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

                                  UNITED STATES
                       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 Quarter Ended September 30, 1997
                         Commission File Number 1-12584

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


                         SHEFFIELD PHARMACEUTICALS, INC.
                    (EXACT NAME OF REGISTRANT IN ITS CHARTER)


DELAWARE                                                             13-3808303
(State of Incorporation)                       (IRS Employer Identification No.)


425 SOUTH WOODSMILL ROAD, SUITE 270
ST. LOUIS, MISSOURI                                                  63017-3441
(Address of Principal Executive Offices)                              (Zip Code)


       Registrant's telephone number, including area code: (314) 579-9899


         Indicate  by check  whether  the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes X No _____

         The  number of  shares  outstanding  of the  issuer's  Common  Stock is
12,511,875 shares of Common Stock as of September 30, 1997.


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

<PAGE>

                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

                                      INDEX

                                                                            Page
PART I.              Financial Information

         ITEM 1.     Financial Statements.

                     Consolidated Balance Sheets - September 30,
                     1997 and December 31, 1996.                             1

                     Consolidated  Statements of Operations for the          2
                     three and nine months ended September 30, 1997
                     and 1996 and for the period from October 17, 1986
                     (inception) to September 30, 1997.

                     Consolidated  Statements of Cash Flows for the          3
                     three and nine months ended September 30, 1997
                     and 1996 and for the period from October 17,
                     1986 (inception) to September 30, 1997.

                     Notes to Consolidated Financial Statements.             4

         ITEM 2.     Management's Discussion and Analysis                    6
                     of Financial Condition and Results of Operations.

PART II.             Other Information.

         ITEM 2.     Changes in Securities.                                 10
         ITEM 6.     Exhibits and Reports on Form 8-K.                      11

SIGNATURES                                                                  12

<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>

                                                                                    September 30,           December 31,
                                                                                        1997                    1996
                                                                                --------------------    ---------------------
                                                                                    Unaudited)
                                     ASSETS
Current assets:
<S>                                                                                     <C>                      <C>        
              Cash and cash equivalents                                                 $ 1,005,106              $ 1,979,871
              Marketable securities                                                               -                  460,768
              Prepaid expenses and other current assets                                     118,744                   43,975
                                                                                --------------------    ---------------------
                   Total current assets                                                   1,123,850                2,484,614
                                                                                --------------------    ---------------------

Property and equipment:
              Laboratory equipment                                                          185,852                  185,852
              Office equipment                                                               84,044                   89,019
              Leasehold improvements                                                         61,390                   61,390
                                                                                --------------------    ---------------------
                                                                                            331,286                  336,261
              Less accumulated depreciation and amortization                                225,077                  162,007
                                                                                --------------------    ---------------------
                   Net property and equipment                                               106,209                  174,254
                                                                                --------------------    ---------------------

Segregated cash                                                                              50,000                   75,000
Other assets                                                                                 39,416                   40,016
                                                                                --------------------    ---------------------
                   Total assets                                                         $ 1,319,475              $ 2,773,884
                                                                                ====================    =====================

          LIABILITIES AND STOCKHOLDER'S EQUITY (NET CAPITAL DEFICIENCY)


Current liabilities:
              Accounts payable and accrued liabilities                                    $ 797,001                $ 446,965
              Sponsored research payable                                                    135,037                  580,157
              Stock dividends payable                                                       113,100                        -
              Capital lease obligation-current portion                                       19,597                   23,719
                                                                                --------------------    ---------------------
                   Total current liabilities                                              1,064,735                1,050,841

Capital lease obligation - non-current portion                                               11,790                   27,206

Convertible debentures                                                                    1,750,000                        -

Cumulative convertible redeemable preferred stock, $.01 par value.  Authorized,
              3,000,000 shares; issued and outstanding, 27,170 and 0 shares, at
              September 30, 1997 and December 31, 1996, respectively.                           272                        -
Additional paid-in capital associated with cumulative convertible
              redeemable preferred stock                                                  2,444,164                        -

Stockholders' equity (net capital deficiency):
              Common stock, $.01 par value.  Authorized, 50,000,000 shares;
               issued and outstanding, 12,511,875 and 11,388,274
               shares at September 30, 1997 and December 31, 1996, respectively             125,119                  113,883
              Notes receivable in connection with sale of stock                             (72,600)                (110,000)
              Additional paid-in capital                                                 30,676,070               28,319,838
              Unrealized loss on marketable securities                                            -                  (39,232)
              Deficit accumulated during development stage                               34,680,075)             (26,588,652)
                                                                                --------------------    ---------------------
                                                                                         (3,951,486)               1,695,837
                                                                                --------------------    ---------------------
              Total liabilities and stockholders' equity                                $ 1,319,475              $ 2,773,884
               (net capital deficiency)                                         ====================    =====================
</TABLE>


                                       1

     See accompanying notes to unaudited consolidated financial statements.




<PAGE>

                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)
                      Consolidated Statements of Operations
             For the three and nine months ended September 30, 1997
                          and 1996 and for the period
             from October 17, 1986 (inception) to September 30, 1997
                                   (Unaudited)


<TABLE>
<CAPTION>


                                                                                                          October 17, 1986
                                                     Three months ended            Nine months ended       (inception) to
                                                        September 30,                September 30,          September 30,
                                                 --------------------------  ---------------------------  -----------------
                                                     1997         1996              1997          1996            1997
                                                 -------------  -------------  -------------  -------------  --------------
<S>                                              <C>            <C>            <C>            <C>            <C>          
Revenues:
  Sub-license revenue                            $        -     $    500,000   $      -       $    500,000   $     510,000
  Interest income                                       9,391         55,275         49,363        124,514         446,276
                                                 -------------  -------------  -------------  -------------  --------------

  Total revenue                                         9,391        555,275         49,363        624,514         956,276

Expenses:
  Acquisition of R & D in-process
    technology                                            -        -    -         1,650,000           -          1,650,000
  Research and development                            570,170        693,875      3,283,632      2,858,105      18,806,830
  General and administrative                        1,325,874      1,435,513      3,087,103      2,649,736      14,981,795
  Interest                                              2,183          2,183          6,951          6,579         127,413
                                                 -------------  -------------  -------------  -------------  --------------

  Total expenses                                    1,898,227      2,131,571      8,027,686      5,514,420      35,566,038
                                                 -------------  -------------  -------------  -------------  --------------

Loss before extraordinary item                     (1,888,836)     1,576,296)    (7,978,323)    (4,889,906)    (34,609,762)
Extraordinary item                                        -            -             -                -             42,787

                                                 -------------  -------------  -------------  -------------  --------------
Net loss                                         $ (1,888,836)  $ (1,576,296)  $ (7,978,323)  $ (4,889,906)  $ (34,566,975)
                                                 =============  =============  =============  =============  ==============

Loss per share of common stock:
Loss before extraordinary item                   $      (0.16)  $      (0.14)  $      (0.68)   $     (0.46)  $       (7.26)
Extraordinary item                                        -             -             -               -               0.01
                                                 =============  =============  =============  =============  ===============
Net loss                                         $      (0.16)  $      (0.14)  $      (0.68)   $     (0.46)  $       (7.25)
                                                 =============  =============  =============  =============  ===============



Weighted average common shares outstanding         12,077,667      1,150,397     11,765,653     10,562,173       4,770,312
                                                 ==-==========  ==-==========  =============   =====-======  ===============
</TABLE>


                                       2

     See accompanying notes to unaudited consolidated financial statements.


<PAGE>

                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)
                      Consolidated Statements of Cash Flows
  For the three and nine months ended September 30, 1997 and 1996 and for the
         period from October 17, 1986 (inception) to September 30, 1997
                                   (Unaudited)


<TABLE>
<CAPTION>

                                                                                                                                  
                                                                             Three months ended           Nine months ended       
                                                                                September 30,               September 30,         
                                                                        ---------------------------   --------------------------- 
                                                                            1997           1996           1997           1996     
                                                                        -----------    ------------   ------------   ------------ 

<S>                                                                     <C>            <C>            <C>            <C>           
Cash outflows from development stage activities and
 extraordinary gain:
   Loss before extraordinary item                                       $(1,888,836)   $(1,576,296)   $(7,978,323)   $(4,889,906)  
   Extraordinary gain on extinguishment of debt                                --             --             --             --     
                                                                        ------------   ------------   ------------   ------------  
    Net loss                                                             (1,888,836)    (1,576,296)    (7,978,323)    (4,889,906)  
Adjustments to reconcile net loss to net cash used by
 development stage activities:
   Issuance of common stock, stock options/warrants for services            118,750        562,912        118,750        562,912   
   Non-cash interest expense                                                   --             --             --             --     
   Issuance of common stock for license                                        --             --             --             --     
   Loss on sale of marketable securities                                    300,259           --          300,259           --     
   Non-cash acquisition of R & D in process technology                         --             --        1,650,000           --     
   Transfer of securities for services                                         --             --           25,000           --     
   Securities acquired under sub-license agreement                             --         (453,569)          --         (453,569)  
   Issuance of common stock for intellectual property rights                   --             --             --             --     
   Amortization of organizational and debt issuance costs                      --             --             --             --     
   Depreciation                                                              12,894         17,835         38,677         54,207   
   Amortization                                                              23,021           --           33,253           --     
   Increase in debt issuance and organizational costs                          --            1,050           --            1,050   
   Decrease (increase) in prepaid expenses and other current assets         (14,324)        18,458        (74,769)        87,876   
   Decrease (increase) in other assets                                         --          163,799            600         13,383   
   (Increase) in loans receivable                                              --         (276,500)          --         (276,500)  
   Increase (decrease) in accounts payable, accrued liabilities             292,130        183,621        350,036        230,005   
   Increase (decrease) in sponsored research payable                       (196,598)      (195,000)      (445,120)        (7,402)  
   Increase in deferred license fee                                            --         (100,000)          --             --     
                                                                        ------------   ------------   ------------   ------------  
   Net cash used by development stage activities                         (1,352,704)    (1,653,690)    (5,981,637)    (4,677,944)  
                                                                        ------------   ------------   ------------   ------------  
Cash flows from investing activities:
   Acquisition of laboratory and office equipment                            (1,801)          --           (3,888)       (47,816)  
   (Increase) decrease in segregated cash                                    25,000           --           25,000           --     
   Proceeds from sale of marketable securities                              174,407           --          174,407           --     
   Increase in notes receivable in connection with sale of stock               --             --             --         (240,000)
   Payments of notes receivable                                              37,400           --           37,400           --     
   Acquisition of Camelot Pharmacal, L.L.C. (net)                            (8,259)
                                                                        ------------   ------------   ------------   ------------  
       Net cash used by investing activities                                235,006           --          224,660        (47,816)  
                                                                        ------------   ------------   ------------   ------------  
Cash flows from financing activities:
   Principal payments under capital lease                                    (6,097)        (5,836)       (19,538)       (18,876)  
   Conversion of convertible, subordinated notes                               --             --             --             --     
   Proceeds from issuance of debt                                              --             --             --             --     
   Proceeds from issuance of common stock                                      --             --             --             --     
   Proceeds from issuance of  cumulative convertible redeemable
    preferred stock                                                            --             --        3,212,136           --     
   Proceeds from issuance of convertible debentures                       1,589,614
   Proceeds from exercise of stock options                                     --           36,500           --          173,675   
   Proceeds from exercise of warrants                                          --             --             --        6,246,109   
                                                                        ------------   ------------   ------------   ------------  
       Net cash and cash equivalents provided by financing activities     1,583,517         30,664      4,782,212      6,400,908   
                                                                        ------------   ------------   ------------   ------------  
       Net increase in cash and cash equivalents                            465,819     (1,623,026)      (974,765)     1,675,148   
 Cash and cash equivalents at beginning of period                           539,287      5,158,751      1,979,871      1,860,577   
                                                                        ------------   ------------   ------------   ------------  
 Cash and cash equivalents at end of period                             $ 1,005,106    $ 3,535,725    $ 1,005,106    $ 3,535,725   
                                                                        ============   ============   ============   ============  

Noncash investing and financing activities:
   Common stock, stock options and warrants issued for services         $   118,750    $   562,912    $   118,750    $   562,912   
   Common stock issued for license                                             --             --             --             --     
   Common stock issued for intellectual property rights                        --             --             --             --     
   Common stock issued to retire debt                                          --             --             --             --     
   Securities acquired under sub-license agreement                             --             --             --             --     
   Transfer of securities for services                                         --             --           25,000           --     
   Acquisition of R & D in-process technology                             1,650,000
   Equipment acquired under capital lease                                      --             --             --           72,453   
   Notes payable converted to common stock                                     --             --             --             --     
                                                                        ============   ============   ============   ============  

Supplemental disclosure of cash flow information:
   Interest paid                                                        $     2,183    $     2,183    $     6,951    $     6,579   
                                                                        ============   ============   ============   ============  

</TABLE>
                                      -3-

<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)
                      Consolidated Statements of Cash Flows
  For the three and nine months ended September 30, 1997 and 1996 and for the
         period from October 17, 1986 (inception) to September 30, 1997
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                              October 17, 1986
                                                                              (inception) to
                                                                              Semptember 30,
                                                                              -------------  
                                                                                    1997     
                                                                              -------------  

<S>                                                                           <C>
Cash outflows from development stage activities and
 extraordinary gain:
   Loss before extraordinary item                                             $(34,609,762) 
   Extraordinary gain on extinguishment of debt                                     42,787  
                                                                              ------------- 
    Net loss                                                                   (34,566,975) 
Adjustments to reconcile net loss to net cash used by                                       
 development stage activities:                                                              
   Issuance of common stock, stock options/warrants for services                 1,659,753  
   Non-cash interest expense                                                        50,000  
   Issuance of common stock for license                                              5,216  
   Loss on sale of marketable securities                                           300,259  
   Non-cash acquisition of R & D in process technology                           1,650,000  
   Transfer of securities for services                                              25,000  
   Securities acquired under sub-license agreement                                (500,000) 
   Issuance of common stock for intellectual property rights                       866,250  
   Amortization of organizational and debt issuance costs                           77,834  
   Depreciation                                                                    180,221  
   Amortization                                                                     53,716  
   Increase in debt issuance and organizational costs                              (77,834) 
   Decrease (increase) in prepaid expenses and other current assets               (177,785) 
   Decrease (increase) in other assets                                              19,625  
   (Increase) in loans receivable                                                     --    
   Increase (decrease) in accounts payable, accrued liabilities                    219,931  
   Increase (decrease) in sponsored research payable                               712,107  
   Increase in deferred license fee                                                   --    
                                                                              ------------- 
   Net cash used by development stage activities                               (29,502,682) 
                                                                              ------------- 
Cash flows from investing activities:                                                       
   Acquisition of laboratory and office equipment                                 (267,697) 
   (Increase) decrease in segregated cash                                          (50,000) 
   Proceeds from sale of marketable securities                                     174,407  
   Increase in notes receivable in connection with sale of stock                            
   Payments of notes receivable                                                    167,400  
   Acquisition of Camelot Pharmacal, L.L.C. (net)                                           
                                                                              ------------- 
       Net cash used by investing activities                                      (224,149) 
                                                                              ------------- 
Cash flows from financing activities:                                                       
   Principal payments under capital lease                                          (41,066) 
   Conversion of convertible, subordinated notes                                   749,976  
   Proceeds from issuance of debt                                                  550,000  
   Proceeds from issuance of common stock                                       13,268,035  
   Proceeds from issuance of  cumulative convertible redeemable                             
    preferred stock                                                              3,212,136  
   Proceeds from issuance of convertible debentures                                         
   Proceeds from exercise of stock options                                       1,337,677  
   Proceeds from exercise of warrants                                           10,064,481  
                                                                              ------------- 
       Net cash and cash equivalents provided by financing activities           30,730,853  
                                                                              ------------- 
       Net increase in cash and cash equivalents                                 1,004,022  
 Cash and cash equivalents at beginning of period                                    1,084  
                                                                              ------------- 
 Cash and cash equivalents at end of period                                   $  1,005,106  
                                                                              ============= 
                                                                                            
Noncash investing and financing activities:                                                 
   Common stock, stock options and warrants issued for services               $  1,659,753  
   Common stock issued for license                                                   5,216  
   Common stock issued for intellectual property rights                            866,250  
   Common stock issued to retire debt                                              600,000  
   Securities acquired under sub-license agreement                                 500,000  
   Transfer of securities for services                                              25,000  
   Acquisition of R & D in-process technology                                               
   Equipment acquired under capital lease                                           72,453  
   Notes payable converted to common stock                                         749,976  
                                                                              ============= 
                                                                                            
Supplemental disclosure of cash flow information:                                           
   Interest paid                                                              $    127,414  
                                                                              ============= 
</TABLE>


<PAGE>

                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997
                                   (UNAUDITED)


1.       CONSOLIDATED FINANCIAL STATEMENTS

         The accompanying  consolidated  balance sheets as of September 30, 1997
         and December 31, 1996 and the accompanying  consolidated  statements of
         operations and cash flows for the three and nine months ended September
         30, 1997 and 1996 and for the period from October 17, 1986  (inception)
         to September 30, 1997, have been prepared by Sheffield Pharmaceuticals,
         Inc. (the "Company"),  without audit. In the opinion of management, all
         adjustments (consisting only of normal recurring accruals) necessary to
         present fairly the financial position,  results of operations, and cash
         flows at  September  30, 1997 and for all periods  presented  have been
         made.

         Certain  information  and  footnote  disclosures  normally  included in
         financial  statements  prepared in accordance  with generally  accepted
         accounting  principles have been condensed or omitted.  It is suggested
         that these  consolidated  financial  statements be read in  conjunction
         with  the  financial  statements  and  notes  thereto  included  in the
         Company's  annual report on Form 10-KSB for the year ended December 31,
         1996.  The results of  operations  for the three and nine months  ended
         September  30,  1997  and 1996 are not  necessarily  indicative  of the
         operating results for the full years.

         The Company was  incorporated  on October  17,  1986,  under the Canada
         Business  Corporations  Act.  The  Company's  wholly-owned  subsidiary,
         U-Tech Medical Corporation  ("U-Tech") was incorporated in the state of
         Texas on January 13, 1992 and has been  substantially  inactive for two
         years as of June 30, 1997.  On July 30, 1997 U-Tech was  dissolved.  On
         January 10, 1996,  Ion  Pharmaceuticals,  Inc., a Delaware  corporation
         ("Ion"),  was formed as a  wholly-owned  subsidiary of the Company.  At
         that time,  Ion  acquired  the  Company's  rights  with  respect to its
         anti-proliferative  technology.  On April 17, 1997, CP Pharmaceuticals,
         Inc. ("CP") was formed for the purpose of acquiring Camelot  Pharmacal,
         L.L.C., which acquisition was consummated on April 25, 1997. Unless the
         context requires otherwise,  Sheffield, U-Tech, Ion and CP are referred
         to as "the Company". The Company commenced its biotechnology operations
         in the United States in January 1992 and Sheffield became  domesticated
         as a  Wyoming  corporation  in May  1992.  At  the  Annual  Meeting  of
         shareholders  of the Company  held on January 26, 1995,  the  Company's
         shareholders  approved  the  proposal to  reincorporate  the Company in
         Delaware,  which  was  effected  on  June  13,  1995.  All  significant
         intercompany  transactions  are  eliminated  in  consolidation.  At the
         Annual  Meeting of  shareholders  of the Company held on June 26, 1997,
         the Company's  shareholders approved the proposal to change the name of
         the Company from "Sheffield  Medical  Technologies  Inc." to "Sheffield
         Pharmaceuticals, Inc."

         The  Company  is  in  the  development  stage  and  as  such  has  been
         principally engaged in licensing and research efforts.  The Company has
         generated minimal operating  revenue and requires  additional  capital,
         which the Company  intends to obtain  through equity and debt offerings
         to continue to operate its business.  The Company's ability to meet its
         obligations  as they become due and to continue as a going concern must
         be  considered  in  light  of the  expenses,  difficulties  and  delays
         frequently  encountered in starting a new business,  particularly since
         the Company will focus on research, development and unproven technology
         which may require a lengthy period of time and substantial expenditures
         to complete.  Even if the Company is able to  successfully  develop new
         products or  technologies,  there can be no assurance  the Company will
         generate  sufficient  revenues  from  the  sale  or  licensing  of such
         products and  technologies to be profitable.  Management  believes that
         the Company's ability to meet its obligations as they become due and to
         continue as a going  concern  through the next 12 months are  dependent
         upon obtaining additional financing.

                                       4

<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997
                                   (UNAUDITED)

2.       NET LOSS PER COMMON SHARE

         Net loss per common share is based on net loss for the relevant  period
         divided by the weighted average number of shares issued and outstanding
         during the period. Stock options, common stock issuable upon conversion
         of warrants and common stock issuable upon the conversion of cumulative
         convertible  redeemable  preferred  stock  are not  reflected  as their
         effect  would  be  antidilutive  for both  primary  and  fully  diluted
         earnings per share computations.

         In February  1997,  the  Financial  Accounting  Standards  Board issued
         Statement  No.  128,  "EARNINGS  PER  SHARE,"  which is  required to be
         adopted on  December  31,  1997.  At that  time,  the  Company  will be
         required to change the method  currently  used to compute  earnings per
         share and to restate all prior periods.  The impact of Statement 128 on
         the calculation of primary and fully diluted  earnings per share is not
         expected to be material.

3.       SEGMENT DISCLOSURES

         In June 1997, the Financial Accounting Standards Board issued Statement
         issued SFAS No. 131,  "DISCLOSURES  ABOUT SEGMENTS OF AN ENTERPRISE AND
         RELATED  INFORMATION"  ("SFAS  No.  131").  SFAS  No.  131  establishes
         standards  for  the  way  that  public  business   enterprises   report
         information about operating segments in annual financial statements and
         requires  that those  enterprises  report  selected  information  about
         operating segments in interim financial reports issued to shareholders.
         It also establishes  standards for related  disclosures  about products
         and services,  geographic  areas, and major customers.  SFAS No. 131 is
         effective for financial  statements  for fiscal years  beginning  after
         December 15, 1997.  The adoption of SFAS 131 will have no impact on the
         Company's  consolidated  results of operations,  financial  position or
         cash flows.

4.       SUPPLY AND LICENSE AGREEMENTS

         In March  1997,  the  Company  exercised  its option and  entered  into
         exclusive  supply and license  agreements for the world-wide  rights to
         the multi-dose  solution  inhaler  technology (MSI) of Siemens A.G. The
         agreements  call for  Siemens to be the  exclusive  supplier of the MSI
         system, a hand-held,  portable  pulmonary  delivery system. The Company
         paid a licensing fee of $1.1 million in April 1997 to Siemens  pursuant
         to its  agreements  and is  required  to make  additional  payments  to
         Siemens of DM 2.0 million in January, 1998 and 1999.

5.       CONVERTIBLE DEBENTURES

         On September 22, 1997,  the Company  completed an interim  financing by
         issuing  $1,750,000  of 6%  Convertible  Subordinated  Debentures.  The
         debentures  mature on September 22, 2000. The Company has the option to
         redeem the debentures at a premium under certain circumstances.  If not
         redeemed,  the  holders  have the right to convert  the  debentures  to
         shares of the Company's common stock at a discount.



                                       5

<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

ITEM 2:

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company,  being a development stage  enterprise,  has incurred a net loss in
each of the  fiscal  years  since its  inception  and has had to rely on outside
sources of funds to maintain its  liquidity.  Substantial  operating  losses are
expected to be incurred  for the next several  years as the Company  expends its
resources for product acquisition,  research and development and preclinical and
clinical testing.

As a development  stage company without  significant  revenues,  the Company has
financed its technology  development activities and operations primarily through
public  and  private  offerings  of  securities,  from  which it has  raised  an
aggregate of approximately $30.2 million through September 30, 1997. On February
28, 1997,  the Company  completed a private  offering of 35,000 shares of its 7%
Series A Cumulative  Convertible  Redeemable Preferred Stock, which raised total
gross proceeds of $3.5 million.  On September 22, 1997, the Company  completed a
private placement of 6% Convertible Subordinated Debentures,  which raised total
gross proceeds of $1.75  million.  The proceeds of both offerings are to be used
to fund research and development, patent prosecution and for working capital and
general  corporate  purposes.  Such  proceeds  may also be used for the possible
acquisition of rights in new  technologies  in the Company's  ordinary course of
business.  The Company's operating results have fluctuated  significantly during
each  quarter  since  its  inception,  and the  Company  anticipates  that  such
fluctuations, largely attributable to varying sponsored research and development
commitments and expenditures, will continue into the foreseeable future.

The  Company  continues  to  conduct  scientific   research,   clinical  trials,
development, and intellectual property protection. During the three months ended
September 30, 1997, the Company funded  $570,170 for research and development on
its projects. During the succeeding 12-month period,  approximately $7.8 million
in  additional  funding is projected  to be incurred on clinical and  laboratory
research  and   development.   Of  this  estimated   funding  of  $7.8  million,
approximately  $7,500,000 is expected to be applied to the MSI,  $100,000 to the
Ion Pharmaceuticals Technologies, $137,500 to the HIV/AIDS Vaccines, and $20,000
to the UGIF Technology-Prostate Cancer.

In addition to clinical and laboratory research development, the Company expects
to incur ongoing costs in connection with its intellectual  property  protection
and patent  prosecution,  which costs are expected to approximate  $100,000 over
the next 12 months.

                                       6

<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

REVENUES AND EXPENSES

Revenues:

From  inception  through the period ended  September  30, 1997,  the Company has
earned sub-license revenue of $510,000 primarily from the sub-license  agreement
for its liposome-CD4 technology.

From  inception  through the period ended  September  30, 1997,  the Company has
earned interest income of $446,276 and an extraordinary  item from gain on early
extinguishment  of debt of $42,787.  The Company's  ability to generate material
revenues is contingent on the successful  commercialization  of its technologies
and  other  technologies  which  it may  acquire,  followed  by  the  successful
marketing and  commercialization  of such technologies  through licenses,  joint
ventures or other arrangements.

Interest  income  for the three  months  ended  September  30,  1997 was  $9,391
compared to $55,275 for the same period ended  September 30, 1996.  The decrease
in interest  earned is attributable to a decrease of cash invested in short-term
investments Except for the sub-license revenue mentioned above,  interest income
represented all of the Company's income in each of the prior periods.

Operating Expenses:

From inception through the period ended September 30, 1997, the Company incurred
$35,566,037  of operating  expenses.  Of the total  operating  expenses for that
period,  $18,806,829  were costs of research and  development  for the Company's
technologies and $1,650,000 for the acquisition of R & D in-process  technology.
The  remainder  of expenses  for the same period were  incurred  principally  as
consulting  costs,  costs of management,  legal and other  professional fees and
expenses  relating to the  Company's  technologies,  and for its  completed  and
proposed financing plans.  Research and development costs are expected to remain
high as the Company implements later-stage research projects of its technologies
and such costs will continue to be expensed for financial reporting purposes.

Operating  expenses  for  the  three  months  ended  September  30,  1997,  were
$1,898,227  compared to $2,131,571 for the same period ended September 30, 1996.
The decrease in operating expenses was primarily due to reduced spending on both
research and  development  and general and  administrative  expenses.  The major
items included in general and administrative expenses for the three months ended
September 30, 1997, were (i) salaries of $397,840 which increased by $187,054 as
compared to 1996,  primarily due to the increase in management  and staff,  (ii)
professional  fees of  $153,977  or $5,328  lower than the same  period in 1996,
(iii)  consulting  fees of  $232,863  or  $487,948  lower than  1996,  primarily
resulting  from the  one-time  cashless  exercise of options  and  warrants by a
former  employee  of the  Company,  totaling  $562,912,  (iv)  loss  on  sale of
marketable securities of $299,915 and (v) other expenses of $241,279.

The table below  indicates (i) the  Company's  direct  research and  development
expenses by project for the nine months  ended  September  30, 1997 and from the
Company's  inception to September 30, 1997, (ii) the Company's  current estimate
by project of committed and/or anticipated funding  requirements after September
30, 1997 and (iii) revenues received to date by project.


                                       7
<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

                    Direct Research and Development Expenses
                                  (in dollars)
<TABLE>
<CAPTION>

                                                 Three months                               Committed and/or
                                                     ended            Inception to        anticipated R & D          Revenue
                         R & D Projects             9/30/97             9/30/97         funding after 9/30/97        received
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                <C>                <C>                         <C>                 <C>
Multi-Dose Solution Inhaler (MSI)                  154,504            1,617,127                   15,102,000               0
Ion Pharmaceuticals, Inc.                          220,528            4,819,711                       93,000          10,000
     Technologies
RBC-CD4 Electroinsertion                                 0            6,254,185                            0               0
     Technology
Lipsome-CD4 Technology                                   0            2,322,322                            0         500,000
HIV/AIDS Vaccine                                    12,500            1,211,618                      137,500               0
UGIF Technology                                     20,018              223,437                       20,000               0
Membrane Attack Complex                             60,936              365,618                            0               0
     (MAC)/Complement
</TABLE>


LIQUIDITY AND CAPITAL RESOURCES

On February 28, 1997, the Company  completed a private offering of 35,000 shares
of its 7% Series A Cumulative  Convertible  Redeemable  Preferred  Stock,  which
raised total gross proceeds of $3.5 million.  On September 22, 1997, the Company
completed a private placement of 6% Convertible Subordinated  Debentures,  which
raised total gross  proceeds of $1.75  million.  The proceeds from both of these
offerings are being used to fund research and  development,  patent  prosecution
and for working capital and general corporate  purposes.  Such proceeds may also
be used for the  possible  acquisition  of  rights  in new  technologies  in the
Company's ordinary course of business.

In March 1997,  the Company  exercised  its option and  entered  into  exclusive
supply and license  agreements for the world-wide rights to Siemens'  multi-dose
solution  inhaler  (MSI).  The  agreements  call for Siemens to be the exclusive
supplier  of the MSI system,  a  hand-held,  portable  pulmonary  drug  delivery
system.  The Company  paid  Siemens a license fee of $1.1  million in April 1997
pursuant to the agreements and is required to make additional payments of DM 2.0
million in January, 1998 and 1999.

The Company has  historically  financed its operations  through public offerings
and  private  placements  of  its  securities.  In  addition  to  the  potential
commercialization  of its  technologies,  the Company  plans to seek  additional
funds  through  bridge  loans,  security  financings,  joint  ventures  or other
commercial arrangements to obtain necessary working capital. It is not uncommon,
for  instance,  for a  third-party  commercial  partner  to enter into a license
agreement  with a technology  development  company,  on the merits of successful
research  relating to a given  technology,  which would yield  up-front  royalty
advances to such company before market-ready products are developed.  It is also
not uncommon  for a  third-party  commercial  partner to enter into an agreement
with a  development  company  whereby a third  party  will  contribute  funds in
support of the research and  operating  needs of such  development  companies in
consideration for rights related to the technologies.

The Company's ability to continue its operations as planned will be dependent on
the  Company's  ability to obtain  additional  funds,  particularly  through the
public  offering  and/or  private  placement of its  securities.  The Company is
currently  involved in negotiations  with  interested  parties over the terms of
proposed financings. However, there can be no assurance that any such financings
will  actually be  consummated.  In the event that proposed  financings  are not
completed,  there can be no assurance  that other  sources of capital may become
available in amounts and


                                       8
<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

upon terms acceptable to the Company.  The failure by the Company to obtain such
funds will require the Company to  significantly  reduce or delay its funding of
current technology  development projects (which may result in the Company's loss
of rights in the related  technologies)  and delay the making of commitments for
future projects.


THIS REPORT CONTAINS CERTAIN  FORWARD-LOOKING  STATEMENTS  WITHIN THE MEANING OF
SECTION 27A OF THE  SECURITIES  ACT OF 1933, AS AMENDED,  AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHICH ARE INTENDED TO BE COVERED BY
THE SAFE HARBORS CREATED HEREBY.  ALL  FORWARD-LOOKING  STATEMENTS INVOLVE RISKS
AND UNCERTAINTY,  INCLUDING WITHOUT LIMITATION,  THE SUCCESSFUL  DEVELOPMENT AND
LICENSING OF THE COMPANY'S TECHNOLOGIES AND THE SUCCESSFUL COMPLETION OF PLANNED
FINANCINGS.  ALTHOUGH THE COMPANY  BELIEVES THAT THE ASSUMPTIONS  UNDERLYING THE
FORWARD-LOOKING   STATEMENTS  CONTAINED  HEREIN  ARE  REASONABLE,   ANY  OF  THE
ASSUMPTIONS COULD BE INACCURATE,  AND THEREFORE,  THERE CAN BE NO ASSURANCE THAT
THE  FORWARD-LOOKING  STATEMENTS  INCLUDED  IN  THIS  REPORT  WILL  PROVE  TO BE
ACCURATE.   IN  LIGHT  OF  THE   SIGNIFICANT   UNCERTAINTIES   INHERENT  IN  THE
FORWARD-LOOKING  STATEMENTS  INCLUDED HEREIN,  THE INCLUSION OF SUCH INFORMATION
SHOULD NOT BE REGARDED AS A  REPRESENTATION  BY THE COMPANY OR ANY OTHER  PERSON
THAT THE OBJECTIVES AND PLANS OF THE COMPANY WILL BE ACHIEVED.


                                       9

<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

PART II:    OTHER INFORMATION

Item 2.     CHANGES IN SECURITIES.

            The  following  unregistered  securities  were issued by the Company
during the quarter ended September 30, 1997:
<TABLE>
<CAPTION>

                                            Number of
                                             Shares
                                           Sold/Issued
                         Description        /Subject to
  Date of               of Securities       Options or    Offering/Exercise
 Sale/Issuance             Issued            Warrants     Price oer Share ($)     Purchaser of Class
 -------------             ------            --------     -------------------     ------------------


<S>                   <C>                    <C>          <C>                     <C>                  
August 1997           Common Stock            50,000       2.375                  Advisor

August - Sept.        Common Stock           473,601       1.79 - 2.02            Holders of Series A
1997                                                                              Preferred Stock

July - September,     Common                 160,000       2.80 - 3.00            Advisors
1997                  Stock Options
</TABLE>

            The  issuance  of these  securities  is  claimed  to be exempt  from
            registration  pursuant  to  Section 4 (2) of the  Securities  Act of
            1933,  as  amended,  as  transactions  by an issuer not  involving a
            public offering. There were no underwriting discounts or commissions
            paid in connection with the issuance of any of these securities.



                                       10
<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

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

            EXHIBITS

            NO.                                 DESCRIPTION

            10.1       Form  of  the  Company's  6%   Convertible   Subordinated
                       Debentures  due  September  22,  2000   (incorporated  by
                       reference to Exhibit 10.1 to the  Company's  Registration
                       Statement  on Form  S-3  filed  with the  Securities  and
                       Exchange Commission on October 21, 1997).

            10.2       Lease dated  August 18, 1997  between  Corporate  Center,
                       L.L.C.  and the  Company  relating to the lease of office
                       space in St. Louis, Missouri.

              27       Financial Data Schedule.


            No reports on Form 8-K were filed by the Company  during the quarter
ended September 30, 1997.





                                       11

<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)



In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.


                                     SHEFFIELD PHARMACEUTICALS, INC.

Dated: November 13, 1997             /S/ LOREN G. PETERSON
                                     ----------------------
                                     Loren G. Peterson
                                     Chief Executive Officer


Dated: November 13, 1997             /S/ GEORGE LOMBARDI
                                     -------------------
                                     George Lombardi
                                     Vice President & Chief Financial Officer
                                    (Principal Financial and Accounting Officer)

                                      -12-