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 SEPTEMBER 30, 2003


                           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 October 31, 2003, the registrant had outstanding 48,435,001 shares of
common stock, par value $.0001 per share.


<PAGE>


3

                       INKINE PHARMACEUTICAL COMPANY, INC.

                                      INDEX
<TABLE>
<CAPTION>

                                                                                          PAGE
PART I - FINANCIAL INFORMATION

        ITEM 1.  FINANCIAL STATEMENTS

<S>            <C>                                                                          <C>
               BALANCE SHEETS - as of September 30, 2003 (unaudited) and
               December 31, 2002.............................................................3

               STATEMENTS OF OPERATIONS (unaudited) - for the Three and Nine-Months
               Ended September 30, 2003 and 2002.............................................4

               STATEMENTS OF CASH FLOWS (unaudited) - for the Nine-Months Ended
               September 30, 2003 and 2002...................................................5

               STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) (unaudited) -
               for the Nine-Months Ended September 30, 2003..................................6

               NOTES TO FINANCIAL STATEMENTS (unaudited).....................................7

        ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS.........................................10

        ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS................20

        ITEM 4.  CONTROLS AND PROCEDURES....................................................20

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

        ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K...........................................21

SIGNATURES..................................................................................22

EXHIBITS INDEX..............................................................................23

</TABLE>



<PAGE>


PART I -- FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                       INKINE PHARMACEUTICAL COMPANY, INC.

                                 BALANCE SHEETS

                      (in thousands, except share and per share amounts)

<TABLE>
<CAPTION>

                                                                                         September 30, 2003      December 31, 2002
                                                                                         ------------------      -----------------
    ASSETS                                                                                   (unaudited)

Current assets:
<S>                                                                                            <C>                   <C>
    Cash and cash equivalents ..........................................................        $ 11,510              $ 12,151
    Accounts receivable ................................................................           1,120                   856
    Inventory ..........................................................................           1,028                   677
    Prepaid expenses and other current assets ..........................................             216                    87
                                                                                                --------              --------
        Total current assets ...........................................................          13,874                13,771

Deposits ...............................................................................              34                    34
Fixed assets ...........................................................................             158                   274
                                                                                                --------              --------

        TOTAL ASSETS ...................................................................        $ 14,066              $ 14,079
                                                                                                ========              ========

    LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
    Accounts payable ...................................................................        $    951              $    967
    Accrued expenses ...................................................................           1,797                 3,222
    Line of credit .....................................................................           1,500                 4,444
                                                                                                --------              --------
              Total current liabilities ................................................           4,248                 8,633

Convertible subordinated notes (face value $13,000) ....................................              --                11,657
                                                                                                --------              --------

        Total liabilities ..............................................................           4,248                20,290

Shareholders' equity (deficit):
    Preferred stock, $.0001 par value; authorized 5,000,000
        shares; none issued and outstanding ............................................              --                    --
    Common stock, $.0001 par value; authorized 75,000,000
        shares; issued 48,451,266  and 37,812,458 shares,respectively...................               5                     4
    Less common stock held in treasury (16,515 shares) .................................             (37)                  (37)
    Additional paid-in capital .........................................................          82,425                64,222
    Deferred compensation ..............................................................             (48)                   --
    Accumulated deficit ................................................................         (72,527)              (70,400)
                                                                                                --------              --------

        Total shareholders' equity (deficit) ...........................................           9,818                (6,211)
                                                                                                --------              --------

        TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) ...........................        $ 14,066              $ 14,079
                                                                                                ========              ========

</TABLE>

See accompanying notes to unaudited financial statements.



                                       3
<PAGE>


                       INKINE PHARMACEUTICAL COMPANY, INC.

                            STATEMENTS OF OPERATIONS
                                   (unaudited)

                    (in thousands, except per share amounts)
<TABLE>
<CAPTION>


                                                          Three-Months Ended September 30,       Nine-Months Ended September 30,
                                                          --------------------------------       -------------------------------
                                                               2003               2002              2003                2002
                                                             --------           --------           --------           --------


<S>                                                         <C>                <C>                <C>                <C>
Product revenue ........................................     $  4,333           $  2,222           $ 10,208           $  5,143
Other revenue ..........................................           --                 --                 49                 63
                                                             --------           --------           --------           --------
   REVENUE .............................................        4,333              2,222             10,257              5,206

Cost of goods sold .....................................         (604)              (445)            (1,465)            (1,234)
                                                             --------           --------           --------           --------
   GROSS PROFIT ........................................        3,729              1,777              8,792              3,972

Costs and expenses:
   Research and development ............................          464                459              1,253              2,931
   Sales and marketing .................................        1,443              1,698              4,338              4,078
   General and administrative ..........................          634                541              1,882              1,711
                                                             --------           --------           --------           --------
    OPERATING EXPENSES .................................        2,541              2,698              7,473              8,720
                                                             --------           --------           --------           --------

  INCOME (LOSS) FROM OPERATIONS ........................        1,188               (921)             1,319             (4,748)

Interest income ........................................            9                 28                 39                 92
Interest expense .......................................          (19)              (272)              (663)              (773)
Debt conversion inducement, non-cash
  accretion and non-cash premium .......................           --               (312)            (2,822)              (380)
                                                             --------           --------           --------           --------
   NET INCOME (LOSS) ...................................     $  1,178           $ (1,477)          $ (2,127)          $ (5,809)
                                                             ========           ========           ========           ========


   EARNINGS (LOSS) PER SHARE:
     BASIC .............................................     $   0.03           $  (0.04)          $  (0.05)          $  (0.17)
                                                             ========           ========           ========           ========
     DILUTED ...........................................     $   0.02           $  (0.04)          $  (0.05)          $  (0.17)
                                                             ========           ========           ========           ========
     WEIGHTED AVERAGE SHARES OUTSTANDING:
     BASIC .............................................       46,703             34,948             40,966             34,895
     DILUTED ...........................................       51,170             34,948             40,966             34,895

</TABLE>


See accompanying notes to unaudited financial statements.



                                       4
<PAGE>


                       INKINE PHARMACEUTICAL COMPANY, INC.

                            STATEMENTS OF CASH FLOWS
                                   (unaudited)

                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                                     Nine-Months Ended September 30,
                                                                                                     -------------------------------
                                                                                                         2003                2002
                                                                                                       --------            --------
Operating activities:
<S>                                                                                                   <C>                 <C>
  Net loss .................................................................................           $ (2,127)           $ (5,809)
  Adjustments to reconcile net loss to net cash used in
        operating activities:
    Depreciation ...........................................................................                118                 125
    Amortization of deferred compensation ..................................................                 83                  57
    Stock issued for interest earned on convertible notes ..................................                 --                 275
    Non-cash accretion and premium .........................................................              2,047                 102
  Changes in operating assets and liabilities:
    (Increase) in accounts receivable ......................................................               (264)               (170)
    (Increase) in inventory ................................................................               (351)               (388)
    (Increase) decrease in prepaid expenses and other assets ...............................               (129)                514
    Increase (decrease) in accounts payable and accrued expenses ...........................             (1,441)                412
                                                                                                       --------            --------
NET CASH USED IN OPERATING ACTIVITIES ......................................................             (2,064)             (4,882)

Investing activities:
    Capital expenditures ...................................................................                 (2)                (41)
    Proceeds from maturities and sales of investments ......................................                 --               4,787
                                                                                                       --------            --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ........................................                 (2)              4,746

Financing activities:
    Proceeds from exercise of options and warrants - net of expenses .......................              4,369                 191
    Borrowings, net of repayments on line of credit ........................................             (2,944)                  8
                                                                                                       --------            --------
NET CASH PROVIDED BY FINANCING ACTIVITIES ..................................................              1,425                 199
                                                                                                       --------            --------
Net increase (decrease) in cash and cash equivalents .......................................               (641)                 63

Cash and cash equivalents - beginning of period ............................................             12,151               7,379
                                                                                                       --------            --------
CASH AND CASH EQUIVALENTS - END OF PERIOD ..................................................           $ 11,510            $  7,442
                                                                                                       ========            ========
</TABLE>

See accompanying notes to unaudited financial statements.




                                       5
<PAGE>











                       INKINE PHARMACEUTICAL COMPANY, INC.

             STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
                                   (unaudited)

                                 (in thousands)

<TABLE>
<CAPTION>


                                                                                                                          Total
                                          Common Stock     Additional                 Treasury Stock                   Shareholder's
                                        -----------------    Paid-In    Deferred      --------------       Accumulated   Equity
                                        Shares    Amount     Capital  Compensation   Shares     Amount       Deficit    (Deficit)
                                        ------   --------   --------  ------------   ------     ------       -------    --------

<S>                                     <C>      <C>   <C>  <C>        <C>           <C>      <C>        <C>           <C>
BALANCE - DECEMBER 31, 2002 ..........  37,796   $      4   $ 64,222     $   --         (17)   $   (37)   $  (70,400)   $ (6,211)
Common stock issued pursuant to
   conversion of convertible notes ...   7,027          1     12,999         --          --         --            --      13,000
Value of consultant options granted ..      --         --        131       (131)         --         --            --          --
Proceeds from options and warrants ...   3,612         --      4,369         --          --         --            --       4,369
Amortization of deferred
   compensation ......................      --         --         --         83          --         --            --          83
Unrealized debt premium on
   converted notes ...................      --         --        704         --          --         --            --         704
Net loss .............................      --         --         --         --          --         --        (2,127)     (2,127)
                                        ------   --------   --------   --------        ----    -------       -------    --------

BALANCE - SEPTEMBER 30, 2003..........  48,435   $      5   $ 82,425   $    (48)        (17)   $   (37)      (72,527)   $  9,818
                                        ======   ========   ========   ========        ====    =======       =======    ========


</TABLE>
The accompanying notes are an integral part of these financial statements.



                                       6
<PAGE>


                       INKINE PHARMACEUTICAL COMPANY, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (unaudited)

1. ORGANIZATION AND BUSINESS ACTIVITIES

        InKine    Pharmaceutical    Company,   Inc.   (the   "Company")   is   a
biopharmaceutical  company  that was  incorporated  in May 1993.  The  Company's
portfolio   of  product   and  product   candidates   includes   Visicol(R),   a
bowel-cleansing  agent  currently  marketed  for use prior to  colonoscopy.  The
Company's portfolio also includes IB-Stat(R), an antispasmodic product currently
marketed to  gastroenterologists  and others for use as an immediately available
acute care product for a variety of indications.  The Company is also developing
Colirest(TM), a steroid molecule for the treatment of inflammatory bowel disease
("IBD").   The  Company  is  focused  on  the   diagnosis   and   treatment   of
gastrointestinal  disorders and has the  additional  strategy of acquiring  drug
candidates that are close to commercialization.

2. BASIS OF PRESENTATION

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

        Certain  information and footnote  disclosures  normally included in the
Company's audited annual financial  statements have been condensed or omitted in
the Company's interim financial  statements.  In the opinion of management,  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, 2002,  which are contained
in the Company's most recent Annual Report on Form 10-K.

3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

          In November 2002, the Emerging  Issues Task Force ("EITF")  finalized
its  consensus  on  EITF  Issue  00-21,   "Revenue  Arrangements  with  Multiple
Deliverables",  which  provides  guidance  on the  timing  and method of revenue
recognition  for sales  arrangements  that include the delivery of more than one
product or service.  EITF Issue 00-21 is effective for arrangements entered into
after June 30, 2003 and can be adopted prospectively.  EITF Issue 00-21 has been
adopted  and did  not  impact  the  Company's  financial  position,  results  of
operations or cash flows.

     In April 2003, the Financial  Accounting  Standards  Board ("FASB")  issued
Statement  of  Financial  Standard  No.  149,  "Amendment  of  Statement  133 on
Derivative  Instruments and Hedging  Activities"  ("SFAS No. 149"). SFAS No. 149
amends  Statement of Financial  Accounting  Standard  No. 133,  "Accounting  for
Derivative  Instruments  and Hedging  Activities,"  and  Statement  of Financial
Accounting Standard No. 138, "Accounting for Certain Derivative  Instruments and
Certain Hedging  Activities," and is related to certain derivatives  embedded in
other  contracts  and  for  hedging  activities  under  Statement  of  Financial
Accounting  Standard No. 133. SFAS No. 149 is effective  for  contracts  entered
into or modified after June 30, 2003 and to certain preexisting contracts.  SFAS
No. 149 is to be applied  prospectively.  SFAS No. 149  currently has not had an
impact on the Company's financial position, results of operations or cash flows.

          In May  2003,  the  FASB  issued  Statement  of  Financial  Accounting
Standard  No.  150,   "Accounting  for  Certain   Financial   Instruments   with
Characteristics  of Both Liabilities and Equity" ("SFAS No. 150").  SFAS No. 150
establishes standards for how companies classify and measure, in their statement
of financial  position,  certain financial  instruments with  characteristics of
both  liabilities  and  equities.  SFAS  No.  150  is  effective  for  financial
instruments  entered  into or modified  after May 31,  2003,  and  otherwise  is
effective at the beginning of the first interim period  beginning  after July 1,


                                       7
<PAGE>

2003.  SFAS No. 150 currently  has not had an impact on the Company's  financial
position, results of operations or cash flows.

4. USE OF ESTIMATES

        The   preparation  of  the  financial   statements  in  conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management 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.

5. RECLASSIFICATIONS

        Certain  prior  period  amounts  have been  reclassified  to  conform to
current period presentation.

6. EARNINGS PER SHARE

        The following is a  reconciliation  of the denominator used in basic and
diluted  earnings  (loss)  per  share  (EPS)  computations  for  the  three  and
nine-months ending September 30, 2003 and 2002:
<TABLE>
<CAPTION>

                                                                    Three-Months Ended                  Nine-Months Ended
                                                                September 30,    September 30,     September 30,     September 30,
                                                                     2003             2002             2003              2002
                                                                  --------         --------          --------          --------
Numerator:
<S>                                                              <C>              <C>               <C>               <C>
Net income (loss) ...........................................     $  1,178         $ (1,477)         $ (2,127)         $ (5,809)
                                                                  ========         ========          ========          ========

Denominator:
Weighted-average shares outstanding used for
   basic earnings (loss) per share ..........................       46,703           34,948            40,966            34,895
Effect of dilutive securities:
   Stock options and warrants ...............................        4,467               --                --                --
                                                                  --------         --------          --------          --------
Weighted-average shares and dilutive stock
   options and warrants used for diluted
   earnings (loss) per share ................................       51,170           34,948            40,966            34,895
                                                                  ========         ========          ========          ========
</TABLE>

        Stock options and warrants to purchase  1,089,000 shares of common stock
between $3.94 and $8.44 per share were outstanding in the third quarter of 2003,
but were  excluded from the  computation  of diluted  earnings  (loss) per share
because such stock  options and warrants  were  anti-dilutive.  All  outstanding
stock  options  and  warrants  to  purchase  shares of common  stock  during the
nine-months  ending  September  30,  2003 and the three and  nine-months  ending
September 30, 2002 were excluded from the computation of diluted earnings (loss)
per share because such options were  anti-dilutive since the Company we had net
losses in the respective periods.

7. ALLOWANCE FOR SALES RETURNS

        The Company  maintains 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
September  30,  2003,  the Company  had a $229,000  returns  allowance  that was
included in accrued  expenses on the balance sheet. The following is an analysis
of the sales returns allowance for the nine-months ended September 30, 2003:

Allowance at December 31, 2002                      $149,000
Provision for estimated sales returns                215,000
Actual sales returns                                (135,000)
                                                    --------
    Allowance at September 30, 2003                 $229,000
                                                    ========

                                       8
<PAGE>

8. DEFERRED REVENUE

        For  IB-Stat(R),  the Company  recognizes  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, the Company has
recorded deferred revenue of $496,000 and $524,000 that were included in accrued
expenses on the balance  sheet as of  September  30, 2003 and December 31, 2002,
respectively.

9. LINE OF CREDIT

        The  Company  maintains  a  $7,500,000  line of credit  with a financial
institution,  which expires January 31, 2004. Monthly interest-only payments are
made at a variable  per annum rate of 2.20%  plus the 30-day  Dealer  Commercial
Paper Rate.  Amounts  outstanding  under this credit  line were  $1,500,000  and
$4,444,000  at September 30, 2003 and December 31, 2002,  respectively.  Average
interest rates for the nine-month periods ended September 30, 2003 and 2002 were
3.35% and 3.95%, respectively.

10. CONVERTIBLE SUBORDINATED NOTES

        In December 2002, the Company completed a $13,000,000  private placement
of June 2005 convertible notes together with 2,459,460  warrants.  Proceeds from
the  placement  were used to redeem the  Company's  then  outstanding  June 2003
convertible  notes.  The June 2005 notes  were  convertible  into the  Company's
common stock at a conversion  price of $1.85 per share and the  warrants,  which
are not  exercisable  until December 2003,  also have an exercise price of $1.85
per share. On June 30, 2003, the then holders of the June 2005 convertible notes
executed a Conversion Agreement to convert all of the outstanding notes into the
Company's  common  stock.  The  Company  paid a fee of  $750,000  to induce  the
execution of the conversion  agreement.  In addition to the inducement  fee, the
Company incurred  $1,605,000 in non-cash charges  associated with the previously
outstanding  convertible  notes.  The Company also  reclassified  to  additional
paid-in capital  $704,000 in charges that were taken in prior periods related to
the  amortization  of  the  maturity  premium  associated  with  the  previously
outstanding convertible notes.

11. STOCK-BASED COMPENSATION

        The  Company  applies  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.  The Company  records
deferred  compensation for option grants to employees for the amount, if any, by
which the market  price per share  exceeds  the  exercise  price per share.  The
Company generally grants its derivative securities at market on the grant date.

        The Company has 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 the
Company's net income (loss) and basic and diluted income (loss) per share if the
Company had recorded  compensation  expense for the estimated  fair value of its
stock-based employee compensation, consistent with SFAS No. 123:

<TABLE>
<CAPTION>

                                                                       Three-Months Ended                 Nine-Months Ended
                                                                  September 30,   September 30,      September 30,    September 30,
                                                                      2003             2002              2003              2002
                                                                   ----------       ---------        -----------       ----------
<S>                                                               <C>              <C>              <C>               <C>
Net income (loss) - as reported ..............................     $    1,178       $  (1,477)       $    (2,127)      $   (5,809)

Deduct: Total stock based employee compensation ...............          (893)           (896)            (2,476)          (2,479)
                                                                   ----------       ---------        -----------       ----------
Net income (loss) - pro forma ................................     $      285       $  (2,373)       $    (4,603)      $   (8,288)
                                                                   ==========       =========        ===========       ==========
Earnings (loss) per share:
Basic - as reported ..........................................     $     0.03       $   (0.04)       $     (0.05)       $   (0.17)
                                                                   ==========       =========        ===========       ==========
Basic - pro forma ............................................     $     0.01       $   (0.07)       $     (0.11)       $   (0.24)
                                                                   ==========       =========        ===========       ==========
Diluted - as reported ........................................     $     0.02       $   (0.04)       $     (0.05)           (0.17)
                                                                   ==========       =========        ===========       ==========
Diluted - pro forma ..........................................     $     0.01       $   (0.07)       $     (0.11)       $   (0.24)
                                                                   ==========       =========        ===========       ==========
</TABLE>

                                       9
<PAGE>

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

        In addition to historical facts or statements of current condition, this
report  contains  some  forward-looking  statements  within  the  meaning of the
Private  Securities  Litigation Reform Act of 1995.  Forward-looking  statements
provide  our current  expectations  or  forecasts  of future  events.  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 are not  historical
facts. You may identify some of these  forward-looking  statements by the use of
words in the statements such as "anticipate,"  "estimate,"  "expect," "project,"
"intend,"  "plan,"  "believe" or other words and terms of similar  meaning.  Our
performance and financial  results could differ  materially from those reflected
in  these  forward-looking  statements  due  to  general  financial,   economic,
regulatory   and   political   conditions   affecting  the   biotechnology   and
pharmaceutical  industries as well as more specific risks and uncertainties such
as those listed below under "Certain Risks Related to Our Business." Given these
risks and  uncertainties,  any or all of these  forward-looking  statements  may
prove to be  incorrect.  Therefore,  you should not rely on any such  factors or
forward-looking  statements.  Furthermore,  we do not  intend  (and  we are  not
obligated) to update publicly any forward-looking statements.

GENERAL

        We  are  a  biopharmaceutical  company  focused  on  the  diagnosis  and
treatment of  gastrointestinal  disorders,  including:  colon cancer,  irritable
bowel syndrome,  or IBS, and inflammatory bowel disease, or IBD. Our development
strategy has been to acquire late-stage drug candidates with short time lines to
commercialization.  We currently  market and sell two  pharmaceutical  products,
Visicol(R) and  IB-Stat(R).  In addition to our marketed  products,  we have two
product candidates, Colirest(TM) and Hematrol(TM).

        The following  table outlines our product  pipeline from which we intend
to focus the majority of our research, development,  marketing and sales efforts
at least through calendar year 2003 and also sets forth the current  development
status of our  products  and product  candidates  in each  targeted  therapeutic
indication:

<TABLE>
<CAPTION>



    PRODUCT                      THERAPEUTIC INDICATIONS                DEVELOPMENT STATUS
----------------------- ------------------------------------------- -------------------------------
<S>                      <C>                                       <C>
Visicol(R)                o     Cleansing   of   colon   prior  to  FDA approved; marketed product
                                colonoscopy                         FDA  approved   SNDA  for  new
                                                                    formulation
----------------------- ------------------------------------------- -------------------------------
                          o     Constipation                        Post marketing study completed
                                                                    Phase IV ongoing
----------------------- ------------------------------------------- -------------------------------
                          o     Pre-operative   colonic   surgical  Phase IV will commence in 2003
                                procedures
----------------------- ------------------------------------------- -------------------------------
IB-Stat(R)                o     Acute antispasmodic  product for a  Marketed product
                                variety of indications, including
                                spasm of the colon and the
                                diagnostic procedure ERCP
----------------------- ------------------------------------------- -------------------------------
Colirest(TM)              o     Crohn's   disease  and  ulcerative  Phase   II   Crohn's   disease
                                colitis, collectively IBD           complete
                                                                    Phase  II  ulcerative  colitis
                                                                    complete
                                                                    Phase  IIb   Crohn's   disease
                                                                    ongoing
----------------------- ------------------------------------------- -------------------------------
Hematrol(TM)              o     Idiopathic Thrombocytopenic         Phase II complete
                                Purpura, or ITP                     Phase  III  placed  on hold by
                                                                    InKine
----------------------- ------------------------------------------- -------------------------------
</TABLE>

        We began  generating  sales revenue in January 2001 with the  commercial
introduction of our lead product,  Visicol(R), and during the quarter ended June
30, 2002, we launched IB-Stat(R), our second commercial product. Operations were
previously  funded primarily from the proceeds of public and private  placements
of  securities.  We have  incurred net losses in each year since our  inception.
Prospectively, we expect to be profitable for the remainder of the calendar year
2003.  At  September  30,  2003,  our  accumulated   deficit  was  approximately
$72,527,000.

                                       10
<PAGE>

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(R)is  recognized when,
     pursuant to Staff  Accounting  Bulletin No. 101,  "Revenue  Recognition  in
     Financial  Statements," 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(R),  we recognize revenue based on prescription
     data,  net of estimated cash  discounts.  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.

   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.
     123,  "Accounting  for Stock Based  Compensation."  Had we applied SFAS No.
     123,  our net income for the three-months ended  September  30, 2003  would
     have been less and our net loss for the  three-months  ended  September 30,
     2002 and  nine-months  ended  September  30,  2003 and 2002 would have been
     greater (see financial statement note 11).

   o Product  returns.  It is our policy to estimate and record an allowance for
     future product returns in connection with our sales of Visicol(R).  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(R).  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  reliability  of deferred  tax assets,
     management  considers  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.  Management considers 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.  At September 30, 2003, management
     has concluded that a full valuation allowance is necessary for deferred tax
     assets give that we have only been profitable for one quarter.

RESULTS OF OPERATIONS

        We generated  net income of  $1,178,000  or $0.03 per basic share ($0.02
per  diluted  share) and a net loss of  ($2,127,000)  or  ($0.05)  per basic and
diluted share for the three and  nine-month  periods  ended  September 30, 2003,
compared to losses of ($1,477,000)  and  ($5,809,000) or ($0.04) and ($0.17) per
basic  and  diluted  share for the same  periods  a year  ago.  The loss for the
nine-month  period  ending  September  30, 2003  included a one-time  $2,822,000


                                       11
<PAGE>

non-cash  charge related to our  previously  outstanding  June 2005  convertible
notes.  Similar  charges of $312,000 and $380,000 were incurred during the three
and nine-month  periods ended September 30, 2002 for our previously  outstanding
June 2003 convertible  notes. These charges appear on our income statement below
income  (loss)  from  operations  as a  separate  line  item  described  as debt
conversion inducement,  non-cash accretion and non-cash premium.  Prospectively,
we  expect  to have net  income  for the  last  quarter  of 2003 as a result  of
continued demand for Visicol(R) and decreased expenses due to the elimination of
our convertible notes.

        Product  revenue  was  $4,333,000  and  $10,208,000  for the  three  and
nine-month  periods  ended  September  30,  2003,  compared  to  $2,222,000  and
$5,143,000  for the same  periods a year ago.  Prescription  levels  continue to
increase,  resulting  in  increased  orders from  wholesalers  and large  retail
chains.  We  believe  the  increased  prescription  levels  have been  fueled by
increased  market awareness and acceptance of Visicol(R).  Approximately  95,000
prescriptions  were filled for  Visicol(R)  during the third  quarter of 2003 as
compared to approximately  89,000,  80,000,  69,000,  and 61,000 during the four
preceding  quarters.  We anticipate that product revenues for the 2003-year will
be in the range of $13,000,000 to $14,000,000.

        Our  gross  profit  was  $3,729,000  and  $8,792,000  for the  three and
nine-month  periods  ended  September  30,  2003,  compared  to  $1,777,000  and
$3,972,000  for the same periods a year ago.  Gross  profit as a  percentage  of
sales for  product  revenue  was 86% for both the three and  nine-month  periods
ended  September  30, 2003,  compared to 80% and 76% for the same periods a year
ago.  Increases  in gross  profit  and gross  profit  as a percent  of sales for
product revenue were the result of increased order volume, increased sales price
per unit,  decreased  manufacturing  cost per unit,  and decreased  distribution
costs for Visicol(R).  We expect that gross profit and gross profit as a percent
of sales for  product  revenue  will  increase  as our sales  volume  increases,
allowing  us to spread  further our fixed cost of goods and the  opportunity  to
more strongly negotiate our future agreements with suppliers and manufacturers.

        We incurred research and development expenses of $464,000 and $1,253,000
for the three and  nine-month  periods  ended  September  30, 2003,  compared to
$459,000  and  $2,931,000  for the same periods a year ago. The decrease for the
nine-month  period ending September 30, 2003 was the result of internalizing the
management  of   previously   outsourced   functions   related  to  the  ongoing
Colirest(TM)  clinical trial. We expect that research and development costs will
be in the range of $1,500,000 and $1,700,000 for the 2003-year.

        Sales and marketing costs of $1,443,000 and $4,338,000 were incurred for
the three and nine-months  ended September 30, 2003,  compared to $1,698,000 and
$4,078,000 for the same periods a year ago.  Sales and marketing  costs included
expenses  associated with our sales force,  which  currently  stands at 36 sales
representatives  and three district  managers,  along with  marketing  campaigns
related to Visicol(R) and  IB-Stat(R).  We expect that sales and marketing costs
will be in the range of $5,400,000 and $6,000,000 for the 2003-year.

        General and administrative expenses were $634,000 and $1,882,000 for the
three and  nine-months  ended  September  30,  2003,  compared to  $541,000  and
$1,711,000  for the  same  periods  a year  ago.  We  expect  that  general  and
administrative  costs will be in the range of $2,300,000  and $2,500,000 for the
2003-year.

        Decreased  interest  income was  primarily  the result of  significantly
reduced  interest rates for the three and  nine-months  ended September 30, 2003
compared to the same period a year ago.  Decreased  interest expense compared to
the same period a year ago was the result of the  elimination of our convertible
notes and decreased balance and interest rate on our line of credit.

LIQUIDITY AND CAPITAL RESOURCES

   At September 30, 2003, we had cash and cash  equivalents of $11,510,000.  The
cash and cash  equivalents  balance at September  30, 2003 included net proceeds
from third quarter warrant and option exercises of $2,646,000.

   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.  Our line of
credit is due to expire in January 2004.  While it is our intention to renew the
credit facility for an additional one-year term, we believe that the combination
of our current cash balance along with  anticipated  cash flows from  operations
would be adequate to pay in full our outstanding  borrowings on this credit line
if it were not renewed in January 2004.

   Our future short and long-term  capital  requirements will depend on numerous
factors,  including  marketplace  acceptance  of our  products.  In  addition to
marketplace acceptance of our products, other factors which cannot be quantified

                                       12
<PAGE>

and many of which we cannot  control  will also  impact our short and  long-term
capital  requirements,  including:  continued  commercial  costs of  Visicol(R),
continued  progress in our research and  development  activities,  progress with
pre-clinical  studies and clinical  trials,  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  conducting a clinical  trial of  Colirest(TM)  in Crohn's
disease,   continuing  to  study  the  use  of  Visicol(R)   for   constipation,
anticipating  commencing  a study  for the use of  Visicol(R)  in  pre-operative
colonic  surgical  procedures,  and continuing to market and sell Visicol(R) and
IB-Stat(R)  to  distributors  and drug store  chains.  During 2003, we expect to
spend  up  to  $300,000  on  the  Visicol(R)   studies  and  Visicol(R)  product
development,  $500,000 on the  Colirest(TM)  study, and $6,000,000 on Visicol(R)
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 certain of our research,
drug  discovery  or  development  activities  or  certain  other  aspects of our
operations and our business will be materially and adversely affected.

    We anticipate being profitable for the fourth quarter.  To achieve operating
profits,  we,  alone  or with  others,  must  successfully  market  and sell our
products. In addition,  revenues from product sales must be greater than the sum
of cost of goods sold, research and development costs, sales and marketing costs
and general and administrative  costs. While we expect to realize net income for
the remainder of 2003, we cannot  provide any assurance  that we will be able to
reach and/or sustain any level of profitability.

RESEARCH AND DEVELOPMENT PROGRAMS

     We  currently  have  two  significant  research  and  development  projects
relating to: (i) Visicol(R)and (ii) Colirest(TM).

    Visicol(R).  We have  focused our  Visicol(R)  research and  development  on
cleansing  of the  colon  prior  to  colonoscopy  and  are  presently  marketing
Visicol(R) for that indication. In addition, we expect to develop Visicol(R) for
cleansing the colon prior to pre-operative  colonic surgical  procedures and for
treating constipation.  The current status of these projects are as follows: (i)
for cleansing of the 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;  and (iii)
for treating  constipation,  we completed a post marketing study and commenced a
Phase IV study during the second  quarter of 2003.  As of September 30, 2003, we
have incurred cumulative total costs of approximately  $11,537,000 in connection
with our Visicol(R) research and development. During the quarter ended September
30,  2003,  we incurred an  aggregate  of $464,000 in research  and  development
expenses, approximately $90,000 of which was attributable to Visicol(R).

    Colirest(TM).  We are developing  Colirest(TM) for treatment of IBD and have
completed a Phase II study in Crohn's  disease  patients and a Phase II study in
ulcerative  colitis  patients.  In June 2001, we began a  Colirest(TM)  clinical
Phase IIb study of Crohn's disease  patients.  We anticipate an interim analysis
during 2004. As of September 30, 2003, we have incurred  cumulative  total costs
of  approximately  $6,687,000 in connection with the development of Colirest(TM)
and related compounds.  During the quarter ended September 30, 2003, we incurred
an  aggregate of $464,000 in research and  development  expenses,  approximately
$71,000 of which was attributable to Colirest(TM).

    Indirect  Costs.  In addition to the direct costs related to the development
of our  technologies,  we incurred  indirect  non-technology  specific  overhead
costs. These expenses included the salaries and administrative costs of managing
our research and development projects, which for the quarter ended September 30,
2003 equaled approximately $303,000.

                                       13
<PAGE>


RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

          In November  2002, the Emerging  Issues Task Force ("EITF")  finalized
its  consensus  on  EITF  Issue  00-21,   "Revenue  Arrangements  with  Multiple
Deliverables",  which  provides  guidance  or the  timing  and method of revenue
recognition  for sales  arrangements  that include the delivery of more than one
product or service.  EITF Issue 00-21 is effective for arrangements entered into
in  fiscal   periods   beginning   after  June  30,  2003  and  can  be  adopted
prospectively.  EITF  Issue  00-21  has  been  adopted  and did not  impact  our
financial position, results of operations or cash flows.

     In April 2003, the Financial  Accounting  Standards  Board ("FASB")  issued
Statement  of  Financial  Standard  No.  149,  "Amendment  of  Statement  133 on
Derivative  Instruments and Hedging  Activities"  ("SFAS No. 149"). SFAS No. 149
amends  Statement of Financial  Accounting  Standard  No. 133,  "Accounting  for
Derivative  Instruments  and Hedging  Activities,"  and  Statement  of Financial
Accounting Standard No. 138, "Accounting for Certain Derivative  Instruments and
Certain Hedging  Activities," and is related to certain derivatives  embedded in
other  contracts  and  for  hedging  activities  under  Statement  of  Financial
Accounting  Standard No. 133. SFAS No. 149 is effective  for  contracts  entered
into or modified after June 30, 2003 and to certain preexisting contracts.  SFAS
No. 149 is to be applied  prospectively.  SFAS No. 149  currently has not had an
impact on our financial position, results of operations or cash flows.

          In May  2003,  the  FASB  issued  Statement  of  Financial  Accounting
Standard  No.  150,   "Accounting  for  Certain   Financial   Instruments   with
Characteristics  of Both Liabilities and Equity" ("SFAS No. 150").  SFAS No. 150
establishes standards for how companies classify and measure, in their statement
of financial  position,  certain financial  instruments with  characteristics of
both  liabilities  and  equities.  SFAS  No.  150  is  effective  for  financial
instruments  entered  into or modified  after May 31,  2003,  and  otherwise  is
effective at the beginning of the first interim period  beginning  after July 1,
2003.  SFAS No. 150 currently  has not had an impact on our financial  position,
results of operations or cash flows.

CERTAIN RISKS RELATED TO OUR BUSINESS

Risks Related To Our Operations
-------------------------------

We have generated  significant losses to date. If we incur substantial losses in
the future, then the value of our common stock is likely to be reduced. Also, we
may never maintain a profitable level of operations.

        Our first sale of  Visicol(R)  occurred  in  January  2001 and our first
shipment of IB-Stat(R) occurred in June 2002. We have a significant  accumulated
deficit and have  incurred  losses in each year since our  inception  on July 1,
1993. Visicol(R), IB-Stat(R) and our product candidates are in various stages of
marketing or  development  and require  significant  research,  development  and
testing.  If our sales,  marketing,  and  research  spending in the  foreseeable
future are greater than product sales,  we may never conduct our operations at a
profit.  Our common  stock is likely to decrease in value if we fail to generate
profits or if the market believes that we are unable to generate profits.

        We have granted or committed to grant shares to a founding scientist and
others when we achieve agreed upon product  development  goals for  Colirest(TM)
and Hematrol(TM). These goals relate to our filing applications with the FDA and
achieving  agreed upon sales targets.  As a result,  our potential  earnings per
share will  decrease  because of the  necessary  accounting  treatment  of these
shares and options.

If we do not receive adequate  reimbursement  from the government,  managed care
organizations  and private  insurance plans, then some patients may be unable or
unwilling to purchase our products and we will achieve less revenue from product
sales.

        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 pharmaceutical  products.  In
fact,  pharmaceutical  companies  make a  majority  of their  sales  to  covered
individuals  of  health  insurance   companies  and  not  to  consumers.   These

                                       14
<PAGE>

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 will 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 lower  their
prices. Visicol(R) is premium priced compared to its competitors and we have not
specifically  contracted  with any third  party to date to give  rebates for its
use. We do not know what impact,  if any at all,  this will have on the coverage
of Visicol(R) by these third party payers.

If Visicol(R) and IB-Stat(R) is not accepted by doctors, hospitals,  insurers or
patients, than we may not be profitable.

        If  Visicol(R)  and  IB-Stat(R)  fail to  achieve  and  maintain  market
acceptance,  our ability to become  profitable  in the future will be  adversely
affected.  We believe  that  market  acceptance  will  depend on our  ability to
provide  acceptable  evidence of safety,  efficacy  and cost  effectiveness.  In
addition,  market  acceptance  depends  on the  effectiveness  of our  marketing
strategy and the availability of reimbursement for such products.

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 when sold;
   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
       product 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.

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(R),  IB-Stat(R) and any of our product candidates.  We must
contract with  manufacturers to produce  Visicol(R),  IB-Stat(R) and our product
candidates  according to  government  regulations.  Our future  development  and
delivery of our  marketed  products  and our product  candidates  depends on the
timely, profitable and competitive performance of these manufacturers. A limited
number of manufacturers  exist which are 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.

        We have  contracted  with  Mallinckrodt,  Inc.  to supply us with active
pharmaceutical   ingredients  for  Visicol(R).  A  significant  portion  of  the
Visicol(R)  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(R).  We are currently working towards  submitting a Drug
Master File with the FDA for another Mallinckrodt  facility in order to minimize
this risk.

        We have contracted with Pharmaceutical  Manufacturing Research Services,
Inc., a manufacturing  development  company, to supply commercial  quantities of
Visicol(R),  and Morton Grove  Pharmaceutical,  a generic drug manufacturer,  to
supply IB-Stat(R) in a manner that meets FDA requirements.  The FDA has approved
the manufacturing  processes of Pharmaceutical  Manufacturing  Research Services
and Morton  Grove.  Pharmaceutical  Manufacturing  Research  Services and Morton
Grove must maintain compliance with FDA standards regarding the manufacturing of
Visicol(R) and IB-Stat(R) at all times. The failure to maintain  compliance with

                                       15
<PAGE>

FDA standards  could result in the loss of "approved  status" at  Pharmaceutical
Manufacturing  Research  Services and Morton  Grove.  Any such loss would have a
significant  negative  impact on us since we do not have an  approved  secondary
manufacturer  for  Visicol(R) or  IB-Stat(R).  We are currently  working with an
appropriate  secondary  manufacturer  of  Visicol(R),  which  has not  yet  been
approved by the FDA.

        We have contracted with Cardinal  Health  Packaging  Services to package
Visicol(R)  in a manner that meets FDA  requirements.  The FDA has approved this
facility for the  packaging of  Visicol(R).  In the event that  Cardinal  Health
Packaging  Services were unable to package  Visicol(R)  for us, the FDA has also
approved Fisher Clinical Services, Inc. for packaging of Visicol(R).  IB-Stat(R)
is packaged at Morton Grove, which has been approved by the FDA.

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

        We have acquired the  worldwide  exclusive  right to market  Visicol(R),
Colirest(TM)  and  Hematrol(TM)  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,  some of our  licensing  agreements  require us to spend
specific  amounts for research and  development  of our  products.  If we do not
comply with the terms of these agreements, the owners 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  products  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 conduct our operations at a profit.

        We have  products  and  product  candidates  that  compete  in four very
competitive segments of the pharmaceutical  industry. These products and product
candidates include:  (i) purgative agents for cleansing the colon, which include
Visicol(R);  (ii) antispasmodics,  which include IB-Stat(R);  and receptor based
technologies  which includes  product  candidates  (iii)  Colirest(TM)  and (iv)
Hematrol(TM). We are likely to encounter significant competition with respect to
Visicol(R),  IB-Stat(R) and our product candidates  currently under development,
including,  but not limited to,  competition  from: (a) Braintree  Laboratories,
Inc.,  Schwarz  Pharma  Inc.  and C.B.  Fleet  Company,  Inc.  with  respect  to
Visicol(R);   (b)  Schwarz  Pharma  Inc.,  Eli  Lily  and  Company  and  Bedford
Laboratories   with  respect  to   IB-Stat(R);   (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(TM);  and (d) Immune Response
Corporation,  Autoimmune,  Inc.  and Nabi  Biopharmaceuticals  with  respect  to
Hematrol(TM).

        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
cheaper 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 market,  severely  restricting our ability
to achieve a profitable level of product sales.

If we are unable to protect our intellectual property,  then 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  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 product  could be
diminished.

                                       16
<PAGE>

Visicol(R),  IB-Stat(R)  and our  product  candidates  are in various  stages of
patent protection as summarized below.

        In 1997, the U.S.  Patent and Trademark  Office issued a patent covering
the use of  Visicol(R)  as a colonic  cleansing  agent or as a laxative,  and in
December  2000, the U.S.  Patent and Trademark  Office issued to us a patent for
numerous  solid-dose colonic cleansing agents.  Similar patents have been issued
in Canada and in Europe.

        IB-Stat(R)is not patentable.

        In April 2003, the U.S. Patent and Trademark  Office granted a Notice of
Allowance for the patent covering the treatment IBD with  Colirest(TM) and other
similar compounds.

        Hematrol(TM) is not patentable for use in ITP.  Instead of a patent,  we
will receive  protection  based on the FDA designation of Orphan Drug Status for
ITP.  Orphan Drug Status means the FDA has determined  that the number of people
affected by the disease  which the drug  treats is less than  200,000,  and that
having  numerous  companies  compete for the market is unrealistic and likely to
harm, rather than help, prospective users of the product. Since we have received
this  designation,  we will have an exclusive right to sell Hematrol(TM) for ITP
for   seven   years   after  FDA   approval   if   Hematrol(TM)   is  the  first
medroxyprogesterone acetate product to be approved for this indication.

        We have also obtained the rights to foreign patents, 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 make sure the  products  do not  infringe  on
patents  issued to  competitors.  We have not conducted a search to determine if
there are any patents similar to those covering Visicol(R) and Colirest(TM).

        Our  employees  or  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.

        Government   agencies   and  academic   institutions   have  funded  the
development of some of our patented technologies.  Although we have acquired the
rights to use such 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.

Risks Relating To Financing Our Business
----------------------------------------

We  may  need  additional  capital  in the  future  in  order  to  continue  our
operations.

        We may need  additional  capital to  further  develop,  manufacture  and
market Visicol(R),  IB-Stat(R) and our product candidates if the future revenues
from our marketed products fall short of current assumptions.  Specifically,  we
will need funds for the following:

   o conducting additional studies of Visicol(R)to  increase the utilization of
     the product through product enhancements and through new therapeutic areas;
   o acquiring additional products and product candidates for our portfolio;
   o researching and developing our product candidates,  including participating
     in  human  clinical  trials;
   o seeking necessary   approvals  from  the government;
   o developing manufacturing capabilities; and
   o funding our growth as a company.

        We believe that our current capital  resources will continue to fund our
operations for at least the next 12 months, and if we meet our sales objectives,
we will not require  additional  capital to fund our operations.  The success of
Visicol(R) and IB-Stat(R) directly impacts our need for additional capital.  Our
future capital requirements will depend on a variety of factors. For example, if

                                       17
<PAGE>

we experience continued progress in our research and development activities,  or
if we determine  that it is necessary to prosecute  and enforce our patents,  we
may require additional  capital.  In addition,  our current and future marketing
activities  will  affect our future  capital  requirements.  If we  inaccurately
predict  our  future  capital  requirements,  we may be unable to  continue  our
operations.

        We regularly seek funding for our operations  from a variety of sources,
including public and private securities offerings,  loans and joint arrangements
with  partners.  We currently do not possess a commitment  to obtain  additional
funding,  and we may never receive  additional funding in the future. If we need
additional  capital  and we fail to obtain  additional  funding,  we will delay,
scale back or eliminate  our research and  development  activities or enter into
arrangements  with others to develop and market certain product  candidates that
we may otherwise have developed ourselves.

Risks Relating to Regulatory Matters
------------------------------------

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.  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(R) and
IB-Stat(R).  The FDA may still,  however,  prevent us from  continuing to market
Visicol(R) or IB-Stat(R) if we:

   o do  not  continue  to  consistently   manufacture  appropriate  amounts  of
     Visicol(R) and IB-Stat(R)or
   o cannot continue to repeat the manufacturing process used to manufacture the
     validation batches of Visicol(R).

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

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.

The FDA could prevent us from marketing IB-Stat(R):
---------------------------------------------------

        IB-Stat(R)  is  the   combination  of  an  FDA  approved   generic  drug
(hyoscyamine  sulfate) and an FDA approved delivery system.  Hyoscyamine sulfate
was a marketed product prior to 1962. 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(R)  is not  similar  enough to the

                                       18
<PAGE>

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 all  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 such 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;
   o  operating restrictions; injunctions; and/or
   o  criminal prosecution.

        Our  product  candidates  are in various  stages of  development  and in
various stages of the FDA approval process, as set forth below:

   o Colirest(TM). We are developing Colirest(TM)as a compound for the treatment
     of inflammatory bowel disease,  commonly known as 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(TM)to  a Pivotal Phase IIb dose ranging study for
     Crohn's disease. We are currently enrolling patients in this study.

   o Hematrol(TM).  We  are  developing  Hematrol(TM)  as  a  compound  for  the
     treatment of ITP.  ITP is an  autoimmune  disease  that causes  spontaneous
     bleeding.  Hematrol(TM)  is currently on hold in Phase III clinical  trials
     for ITP.

    We may never receive FDA approval for any of these  products and without FDA
approval, we cannot market or sell these products.

Risks Related To Our Common Stock Outstanding
---------------------------------------------

If the holders of our outstanding options and warrants exercise such options and
warrants and  subsequently  sell the common stock issued  through such exercise,
then the market price of the common stock may drop.

        At  September  30,  2003,  we had  approximately  8,697,000  options and
warrants outstanding. Options and warrants give the holder the right to purchase
shares of a company's stock in the future for a predetermined price which may or
may not be below the current  market value of such  company's  stock at the time
the option or warrant is  exercised.  In addition,  as of September 30, 2003, we
had an  additional  1,039,000  options  available  for issuance  pursuant to our
option plans. To date,  option and warrant holders have exercised  approximately
9,707,000  options and warrants in the aggregate at prices  ranging from $.50 to

                                       19
<PAGE>

$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,  then 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 sell their shares when they desire
because the stock price is highly  volatile and the stock is not widely  traded.
For example,  the number of our shares  theoretically  available for sale in any
one day is approximately  48,435,000 shares and our average daily trading volume
for the  twelve-month  period ended  September  30, 2003 has been  approximately
148,000 shares. If our stock continues to trade thinly, our shareholders may not
be able to sell their shares when desired.

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 2004. The interest rate on our line
of credit has fluctuated  from 3.11% to 3.57% over the past  nine-months and the
outstanding balance on our line of credit at September 30, 2003 was $1,500,000.

    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
investments  fluctuates with current market interest rates. In general, as rates
increase,  the market value of a debt  instrument  isexpected  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
exposures in 2003. 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.

                                       20
<PAGE>




PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

        Not applicable.

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.

        None.

ITEM 5. OTHER INFORMATION.

        None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

          (a)  Exhibits.

               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

          (b)  Reports on Form 8-K.

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

               1. Form 8-K filed on August 7, 2003 with  respect to the earnings
                  release  for the quarter  ended June 30,  2003.  The  earliest
                  event covered by this report occurred on August 5, 2003.



                                       21
<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: October 31, 2003             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: October 31, 2003             By:  /s/ Robert F. Apple
                                        -------------------
                                   Robert F. Apple
                                   Chief Operating and Financial Officer,
                                   (Authorized Officer and
                                   Principal Financial Officer)



<PAGE>

                                 EXHIBITS INDEX

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



                                       22