication.  Visicol  and  IB-Stat are premium
priced  compared to their  competitors and we have not  specifically  contracted
with any third party to date to give  rebates for their use. We do not know what
impact,  if any at all,  this will have on the coverage of Visicol or IB-Stat by
these third  party  payors,  particularly  if Visicol  continues  to gain market
share, thus increasing the cost to third party payors.

If we do not have adequate  insurance for product liability claims,  then we may
be subject to significant expenses relating to these claims.

     We are subject to significant product liability risks relating to the sale,
manufacturing  and further testing of the products on the market and the ones we
are developing. These risks include:

      o     our products could cause undesirable side effects or injury;

      o     our product candidates could cause undesirable side effects or
            injury during clinical trials; and

      o     we may agree to reimburse others that incur liability relating to
            our products and product candidates.

     We currently  maintain insurance for product liability claims in the amount
of $10,000,000 per occurrence and  $10,000,000 in the aggregate.  We have no way
of knowing if these  amounts  will be adequate  to cover any  product  liability
claims  filed  against us. If we do not or cannot  maintain  adequate  insurance
coverage,  we may incur a  significant  liability if a product  liability  claim
arises. Moreover, actual or alleged undesirable side effects or injuries related
to our products or product  candidates may interfere with the  commercialization
of our products and the development of our product candidates.

If we do not develop and maintain relationships with manufacturers,  then we may
not successfully manufacture and sell our products.

     We do not possess the capabilities,  resources or facilities to manufacture
Visicol,  IB-Stat  and any of our  product  candidates.  We must  contract  with
manufacturers to produce Visicol,  IB-Stat and our product candidates  according
to government  regulations.  The future development and delivery of our marketed
products  and our  product  candidates  depends on the  timely,  profitable  and
competitive performance of these manufacturers.  There are only a limited number
of manufacturers  capable of manufacturing our marketed products and our product
candidates.  We may fail to contract with the necessary  manufacturers or we may
contract with manufacturers on terms that may not be entirely  acceptable to us.
Our manufacturers  must obtain FDA approval for their  manufacturing  processes,
and we have no control over this approval process.

     We have  contracted  with  Mallinckrodt,  Inc.  to  supply  us with  active
pharmaceutical  ingredients  for Visicol.  A significant  portion of the Visicol
tablet is monobasic and dibasic  sodium  phosphate.  Mallinckrodt  has agreed to
supply these  ingredients in a manner that meets FDA  requirements.  The FDA has
approved the manufacturing  process for these active  ingredients,  but the Drug
Master File for the sodium  phosphate is only for one location at  Mallinckrodt.
If this  location  were to shut down for any reason,  a delay in the delivery of
our active pharmaceutical  ingredients would occur and could impact future sales
of Visicol.  We are currently working towards submitting a Drug Master File with
the FDA for another  Mallinckrodt  facility in order to minimize this risk,  but
there can be no assurance that this Drug Master File will be approved.

     We have contracted with  Pharmaceutical  Manufacturing  Research  Services,
Inc.  (PMRS),  a  manufacturing   development   company,  to  supply  commercial
quantities of Visicol in a manner that meets FDA requirements. Our contract with

                                       11
<PAGE>

PMRS will expire at the end of 2004,  subject to renewal for successive one year
periods   unless   terminated  by  either  party.   The  FDA  has  approved  the
manufacturing processes of PMRS. Any failure by PMRS to maintain compliance with
FDA  standards  could  result  in  its  loss  of  "approved  status"  and  could
significantly  harm our  business  because we do not have an approved  secondary
manufacturer for Visicol. We are currently working with an appropriate secondary
manufacturer of Visicol to obtain FDA approval.

     We have  contracted  with  Cardinal  Health  Packaging  Services to package
Visicol  in a manner  that meets FDA  requirements.  The FDA has  approved  this
facility  for the  packaging  of  Visicol.  In the event  that  Cardinal  Health
Packaging  Services  is  unable  to  package  Visicol  for us,  the FDA has also
approved Fisher Clinical Services, Inc. for packaging of Visicol.

If the  owners  of  technology  licensed  to us  terminate  any  of our  license
agreements,  these owners could  prevent us from  developing,  manufacturing  or
selling the product covered by this license.

     We have acquired the worldwide exclusive right to market Visicol,  INKP-102
and  Colirest  under  various  license  agreements.  Each of the  owners  of the
technology licensed to us may terminate the license prior to its expiration date
under certain  circumstances,  including our failure to comply with  commitments
related to the  development  of the  products  specified  in the  licenses.  For
example,  one of our licensing  agreements requires us to spend specific amounts
for research and development of our product.  If we do not comply with the terms
of this agreement,  the owner of the licensed technology could demand the return
of all  rights to the  licensed  technology,  and force us to cease  developing,
manufacturing or selling the product covered by that license.

If we cannot develop and market our products as rapidly or  cost-effectively  as
our competitors, then we will not be able to achieve and maintain our operations
at a profit.

     We have  products  and  product  candidates  that  compete  in  three  very
competitive segments of the pharmaceutical  industry. These products and product
candidates include: (i) purgative and laxative agents for cleansing the colon or
relieving   constipation,    which   includes   Visicol   and   INKP-102;   (ii)
antispasmodics,  which includes IB-Stat;  and (iii) products that treat patients
with IBD,  which  includes  our  product  candidate  Colirest.  We are likely to
encounter significant competition with respect to Visicol, INKP-102, IB-Stat and
Colirest,  including,  but not  limited  to,  competition  from:  (a)  Braintree
Laboratories,  Inc., Schwarz Pharma Inc., C.B. Fleet Company,  Inc. and Novartis
Pharmaceuticals  Corporation  with respect to Visicol and INKP-102;  (b) Schwarz
Pharma  Inc.,  Eli Lily and  Company and Bedford  Laboratories  with  respect to
IB-Stat;  and (c) AstraZeneca plc, Salix  Pharmaceuticals,  IDEC Pharmaceuticals
Corporation,  Procter & Gamble  Pharmaceuticals,  Solvay  S.A.,  Centocor,  Inc.
(Johnson  &  Johnson)  and  Shire  Pharmaceuticals  Group  plc with  respect  to
Colirest.

     The financial  strength of  competitors  is  particularly  important in the
pharmaceutical  industry,  where technological  innovations occur rapidly. These
technological innovations can dramatically affect the price and effectiveness of
a product line and can render a competing product line obsolete. Our competitors
that have strong financial resources may develop  competitive  products that are
less expensive and more effective than our products.  These competitive products
may render our products unmarketable or non-competitive. Even if our competitors
do not develop better and more cost effective products, they may manufacture and
market their products more successfully than us. Therefore,  our competitors may
capture all or a large segment of our target market,  severely  restricting  our
ability to maintain a profitable level of product sales.

If we are unable to protect  our  intellectual  property,  our  competitors  may
develop similar products that could render our products obsolete.

     Our success  depends,  in part,  on our  ability to develop and  maintain a
strong  patent  position for our products  and  technologies  both in the United
States  and other  countries.  As with  most  biotechnology  and  pharmaceutical
companies,  our patent position is highly  uncertain and involves  complex legal
and  factual  questions.   Without  patent  and  other   intellectual   property
protections,  other companies could offer  substantially  identical products for
sale without  incurring the sizeable  development and testing costs that we have
incurred. Our ability to recoup these expenditures and realize profits upon sale
of our products could be diminished.

     In 1997, the U.S. Patent and Trademark  Office issued a patent covering the
use of Visicol for inducing purgation of the colon.  Patents claiming the use of

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<PAGE>

Visicol to induce purgation of the colon have been granted in Europe and Canada.
In December 2000, the U.S. Patent and Trademark Office issued to us a patent for
numerous  solid-dose  colonic  purgative  agents. A similar patent has also been
granted in Canada.

     In  2003,  we  filed  a  provisional  U.S.  patent  application  for  a new
generation of purgative  products.  The invention  covers several highly soluble
colonic purgative  formulations in solid dosage forms that can be used to soften
stool, promote laxation and/or induce complete purgation.  There is no assurance
that this provisional patent will issue.

     IB-Stat is the combination of a marketed drug  (hyoscyamine  sulfate) and a
widely used delivery system. IB-Stat is therefore not patentable.

     In 2003, the U.S. Patent and Trademark  Office issued a patent covering the
treatment of inflammatory  bowel conditions,  including  ulcerative  colitis and
Crohn's disease with Colirest.

     We have several  pending foreign patent  applications,  and intend to apply
for additional  foreign patents.  Competitors  could challenge or develop around
the  patents,  or the scope of the  patents  may not be  adequate to protect the
patented product from competitors.  The commercial  success of our products will
also  depend upon our  ability to ensure  that our  products do not  infringe on
patents issued to competitors.

     Our  employees  and  scientific   consultants  may  develop  inventions  or
processes independently that may be related to our products.  These employees or
consultants  could claim ownership of these  inventions or processes,  and these
claims could succeed. We may need to enter into protracted and costly litigation
to enforce or determine the scope of our proprietary rights.

     Certain  academic  institutions  have funded the development of some of our
patented  technologies.  Although  we  have  acquired  the  rights  to use  this
technology,  these agencies or institutions may have rights to the technology or
inventions,  including  rights to the  royalty-free  use,  but not sale,  of the
invention or technology for their own purposes.

Claims by others that we infringe their intellectual property could be costly to
us.

     Our patent and other  proprietary  rights  related  to our  products  might
conflict with the current or future  intellectual  property rights of others. We
have not  conducted a search to  determine  if there are any other  patents that
could cover Visicol,  INKP-102 and Colirest.  Litigation or patent  interference
proceedings,  either of which could result in  substantial  cost to us, might be
necessary  to  defend  any  patents  to  which  we have  rights  and  our  other
proprietary  rights or to  determine  the scope and  validity of other  parties'
proprietary  rights.  The defense of patent and intellectual  property claims is
both  costly and  time-consuming,  even if the outcome is  favorable  to us. Any
adverse  outcome could subject us to  significant  liabilities to third parties,
require disputed rights to be licensed from third parties or require us to cease
selling our product. We might not be able to obtain a license to any third-party
technology  that we require to conduct our  business,  or, if  obtainable,  that
technology might not be available at a reasonable cost.

Our actual financial results might vary from what we anticipate.

     Our actual financial results might vary from what we anticipate,  and these
variations could be material.  Our annual and quarterly  reports contain various
forecasts.   These  forecasts  reflect  numerous   assumptions   concerning  our
anticipated  future  performance  and with respect to the prevailing  market and
economic  conditions that are beyond our control and which might not turn out to
have been  correct.  Although we believe  that the  assumptions  underlying  the
projections are reasonable,  actual results could be materially  different.  Our
revenues and expenses are subject to numerous risks and uncertainties. Financial
results that are weaker than  expectations  may cause a  significant  and sudden
decline in our stock price.

Risks related to regulatory matters

Regulatory approval of our products is time-consuming,  expensive and uncertain,
and could result in unexpectedly high expenses and delay our ability to sell our
products.

     Development,  manufacture  and  marketing  of our  products  are subject to
extensive regulation by governmental  authorities in the United States and other

                                       13
<PAGE>

countries.  This  regulation  could require us to incur  significant  unexpected
expenses  or delay or limit  our  ability  to sell our  products.  Our  clinical
studies of Visicol  for  constipation,  INKP-102  for colon  cleansing  prior to
colonoscopy,  Colirest  for the  treatment  IBD or any  other  product  might be
delayed or halted for various reasons, including:

      o   the drug is not effective;

      o   patients experience severe side effects during treatment;

      o   patients do not enroll in the studies at the rate we expect;

      o   drug supplies are not sufficient to treat the patients in the studies;

      o   we decide to modify the drug during testing; or

      o   we do not have adequate funds to continue the testing.

     If the FDA  approves new  indications  for  Visicol,  its approval  will be
limited to those indications for which the product has been shown to be safe and
effective,  as demonstrated to the FDA's satisfaction  through clinical studies.
Approval might entail ongoing requirements for post-marketing  studies.  Even if
we obtain regulatory approval,  labeling and promotional  activities are subject
to  continual  scrutiny by the FDA and state  regulatory  agencies  and, in some
circumstances,  the Federal Trade Commission.  FDA enforcement  policy prohibits
the marketing of approved products for unapproved, or off-label, uses. Marketing
an approved product for a new use requires a separate approval by the FDA. These
regulations  and the FDA's  interpretation  of them might  impair our ability to
effectively market our products.

     If we do not maintain required  approvals from the government,  then we may
not successfully manufacture, market or sell our marketed products.

FDA manufacturing approval

     The FDA requires pharmaceutical companies to include detailed manufacturing
information  in a New Drug  Application  (NDA).  The FDA has  mandated  that all
manufacturing facilities and processes comply with good manufacturing practices,
commonly known as GMP. GMP is a body of federal  regulations and guidelines that
govern the  manufacture of drugs for human use. For example,  all  manufacturers
must pass  manufacturing  plant  inspections  and  provide  records of  detailed
manufacturing processes. Among other things, drug manufacturers must demonstrate
that:

      o     the drug product can be consistently manufactured at the same
            quality standard;

      o     the drug product is stable over time; and

      o     the level of chemical impurities in the drug product is under a
            designated level.

     The FDA has inspected the manufacturing facilities for Visicol and IB-Stat.
The FDA may still,  however,  prevent us from  continuing  to market  Visicol or
IB-Stat if we:

      o     do not continue to consistently manufacture appropriate amounts of
            Visicol and IB-Stat; or

      o     cannot continue to repeat the manufacturing process used to
            manufacture the validation batches of Visicol.

     We  currently  have  only one  approved  manufacturer  of  Visicol  and one
manufacturer for IB-Stat.  We have,  however,  initiated the process to obtain a
qualified secondary manufacturer of Visicol.

FDA oversight after product approval

     After the FDA  approves  a  product,  the FDA  continues  to  regulate  the
product.  In  particular,   the  FDA  may  require  post-marketing  testing  and
surveillance to monitor the effects of our marketed products or may require drug
label changes, which could hinder the marketability of our marketed products. In
addition,  the FDA may place  conditions  on our  marketed  products  that could
restrict the sale or use of our products.

                                       14
<PAGE>

     Both Visicol and IB-Stat are products used in highly competitive diagnostic
and disease  indications where  substitution of competitive  products is common.
Although  both  products  have a good safety  profile and history,  any negative
change in our safety labeling could adversely affect the sale of our products.

The FDA could prevent us from marketing IB-Stat.

     IB-Stat is the combination of a marketed drug  (hyoscyamine  sulfate) and a
widely used delivery system. Hyoscyamine sulfate was a marketed product prior to
1962.  Although we have not obtained  FDA  approval for IB-Stat,  the FDA allows
products that were marketed prior to 1962 to continue to be marketed  without an
approved  NDA.  There  is no  guarantee  that  the FDA  will  continue  to allow
hyoscyamine  sulfate or many other pre-1962  marketed products to continue to be
marketed.  In addition,  the FDA could  determine  that  hyoscyamine  sulfate is
unsafe or that  additional  data  needs to be  submitted  to the FDA in order to
determine  the drug's  safety and efficacy.  The FDA could also  determine  that
IB-Stat is not similar enough to the pre-1962 marketed  hyoscyamine sulfate, and
as a result cannot be marketed without an FDA approved NDA.

If we do not obtain  required  approvals  from the  government,  then we may not
successfully market or sell our product candidates.

     The FDA  requires  multiple  stages of tests,  known as Phase I, II and III
clinical trials,  on most  pharmaceutical  products.  In addition,  the FDA must
confirm that drug manufacturers comply with applicable federal regulations.  The
process to obtain  government  approvals of a pharmaceutical  product takes many
years and requires substantial resources.

     The  FDA  may  delay  or  halt  the  clinical  development  of our  product
candidates at any stage, or may deny us approval to market a product. If the FDA
takes any of these adverse  actions,  we may delay or stop the  development of a
product or may be unable to sell the  product.  We do not believe we are subject
to risks  that are  materially  different  than other  pharmaceutical  companies
seeking  FDA  approval.  The process of  obtaining  FDA  approval is  expensive,
time-consuming  and often  filled with  unexpected  hurdles.  Even if we receive
approval of a product  candidate,  the FDA may limit and restrict the drug's use
and may subject our products to continuous review. If we fail to comply with any
applicable  regulatory  requirement,  the  FDA  could  impose  penalties  on us,
including:

      o     warning letters;

      o     fines;

      o     withdrawal of regulatory approval;

      o     product recalls and suspensions;

      o     operating restrictions; injunctions; and

      o     civil penalties and criminal prosecution.

     Certain  of the  foregoing  penalties  could  have  an  immediate  negative
financial impact on our business,  harm our reputation,  have a material adverse
effect on our business operations and reduce our future sales and profits.

     We are  developing  INKP-102  as a compound  for colon  cleansing  prior to
colonoscopy.  We have  reached  an  agreement  with the FDA on the design of our
Phase II study. If results of the Phase II study are  supportive,  then only one
Phase III study would be required  for the  approval of  INKP-102.  We may never
receive FDA approval for INKP-102 and without FDA approval,  we cannot market or
sell INKP-102.

     We are  developing  Colirest as a compound for the treatment of IBD. IBD is
an autoimmune disease that causes  inflammation and ulceration of the bowel. IBD
includes both Crohn's  disease and  ulcerative  colitis.  In September  2000, we
announced  positive  results  of our Phase II study on  Crohn's  disease  and in
December 2000, we announced positive results of our Phase II study in ulcerative
colitis.  We have  reached  an  agreement  with the FDA for the  advancement  of
Colirest to a pivotal Phase IIb dose ranging study for Crohn's  disease.  We are
currently  enrolling  patients in this study.  We may never receive FDA approval
for Colirest and without FDA approval, we cannot market or sell Colirest.

                                       15
<PAGE>

Risks related to our common stock outstanding

If the  holders  of our  outstanding  options  and  warrants  exercise  them and
subsequently sell the common stock they receive upon exercise,  the market price
of our common stock may drop.

     At March 31,  2004,  we had  approximately  8,539,000  options and warrants
outstanding.  Options and warrants give the holder the right to purchase  shares
of our common stock in the future for a predetermined price which may or may not
be below the current  market value of our common stock at the time the option or
warrant is  exercised.  In addition,  as of March 31, 2004, we had an additional
127,000 and 705,000 options available for issuance to employees and consultants,
respectively,  pursuant to our option plans. To date, option and warrant holders
have exercised approximately 10,425,000 options and warrants in the aggregate at
prices ranging from $.50 to $5.56.  The exercise of these  outstanding  warrants
and options and the sale of the related  shares may cause our common stock price
to drop.

If our common stock  continues to be volatile and thinly  traded,  our
shareholders may not be able to sell their shares when desired.

     The  market   price  of  our  common   stock,   similar  to  other   public
pharmaceutical  or  biotechnology  companies,  has been  volatile and may remain
volatile for the foreseeable  future.  Our  shareholders may not be able to sell
their shares when they desire because the stock price is highly volatile and the
stock is not widely traded. For example, as of March 31, 2004, the number of our
shares  theoretically  available  for  sale in any  one  day  was  approximately
48,636,000  shares and our average  daily  trading  volume for the  twelve-month
period  ended  March 31, 2004 was  approximately  439,000  shares.  If our stock
continues to trade thinly, our shareholders may not be able to sell their shares
when desired.

If the purported  class action  lawsuit for  violation of  preemptive  rights is
settled or reaches a judgment for damages, and our claims against  third-parties
or to our insurance  carriers for reimbursement are unsuccessful or insufficient
to cover the amount of any settlement payment or judgment for damages,  then the
market price of our common stock may drop.

     On March 15, 2004, we withdrew a public  offering of six million  shares of
our common stock.  We wrote off $379,000 of costs related to the offering during
the quarter ended March 31, 2004. The decision to withdraw the offering was made
when it came to our attention  that our  certificate of  incorporation  does not
contain any provision exempting the Company from providing  preemptive rights in
connection  with certain  securities  offerings.  On March 19, 2004, a purported
class  action  lawsuit for breach of  contract  was filed in the Court of Common
Pleas,  Philadelphia  County, on behalf of a putative class of holders of InKine
equity shares who have purportedly been denied certain claimed preemptive rights
during the last six years.  The lawsuit  names the Company as the  defendant and
seeks unspecified  compensatory damages. We have incurred approximately $188,000
in legal costs related to preemptive rights and the lawsuit. In our statement of
operations,  we have included both the $379,000 in written-off  costs related to
the  withdrawn  offering and the $188,000 in legal costs  related to  preemptive
rights  and  the  lawsuit  in the  line  item  "Withdrawn  public  offering  and
litigation."  On May 7, 2004, we received a $500,000  payment from a third-party
as  reimbursement  for these  costs.  We  believe  that we will  continue  to be
entitled  to  reimbursement  from  third-parties  for any  costs,  expenses  and
liabilities  incurred in  connection  with the purported  class action  lawsuit.
However,  no  assurance  can be  given  that  we  will  obtain  such  additional
reimbursement or that any such liability will not be material.

If holders of our common stock as April 21, 2004 who are eligible to vote at our
annual meeting of shareholders on June 7, 2004 do not vote "FOR" the amendment
of our Certificate of Incorporation to remove any and all preemptive rights,
then it will be difficult for us to raise equity capital in future public
offerings and private placements.

     We have  determined that it is in the Company's and its  shareholders  best
interests to remove any and all preemptive rights because we believe that having
any such rights will make it difficult  for us to raise equity  capital  through
future public  offerings  and private  placements.  We have no immediate  plans,
arrangements,  commitments or  understandings  to raise capital and issue stock.
From time to time however, we consider various methods to raise capital in light
of our capital needs and market  conditions.  If shareholders do not approve the
amendment  of our  Certificate  of  Incorporation  and we are  unable  to  raise
additional equity capital in the future, it will be substantially more difficult

                                       16
<PAGE>

for us to: (i) develop and  commercialize  new  indications  for  Visicol,  (ii)
finance research and development  related to enhancements of existing  products,
(iii) market and, if necessary,  continue the development of acquired  products,
(iv)  acquire or  in-license  additional  products,  and (v) acquire  businesses
related to gastrointestinal pharmaceuticals.

Critical Accounting Policies and Practices

     In "Cautionary  Advice  Regarding  Disclosures  about  Critical  Accounting
Policies" (SEC Release No.33-8040, December 12, 2001), the SEC advised companies
to provide more information about a company's most critical accounting policies,
i.e., the specific  accounting policies that have the most impact on a company's
results and require  the most  difficult,  subjective  or complex  judgments  by
management.  We have  identified  the  following  accounting  policies  that may
constitute  "critical  accounting  policies," under the guidance provided by the
release.

      o   Revenue  recognition.  Revenue  from sales of Visicol is  recognized
          when,   pursuant  to  Staff  Accounting  Bulletin  No.  104,  "Revenue
          Recognition," all four of the following  criteria are met: (i) we have
          persuasive  evidence  that an  arrangement  exists,  (ii) the price is
          fixed and determinable,  (iii) title has passed and (iv) collection is
          reasonably  assured.  Product demand from our customers during a given
          period may not correlate with  prescription  demand for the product in
          that period. As a result, we periodically evaluate inventory positions
          in the distribution  channel.  If we believe these levels are too high
          based on prescription  demand,  we may not accept purchase orders from
          or may not ship additional product to our customers until these levels
          are  reduced.  Provisions  for  sales  discounts,  and  estimates  for
          chargebacks,   rebates  and  product  returns  are  established  as  a
          reduction  of product  sales  revenues at the time such  revenues  are
          recognized. We establish these revenue reductions as our best estimate
          at the  time of sale  based  on  historical  experience,  adjusted  to
          reflect  known changes in the factors that impact such  reserves.  For
          IB-Stat,  we recognize  revenue  based on  prescription  data,  net of
          estimated cash discounts.  This practice will continue until such time
          data becomes  available  that  indicates that the product has achieved
          adequate   market   acceptance  and  future  product  returns  can  be
          reasonably estimated.

      o   Stock-based compensation. It is our policy, which is consistent with
          most public company  policies,  to apply  Accounting  Principles Board
          Opinion No. 25, "Accounting for Stock Issued to Employees," to account
          for  our  stock  option  plans  rather  than  Statement  of  Financial
          Accounting Standards No. 148, "Accounting for Stock-Based Compensation
          -  Transition  and  Disclosure."  Had we applied SFAS No. 148, our net
          loss for the  three-month  periods ended March 31, 2004 and 2003 would
          have been greater.

      o   Product  returns.  It is our  policy  to  estimate  and  record  an
          allowance for future product  returns in connection  with our sales of
          Visicol.  We have  applied a return  rate to our unit sales to provide
          this allowance  under our product  return policy.  This return rate is
          calculated  based on actual return  experience  and our  monitoring of
          distribution  channels  taking into account the  expiration  dating of
          Visicol.  The product return rate is  periodically  updated to reflect
          actual  experience  and  changes  to other  factors  affecting  future
          product returns.

      o   Deferred  taxes.  In  assessing  the  realizability  of deferred tax
          assets,  we  consider  whether  it is more  likely  than not that some
          portion or all of the deferred  tax assets will not be  realized.  The
          ultimate  realization of the deferred tax assets is dependent upon the
          generation of future  taxable  income during the period in which those
          temporary  differences  become  deductible.  We consider the scheduled
          reversal of deferred tax liabilities,  projected future taxable income
          and  projections  for future  taxable income over the periods in which
          the  deferred  tax asset items are  deductible.  The Tax Reform Act of
          1986 contains  provisions  that may limit the net operating loss (NOL)
          and research and experimentation credit carryforwards  available to be
          used  in any  given  year  upon  the  occurrence  of  certain  events,
          including  significant  changes in ownership  interest.  Generally,  a
          change  in  ownership  of a  company  of  greater  than  50%  within a
          three-year  period  results in an annual  limitation on that company's
          ability to utilize its NOL  carryforwards and tax credits from the tax
          periods prior to the  ownership  change.  The rules  providing for the
          definition  of an  ownership  change are complex and we must perform a
          study to  determine  if we have  undergone a change in  ownership.  We
          believe that we have undergone an ownership  change and are subject to
          an annual limitation on the use of our NOL  carryforwards  pursuant to
          these  provisions.  At March 31, 2004, we have  concluded  that a full
          valuation allowance is necessary for deferred tax assets given that we
          have only been profitable for two quarters.

                                       17
<PAGE>

Results of Operations

     We incurred losses of $78,000 and $931,000, or $0.00 and $0.02 per share,
for the three-month periods ended March 31, 2004 and 2003, respectively. The
reduced loss was driven by increased product sales, revenue from our Sigma-Tau
promotion of VSL#3 and ongoing cost control measures. During the quarter ended
March 31, 2004, we incurred $567,000 in costs related to our withdrawn public
offering and a purported class-action lawsuit. On May 7, 2004, we received a
$500,000 payment from a third-party as reimbursement for these costs.This
payment, which represents approximately 90% of the current costs incurred in
connection with the withdrawn public offering and lawsuit, will be included as
an offset to expenses in our statement of operations for the quarter ending June
30, 2004

     Product revenue was $4,350,000 for the  three-month  period ended March 31,
2004,  compared to $2,536,000 for the  three-month  period ended March 31, 2003.
Our retail distribution and prescription levels continue to increase,  resulting
in increased  orders from  wholesalers  and large retail chains.  We believe the
increased prescription levels have been driven by increased market awareness and
acceptance of Visicol(R).  Approximately  105,000  prescriptions were filled for
Visicol(R) during the first quarter of 2004,  compared to approximately  99,000,
96,000,  89,000, and 80,000 during the four preceding  quarters.  In addition to
our product revenue, we realized $283,000 in other revenue,  mostly attributable
to our promotion agreement with Sigma-Tau Pharmaceuticals.

     Our gross profit was $4,142,000 and $2,147,000 for the three-month  periods
ended March 31, 2004 and 2003,  respectively.  Gross profit as a  percentage  of
sales for product  revenue  was 89% and 85% for the  three-month  periods  ended
March 31,  2004 and 2003,  respectively.  Increases  in gross  profit  and gross
profit as a percent of sales for product  revenue  were the result of  increased
order volume, driven by increased prescription levels, increased sales price per
unit, decreased manufacturing cost per unit and decreased distribution costs for
Visicol(R).  We  expect  that  gross  profit  as a  percent  of  sales  will  be
approximately 85% for the 2004 year.

     We incurred research and development  expenses of $922,000 and $341,000 for
the  three-month  periods  ended  March  31,  2004 and 2003,  respectively.  The
increase was the result of higher development costs associated with the MCC-free
new generation  purgative tablet  (INKP-102),  along with higher personnel costs
related to managing an increased scale of research and development activity.

     Sales and marketing  costs of $1,949,000 and  $1,420,000  were incurred for
the three-months periods ended March 31, 2004 and 2003, respectively.  Increases
in sales and marketing  costs were a result of continued  growth in our internal
sales  force,   along  with  marketing   campaigns  related  to  Visicol(R)  and
IB-Stat(R).  As  of  March  31,  2004,  our  internal  sales  force  covered  45
territories  with four district  managers,  compared to 36 territories and three
district managers as of March 31, 2003.

     General and  administrative  expenses  were  $785,000  and $513,000 for the
three-month  periods ended March 31, 2004 and 2003,  respectively.  The increase
was the result of higher personnel and insurance  costs,  along with an increase
in fees associated with legal, patent and accounting services.

     On March 15, 2004, we withdrew a public  offering of six million  shares of
our common stock.  We wrote off $379,000 of costs related to the offering during
the quarter ended March 31, 2004. The decision to withdraw the offering was made
when it came to our attention  that our  certificate of  incorporation  does not
contain any provision exempting the Company from providing  preemptive rights in
connection  with certain  securities  offerings.  On March 19, 2004, a purported
class  action  lawsuit for breach of  contract  was filed in the Court of Common
Pleas,  Philadelphia  County, on behalf of a putative class of holders of InKine
equity shares who have purportedly been denied certain claimed preemptive rights
during the last six years.  The lawsuit  names the Company as the  defendant and
seeks unspecified  compensatory damages. We have incurred approximately $188,000
in legal costs related to preemptive rights and the lawsuit. In our statement of
operations,  we have included both the $379,000 in written-off  costs related to
the  withdrawn  offering and the $188,000 in legal costs  related to  preemptive
rights  and  the  lawsuit  in the  line  item  "Withdrawn  public  offering  and
litigation."  On May 7, 2004, we received a $500,000  payment from a third-party
as  reimbursement  for these  costs.  We  believe  that we will  continue  to be
entitled  to  reimbursement  from  third-parties  for any  costs,  expenses  and
liabilities  incurred in  connection  with the purported  class action  lawsuit.
However,  no  assurance  can be  given  that  we  will  obtain  such  additional
reimbursement or that any such liability will not be material.
                                       18
<PAGE>

     Decreased interest income was the result of significantly  reduced interest
rates and decreased  average cash and  investment  balances for the  three-month
period  ended  March  31,  2004  compared  to the same  period  a year  earlier.
Decreased interest expense compared to the same period in the prior year was the
result of the  elimination  of our  outstanding  convertible  notes,  along with
reduced interest rates and decreased average line of credit borrowings.


Liquidity and Capital Resources

     At March 31, 2004, we had cash and cash  equivalents  of  $10,244,000.  The
cash and cash  equivalents  balance at March 31, 2004 included net proceeds from
first quarter warrant and option exercises of $178,000.

     We believe that our financial resources are adequate for our operations for
at least the next 12 months  and,  if we meet our  sales  objectives,  we do not
anticipate requiring additional capital to fund our operations.  However, in the
future we may seek  additional  capital to fund the possible  acquisition or the
in-licensing  of additional  products;  the possible  acquisition  of businesses
related to  gastrointestinal  pharmaceuticals;  the marketing and, if necessary,
continued    development   of   acquired    products;    the   development   and
commercialization  of new  indications  for Visicol;  research  and  development
related to enhancements of existing  products;  and general corporate  purposes,
including working capital.

     Our future short and long-term capital requirements will depend on numerous
factors,  including continued marketplace acceptance of our products. To achieve
operating profits,  we, alone or with others,  must successfully market and sell
our products. In addition to continued  marketplace  acceptance of our products,
other  factors which cannot be  quantified  and many of which we cannot  control
will also  impact  our  short and  long-term  capital  requirements,  including:
continued  commercial costs of Visicol,  continued  progress in our research and
development activities,  progress with pre-clinical studies and clinical trials,
defending shareholder claims related to alleged violations of preemptive rights,
prosecuting and enforcing patent claims,  technological and market developments,
the  ability  to  establish  product  development  arrangements,   the  cost  of
manufacturing development,  effective marketing activities and arrangements, and
licensing or acquisition activity.

     We are  currently  developing a new  generation  purgative  (INKP-102)  for
cleansing  the  colon  prior to  colonoscopy,  conducting  a  clinical  trial of
Colirest for the  treatment of Crohn's  disease,  continuing to study the use of
Visicol  for  constipation,  commencing  a  study  for  the  use of  Visicol  in
pre-operative  colonic  surgical  procedures,  and continuing to market and sell
Visicol and IB-Stat to  distributors  and drug store  chains.  During  2004,  we
expect to spend up to  $1,600,000 on INKP-102,  $100,000 on the Visicol  studies
and Visicol product development,  $200,000 on the Colirest study, and $8,100,000
on Visicol sales and marketing  costs.  These  activities  will be funded by our
current cash balance and future  product  sales.  If product sales fall short of
current expectations or other factors negatively impact our cash balance, we may
seek to obtain additional funds through equity or debt financing,  collaborative
or other  arrangements  with  corporate  partners,  and from other  sources.  No
assurance can be given that necessary  additional financing will be available on
terms  acceptable  to us,  if at  all.  If  adequate  additional  funds  are not
available  when  required,  we may have to delay,  scale-back  or eliminate  our
research,  drug  discovery or  development  activities  or other  aspects of our
operations. Our business could be materially and adversely affected as a result.

     Net Cash Used in Operating Activities.  Net operating cash outflows for the
three-month  period ended March 31, 2004  resulted  primarily  from research and
development  expenditures  associated  with our product  candidates  - including
clinical  development and manufacturing costs for INKP-102 - sales and marketing
costs related to Visicol, compensation of our employees and other administrative
costs and costs related to our withdrawn  public  offering and a purported class
action  lawsuit.  Net operating cash inflows were  principally  attributable  to
product sales and revenue from our Sigma-Tau promotion of VSL#3.

     Net Cash Used in Investing  Activities.  Cash used in investing  activities
for the  three-month  period  ended  March 31, 2004  related to the  purchase of
manufacturing  equipment for use in the  production  of clinical and  commercial
quantities of INKP-102. We do not expect to make additional capital expenditures
during 2004,  but we may, from time to time,  purchase  obligations  of the U.S.
Treasury,  securities  of  federal  agencies  which  carry the direct or implied
guarantee of the U.S. government and bank certificates of deposit.

     Net Cash  Provided By  Financing  Activities.  Cash  provided by  financing
activities  for the  three-month  period  ended  March 31,  2004  related to net

                                       19
<PAGE>


proceeds from the exercise of warrants and stock  options and net  borrowings on
our  operating  line  of  credit.  We  have no  immediate  plans,  arrangements,
commitments  or  understandings  to raise capital and issue stock.  From time to
time  however,  we  consider  various  methods to raise  capital in light of our
expansion strategies, product opportunities and market conditions.

Research and Development Programs

     We currently  have three  significant  research and  development  projects,
relating to Visicol, INKP-102 and Colirest.

     Visicol.  We have focused our Visicol research and development on cleansing
of the colon prior to colonoscopy and are presently  marketing  Visicol for that
indication.  In addition, we are also developing Visicol for cleansing the colon
prior  to   pre-operative   colonic   surgical   procedures   and  for  treating
constipation.  The  current  status of these  projects  is as  follows:  (i) for
cleansing of colon prior to  colonoscopy,  the FDA has approved  both our NDA as
well as our SNDA;  (ii) for cleansing the colon prior to  pre-operative  colonic
surgical  procedures,  we intend to  commence a Phase IV study  during the first
half  of  2004;  (iii)  for  treating  constipation,  we have  completed  a post
marketing  study and a Phase IV study.  As of March  31,  2004 we have  incurred
total costs of approximately $11,783,000 in connection with our Visicol research
and  development.  During the  quarter  ended  March 31,  2004,  we  incurred an
aggregate  of $922,000  in  research  and  development  expenses,  approximately
$39,000 of which was attributable to Visicol.

     INKP-102.  During  2003,  we  developed  a next  generation  purgative  for
cleansing the colon prior to colonoscopy.  Clinical  batches of this new product
have been  manufactured  and  formulated  to yield  smaller  tablets that may be
easier to ingest. Additionally,  the new product does not contain any MCC, which
is a common inert, but highly insoluble  substance.  We are currently conducting
clinical  studies and intend to apply for FDA approval of this new product using
alternative  dosing regimens that utilize fewer tablets and allow for single-day
administration.  We have  commenced  a Phase II study and  intend to  commence a
Phase III study during 2004. As of March 31, 2004, we have incurred  total costs
of  approximately   $731,000  in  connection  with  our  INKP-102  research  and
development.  During the quarter  ended March 31, 2004, we incurred an aggregate
of $922,000 in research  and  development  expenses,  approximately  $566,000 of
which was attributable to INKP-102.

     Colirest.  We  are  developing  Colirest  for  treatment  of IBD  and  have
completed a Phase II study of Colirest for the treatment of Crohn's  disease and
a Phase II study of Colirest for the  treatment of ulcerative  colitis.  In June
2001,  we began a  Colirest  clinical  Phase IIb study of  Crohn's  disease.  We
anticipate  an interim  analysis  later this year. As of March 31, 2004, we have
incurred  total  costs  of  approximately  $6,914,000  in  connection  with  the
development  of Colirest and related  compounds.  During the quarter ended March
31,  2004,  we incurred an  aggregate  of $922,000 in research  and  development
expenses, approximately $77,000 of which was attributable to Colirest.

     Indirect  Costs. In addition to the direct costs related to the development
of our  products and product  candidates,  we incurred  indirect  non-technology
specific overhead costs.  These expenses include the salaries and administrative
costs of managing our research and development  projects,  which for the quarter
ended March 31, 2004, equaled approximately $240,000.

Recently Issued Accounting Pronouncements

         None.

Item 3.  Quantitative and Qualitative Disclosures About Market Risks

     We are exposed to market risk  associated with changes in interest rates on
our  line of  credit  and  certain  investments.  We do not  manage  the risk of
fluctuations in interest rates  associated  with the line of credit,  as it is a
short-term borrowing with a maturity date in 2005. The interest rate on our line
of credit has fluctuated from 3.17% to 3.29% over the past  three-months and the
outstanding balance at March 31, 2004 was $1,000,000.

     Typically,  a substantial  portion of our assets are investment  grade debt
instruments  such as direct  obligations  of the U.S.  Treasury,  securities  of
federal  agencies  which  carry the  direct  or  implied  guarantee  of the U.S.
government  and  bank  certificates  of  deposit.   The  market  value  of  such



                                       20
<PAGE>

investments  fluctuates with current market interest rates. In general, as rates
increase,  the market value of a debt  instrument  is expected to decrease.  The
opposite is also true. To minimize such market risk, we have in the past and, to
the extent possible,  will continue in the future, to hold such debt instruments
to maturity at which time the debt  instrument will be redeemed at its stated or
face value. Due to the short duration and nature of these instruments, we do not
believe  that we have a material  exposure to interest  rate risk related to our
investment portfolio.

     We do not  anticipate  any  material  changes in our  primary  market  risk
exposure in 2004. We do not hold or issue any derivatives.

Item 4.  Controls and Procedures

     Evaluation  of  disclosure  controls  and  procedures.   We  evaluated  the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures  as of the end of the period  covered by this  quarterly  report (the
"Evaluation  Date").  Our  disclosure  controls and  procedures  are designed to
ensure that  information  required to be disclosed by us in the reports that are
filed or  submitted  under  the  Securities  Exchange  Act of 1934 is  recorded,
processed,  summarized  and reported,  within the time periods  specified in the
Securities and Exchange  Commission's  rules and forms. Based on our evaluation,
our Chief  Executive  Officer and Chief  Financial  Officer have  concluded that
these controls and procedures are effective as of the Evaluation Date.

     Changes in internal controls. There were no changes in our internal control
over financial  reporting  identified in connection  with the evaluation of such
internal  control  over  financial  reporting  that  occurred  during the period
covered by this report that have materially  affected,  or are reasonably likely
to materially affect, our internal control over financial  reporting.  . PART II
-- OTHER INFORMATION

Item 1.  Legal Proceedings.

     On March 15, 2004, we withdrew a public  offering of six million  shares of
our common stock.  We wrote off $379,000 of costs related to the offering during
the quarter ended March 31, 2004. The decision to withdraw the offering was made
when it came to our attention  that our  certificate of  incorporation  does not
contain any provision exempting the Company from providing  preemptive rights in
connection  with certain  securities  offerings.  On March 19, 2004, a purported
class  action  lawsuit for breach of  contract  was filed in the Court of Common
Pleas,  Philadelphia  County, on behalf of a putative class of holders of InKine
equity shares who have purportedly been denied certain claimed preemptive rights
during the last six years.  The lawsuit  names the Company as the  defendant and
seeks unspecified  compensatory damages. We have incurred approximately $188,000
in legal costs related to preemptive rights and the lawsuit. In our statement of
operations,  we have included both the $379,000 in written-off  costs related to
the  withdrawn  offering and the $188,000 in legal costs  related to  preemptive
rights  and  the  lawsuit  in the  line  item  "Withdrawn  public  offering  and
litigation."  On May 7, 2004, we received a $500,000  payment from a third-party
as  reimbursement  for these  costs.  We  believe  that we will  continue  to be
entitled  to  reimbursement  from  third-parties  for any  costs,  expenses  and
liabilities  incurred in  connection  with the purported  class action  lawsuit.
However,  no  assurance  can be  given  that  we  will  obtain  such  additional
reimbursement or that any such liability will not be material.

Item 2.  Changes in Securities and Use of Proceeds.

         Not applicable.

Item 3.  Defaults Upon Senior Securities.

         Not applicable.

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

         Not applicable.


                                       21
<PAGE>


Item 5.  Other Information.

         None.

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

         (a)      Exhibits.

                  3.1 Certificate of Incorporation, as amended. (Exhibit 3.1)(1)

                  3.2 By-laws. (Exhibit 3.2)(2)

                  31.1* Chief Executive Officer Certification pursuant to Rule
                  13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934,
                  as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
                  of 2002

                  31.2* Chief Financial Officer Certification pursuant to Rule
                  13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934,
                  as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
                  of 2002

                  32.1* Chief Executive Officer Certification pursuant to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002

                  32.2* Chief Financial Officer Certification pursuant to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002

-----------------------

                  * Filed herewith.

                  (1) Filed as an Exhibit to InKine's Quarterly Report on Form
                  10-Q for the quarter ended June 30, 2001, with the Securities
                  and Exchange Commission (SEC File No. 000-25572).

                  (2) Filed as an Exhibit to InKine's Quarterly Report on Form
                  10-QSB for the quarter ended March 31, 1998, with the
                  Securities and Exchange Commission (SEC File No. 000-25572).

         (b)        Reports on Form 8-K.

                    The  following  current  reports on Form 8-K were filed with
                    the Securities and Exchange Commission via EDGAR:

               1.   Form  8-K  filed on  March  15,  2004  with  respect  to the
                    withdrawal of the previously  announced  public offering for
                    six million  shares of common  stock,  that was scheduled to
                    close on Monday,  March 15, 2004. The earliest event covered
                    by this report occurred on March 14, 2004.

               2.   Form 8-K filed on March 17, 2004 with  respect to  potential
                    claims  relating to  preemptive  rights in  connection  with
                    certain  prior  securities  offerings.  The  earliest  event
                    covered by this report occurred on March 17, 2004.

               3.   Form 8-K filed on March 19, 2004 with respect to the receipt
                    of a summons for a purported  class action  lawsuit that was
                    filed in the Court of Common  Pleas of  Philadelphia  County
                    for breach of contract.  The earliest  event covered by this
                    report occurred on March 18, 2004.


                                       22
<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.





                                    INKINE PHARMACEUTICAL
                                    COMPANY, INC.


Date: May 7, 2004                    By:  /s/ Leonard S. Jacob, M.D., Ph.D.
                                          ---------------------------------
                                          Leonard S. Jacob, M.D., Ph.D.
                                          Chairman of the Board and
                                          Chief Executive Officer



Date: May 7, 2004                    By:  /s/ Robert F. Apple
                                          --------------------------------
                                          Robert F. Apple
                                          Chief Operating and Financial Officer,
                                          (Authorized Officer and Principal
                                          Financial Officer)


                                       23
<PAGE>


                                 Exhibits Index

        3.1 Certificate of Incorporation, as amended. (Exhibit 3.1)(1)

        3.2 By-laws. (Exhibit 3.2)(2)

        31.1* Chief Executive Officer Certification pursuant to Rule 13a-14(a)
        or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
        to Section 302 of the Sarbanes-Oxley Act of 2002

        31.2* Chief Financial Officer Certification pursuant to Rule 13a-14(a)
        or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
        to Section 302 of the Sarbanes-Oxley Act of 2002

        32.1* Chief Executive Officer Certification pursuant to 18 U.S.C.
        Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002

        32.2* Chief Financial Officer Certification pursuant to 18 U.S.C.
        Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002
        -----------------------
        * Filed herewith.

        (1) Filed as an Exhibit to InKine's Quarterly Report on Form 10-Q for
        the quarter ended June 30, 2001, with the Securities and Exchange
        Commission (SEC File No. 000-25572).

        (2) Filed as an Exhibit to InKine's Quarterly Report on Form 10-QSB for
        the quarter ended March 31, 1998, with the Securities and Exchange
        Commission (SEC File No. 000-25572).


                                       24