SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

[ X ]    QUARTERLY  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
         EXCHANGE ACT OF 1934

                    For the Quarter Ended September 30, 1999


                         Commission file number 1-12584


                         SHEFFIELD PHARMACEUTICALS, INC.
             (Exact name of registrant as specified in its Charter)


                  DELAWARE                              13-3808303
         (State of Incorporation)           (IRS Employee Identification Number)


425 SOUTH WOODSMILL ROAD                63017                 (314) 579-9899
ST. LOUIS, MISSOURI                   (Zip Code)        (Registrant's telephone,
(Address of principal executive offices)                 including area code)



           Securities registered pursuant to Section 12(b) of the Act:

         Title of Class                Name of each exchange on which registered
Common Stock. $.01 par value                   American Stock Exchange


          Securities registered pursuant to Section 12(g) of the Act:

                                      None


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
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. [ X ]Yes [ ] No

The number of shares outstanding of the Registrant's  Common Stock is 27,296,346
shares of Common Stock as of November 12, 1999.






<PAGE>

                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)


                                    Form 10-Q
                    For the Quarter Ended September 30, 1999

                                Table of Contents


                                                                            Page
                                     PART I

Item 1.  Financial Statements

Consolidated Balance Sheets as of September 30, 1999
   and December 31, 1998.......................................................3

Consolidated Statements of Operations
  for the three and nine months ended September 30,
  1999 and 1998 and for the period from
  October 17, 1986 (inception) to September 30, 1999 ..........................4

Consolidated Statements of Cash Flows
  for the nine months ended September 30, 1999 and
  1998 and for the period from
  October 17, 1986 (inception) to September 30, 1999...........................5

Consolidated Statements of Stockholders' Equity
 (Net Capital Deficiency) for the period from October 17, 1986
  (inception) to September 30, 1999 ...........................................6

Notes to Consolidated Financial Statements ....................................8

Item 2.  Management's Discussion and Analysis of Financial
  Condition and Results of Operations..........................................9

                                     PART II

Item 2.  Changes in Securities................................................12

Item 6.  Exhibits and Reports on Form 8-K.....................................12

Signatures....................................................................13


                                       2
<PAGE>
PART I:        FINANCIAL INFORMATION
Item 1.        Financial Statements

                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)
                           Consolidated Balance Sheets

                           Assets
<TABLE>
<CAPTION>

                                                                                      September 30,  December 31, 1998
                                                                                          1999            1998
Current assets:                                                                        (unaudited)
<S>                                                                                   <C>             <C>
        Cash and cash equivalents .................................................   $    828,620    $  2,456,290
        Marketable equity security ................................................        163,992         127,774
        Prepaid expenses and other current assets .................................        305,842          39,035
                                                                                      ------------    ------------
                  Total current assets ............................................      1,298,454       2,623,099
                                                                                      ------------    ------------


Property and equipment:
        Laboratory equipment ......................................................        351,291         317,032
        Office equipment ..........................................................        168,871         175,062
        Leasehold improvements ....................................................         16,323           1,323
                                                                                      ------------    ------------
                  Total at cost ...................................................        536,485         493,417
        Less accumulated depreciation and amortization ............................       (293,278)       (253,995)
                                                                                      ------------    ------------
                  Property and equipment, net .....................................        243,207         239,422
                                                                                      ------------    ------------

Other assets ......................................................................         15,642            --
                                                                                      ------------    ------------
Total assets ......................................................................   $  1,557,303    $  2,862,521
                                                                                      ============    ============

        Liabilities and Stockholders' Equity (Net Capital Deficiency)

Current liabilities:
        Accounts payable and accrued liabilities ..................................   $    573,213    $    615,138
        Sponsored research payable ................................................        449,805         449,805
        Notes payable - related party .............................................        600,000         101,323
                                                                                      ------------    ------------
                  Total current liabilities .......................................      1,623,018       1,166,266

Unearned revenue ..................................................................      1,000,000            --
Convertible promissory note .......................................................      2,000,000       1,000,000
Other long-term liabilities .......................................................        135,067          41,050
Commitments and contingencies .....................................................           --              --
                                                                                      ------------    ------------
        Total liabilities .........................................................      4,758,085       2,207,316

Stockholders' equity (net capital deficiency):
        Preferred stock, $.01 par value, authorized 3,000,0000 shares:
          Series C cumulative convertible preferred stock, authorized 23,000
           Shares; 12,556 and 11,914 shares issued and outstanding at September 30,
           1999 and December 31, 1998, respectively ...............................            125             119
        Common stock, $.01 par value, authorized 60,000,000 shares at September 30,
           1999 and 50,000,000 at December 31, 1998; issued and outstanding
           27,296,346 and 27,058,419 shares at September 30,  1999 and December 31,
           1998, respectively......................................................        272,963         270,584
        Notes receivable in connection with sale of stock .........................           --           (10,000)
        Additional paid-in capital ................................................     56,617,173      55,773,491
        Other comprehensive income (loss) .........................................       (186,008)       (222,226)
        Deficit accumulated during development stage ..............................    (59,905,035)    (55,156,763)
                                                                                      ------------    ------------
            Total stockholders' equity (net capital deficiency) ...................     (3,200,782)        655,205
                                                                                      ------------    ------------


Total liabilities and stockholders' equity (net capital deficiency) ...............   $  1,557,303    $  2,862,521
                                                                                      ============    ============
</TABLE>

                See notes to consolidated financial statements.

                                       3
<PAGE>

                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)
                      Consolidated Statements of Operations
      For the Three and Nine Months Ended September 30, 1999 and 1998 and
        for the Period October 17, 1986 (inception) to September 30, 1999
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                              Three Months Ended          Nine Months Ended       October 17, 1986
                                                                September 30              September 30            (inception) to
                                                               1999         1998           1999         1998    September 30, 1999
                                                               ----         ----           ----         ----    ------------------
Revenues:
<S>                                                       <C>            <C>            <C>             <C>             <C>
   Sublicense revenue .................................   $      --      $      --      $       --      $    350,000    $  1,360,000
   Interest income ....................................         6,696         32,450          46,049          35,965         560,149
                                                          -----------    -----------    ------------    ------------    ------------

        Total revenues ................................         6,696         32,450          46,049         385,965       1,920,149

Expenses:
   Acquisition of research and development in-
     process technology
                                                                 --          741,745            --        13,241,745      14,975,000
   Research and development ...........................       919,718        218,063       2,410,672       2,014,167      24,014,363
   General and administrative .........................       498,734      1,039,390       1,631,090       2,534,289      21,196,419
   Interest ...........................................        43,186        175,662         108,895         304,343         520,013
                                                          -----------    -----------    ------------    ------------    ------------

        Total expenses ................................     1,461,638      2,174,860       4,150,657      18,094,544      60,705,795
                                                          -----------    -----------    ------------    ------------    ------------

Loss before extraordinary item ........................    (1,454,942)    (2,142,410)     (4,104,608)    (17,708,579)   (58,785,646)
Extraordinary item ....................................          --             --              --              --            42,787
                                                          -----------    -----------    ------------    ------------    ------------

Net loss ..............................................   $(1,454,942)   $(2,142,410)   $ (4,104,608)   $(17,708,579)  $(58,742,859)
                                                          ===========    ===========    ============    ============    ============

Accretion of mandatorily redeemable preferred stock ...          --             --              --           (23,900)      (103,400)
                                                          -----------    -----------    ------------    ------------    ------------

Net loss - attributable to common shares ..............   $(1,454,942)   $(2,142,410)   $ (4,104,608)   $(17,732,479)  $(58,846,259)
                                                          ===========    ===========    ============    ============    ============

Weighted average common shares outstanding-
   basic and diluted ..................................    27,296,346     26,858,366      27,216,481      20,203,133       7,541,197

Net loss per share of common stock - basic and diluted:
      Loss before extraordinary item
                                                          $     (0.05)   $     (0.08)   $      (0.15)   $      (0.88)   $     (7.80)
      Extraordinary item ..............................          --             --              --              --               .01
                                                          ===========    ===========    ============    ============    ============
      Net loss per share ..............................   $     (0.05)   $     (0.08)   $      (0.15)   $      (0.88)   $     (7.79)
                                                          ===========    ===========    ============    ============    ============
</TABLE>

        See notes to consolidated financial statements.

                         4
<PAGE>

                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)
                      Consolidated Statements of Cash Flows
    For the Nine Months Ended September 30, 1999 and 1998 and for the Period
               October 17, 1986 (inception) to September 30, 1999
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                        Nine Months Ended          October 17, 1986
                                                                                          September 30,            (inception) to

                                                                                      1999             1998        Sept. 30, 1999
                                                                                      ----             ----        --------------
<S>                                                                                <C>            <C>             <C>
Cash outflows from development stage activities and
   extraordinary gain:  Loss before extraordinary item .........................   $(4,104,608)   $(17,708,579)   $(58,785,646)
         Extraordinary gain on extinguishment of debt ..........................          --              --            42,787
                                                                                   -----------    ------------    ------------
         Net loss ..............................................................    (4,104,608)    (17,708,579)    (58,742,859)
                                                                                   -----------    ------------    ------------
Adjustments  to  reconcile  net  loss  to net  cash  used by  development  stage
   activities:
     Issuance of common stock, stock options/warrants for
         services ..............................................................       129,692         359,914       2,411,665
     Non-cash acquisition of research and development in-process technology ....          --              --         1,650,000
     Depreciation and amortization .............................................        67,867          42,438         461,086
     Other items ...............................................................       102,072        (304,496)        513,666
     (Increase) decrease in other assets .......................................       (15,642)         20,057          55,941
     Increase in unearned revenue ..............................................     1,000,000            --         1,000,000
     (Increase) decrease in prepaid expenses & other current assets ............      (266,807)          8,284        (377,424)
     Decrease in accounts payable and accrued liabilities ......................       (44,735)       (361,128)        (17,432)
     (Decrease) increase in sponsored research payable .........................          --           (20,963)      1,026,875
                                                                                   -----------    ------------    ------------
Net cash used by development stage activities ..................................    (3,132,161)    (17,964,473)    (52,018,482)
                                                                                   -----------    ------------    ------------

Cash flows from investing activities:
     Proceeds on sale of marketable securities .................................          --              --           175,085
     Acquisition of laboratory and office equipment, and
         leasehold improvements ................................................       (71,652)        (89,506)       (520,776)
     Disposition of office equipment ...........................................          --            33,560            --
     Increase in notes receivable in connection with sale of stock .............          --              --          (240,000)
     Decrease in loan receivable - former officer ..............................          --            12,124            --
     Payments of notes receivable ..............................................        10,000          49,700         229,600
     Purchase of Camelot Pharmacal, L.L.C., net cash acquired ..................          --              --           (46,687)
                                                                                   -----------    ------------    ------------
Net cash provided (used) by investing activities ...............................       (61,652)          5,878        (402,778)
                                                                                   -----------    ------------    ------------

Cash flows from financing activities:
     Principal payments under capital lease ....................................        (4,087)           --           (80,560)
     Proceeds from notes payable - related party ...............................       600,000            --           754,145
     Repayments of notes payable - related party ...............................      (104,145)           --          (154,145)
     Proceeds from issuance of convertible securities ..........................     1,000,000         500,000       4,300,000
     Conversion of convertible, subordinated notes .............................          --              --           749,976
     Proceeds from issuance of common and preferred stock ......................          --        20,900,000      37,452,847
     Redemption of preferred stock .............................................          --        (1,250,000)     (1,250,000)
     Proceeds from exercise of warrants/stock options ..........................        74,375            --        11,476,533
                                                                                   -----------    ------------    ------------
Net cash provided by financing activities ......................................     1,566,143      20,150,000      53,248,796
                                                                                   -----------    ------------    ------------

Net (decrease) increase in cash and cash equivalents ...........................    (1,627,670)      2,191,405         827,536
Cash and cash equivalents at beginning of period ...............................     2,456,290         393,608           1,084
                                                                                   -----------    ------------    ------------
Cash and cash equivalents at end of period .....................................   $   828,620    $  2,585,013    $    828,620
                                                                                   -----------    ------------    ------------

Noncash investing and financing activities:
     Common stock, stock options and warrants issued for services ..............   $   129,692    $    359,914    $  2,411,665
     Common stock redeemed in payment of notes receivable ......................          --            10,400          10,400
     Acquisition of research and development in-process technology .............          --              --         1,655,216
     Common stock issued for intellectual property rights ......................          --              --           866,250
     Common stock issued to retire debt ........................................          --              --           600,000
     Common stock issued to redeem convertible securities ......................          --         4,019,263       5,353,368
     Securities acquired under sublicense agreement ............................          --           350,000         850,000
     Equipment acquired under capital lease ....................................          --              --           121,684
     Notes payable converted to common stock ...................................          --              --           749,976
     Stock dividends ...........................................................       643,664         182,194       1,422,206

Supplemental disclosure of cash flow information:
     Interest paid .............................................................   $     5,078    $    183,081    $    272,479
</TABLE>


                 See notes to consolidated financial statements.

                                       5
<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)
    Consolidated Statements of Stockholders' Equity (Net Capital Deficiency)
     For the Period from October 17, 1986 (inception) to September 30, 1999
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                              Notes
                                                                                          receivable
                                                                                             in
                                                                                         connection      Additional
                                                              Preferred        Common     with sale of    paid-in
                                                                stock          Stock        stock         capital
                                                                -----          -----        -----         -------
<S>                                                        <C>             <C>             <C>          <C>
Balance at October 17, 1986 ............................   $       --      $       --      $    --      $      --
Common stock issued ....................................           --        11,334,252         --       17,024,469
Reincorporation in Delaware at $.01 par value ..........           --       (11,220,369)        --       11,220,369
Common stock options issued ............................           --              --           --           75,000
Common stock subscribed ................................           --              --       (110,000)          --
Comprehensive income (loss):
       Unrealized loss on marketable security ..........           --              --           --             --
       Net loss ........................................           --              --           --             --

            Comprehensive income (loss) ................           --              --           --             --
                                                           ------------    ------------    ---------    -----------

Balance at December 31, 1996 ...........................           --           113,883     (110,000)    28,319,838
Issuance of common stock in connection with
     Acquisition of Camelot Pharmacal, L.L.C ...........           --             6,000         --        1,644,000
Common stock issued ....................................           --             6,612       37,400      1,041,750
Common stock options and warrants issued ...............           --              --           --          165,868
Common stock options extended ..........................           --              --           --          215,188
Accretion of issuance costs for Series A preferred stock           --              --           --             --
Comprehensive income (loss):
     Unrealized gain on marketable security ............           --              --           --             --
     Net loss ..........................................           --              --           --             --

          Comprehensive income (loss) ..................           --              --           --             --
                                                           ------------    ------------    ---------    -----------

Balance at December 31, 1997 ...........................           --           126,495      (72,600)    31,386,644
Common stock issued ....................................           --           144,089       62,600     12,472,966
Series C preferred stock issued ........................            115            --           --       11,499,885
Series C preferred stock dividends .....................              4            --           --          413,996
Accretion of issuance costs for Series A preferred stock           --              --           --             --
Comprehensive income (loss):
     Unrealized loss on marketable security ............           --              --           --             --
     Net loss ..........................................           --              --           --             --

          Comprehensive income (loss) ..................           --
                                                          -------------    ------------    ---------    -----------


Balance at December 31, 1998 ...........................            119         270,584      (10,000)    55,773,491
Common stock issued ....................................           --             2,379       10,000         71,996
Series C preferred stock dividends .....................              6            --           --          641,994
Common stock warrants issued ...........................           --              --           --          129,692
Comprehensive income (loss):
     Unrealized gain on marketable security ............           --              --           --             --
     Net loss ..........................................           --              --           --             --

          Comprehensive income (loss) ..................           --              --           --             --
                                                           ------------    ------------    ---------    -----------
Balance at September 30, 1999 ..........................   $        125    $    272,963    $    --      $56,617,173
                                                           ============    ============    =========    ===========

                                       6
</TABLE>
<TABLE>
<CAPTION>

<PAGE>
                                                                              Deficit        Total
                                                               Other        accumulated    stockholders'
                                                             comprehen-       during       equity (net
                                                             sive income    development       capital
                                                               (loss)           stage       deficiency)
                                                               ------           -----       -----------

<S>                                                         <C>          <C>             <C>
Balance at October 17, 1986 ............................    $    --      $       --      $       --
Common stock issued ....................................         --              --        28,358,721
Reincorporation in Delaware at $.01 par value ..........         --              --              --
Common stock options issued ............................         --              --            75,000
Common stock subscribed ................................         --              --          (110,000)
Comprehensive income (loss):
       Unrealized loss on marketable security ..........      (39,232)           --           (39,232)
       Net loss ........................................         --       (26,588,652)    (26,588,652)
                                                                                         ------------
            Comprehensive income (loss) ................         --              --       (26,627,884)
                                                            ---------    ------------    ------------

Balance at December 31, 1996 ...........................      (39,232)    (26,588,652)      1,695,837
Issuance of common stock in connection with
     Acquisition of Camelot Pharmacal, L.L.C ...........         --              --         1,650,000
Common stock issued ....................................         --              --         1,085,762
Common stock options and warrants issued ...............         --              --           165,868
Common stock options extended ..........................         --              --           215,188
Accretion of issuance costs for Series A preferred stock         --           (79,500)        (79,500)
Comprehensive income (loss):
     Unrealized gain on marketable security ............       39,232            --            39,232
     Net loss ..........................................         --        (9,489,138)     (9,489,138)
                                                                                         ------------
          Comprehensive income (loss) ..................         --                        (9,449,906)
                                                            ---------    ------------    ------------

Balance at December 31, 1997 ...........................         --       (36,157,290)     (4,716,751)
Common stock issued ....................................         --              --        12,679,655
Series C preferred stock issued ........................         --              --        11,500,000
Series C preferred stock dividends .....................         --          (415,112)         (1,112)
Accretion of issuance costs for Series A preferred stock         --           (23,900)        (23,900)
Comprehensive income (loss):
     Unrealized loss on marketable security ............     (222,226)           --          (222,226)
     Net loss ..........................................         --       (18,560,461)    (18,560,461)
                                                                                         ------------
          Comprehensive income (loss) ..................                                  (18,782,687)
                                                            ---------    ------------    ------------
                                                                                         ------------

Balance at December 31, 1998 ...........................     (222,226)    (55,156,763)        655,205
Common stock issued ....................................         --              --            84,375
Series C preferred stock dividends .....................         --          (643,664)         (1,664)
Common stock warrants issued ...........................         --              --           129,692
Comprehensive income (loss):
     Unrealized gain on marketable security ............       36,218            --            36,218
     Net loss ..........................................         --        (4,104,608)     (4,104,608)
                                                                                         ------------
          Comprehensive income (loss) ..................                                   (4,068,390)
                                                            ---------    ------------    ------------
Balance at September 30, 1999 ..........................    $(186,008)   $(59,905,035)   $ (3,200,782)
                                                            =========    ============    ============
</TABLE>

See notes to consolidated financial statements.

                                                                 7
<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)
                   Notes to Consolidated Financial Statements
                               September 30, 1999
                                   (Unaudited)

1.       BASIS OF PRESENTATION
         The accompanying  unaudited consolidated financial statements have been
         prepared  in  accordance  with  the  instructions  to Form  10-Q of the
         Securities  and Exchange  Commission  and should be read in conjunction
         with  the  financial  statements  and  notes  thereto  included  in the
         Company's  Annual  Report on Form 10-K for the year ended  December 31,
         1998. In the opinion of management, all adjustments (consisting only of
         normal  recurring  accruals)  necessary to present fairly the financial
         position, results of operations, stockholders' equity and cash flows at
         September  30,  1999 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.  The results of
         operations  for the three and nine months ended  September 30, 1999 and
         1998 are not  necessarily  indicative of the operating  results for the
         full  years.  These  consolidated   financial  statements  include  the
         accounts  of  Sheffield  Pharmaceuticals,  Inc.  and  its  wholly-owned
         subsidiaries,  including  Systemic  Pulmonary  Delivery,  Ltd., and Ion
         Pharmaceuticals,  Inc. and are herein referred to as "the Company." All
         significant intercompany transactions are eliminated in consolidation.

         The accompanying  unaudited consolidated financial statements have been
         prepared on a going concern basis which contemplates the realization of
         assets and  satisfaction  of liabilities  and commitments in the normal
         course of business. The Company is in the development stage and to date
         has been  principally  engaged in research,  development  and licensing
         efforts. The Company has generated minimal operating revenue, sustained
         significant net operating losses, and requires  additional capital that
         the Company intends to obtain through  out-licensing as well as 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 developing
         a new  business,  particularly  since the Company will focus on product
         development  that may require a lengthy period of time and  substantial
         expenditures  to complete.  Even if the Company is able to successfully
         develop new products,  there can be no assurance  that the Company will
         generate  sufficient  revenues  from  the  sale  or  licensing  of such
         products  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  December  2000  is  dependent  upon  obtaining
         additional  funding.  However,  the accompanying  consolidated  interim
         financial  statements do not include any adjustments  that might result
         from the outcome of this uncertainty.

2.       BASIC LOSS PER COMMON SHARE

         Basic net loss per share is calculated in accordance  with Statement of
         Financial  Accounting  Standards No. 128, Earnings Per Share. Basic net
         loss  per  share  is  based  upon the  weighted  average  common  stock
         outstanding during each period. Potentially dilutive securities such as
         stock options, warrants, convertible debt and preferred stock, have not
         been included in any periods presented as their effect is antidilutive.

3.       SUBSEQUENT EVENT

         On  October  18,  1999,  pursuant  to a  definitive  agreement  with an
         affiliate of Elan Corporation,  plc, Elan International  Services, Ltd.
         ("Elan International"), the Company and Elan International formed a new
         joint venture to develop certain  respiratory  steroid products.  Under
         the terms of the agreement,  the Company  issued to Elan  International
         12,015 shares of Series D Cumulative Convertible Exchangeable Preferred
         Stock,  convertible into shares of Common Stock of the Company at $4.86
         per Common Share or  exchangeable  for an  additional  30.1%  ownership
         interest in the new joint venture,  for $12.015  million.  In turn, the
         Company made an equity  investment of $12.015  million  representing an
         initial 80.1%  ownership in the joint  venture.  The joint venture paid
         $15.0 million to license certain pulmonary  NanoCrystal(TM)  dispersion
         technology from Elan  Pharmaceutical  Technologies,  a division of Elan
         Corporation, plc. Elan International has also committed to purchase, on
         a drawdown  basis,  up to an  additional  $4.0 million of the Company's
         Series E  Cumulative  Convertible  Preferred  Stock,  convertible  into
         shares of Common  Stock of the Company at $3.89 per Common  Share.  The
         Series E  Preferred  Stock will be  utilized by the Company to fund its
         portion of the joint  venture's  operating and  development  costs.  In
         addition to the above, the Company issued to Elan  International  5,000
         shares of Series F Cumulative Convertible Preferred Stock,  convertible
         into shares of Common  Stock of the Company at $3.40 per Common  Share,
         for $5.0 million.  The proceeds of the Series F Preferred Stock will be
         utilized by Sheffield for its own operating  purposes.  As part of this
         transaction,  Elan  International  also  received a warrant to purchase
         150,000  shares of Common Stock of the Company at an exercise  price of
         $6.00  per  share.  To  satisfy  applicable   American  Stock  Exchange
         requirements, Sheffield will seek shareholder approval for the issuance
         of the Series D and E Preferred Stock within the next year.

                                       8
<PAGE>
Item 2.

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

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 thereby.  All forward-looking  statements involve risks
and uncertainty.  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. Important factors that could cause actual results to differ materially
from  the  forward-looking  statements  include  the  Company's  need to  obtain
substantial  additional  capital  (through  financings or otherwise) to fund its
operations and the progress of development  and  licensing/commercialization  of
the Company's technologies.  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.

OVERVIEW

The Company is a specialty pharmaceutical company focused on the development and
commercialization  of later  stage,  lower  risk  pharmaceutical  products  that
utilize the Company's delivery  technologies.  In 1997, the Company acquired the
Metered Solution Inhaler ("MSI")  pulmonary  delivery system through a worldwide
exclusive license and supply arrangement with Siemens AG. During the second half
of 1998,  the Company  acquired the rights to an additional  pulmonary  delivery
technology,  the Aerosol Drug  Delivery  System  ("ADDS")  from a subsidiary  of
Aeroquip-Vickers,  Inc.  ("Aeroquip-Vickers").  The  ADDS  technology  is a  new
generation propellant-based pulmonary delivery system.

Using these pulmonary delivery systems as platforms, the Company has established
strategic alliances with Elan Corporation,  plc ("Elan"), Siemens AG ("Siemens")
and  Zambon  Group  SpA  ("Zambon")  for  developing  initial  products.   In  a
collaboration  with Zambon,  the Company is developing a range of pharmaceutical
products  delivered  by the MSI to treat  respiratory  diseases.  As part of the
strategic  alliance  with  Elan,  a  world  leader  in  pharmaceutical  delivery
technology,  the Company is  developing  therapies  for systemic  diseases to be
delivered to the lungs. The initial  systemic  programs are for therapies in the
breakthrough pain and migraine  headache  markets.  Elan licensed two of its own
delivery   technologies  to  the  Company  that  complement  the  MSI  and  ADDS
technologies. Outside of its strategic alliances, the Company owns the worldwide
rights to respiratory disease  applications of all of its technologies,  subject
only to the MSI respiratory  rights licensed to Zambon. The Company will seek to
acquire additional novel platform drug delivery systems and technologies.

RESULTS OF OPERATIONS

REVENUE

From  inception  through the period ended June 30, 1999,  the Company has earned
sublicense  revenue of $1,360,000  related to the  sublicensing of various early
stage technologies. As part of the Company's focus on later stage opportunities,
the Company  continues  seeking to outlicense  its remaining  portfolio of early
stage  technologies.  There can be no  assurance  that the Company  will receive
license  fees or other  payments  related  to these  technologies.  The  Company
believes  these early  stage  technologies  will have no material  impact on the
financial position of the Company.

Interest  income earned from  available  cash balances for investment was $6,696
and $32,450 for the quarters  ended  September 30, 1999 and 1998,  respectively,
and $46,049 and $35,965,  for the nine months ended September 30, 1999 and 1998,
respectively.  From inception  through the period June 30, 1999, the Company has
earned interest income of $560,149.

The  Company's  ability to  generate  material  revenues  is  contingent  on the
successful  commercialization  of its  technologies  and other  technologies and
products  that  it  may  acquire,  followed  by  the  successful  marketing  and
commercialization  of such  technologies  through  licenses,  joint ventures and
other arrangements.

ACQUISITION OF RESEARCH & DEVELOPMENT IN-PROCESS TECHNOLOGY

Acquisition  of  research  and  development  in-process  technology  were $0 and
$741,745  for the  third  quarter  of 1999 and  1998,  respectively,  and $0 and
$13,241,745  for the first nine  months of 1999 and 1998,  respectively.  In the
second quarter of 1998 the Company licensed certain delivery  technologies  from
Elan for $12,500,000 and in the third quarter of 1998 the Company  purchased the
ADDS from  Aeroquip-Vickers,  Inc. The  acquisition of research and  development
in-process  technology  from inception to June 30, 1999 of $14,975,000  reflects
the  acquisitions  of Camelot  Pharmacal,  LLC in 1997 for  $1,650,000,  and the
previously mentioned licensing of Elan delivery technologies and purchase of the
ADDS.


                                       9
<PAGE>
RESEARCH AND DEVELOPMENT

Research  and  development  expenses  were  $919,718  and $218,063 for the third
quarter of 1999 and 1998, respectively,  and $2,410,672 and $2,014,167,  for the
first nine months of 1999 and 1998, respectively. The increase in both the three
and nine month periods of 1999 of $701,655 and $396,505, respectively, primarily
resulted from certain device development  expenses relating to the MSI and ADDS,
costs  associated with the completion of the Company's study for the delivery of
morphine  utilizing the MSI, and the initiation of a study for migraine  therapy
using the ADDS.  These  increases  were  partially  offset  by the  shifting  of
responsibility for development  expenses of the respiratory  applications of the
MSI to the Company's partner, Zambon.

GENERAL AND ADMINISTRATIVE

General and  administrative  expenses were $498,734 and $1,039,390 for the three
months ended  September  30, 1999 and 1998,  respectively,  and  $1,631,090  and
$2,534,289 for the nine months ended September 30, 1999 and 1998,  respectively.
The decrease in the third quarter of 1999 of $540,656 was primarily attributable
to the 1998 costs associated with the retention of the Company's former investor
relations  firm, as well as the legal fees  associated  with completing the 1998
agreement  with Elan.  In addition  to the  above-mentioned  investor  relations
expense and higher legal fees, the decrease for the first nine months of 1999 of
$903,199  reflects   additional  legal  and  consulting  costs  associated  with
completing the Zambon  agreement and the expense  associated with the settlement
of an old  dispute  with  the  innovator  of one of the  Company's  early  stage
research projects, both of which occurred in 1998.

INTEREST EXPENSE

Interest  expense was $43,186 and  $175,662  for the third  quarters of 1999 and
1998, respectively,  and $108,895 and $304,343 for the first nine months of 1999
and 1998,  respectively.  The  decrease in 1999 as  compared  to 1998  primarily
resulted  from  interest  associated  with the  Company's  Series  A  Cumulative
Convertible  Preferred Stock and 6% Convertible  Subordinated  Debentures  which
were both converted into Common Stock during 1998.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash available as of September 30, 1999 for funding its operations
was $828,620.  As of such date,  the Company had trade  payables of $573,213 and
current research obligations of $449,805.  Subsequent to September 30, 1999, the
Company  has  committed  to fund  an  additional  $543,713  for  development  of
pulmonary  delivery  systems,  as well as $4.0  million for the  development  of
certain  inhaled  steroid  products  through  its new  joint  venture  with Elan
International.

On September 30, 1999,  the Company signed a letter of agreement to enter into a
licensing and funding  arrangement with Elan  Corporation,  plc. As part of this
agreement,  Elan advanced the Company  $600,000 in the form of a short-term note
payable.  On October 18,  1999,  pursuant to the  definitive  agreement  with an
affiliate of Elan Corporation,  plc, Elan  International  Services,  Ltd. ("Elan
International"),  the Company and Elan International  formed a new joint venture
to  develop  certain  respiratory  steroid  products.  Under  the  terms  of the
agreement,  the Company issued to Elan  International  12,015 shares of Series D
Cumulative Convertible  Exchangeable Preferred Stock, convertible into shares of
Common  Stock of the Company at $4.86 per Common  Share or  exchangeable  for an
additional  30.1%  ownership  interest  in the new joint  venture,  for  $12.015
million.  In turn,  the Company  made an equity  investment  of $12.015  million
representing an initial 80.1% ownership in the joint venture.  The joint venture
paid $15.0  million  to license  certain  pulmonary  NanoCrystal(TM)  dispersion
technology   from  Elan   Pharmaceutical   Technologies,   a  division  of  Elan
Corporation,  plc.  Elan  International  has also  committed to  purchase,  on a
drawdown  basis,  up to an  additional  $4.0 million of the  Company's  Series E
Cumulative Convertible Preferred Stock,  convertible into shares of Common Stock
of the Company at $3.89 per Common Share.  The Series E Preferred  Stock will be
utilized by the Company to fund its portion of the joint venture's operating and
development  costs.  In  addition  to the  above,  the  Company  issued  to Elan
International 5,000 shares of Series F Cumulative  Convertible  Preferred Stock,
convertible  into  shares of Common  Stock of the  Company  at $3.40 per  Common
Share,  for $5.0  million.  A portion of the  proceeds of the Series F Preferred
Stock was used to repay the  short-term  note payable,  with the remainder to be
utilized  by  Sheffield  for  its  own  operating  purposes.  As  part  of  this
transaction,  Elan  International  also  received a warrant to purchase  150,000
shares of Common  Stock of the Company at an exercise  price of $6.00 per share.
To satisfy applicable American Stock Exchange requirements,  Sheffield will seek
shareholder  approval  for the  issuance of the Series D and E  Preferred  Stock
within the next year.

As part of a 1998 joint venture agreement with Elan relating to the formation of
the Company's subsidiary, Systemic Pulmonary Delivery, Ltd. ("SPD"), Elan agreed
to make available to the Company a convertible promissory note that provides the
Company  the right to borrow up to  $2,000,000,  subject to  satisfying  certain
conditions.  No more than  $500,000  may be drawn under the note in any calendar
quarter  and at  least  one-half  of the  proceeds  must be  used to fund  SPD's
development  activities.  As of September 30, 1999,  $2,000,000 was  outstanding
under this note.


                                       10
<PAGE>

In May 1999,  in  conjunction  with the  completion  of its Phase  I/II  Metered
Solution  Inhaler-albuterol trial, Zambon Group, SpA provided the Company with a
$1 million  interest-free  advance against future milestone  payments.  Upon the
attainment of certain future milestones, the Company will recognize this advance
as revenue. If the Company does not achieve these future milestones, the advance
must be repaid in quarterly installments of $250,000 commencing January 1, 2002.
The  proceeds  from  this  advance  are not  restricted  as to their  use by the
Company.  Upon the  achievement of certain other early  milestones,  Zambon will
provide an additional $1,000,000 advance under the terms of the agreement.

The  Company  expects to incur  additional  costs in the future  relating to its
ongoing  research  and  development  activities,  and  preclinical  and clinical
testing of its product candidates.  The Company may also bear considerable costs
in connection with filing,  prosecuting,  defending  and/or enforcing its patent
and other  intellectual  property claims.  There can be no assurance that any of
the technologies to which the Company currently has or may acquire rights to can
or  will  be   commercialized   or  that  any  revenues   generated   from  such
commercialization  will be sufficient  to fund existing and future  research and
development activities.

Because the  Company  does not expect to  generate  significant  cash flows from
operations for at least the next few years, the Company believes it will require
additional  funds to meet future  costs.  The Company  will  attempt to meet its
capital  requirements with existing cash balances and through  additional public
or private  offerings of its securities,  debt financing and  collaboration  and
licensing arrangements with other companies.  There can be no assurance that the
Company  will be able to  obtain  such  additional  funds  or  enter  into  such
collaborative and licensing  arrangements on terms favorable to the Company,  if
at all. The Company's development programs may be curtailed if future financings
are not completed.

YEAR 2000 COMPLIANCE

The   inability   of   computers,   software  and  other   equipment   utilizing
microprocessors  to recognize and properly process data fields  containing a two
digit year is  commonly  referred  to as the Year 2000  compliance  issue.  Such
systems that are not Year 2000  compliant may not be able to properly  interpret
dates beyond the Year 1999, which could lead to business disruptions in the U.S.
and internationally.  The potential costs and uncertainties  associated with the
Year 2000 issue will depend on a number of factors, including software, hardware
and the  nature  of the  industry  in which a  company  operates.  Additionally,
companies must  coordinate  with other  entities with which they  electronically
interact, such as customers, creditors and borrowers.

During 1998,  the Company  conducted an  assessment  of its computer  systems to
identify  systems that could be affected by the Year 2000 issue.  All identified
systems that could potentially be affected by the turnover to the Year 2000 were
tested.  During the second quarter of 1999, all noncompliant  internal  software
and hardware were replaced or upgraded to reach compliance.

The Company continues to seek to obtain Year 2000 compliance  certification from
its significant  third party suppliers.  To date, all third party suppliers that
have  responded to the Company's  inquiries have advised that they are Year 2000
compliant or plan to be Year 2000 compliant or  substantially  compliant by year
end. However, there can be no assurance that the computer systems of third party
suppliers (and their respective vendors) will be Year 2000 compliant on a timely
basis.

The  Company  relies  on  several  universities  and  independent   laboratories
(collectively,  "CROs") for conducting a significant portion of the research and
development of its technologies and products. In addition, the Company relies on
its strategic alliance partners to perform certain  manufacturing,  research and
development  activities  related to its products in  development.  If these CROs
and/or  strategic  alliance  partners  (or their  significant  vendors)  were to
experience  Year 2000 computer  failures,  these  failures could have a material
adverse affect on the Company's business,  including the possibility of material
delays in the  progress  of  clinical  trials,  product  development  and future
receipt of product sales and related royalties.

Given the lack of legacy  systems at the Company,  the limited  number of issues
that have  arisen to date,  and the level of  development  activity  anticipated
during  the end of the  year,  the  Company  does not plan to  develop  a formal
contingency plan for its worse case scenario  described above. While the Company
does not anticipate  that its worst case scenario will occur,  in the event that
any of its major CROs or strategic  alliance  partners suffer material Year 2000
disruptions  that negatively  impact the Company,  the Company will evaluate the
materiality  of the  disruptions  at that time.  Following the completion of any
necessary  evaluation,  the Company will determine  whether to delay the related
clinical trials or other research and development  while corrective  efforts are
being  implemented.  Depending on the anticipated period of time it will take to
complete such efforts,  the Company may consider  replacing the  applicable  CRO
with another Year 2000 compliant provider.

As of September 30, 1999 the Company has spent approximately  $15,000 to replace
software and hardware which were identified as lacking  compliance.  The Company
estimates that it will incur less than an additional $5,000 to complete its Year
2000  efforts.  These costs and the date on which the Company  plans to complete
the Year 2000  modification and testing processes are based on management's best
estimates,  which were derived utilizing  numerous  assumptions of future events
including  the  continued   availability  of  certain  resources,   third  party
modification  plans and other factors.  However,  there can be no assurance that
these  estimates  will be achieved  and actual  results  could differ from those
plans.

                                       11

<PAGE>

PART II:   OTHER INFORMATION

Item 2.    CHANGES IN SECURITIES.

         The following unregistered securities were issued by the Company during
the quarter ended September 30, 1999:

<TABLE>
<CAPTION>

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

<S>             <C>                   <C>            <C>               <C>
  July 1999     Common stock          50,000         $2.625            Advisors in lieu of
                warrants                                               cash consideration.

  July 1999     Common stock          10,000         $2.3125           Advisor in lieu of
                warrants                                               cash consideration.
</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.


Item 6.  Exhibits and Reports on Form 8-K.
         No reports on Form 8-K were filed  during the quarter  ended  September
         30, 1999.

         Exhibits

         No.               Description
         ---               -----------
         27                Financial Data Schedule.



                                       12
<PAGE>

                                   SIGNATURES

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 12, 1999         /s/ Loren G. Peterson
                                 ---------------------
                                 Loren G. Peterson
                                 President & Chief Executive Officer


Dated: November 12, 1999         /s/ Scott A. Hoffmann
                                 ---------------------
                                 Scott A. Hoffmann
                                 Vice President & Chief Financial Officer
                                 (Principal Financial and Accounting Officer)



                                       13