10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
________________________
(Mark One)
[ X ] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Fiscal Year ended July
31, 1997
                              OR
[     ] Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 for the transition period
from _______ to _______

Commission file number 0-20772
CYPROS PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
California                              33-0476164
(State or other jurisdiction of         (I.R.S. Employer
incorporation or organization)          Identification
No.)

2714 Loker Avenue West                  (Zip Code)
Carlsbad, California                    92008
(Address of principal executive offices)

Registrant's telephone number, including area code:
(760) 929-9500

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of class)
Redeemable Class "B" Warrant
(Title of class)

Indicate by mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act 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.
 [ X ] YES                                    [   ] NO

As of October 23,1997, the Registrant had 14,521,121 shares of
Common Stock, no par value, outstanding, and  the aggregate
market value of the shares held by non-affiliates on that date
was $69,709,182 based upon the last sales price of the
Registrant's Common Stock reported on the National Association
of Securities Dealers, Inc.  Automated Quotation National Market
System.*

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
_______________
* Excludes 1,626,937 shares of Common Stock held by directors,
executive officers and shareholders whose beneficial ownership
exceeds ten percent of the shares outstanding on October
23,1997. Exclusion of shares held by any person should not be
construed to indicate that such person possesses the power,
direct or indirect, to direct or cause the direction of the
management or policies of the Registrant, or that such person
is controlled by or under common control with the Registrant.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1998 Annual
Meeting of Shareholders to be filed on or before November 28,
1997 are incorporated by reference into Part III.

PART I.

Item 1. Business.

Except for the historical information contained herein, the
following discussion contains forward-looking statements that
involve risks and uncertainties. The Company's actual results
could differ materially from those discussed here. Factors that
could cause or contribute to such differences include, but are
not limited to, those discussed in the description of the
Company's business below and the sections entitled "Licenses",
"Manufacturing", "Sales and Marketing", "Competition",
"Government Regulation", "Patents and Proprietary Rights" and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations", those discussed in the S-3 Registration
Statement File No. 333-25661 filed with U.S. Securities and
Exchange Commission, as well as those discussed in any documents
incorporated by reference herein or therein.

General

The Company is developing and marketing acute care drugs for the
hospital market. The Company's sales and marketing force is
currently marketing three products, Glofil and Inulin, two
injectable drugs that assess kidney function by the measurement
of glomerular filtration rate, and Ethamolin, an
injectable drug that treats bleeding esophageal varices. Within
its development programs, the Company is currently conducting
Phase II clinical trials on CPC-111 and Ceresine (formerly CPC
211), two drugs potentially indicated for a number of major
disorders caused by impaired blood flow, known as "ischemia, and
is also planning Phase III clinical trials of CPC-111 in
coronary artery bypass grafting surgery and Ceresine in closed
head injury.

The Company's Acquired Products.  The Company has a nine-person
sales and marketing force directed at the acute care, hospital
market. In advance of the approval of CPC-111 and Ceresine by
the U.S. Food and Drug Administration ("FDA"), the Company
is acquiring FDA-cleared products; Glofil-125 and Inulin, which
it acquired in 1995 and Ethamolin, which it acquired in November
1996 from Schwarz Pharma. The Company will continue to build its
sales and marketing force as it completes additional
acquisitions. During the fiscal year ended July 31, 1997, the
net sales of the Company's three products reached $2,428,000, a
90% increase over the $1,275,000 recorded during the prior
fiscal year.

Ischemia-Induced Cell Damage; Phase II Clinical Data Leading to
Phase III Decisions. There are several million cases of ischemia
induced disorders annually in the United States, resulting in
several hundred thousand deaths and several billion dollars in
annual costs for physical and mental rehabilitation and ongoing
care, and yet there are currently no FDA-approved drugs to avoid
or reverse the massive cell damage caused by ischemia (termed
"cytoprotective drugs").  Currently approved drugs for treating
cardiovascular ischemia, such as "clot busting" drugs, serve to
re-establish blood flow but do not have direct cytoprotective
benefits. The Company believes that the drugs it is developing,
if cleared by the FDA and successfully marketed, should reduce
significantly the number of fatalities and the rehabilitation
and ongoing care costs associated with ischemic disorders.

Impairment of blood flow reduces the supply of oxygen to body
cells, interrupting normal aerobic metabolism and causing
depletion of adenosine triphosphate ("ATP"), the cells' primary
energy source.  Ischemia-induced depletion of ATP produces a
myriad of increasingly destructive cellular events known as the
"toxic ischemic cascade".  The Company believes that all
cytoprotective drugs under development by others for treatment
of ischemia are focused on treating specific elements of the
toxic ischemic cascade, leaving other elements free to cause
cell, tissue and organ damage.

The Company's approach, based on preventing or reversing the
toxic ischemic cascade, is comprehensive in nature and, the
Company believes, potentially more effective. CPC-111 and
Ceresine are designed to act during and after ischemia by
maintaining cellular ATP levels or accelerating their
restoration. CPC-111 (a natural substance) and Ceresine have
very low orders of toxicity, making them more amenable to being
used early in the patient management process, which is critical
in acute care settings.

Further, CPC-111 and Ceresine are small molecules, easily
deliverable and inexpensive to produce. Significant human data,
available from the Company's own studies and independent,
physician-sponsored Investigational New Drug applications
("INDs"), show that each of these drugs is well tolerated when
administered at clinically relevant doses to healthy subjects.
The minimal side effects associated with CPC-111 and Ceresine
will greatly reduce their development risk and may permit their
broad, early use in acute care settings, such as emergency
rooms, where rapid access to treatment is of utmost importance.

During the fiscal year ended July 31, 1997, the Company's
multiple-indication Phase II clinical trials generated
substantial amounts of data. Building upon positive interim data
released in December 1995, the Company twice released data on
its CABG surgery trial of CPC-111, and after evaluating data
from its Phase II trials in angioplasty patients and in
congestive heart failure patients, has recently concluded that
it will pursue the development of CPC-111 in Phase III trials of
CABG patients. During the fiscal year, the Company also released
data from its Phase II trial of Ceresine in closed head injury
patients and recently concluded that it will pursue the
development of Ceresine in Phase III trials of these patients.
In October 1997, the Company released positive data in its Phase
II trial of CPC111 in sickle cell anemia crisis patients.

Pre-clinical Programs. Further implementing its overall strategy
of developing drugs that protect cells from ischemic damage, the
Company is conducting pre-clinical studies on a number of
additional drugs meant to reduce the neurodegeneration
associated with stroke and traumatic head injury.  The Company
believes that these drugs will reduce "excitotoxicity", the
excess release of excitatory amino acid ("EAA")
neurotransmitters in the brain that stems from ischemically-
caused ATP depletion in certain brain cells.  Drugs being
developed in these studies include:  (i) a new class of neuronal
calcium channel blockers which block excessive EAA
neurotransmitter release;   (ii) a patented series of novel
compounds which augment levels of adenosine (a naturally
occurring substance which inhibits EAA release) in ischemic
tissue by inhibiting its metabolism; and (iii) a novel series of
compounds which inhibit the release of EAA (especially
glutamate) from glial cells in the brain for which the Company
received a $100,000 Small Business Innovation Research Phase I
grant during the year. The Company is attempting to develop lead
compounds from all three of the above pre-clinical programs to
treat a variety of ischemic disorders of both the cardiovascular
and cerebrovascular systems.

The Company is also pursuing the development of CPC-111 prodrugs
with improved pharmacokinetic and pharmacodynamic properties
that will permit oral delivery of CPC-111 and also access to the
central nervous system. Funding for this program was provided by
a $100,000 Small Business Innovation Research Phase I grant
received during the previous year.

Acquired Products for the Hospital Market

The Company's strategy includes building near-term
sustainability with the cash flow from acquired acute care
products for the hospital market with the goal of reducing its
overall cash consumption rate and building its sales, marketing
and distribution infrastructure in advance of  FDA clearance of
CPC111 and Ceresine.

Glofil-125 and Inulin

Kidney disease afflicts more than 2 million persons in the
United States and is increasing primarily due to the growth in
diabetes and systemic lupus erythromatosis cases. Kidney disease
results in over $12 billion annually in healthcare costs in the
United States. The measurement of kidney function (glomerular
filtration rate or GFR) is critical to the understanding of the
disease state and its appropriate therapeutic intervention.  GFR
has historically been estimated by the measurement of endogenous
serum creatinine and by 24-hour urinary creatinine clearance.
These diagnostic assays overestimate kidney function by as much
as 100 percent in patients. The Company believes that the
injection of a renal filtration marker, such as Inulin and
Glofil125, is the most accurate and direct means of determining
GFR.

Glofil-125 and Inulin are FDA-cleared products for the
measurement of GFR. Nephrologists and nuclear medicine
departments at major medical centers are the primary users of
these products. During the fiscal year ended July 31, 1997, the
Company recorded sales from these two products of $1,528,000, a
20% increase over the $1,275,000 recorded during the prior
fiscal year. Two customers using Glofil-125 for long-term
research studies accounted for 23% and 13%, respectively, of net
sales of these products during the most recent fiscal year.

Glofil-125 is an injectable radioactive diagnostic drug, which
provides rapid information on GFRs with great accuracy. It is
currently sold by the Company in 4ml vials and in prefilled
syringes through the 117 nationwide radiopharmacies of Syncor
International pursuant to a distribution agreement entered into
with the Company in February 1996. Inulin is an injectable
diagnostic drug, which provides a  measure of GFRs. Inulin  is
currently sold in 50 ml ampules with actual patient dosing
correlated to patient weight.

The Company believes there is substantial opportunity for
increased utilization of Glofil-125.  Present diagnostic
procedures for measuring kidney function include serum
creatinine and creatinine clearance tests.  These two tests are
the most commonly performed methods of measuring kidney function
because of their low cost, however both methods significantly
overestimate kidney function in the estimated 500,000 patients
with severe renal disease.  The use of Glofil-125 has been
established in published clinical studies as being a more
direct, true measure of kidney function yielding much more
accurate results than serum creatinines or creatinine
clearances.  This improved accuracy can be essential to reliably
monitoring disease progression and intervention, as well as
assessing the immediate state of renal impairment. The biggest
impediment to the continued growth in the sales of Glofil-125
would be a change in the ability of the end users to obtain
reimbursement for the test or the termination of the
research studies being conducted by the Company's two largest
customers.

Inulin, which is sold by the Company, and 99mTc-DTPA (which is
not sold by the Company and must be prepared onsite by the end
user) are alternative agents for GFR measurement, however the
preparation and use of these two drugs is difficult and they do
not provide the practical advantages of Glofil-125.  There are
no new diagnostic drugs being introduced or in development that
the Company is aware of as a competitive threat to Glofil-125.

Ethamolin

Approximately 75,000 people in the United States have or are
approaching end stage liver disease.  Liver disease (hepatic
cirrhosis) results in approximately 25,000 deaths annually and
ranks ninth among the leading causes of death.  Hepatic
cirrhosis promotes the formation of esophageal varices through
development of portal hypertension.  When intravenous blood
pressure rises, these varicosities may cause a life threatening
form of upper gastrointestinal  hemorrhage associated with a 35-
50% mortality rate.  At least 50,000 patients in the United States
either have actively bleeding esophageal varices or are at imminent
risk of bleeding.

Early and effective treatment of esophageal varices to achieve
hemostasis is essential to the outcome of the bleeding patient.
The most common pharmaceutical treatment protocol involves the
injection of a sclerosing agent into the varix, achieving clot
formation and obliteration of the varix.  This form of
hemostasis is called sclerotherapy and usually requires multiple
treatment sessions.  Ethamolin is the only sclerotherapy agent
cleared by the FDA for the treatment of bleeding esophageal
varices and has recently become the market leader in this
therapeutic category. However, there is strong competition from
another drug, Sotradecol, which is being prescribed off-label,
and from band ligation, a form of surgery.

Cytoprotection Market Opportunities

Cytoprotective drugs for acute care settings that treat ischemic
injury are not currently available and the market opportunities
for the Company's drugs are large, totalling several million
cases annually in the United States. The Company believes that
its drugs, if approved, could substantially reduce not only the
large number of fatalities associated with ischemia-related
disorders but also reduce significantly the billions of dollars
spent annually in rehabilitation and ongoing care in the United
States of these victims.

The Company's drugs are designed to be administered
intravenously in order to speed their delivery to the ischemic
tissue. In order to ensure early interventions, they are
intended to be standard components in hospital emergency rooms,
operating theater suites, endoscopy suites and radiology suites.
Their lack of substantial toxicity should  suit them for this
purpose.

Circulatory System Ischemia

Cardiovascular ischemia can result in a spectrum of clinically
significant events ranging from angina (pain) to heart attack
and sudden death.  In addition to the numerous trauma or disease
related causes of ischemia, there are a variety of voluntary
surgical procedures which result in ischemia to vital organ
systems.  Procedures such as coronary artery bypass grafting
surgery, which are performed to improve blood flow to the heart,
induce temporary ischemia which can result in tissue damage.
Thus, CPC-111, if approved, could also be a part of the
treatment regimen for these disorders. All of these conditions
or procedures represent potential opportunities for use of the
Company's drugs to reduce the tissue damage known to be
associated with them.

Cerebrovascular ischemia (stroke) can result in temporary loss
of consciousness, permanent behavioral and neurologic
impairment, coma and death. Traumatic injury to the head is
caused by accidents, near drownings and similar incidents. The
resultant medical problems are, in large part, caused by
ischemia to the brain.  The biochemical processes associated
with stroke and head trauma are thought to be very similar;
thus, the Company expects drugs developed for one indication are
expected to be useful for the other.

Sickle Cell Anemia

Sickle cell anemia is an autosomal recessive genetic disease
carried by about 8% of African-Americans. Approximately 72,000
African-Americans suffer from the most severe form (homozygous)
of the disease, where the red blood cells form "sickle" shapes
that can clog up capillaries and result in severe and
disseminated ischemia (termed sickle cell "crisis"). Most sickle
cell patients undergo multiple crises each year. CPC-111 has
been shown pre-clinically to help reduce this "sickling" process
and the Company is  evaluating it in a Phase II trial of sickle
cell anemia crisis patients. This disease qualifies as an orphan
indication and may qualify for expedited FDA review.

The Pathology of Ischemia

Metabolic Aspects (All Tissues)

All living animal cells require glucose and oxygen to survive,
both of which are supplied to tissues by the blood.  Glucose is
transformed into carbon dioxide and water with the resultant
formation of  ATP.  ATP is the universal fuel which is required
to keep the cell alive.  During and after ischemia, the decrease
in cellular ATP levels damages the cell and, the Company
believes, results in the toxic ischemic cascade, a myriad of
celldamaging processes discussed below which cause further cell
damage.

ATP generation occurs in two phases. The first phase, called
glycolysis or anaerobic metabolism, does not require oxygen.
The second phase, called aerobic metabolism or the Krebs cycle,
requires oxygen and occurs in mitochondria. Glycolysis is a
means of producing cellular energy in ischemic conditions, and
therefore, represents the body's natural defense against
ischemic damage. For this reason, the facilitation of glycolysis
is of interest therapeutically in the prevention of ischemic
damage to tissues and organs. When pyruvic acid builds up during
ischemia due to the inability of aerobic metabolism to utilize
it, an enzyme converts it to lactic acid which blocks
glycolysis. The therapeutic principle underlying CPC-111 and
Ceresine is to facilitate glycolysis during and after ischemia
so the cell continues to produce ATP and the toxic ischemic
cascade is pre empted or reversed. Specifically, CPC-111
bypasses the lactic acid block and does not need to be energized
by ATP to be metabolized. Ceresine reduces ischemia induced lactic acid
accumulation by removing the cause of the metabolic block, and
therefore, allows energy metabolism to continue,

Excitotoxicity (Nerve Tissue)

The destructive impact of ATP depletion in nerve tissue is
further complicated by the over-production in nerve cells of
various excitatory amino acids, chemicals that transmit nerve
impulses from one nerve cell to another.  The over-production
and release of EAAs (predominately glutamate and aspartate) by
nerve cells exposed to ischemia over-stimulates adjacent
postsynaptic nerve cells, causing them in time to succumb to
metabolic exhaustion and cell death.  This ischemia-induced
process, called delayed excitotoxicity, is associated with a
number of acute (stroke and traumatic head injury) and chronic
(Alzheimer's, Parkinson's Disease and Amyotrophic Lateral
Sclerosis) neurologic disorders. Controlling delayed
excitotoxicity by blocking the postsynaptic EAA receptors has
recently attracted the attention of both academic and
pharmaceutical scientists. To date, the drugs in development
that act by this mechanism have considerable side effects and
only block selected receptor subtypes, therefore only dealing
with part of the problem since all receptor subtypes appear to
cause damage.

Recent evidence has shown that specific presynaptic channels,
neuronal calcium channels, regulate the release of
neurotransmitters in nerve cells.  The Company has shown that
compounds which block excessive EAA neurotransmitter release
from nerve cells greatly reduce excitotoxicity and post-
ischemic tissue damage in animal models of stroke and head
trauma.  The Company is seeking to develop drugs that
specifically block neuronal calcium channels and therefore, if
successful, would block the excitotoxic process and reduce the
resultant cell damage. These drugs are expected to have a more
comprehensive effect on excitotoxicity than the specific
postsynaptic EAA receptor blockers, since they will reduce the
stimulation of all and not just some EAA receptors.

The Company has also shown that adenosine, a natural compound,
has cytoprotective properties. The Company is seeking to
develop a series of drugs, called adenosine metabolism
inhibitors, which, if successful, would augment adenosine
levels in ischemic tissue and have cytoprotective effects in
both brain and heart tissue. See "Adenosine Metabolism
Inhibitor Program."

Additionally, the Company is developing a novel series of
compounds which inhibit the release of EAA (especially
glutamate) from glial cells in the brain for which the Company
received a $100,000 Small Business Innovation Research Phase I
grant during the year.

The Toxic Ischemic Cascade

Ischemia-induced cell damage triggers a number of processes
which cause further damage to each affected cell and its
surrounding cells.  This myriad of destructive processes is
facilitated by reperfusion injury, which occurs after blood
flow is reestablished. The traumatized, ATP-depleted cell
enters into the toxic ischemic cascade, resulting in the
release of a host of toxic agents, including damaging reactive
chemicals called free radicals, as well as other molecules that
are products of cell membrane breakdown,  all of which damage cells.
Excessive intracellular calcium buildup is also an element of the toxic
ischemic cascade and also triggers a host of other damaging
processes, such as activation of proteolytic enzymes which break
down proteins and digest cells and activation of protein kinases
which regulate cell metabolism.  The traumatized cell also
releases agents which stimulate the immune system, activating
various blood cells, such as neutrophils and macrophages which
actually eliminate the cell affected by ischemia. Rather than
target each of these myriad events, the Company's drugs, CPC-111
and Ceresine, address ATP replenishment so that the cell can
correct the ischemic cascade naturally.

There are currently no known FDA-approved cytoprotective drugs.
Those under development are, to the Company's knowledge,
primarily aimed at specific elements of the toxic ischemic
cascade.  The Company believes that its approach to
cytoprotective drug development is unique in that it seeks to
preempt or reverse the entire cascade by decreasing the initial
metabolic trauma which triggers it (i.e., ATP depletion).  The
Company believes that this approach is preferable to treating
specific elements of the cascade, since it more comprehensively
addresses the underlying pathology and should therefore result
in more efficacious therapy.

Cardiovascular and Cerebrovascular Ischemia Drugs 
in Development -The Metabolism Program

The Company is conducting two Phase II clinical trials on CPC
111 and two Phase II trials on Ceresine. These drugs are
designed to minimize the tissue damage associated with
surgically-induced ischemia in the CABG setting, sickle cell
anemia crises, and stroke and traumatic head injury.  The Company
has released substantial amounts of data from its CABG trial of
CPC-111 and its traumatic head injury trial of Ceresine and is
planning Phase III trials in both of these indications. The
Company is finishing a multi-dose cohort in each of these
indications before finalizing Phase III protocols.

CPC-111.  CPC-111 is a small non-peptide molecule that the
Company believes (based on extensive pre-clinical and
mechanistic data) stimulates and maintains glycolysis in cells
undergoing ischemia by circumventing the ischemia-induced
blockage of this process. The drug also appears to inhibit
various aspects of immune system activation which underly
reperfusion injury. The Company has licensed four issued U.S.
patents which cover the use of CPC-111 in several  acute
ischemic indications, was recently issued a notice of allowance
for a U.S. patent on a novel formulation of CPC-111, and has
several patents pending in the United States and Europe.

There are several published U.S. and foreign clinical studies
with CPC-111, where more than 500 patients were administered the
drug, indicating that it is well tolerated in humans with little
or no side effects. These studies indicate that the drug
improves heart function in various situations where the heart is
injured. In addition, more than 250 patients have participated
in the four Phase II trials of CPC-111 under the Company's IND
and the drug continues to be well tolerated.

More than 115 patients have participated in the double-blind,
placebo-controlled Phase II trial in CABG surgery patients, and
the interim data released in December 1995, August 1996 and June
1997 demonstrates that in patients receiving the active drug,
CPC111 (a) has a cardioprotective effect on heart muscle, (b)
improves key parameters of heart function, including cardiac
output, left ventricular stroke work index and cardiac index and
(c) reduces the need for inotope support post-operatively in the
intensive care unit (the "ICU") and results in  shorter patient
stays in the ICU. The CABG data is superior to the data from the
Phase II trials of CPC-111 in angioplasty and congestive heart
failure patients and has led the Company to announce that it
will pursue the Phase III development of CPC-111 in the CABG
indication. The Company is currently finishing a multi-dose
cohort in this trial and will then finalize a Phase III
protocol.

In October 1997, the Company released positive data from a 47
patient double-blind, placebo-controlled,  dose-ranging Phase II
clinical trial with CPC-111 in sickle cell anemia crisis
patients showing that the drug significantly reduced pain during
crisis using two different measures of pain, the visual analog
scale and the categorical assessment scale.

Ceresine.  Ceresine is also a small non-peptide molecule which
acts on glycolysis at a different site from CPC-111.  The
Company has exclusive rights to an issued U.S. patent covering
the use of Ceresine in cerebral ischemia and, during the fiscal
year ended July 31, 1997 was issued a U.S. patent on a novel
dosing regimen of Ceresine. The Company believes that Ceresine
stimulates a specific enzyme which is present in the membrane of
mitochondria that removes a precursor of lactic acid (pyruvic
acid) from the cytoplasm of the cell by transporting it into the
mitochondria, resulting in a reduction of lactic acid in the
cell. Increased post-ischemia accumulation of lactic acid is a
major causal factor in the cessation of glycolysis, the
resultant decrease in cellular ATP levels and eventual cell
death.  Numerous studies have shown that Ceresine reduces post-
ischemia lactic acid levels in humans subjected to various
traumatic events which would otherwise have resulted in
increased lactic acid (lactic acidosis).

Ceresine has been employed by clinical investigators in patients
on an experimental basis for the intravenous treatment of lactic
acidosis.  Published clinical studies and the Company's own
Phase I data have established that Ceresine reduces serum lactic
acid and exhibits no serious side effects.  It has also been
shown in human studies to permeate the blood-brain barrier and
to reduce brain lactic acid levels in congenital lactic acidosis
patients.

During the fiscal year ended July 31, 1997, the Company
completed a Phase II clinical trial on Ceresine in closed head
injury patients, which showed that the drug crosses the blood-
brain barrier at high levels and very quickly thereafter reduce
lactate levels substantially. This effect lasted for at least 12
hours. Serum lactate levels were also reduced substantially in the
drug treated group. Subsequently, the Company amended the
protocol for this trial to add multi-dose cohorts and is in the
process of finishing them. The strength of this data has led the
Company to announce that it will pursue the Phase III
development of Ceresine in this indication in 1998.  In
addition, a Phase II clinical trial on Ceresine in stroke
patients is continuing.

Ischemia Drugs in Pre-clinical Research-The Metabolism and
Excitotoxicity Programs

The Company is also seeking to develop new drugs for the
treatment of ischemia-related disorders involving neurological
damage, such as stroke, traumatic head injury, epilepsy and
chronic neurodegenerative disorders such as Alzheimer's and
Parkinson's disease.  These pre-clinical research programs are
focused on either the metabolic or the excitotoxicity aspects of
ischemia therapeutics, and involve the chemical modification of
identified lead molecules that regulate adenosine metabolism,
various calcium ion channels on neuronal cells and chloride
channels on glial cells.

Adenosine Metabolism Inhibitor Program. The Company is seeking
to develop CPC-405 and certain of its derivatives, which are
novel small molecules with demonstrated potency as inhibitors
of adenosine metabolism. Adenosine is a natural cytoprotective
agent which is generated in ischemic tissue and serves to
protect cells from a variety of traumatic situations. Naturally
generated adenosine is rapidly degraded by enzymes. The Company
expects that CPC-405 will increase the level of adenosine in
tissue traumatized by ischemia and thereby increase its
cytoprotective effect. A U.S.  patent has been issued on the
composition of the CPC-400 series of drugs. The Company will
seek to identify other lead compounds to take forward into
clinical development.

Neuronal Calcium Channel Blocker Program.  The Company believes
that the therapeutic approach to excitotoxicity currently
attracting the most commercial attention involves the
development of specific EAA receptor blockers which inhibit the
excessive postsynaptic EAA action that is triggered by
ischemia.  Although these EAA receptor blockers have
neuroprotective properties in cell culture and animal models of
ischemia, their usefulness is hampered by toxic side effects
associated with the blockage of EAA receptors and by the fact
that there are multiple EAA receptor subtypes, all of which
appear to cause post-ischemic damage when they are excessively
stimulated.

The Company is seeking to develop new classes of drugs that are
designed to remedy excitotoxicity in a potentially more
complete and effective manner by reducing EAA release from
nerve cells, thereby reducing the over-stimulation of all EAA
receptor subtypes. This pre-synaptic approach to
neuroprotection is viewed by the Company as potentially more
effective than blocking receptors post-synaptically.

Specifically, the Company is seeking to develop separate
classes of small-molecule drugs that act as neuronal calcium
channel blockers ("NCCB"), which it has labelled as the CPC-
300,  CPC-800 and CPC-8000 series and has synthesized over 100
compounds in this series. If successful, these drugs would have
the ability to normalize or decrease EAA release and thereby
comprehensively reduce the over-stimulation of EAA receptors.
Prototype agents such as CPC-8027 have shown the desired effect
of acting at the neuronal calcium channels, which controls EAA
release. The Company has demonstrated neuroprotection in
several pre-clinical models with CPC-304, CPC-317, CPC-877 and
CPC-8027 and intends to further modify them structurally with
the goal of improved drug delivery to the central nervous
system.  These modifications will require additional pre-
clinical testing.

Glial Chloride Channel Blockers.  The Company has synthesized a
series of agents designated as the CPC-700 series. These agents
act to inhibit glial cell swelling in the brain which occurs
after injury in disorders such as stroke and head injury. These
agents inhibit the excess release of EAAs from glial cells and
have demonstrated neuroprotective properties. The Company is
currently filing patents on these compounds.

Licenses

The Company believes its strategic objectives can best be met
by combining its in-house research and development efforts with
licenses and research collaborations with scientists at outside
academic and clinical research centers.

The principal sources of the Company's existing licenses are:

Angel K. Markov, M.D.

CPC-111.  The Company has obtained an exclusive license from
Dr. Markov to four U.S. patents covering the use of CPC-111 in
a number of ischemic indications.  As part of the license, the
Company is funding clinical development in Dr. Markov's
laboratories at the University of Mississippi Medical Center.
In this regard, the Company has undertaken certain development
obligations which must be met in order to maintain this license
in force.  In the event the Company breaches the license
agreement, such as by not meeting certain milestones within the
specified time periods or by failing to expend certain amounts
in connection with clinical trials within specified time
periods, the license will automatically terminate and all
rights under the license and information acquired by the
Company concerning any products based on the licensed
technology will revert to Dr. Markov.  In the event of such
termination, the Company will retain the rights to market
products for which sales occurred within the calendar year
prior to the termination, and all other products and
information related thereto based on the licensed technology
will revert to Dr.  Markov. To date, the Company has met all
milestones.

University of Cincinnati

Ceresine.  The Company has an exclusive license from the
University of Cincinnati ("UC") to a U.S. patent covering the
use of Ceresine in cerebral ischemia.  The Company has
undertaken certain development obligations which must be met in
order to maintain its rights in force.  If certain milestones
are not met by the Company within specified time periods, UC
may, in its sole discretion, elect to continue the agreement,
negotiate in good faith with the Company to modify the
agreement or terminate the agreement upon 30 days' written
notice in which event all rights under the license would revert
to UC.  To date, the Company has met all milestones.

Elie Abushanab, Ph. D.

Adenosine Metabolism Inhibitor. The Company obtained a license
to certain adenosine metabolism inhibiting compounds developed
by Dr. Elie Abushanab, which the Company believes will enhance
the levels of adenosine in cardiovascular ischemia situations.
Composition of matter claims on a patent application covering
certain of these compounds have been recently allowed. Under
the license, the Company must pay Dr. Abushanab certain
milestone payments relating to the development of any drug
covered by the license. To date, the Company has met all
milestones.

Manufacturing

The Company does not currently manufacture any of its acquired
products or its products in development.  Glofil is
manufactured for the Company by the former owner of the drug,
Inulin is manufactured for the Company by one of its existing
contract manufacturers, and Ethamolin is manufactured for the
Company by the company who manufactured it for Schwarz Pharma.
In the case of CPC-111 and Ceresine, there are alternative
sources of supply for the bulk drug in existence, and the
Company has entered into arrangements with third parties to
manufacture and formulate CPC111 and Ceresine for clinical
trials.  There can be no assurance that any of the Company's
contract manufacturers will continue to meet the Company's
requirements for quality, quantity and
timeliness or the FDA's current Good Manufacturing Practice
("cGMP") requirements or that the Company would be able to find
a substitute manufacturer for Glofil, Inulin, CPC-111, Ceresine
or any other of its drugs which would meet these requirements
or that lots will not have to be recalled with the attendant
financial consequences to the Company.  The Company's
dependence upon others for the manufacture of its drugs may
adversely affect the future profit margin, if any, on the sale
of those drugs and the Company's ability to develop and deliver
products on a timely and competitive basis.  In the event the
Company is unable to obtain or retain contract manufacturers or
to obtain manufacturing on commercially acceptable terms, it
may not be able to commercialize its drugs as planned.

Sales and Marketing

The Company currently has a director of sales and marketing, a
customer service representative, a product manager and five
field sales representatives for Glofil, Inulin and Ethamolin
and is hiring additional sales representatives.    The Company
believes that it will be able to serve the hospital market in
North America  with a 50 to 70 person sales and marketing
staff. There can be no assurance that the Company will be able
to establish sales and distribution capabilities or be
successful in gaining market acceptance for its drugs.

Competition

The Company faces competition from specialized biotechnology
companies, large pharmaceutical companies, academic
institutions, government agencies and public and private
research organizations, many of which have extensive resources
and experience in research and development, clinical testing,
manufacturing, regulatory affairs, distribution and marketing.
Some of these entities have significant research activities in
areas upon which the Company's programs focus.  Many of the
Company's competitors possess substantially greater research
and development, financial, technical, marketing and human
resources than the Company and may be in a better position to
develop, manufacture and market drugs.  These entities may
discover and develop drugs competitive with or superior to
those developed by the Company.

Government Regulation

The manufacture and sale of drugs are subject to extensive
regulation by United States and foreign governmental
authorities prior to commercialization.  In particular, drugs
are subject to rigorous preclinical and clinical testing and
other approval requirements by the FDA and comparable foreign
regulatory authorities.  The process for obtaining the required
regulatory approvals from the FDA and other regulatory
authorities takes many years and is very expensive.  There can
be no assurance that any drug developed by the Company will
prove to meet all of the applicable standards to receive
marketing approval in the United States or abroad.  There can
be no assurance that any such approvals will be granted on a
timely basis, if at all.  Delays and costs in obtaining these
approvals and the subsequent compliance with applicable federal
and state statutes and regulations could materially adversely
affect the Company's ability to commercialize its drugs and its
ability to receive sales revenues.

The research activities required by the FDA before a drug can
be approved for marketing begin with extensive preclinical
animal and laboratory testing.  The tests include laboratory
evaluation of product chemistry and animal studies for the safety and
efficacy of the drug.  The results of these studies are
submitted to the FDA as part of an IND which is reviewed by the
FDA prior to beginning clinical trials, first in normal
volunteers and then in patients with the disease.

Clinical trials involve the administration of the
investigational new drug to healthy volunteers or to patients,
under the supervision of a qualified physician-principal
investigator. Clinical trials are conducted in accordance with
government-established statutes, regulations and guidelines and
under protocols that detail the objectives of the study, the
parameters to be used to monitor safety and the efficacy
criteria to be evaluated.  Each protocol must be submitted to
the FDA as part of the IND.  Further, each clinical study must
be evaluated by an independent Institutional Review Board
("IRB") at the institution at which the study will be
conducted.  The IRB considers, among other things, ethical
factors, the safety of human subjects and the possible
liability of the institution, and approves the informed consent
to be obtained from all subjects and patients in the clinical
trials.  The Company will have to monitor the conduct of
clinical investigators in performing clinical trials and their
compliance with FDA requirements.

Clinical trials are typically conducted in three sequential
phases (Phase I, Phase II and Phase III), but the phases may
overlap.  There can be no assurance that Phase I, Phase II or
Phase III testing will be completed successfully within any
specified time period, if at all, with respect to any of the
Company's drugs.  Furthermore, the Company or the FDA may
suspend clinical trials at any time if it is felt that the
subjects or patients are being exposed to an unacceptable
health risk or that the investigational product lacks any
demonstrable efficacy.

The results of the pharmaceutical development, preclinical
studies and clinical studies are submitted to the FDA in the
form of a New Drug Application ("NDA") for approval of the
marketing and commercial shipment of the drug.  The testing and
approval process is likely to require substantial time
(frequently five to eight years or more) and expense and there
can be no assurance that any approval will be granted on a
timely basis, if at all. The FDA may deny an NDA if applicable
regulatory criteria are not satisfied, require additional
testing or information, or require post-marketing testing and
surveillance to monitor the safety of the Company's drugs.
Notwithstanding the submission of the NDA and any additional
testing data or information, the FDA may ultimately decide that
the application does not satisfy its regulatory criteria for
approval.  Finally, drug approvals may be withdrawn if
compliance with labeling and cGMP regulatory standards is not
maintained or if unexpected safety problems occur following
initial marketing.

Among the conditions for clinical studies and NDA approval is
the requirement that the prospective manufacturer's quality
control and manufacturing procedures conform to cGMP, which
must be followed at all times.  In complying with standards set
forth in these regulations, manufacturers must continue to
expend time, monies and effort in the area of production and
quality control to ensure full technical compliance.

Also, the Prescription Drug Act of 1997 requires companies
engaged in pharmaceutical development, such as the Company, to
pay user fees in the amount of at least $100,000 upon
submission of an NDA. In addition to regulations enforced by
the FDA, the Company also is subject to regulation under the
Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act,
the Resource Conservation and Recovery Act and other 
present and potential future federal, state or local regulations.
For marketing outside the United States, the Company is subject
to foreign regulatory requirements governing human clinical trials
and marketing approval for drugs. The requirements governing the 
conduct of clinical trials, product licensing, pricing and reimbursement
vary widely from country to country.

Patents and Proprietary Rights

The Company's success may depend in large measure upon its
ability to obtain patent protection for its drugs, maintain
confidentiality and operate without infringing upon the
proprietary rights of third parties.  The Company has obtained
patent coverage, either directly or through licenses from third
parties, for certain of its drugs. It has licensed (i) four
U.S. patents on CPC-111 which have expiration dates ranging
from 2002 to 2008 and (ii) one U.S. patent on Ceresine which
has an expiration date of 2003. During the fiscal year ended
July 31, 1997, the Company was issued a U.S. patent on a novel
dosing regimen for Ceresine and received a notice of allowance
on a U.S. patent for a novel formulation of CPC-111 (the
"Formulation Patent"). Corresponding applications to the
Formulation Patent have been filed in Europe, Japan and Canada.

In addition, during the fiscal year ended July 31, 1997, the
Company received a notice of allowance on a U.S. patent
covering the use of CPC-111 in the prevention of organ
transplant rejection and licensed additional U.S., Australian
and European patents from the Australian National University
covering the use of CPC-111 in this same area, as well as in
the area of inflammatory disorders of the immune system.

The Company has filed patent applications with respect to other
programs and expects to file additional applications in the
future.  There can be no assurance that any of these patent
applications will be approved, except where claims have already
been examined and allowed, or that the Company will develop
additional proprietary products that are patentable.  Nor can
there be any assurance that any patents issued to the Company
or its licensors will provide the Company with any competitive
advantages or will not be challenged by third parties or that
patents issued to others will not have an adverse effect on the
ability of the Company to conduct its business.  Furthermore,
because patent applications in the United States are maintained
in secrecy until issue, and because publication of discoveries
in the scientific and patent literature often lag behind actual
discoveries, the Company cannot be certain that it was the
first chronologically to make the inventions covered by each of
its pending U.S. patent applications, or that it was the first
to file patent applications for such inventions.  In the event
that a third party has also filed a U.S. patent application for
any of its inventions, the Company may have to participate in
interference proceedings declared by the United States Patent
and Trademark Office to determine priority of the invention,
which could result in substantial cost to the Company, even if
the eventual outcome is favorable to the Company.  In addition,
there can be no assurance that the Company's U.S. patents,
including those of its licensors, would be held valid by a
court of law of competent jurisdiction.  If patents are issued
to other companies that contain competitive or conflicting
claims which ultimately may be determined to be valid, there
can be no assurance that the Company would be able to obtain a
license to any of these patents.

Under Title 35 of the United States Code, as amended by the
General Agreement on Tariffs and Trade implementing the Uruguay
Round Agreement Act of 1994 ("GATT"), patents that issue from
patent applications filed prior to June 8, 1995 will enjoy a 17
year period of enforceability as measured from the date of
patent issue while those that issue from applications filed on
or after June 8, 1995 will enjoy a 20-year period of
enforceability as measured from the date the patent application
was filed or the first claimed priority date, whichever is
earlier. Patents that issue from applications filed on or after
June 8, 1995 may be extended under the term extension
provisions of GATT for a period up to five years to compensate
for any period of enforceability lost due to interference
proceedings, government secrecy orders or appeals to the Board
of Patent Appeals or the Federal Circuit.

Under the Drug Price Competition and Patent Term Restoration
Act of 1984, including amendments implemented under GATT (the
"Patent Term Restoration Act"), the period of enforceability of
a first or basic product patent or use patent covering a drug
may be extended for up to five years to compensate the patent
holder for the time required for FDA regulatory review of the
product. This law also establishes a period of time following
FDA approval of certain drug applications during which the FDA
may not accept or approve applications for similar or identical
drugs from other sponsors. Any extension under the Patent Term
Restoration Act and any extension under GATT are cumulative.
There can be no assurance that the Company will be able to take
advantage of such patent term extensions or marketing
exclusivity provisions of these laws. While the Company cannot
predict the effect that such changes will have on its business,
the adoption of such changes could have a material adverse
effect on the Company's ability to protect its proprietary
information and sustain the commercial viability of its
products. Furthermore, the possibility of shorter terms of
patent protection, combined with the lengthy FDA review process
and possibility of extensive delays in such process, could
effectively further reduce the term during which a marketed
product could be protected by patents.

The Company also relies on trade secrets and proprietary know-
how.  The Company has been and will continue to be required to
disclose its trade secrets and proprietary know-how to
employees and consultants, potential corporate partners,
collaborators and contract manufacturers.  Although the Company
seeks to protect its trade secrets and proprietary know-how, in
part by entering into confidentiality agreements with such
persons, there can be no assurance that these agreements will
not be breached, that the Company would have adequate remedies
for any breach or that the Company's trade secrets will not
otherwise become known or be independently discovered by
competitors.

Scientific Advisory and Clinical Trials Advisory Boards

Scientific Advisory Board

The Company currently has a Scientific Advisory Board ("SAB")
whose members periodically advise the Company with respect to
the Company's scientific research and development programs.
The SAB does not meet as a group; rather individual member(s)
are contacted for advice on an as-needed basis. The members are
compensated through the grant of stock options and, if meetings
are held, will receive fees for attending meetings as well as
reimbursement for expenses. The Company has hired certain SAB
members to perform services for the Company such as assay
development and compound preparation.

The members of the Company's SAB are:

Name and Affiliation                Area of Expertise

Chung Hsu, M.D., Ph.D.
Director of  Stroke Clinical Trials,
Washington University, St. Louis    Animal models of
School of Medicine                  stroke/clinical trials

Ronald Hayes, Ph.D.
Professor of Neurosurgery,          Animal models of
University of Texas, Houston        of head trauma

Bruce P. Bean, Ph.D.
Professor of Neurobiology,
Harvard University                  Neuronal ion channels

Robert Parks, M.D., Ph.D.
Professor of Pharmacology,
Brown University                    Biochemical pharmacology

John Olney, M.D.
Professor of Psychiatry and
Neuropathology,                     Excitotoxicity;
Washington University, St.  Louis   animal models of stroke

Edward J. Cragoe, Ph.D.
Former Senior Director of Medicinal
Chemistry, Merck Sharp & Dohme      Medicinal chemistry/ion
Research Laboratories               channels

K.C.  Nicolaou, Ph.D.
Head of Chemistry,
The Scripps Research Institute
Professor of Chemistry,
University of California, San Diego  Medicinal chemistry

Harold Kimelberg, Ph.D.
Professor, Division of Neurology,
Albany Medical College             Glial cell release of glutamate

Elie Abushanab, Ph.D.
Professor of Medicinal Chemistry
and Chemistry
College of Pharmacy                Medicinal
University of Rhode Island         chemistry/adenosine

Thomas J. Maloney
President
The Iso-Tex Companies
Friendswood, Texas                 Radioisotopes/Nuclear Medicine

Claude Wasterlain, M..D.
Chief of Neurology Services
Sepulveda VA Medical Center/
Professor of Neurology
University of California
Los Angeles                        Stroke and epilepsy

Clinical Trials Advisory Boards

The Company has assembled two Clinical Trials Advisory Boards
("CTABs"), composed of physician "thought leaders" in the
cardiology and neurology area,  to assist in the planning,
design and execution of the Company's clinical trials involving
CPC-111 and Ceresine.  The individuals who constitute each of
the CTABs are paid consultants to the Company and are listed
below:

Cardiovascular Clinical Trials Advisory Board

Eric J. Topol, M.D. (Chair)
Chairman, Department of Cardiology,
Director, Center for Thrombosis and Vascular
Biology, Cleveland Clinic and Foundation

Robert M. Califf, M.D.
Associate Professor of Medicine,
Duke University Medical Center

David R. Holmes, Jr., M.D.
Associate Professor of Medicine,
Mayo Clinic Medical School

Cerebrovascular Clinical Trials Advisory
Board

William G. Barsan, M.D. (Chair)
Director  of Emergency Medicine,
University of Michigan Medical School

Randall M. Chestnut, M.D.
Oregon Health Sciences Center
School of Medicine, Division of
Neurosurgery Portland, Oregon

Charles F. Contant, Jr., Ph.D.
Baylor College of Medicine
Department of Neurosurgery
Houston, Texas

Patrick M. Kochanek, M.D.
Safar Center for Resuscitation Research
University of Pittsburgh
Pittsburgh, Pennsylvania

Patrick D. Lyden, M.D.
Chief, Stroke Clinic
University of California, San Diego

Anthony Marmarou, Ph.D.
Medical College of Virginia
Division of Neurosurgery
Richmond, Virginia

The members of the SAB and the CTABs may be employed by or have
consulting agreements with entities other than the Company,
some of which may compete with the Company. These other
obligations may limit the availability of the members to the
Company.  Most are not expected to participate actively in the
Company's development.  Certain of the institutions with which
the members are affiliated may have regulations or policies
which are unclear with respect to the ability of such persons
to act as part-time consultants or in other capacities for a
commercial enterprise. Regulations or policies now in effect or
adopted in the future may limit the ability of the members to
consult with the Company. The loss of the services of certain
of the members could adversely affect the Company.

Furthermore, inventions or processes discovered by the SAB and
CTAB members will not, unless otherwise agreed, become the
property of the Company but will remain the property of such
persons or of their full-time employers.  In addition, the
institutions with which the members are primarily affiliated
may make available the research services of their scientific and
other skilled personnel, including the members, to entities
other than the Company.  In rendering such services, such
institutions may be obligated to assign or license to a
competitor of the Company patents and other proprietary
information which may result from such services, including
research performed by a member for a competitor of the Company.

Scientific and Other Personnel

As of October 24, 1997, the Company had 39 full-time employees,
seven of whom hold Ph.D. degrees, one of whom also holds an
M.D. degree and one of whom holds a J.D. degree.  Eleven of the
full-time employees are employed in finance and general
administration, twelve in clinical and regulatory affairs and
quality assurance, seven in research and development, and nine
in sales and marketing, customer service and business
development. The Company believes that it maintains good
relations with its employees.

Executive Officers of Registrant

Set forth below is certain information with respect to the
executive officers of the Company at October 24, 1997:


         Name           Age                Position
                        
Paul J. Marangos,      50     Chairman of the Board, President
Ph.D.                         and Chief Executive Officer
Stephen C. Eisold      51     Executive Vice President of
                              Commercial Development and Chief
                              Operating Officer
Zofia E. Dziewanowska, 57     Senior Vice President, Drug
Ph.D, M.D.                    Development and Regulatory Affairs
David W. Nassif, J.D.  43     Senior Vice President, Chief
                              Financial Officer and Secretary

Paul J. Marangos, Ph.D., has been President and Chairman of the
Board since he founded the Company in November 1990.  In
February 1993, he became Chief Executive Officer. From April
1988 to November 1990, he was Senior Director of Research at
Gensia Pharmaceuticals, Inc., a biotechnology company.  From
1980 to 1988, he was Chief of Neurochemistry in the Biological
Psychiatry Branch, National Institute of Mental Health.  Dr.
Marangos obtained his doctorate in biochemistry from the
University of Rhode Island and did his post-doctoral work at
the Roche Institute of Molecular Biology.  He has published 250
research papers and four books in the field of biochemistry and
pharmacology.  Dr.  Marangos' most recent book, published in
July 1992, is entitled Emerging Strategies in Neuroprotection.
He is a member of the Society for Neuroscience and the American
Academy for the Advancement of Science.  Dr.  Marangos is the
founding editor of the Journal of Molecular Neuroscience
published by Humana Press.

Stephen C. Eisold joined the Company in May 1996 as the
Executive Vice President of Commercial Development and Chief
Operating Officer.  From February 1990 to May 1996, he held
various executive positions at Gensia Inc., most recently as
Vice President and General Manager of the North American
Pharmaceuticals Division. Prior thereto, Mr. Eisold held
various sales, marketing and commercial development positions
in the pharmaceutical industry since 1973. He received his
bachelor of science from Springfield College and his masters in
business administration from Rockhurst College.

Zofia E. Dziewanowska, Ph.D., M.D., joined the Company in
October 1997 as the Senior Vice President of Drug Development
and Regulatory Affairs.  May 1994 to October 1997, she was the
Senior Vice President, Global Clinical Affairs, of Genta
Incorporated ("Genta"), a San Diego-based pharmaceutical
company principally engaged in using a proprietary drug
delivery  technology to develop oral controlled-release
formulations  for presently marketed drugs which have lost, or
will lose,  patent  protection and/or  marketing  exclusivity.
Prior to joining Genta, Dr. Dziewanowska spent 17 years at
Hoffman-La Roche in various research and development positions,
including Vice President and Director of International
Therapeutic Research and Medical Affairs Advisor. Dr.
Dziewanowska is currently holding a faculty appointment at the
Cornell University Medical School. She also has held various
positions in the Pharmaceutical Research and Manufacturers
Association of America, the most recent being a Vice-Chairman
of the Medical Section Steering Committee, American Association
of Pharmaceutical Physicians and the International Federation
of Pharmaceutical Medicine. She received an M.D. degree from
the University of Warsaw Medical School and a Ph. D. in
physiology from the Institute of Immunology and Experimental
Therapeutics, Polish Academy of Science.

David W. Nassif, J.D., joined the Company in August 1993 as
Vice President, Chief Financial Officer and Secretary, and was
promoted to Senior Vice President in September 1997.  From
January 1993 to August 1993, he was a consultant to various
public and private companies in the areas of capital raising,
mergers and acquisitions, investor relations and securities law
compliance.  From July 1992 to January 1993, he was the Vice
President, Chief Financial Officer and Assistant Secretary of
999, Inc., a diversified manufacturing and environmental
services company. From December 1987 to July 1992, he was the
Vice President and Assistant Secretary of Showscan Corporation,
a technology company.  Mr. Nassif holds honors finance,
management information systems and law degrees from the
University of Virginia.

Item 2. Properties.

The Company leases two buildings in Carlsbad, California at a
total monthly rental of $36,000. All of the Company's
operations are located in 18,339 square feet of space located
at 2714 Loker Avenue West (the "2714 Space"). Until April 1997,
the Company's pre-clinical research group and laboratories were
located in 8,547 square feet at 2732 Loker Avenue West (the
"2732 Space"). During that month, these operations were moved
into the 2714 Space and the 2732 Space was subleased to another
pharmaceutical company (the "Subtenant").

The Company has leases on two floors in  the 2714 Space, one of
which commenced April 1996 and has a term of 69 months and the
other of which commenced November 1996 and has a term of 61
months. The lease on the 2732 Space commenced in December 1993
and has a term of 81 months. Both leases have clauses providing
for rent increases at various points in time during the terms
of the leases. The Subtenant's lease covers the remainder of
the Company's original lease term plus a 36-month option, and
the Subtenant's rental payments to the Company exceed the
Company's rental payments to the landlord. In addition, the
sublease provides for annual rent increases. Under the
sublease, the Company is required to spend up to $200,000 on
tenant improvements (the "Tenant Improvement Obligation") to
the 2732 Space, however, the net present value of the
Subtenant's rental
payments over the term of the sublease greatly exceeds the

Tenant Improvement Obligation.

Item 3. Legal Proceedings.

The Company is not a party to any legal proceedings.

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

No matters were submitted to a vote of the Company's security
holders during the fourth quarter of the fiscal year ended July
31, 1997.


PART II.


Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters.


The Common Stock of the Company is quoted on the Nasdaq
National Market System  under the symbol "CYPR".   The
Redeemable  Class B Warrants of the Company, which expire on
November 3, 1997, are also quoted on the Nasdaq National Market
System under the symbol "CYPRZ". The following table sets forth
for the calendar quarters indicated, the high and low sales
prices of the Common Stock on the Nasdaq National Market
System, as reported in published financial sources.


Year ended July 31, 1997           High       Low
First Quarter                      $5.75     $3.48
Second Quarter                     $5.75     $3.63
Third Quarter                      $5.88     $4.00
Fourth Quarter                     $5.81     $4.00

Year ended July 31, 1996           High       Low
First Quarter                      $9.13     $3.00
Second Quarter                     $6.13     $3.13
Third Quarter                      $6.19     $4.56
Fourth Quarter                     $6.13     $3.63

The last sales price of the Common Stock on October 24, 1997
was $5.31.

According to a survey of non-objecting beneficial owners as of
October 3, 1997, there were 1,942 beneficial owners of the
Common Stock.

The Company has not paid any dividends since its inception and
does not intend to pay any dividends on its Common Stock in the
foreseeable future.

During March 1997, the Company completed a private placement of
1,075,000 shares of Common Stock to the President and Fellows
of Harvard College and another institutional investor under SEC
Regulation D (the "Harvard Placement"), which raised gross
proceeds of $4,993,375 and netted $4,715,000 to the Company
after fees and expenses.

Item 6. Selected Financial Data.

The following table sets forth certain financial data with
respect to the Company. The selected financial data should be
read in conjunction with the Company's Financial Statements
(including the Notes thereto) and "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Report.




                     Years Ended July 31,
                     1993      1994      1995      1996    1997
                          (in thousands, except per share data)
                                           
Statement of
  Operations Data:

Net sales             $     -  $     - $      - $  1,275 $ 2,428
Gross Profit               -         -        -      870   1,890
Total operating
expenses                1,715    2,565    3,910    4,988   7,466
Loss from operations  (1,715)  (2,565)  (3,910)  (4,118)  (5,576)
Other income, net         121      190      797    1,028  (1,099)

Net loss              (1,594)  (2,375)  (3,113)  (3,090)  (6,675)
Net loss per share     (0.28)   (0.32)   (0.32)   (0.27)   (0.54)
Shares used in
computing net loss
per share               5,637    7,358    9,860   11,518   12,303

                     At July 31,
Balance Sheet Data:  1993      1994      1995      1996      1997

Cash, cash
equivalents and
short-term
investments          $  4,444 $  5,666 $ 13,442 $ 15,997 $ 14,567
Working capital         4,311    5,284   12,934   15,384   13,053
Total assets            4,900    6,206   14,175   20,266   21,345
Long-term debt            160      240      195    6,624    4,176
Common stock            6,748    9,927   20,945   23,421   32,345
Accumulated deficit   (1,904)  (4,279)  (7,392) (10,482) (17,157)
Total shareholders'
equity                  4,578    5,476   13,366   12,635   15,026


Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations

Except for the historical information contained herein, the
following discussion contains forward-looking statements that
involve risks and uncertainties, including statements regarding
the period of time during which the Company's existing capital
resources and income from various sources will be adequate to
satisfy its capital requirements. The Company's actual results
could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are
not limited to, those discussed in this section, as well as in
the sections entitled "Business", "Licenses", "Manufacturing",
"Sales and Marketing", "Competition", "Government Regulation",
"Patents and Proprietary Rights", those discussed in the S-3
Registration Statement File No. 333-25661 filed with U.S.
Securities and Exchange Commission, as well as those discussed
in any documents incorporated by reference herein or therein.

The Company was founded in 1990, commenced its research and
development activities in 1991, completed an initial public
offering (the "IPO") in November 1992, commenced clinical
trials in December 1994, acquired two FDA-cleared products,
Glofil and Inulin, (the "Acquisitions") in August 1995, and
acquired a third FDA-cleared product, Ethamolin, in November
1996. The Company has sustained an accumulated deficit of
$17,157,000 from inception through July 31, 1997.
As the Company will not have significant positive net operating
cash flow for the next few years and the Company's research and
development, clinical testing and regulatory, sales and marketing
and general and administrative expenses during these years will
be substantial and increasing, the Company expects to incur
increasing losses for the foreseeable future.

Results of Operations

Year ended July 31, 1997 compared to year ended July 31, 1996

During the fiscal year ended July 31, 1997, the Company
sustained a loss of $6,675,000 (or $.54 per share) compared to
a loss of $3,090,000 (or $.27 per share) for the prior fiscal
year. The gross profit of $1,890,000 on sales of Glofil, Inulin
and Ethamolin and other income of $761,000 (principally
interest income) during the current fiscal year were offset by
$7,465,000 in expenses in the sales and marketing, general and
administrative, clinical testing and regulatory and research
and development areas and $1,860,000 in amortization of
discount and costs on its mandatorily convertible notes (the
"Notes"). During the prior fiscal year, the gross profit of
$870,000 on sales of Glofil and Inulin and other income of
$1,028,000 (principally interest income) was offset by
$4,988,000 in expenses in the sales and marketing, general and
administrative, clinical testing and regulatory and research
and development areas and depreciation and amortization
expenses.

Sales and marketing expense increased by 189% to $994,000 from
$343,000 in the prior year, principally as a result of
increased payroll expense from the hiring of additional field
sales representatives, a product manager and an administrative
assistant, and related travel, hotel and meal costs.

General and administrative expense increased by 46% to
$2,396,000 from $1,642,000 in the prior year. 38% of the
increase was due to the commencement of a comprehensive
investor relations program and the remainder reflected the
impact of the expansion of the Company's activities on
personnel, consulting, business development, investment
banking, rent, travel and meals, legal and accounting fees and
insurance.

Clinical testing and regulatory expense increased 41.7% to
$1,967,000 from $1,389,000 in the prior year, principally as
the result of increased site costs and use of data input and
management, statistical and other consultants to accelerate,
finish and report on the Company's various clinical trials.

Depreciation and amortization expense increased 75.6% to
$1,075,000 from $612,000 in the prior year, principally as a
result of the acquisition of Ethamolin during the current year
and the related amortization of that purchased technology.

During the current year, the Company recognized $1,860,000 of
expense related to the amortization of (i) the discount on the
Notes and (ii) the deferred financing costs related to the
private placements of the Notes. This resulted from the re-
classification of the Notes from equity to debt resulting from
a review of the Company's various filings under the Securities
Exchange Act of 1934  by the Securities and Exchange Commission
triggered by the filing of a registration statement during the
year pertaining to the resale of the Common Stock underlying
some of the Notes.

Year ended July 31, 1996 compared to year ended July 31, 1995

During the fiscal year ended July 31, 1996, the Company
sustained a loss of $3,090,000 (or $.27 per share) compared to
a loss of $3,113,000  (or $.32 per share) for the prior fiscal
year. The gross profit of $870,000 on sales of Glofil and
Inulin and other income of $1,028,000 (principally interest
income) during the current fiscal year was offset by $4,988,000
in expenses in the sales and marketing, general and
administrative, clinical testing and regulatory and research
and development areas. During the prior fiscal year, there were
no product sales and other income of $797,000 (principally
interest income) was offset by $3,910,000 in expenses in the
above areas.

During the current year, the Company spent $343,000 on sales
and marketing, principally in the hiring of a field sales force
and a customer service function and in various marketing and
promotional programs. No such expense was recorded in the prior
fiscal year as the Company was still in the development stage
and had not yet acquired Glofil and Inulin.

Clinical testing and regulatory expense decreased 8.5% to
$1,389,000 from $1,517,000 in the prior year, principally due
to a decrease of $209,000 in contract research organization
costs because of a lower accrual for the Company's Phase II
congestive heart failure trial on CPC-111 and a decrease of
$177,000 in licensing milestone expenses, offsetting increases
in other areas, including a $180,000 increase in salary expense
due to additional hiring. During the prior year, the Company
recorded a one-time milestone expense from the issuance of a
non-qualified stock option grant to the licensor of Ceresine as
a milestone payment for the completion of a Phase I trial.

Research and development expense increased 34.4% to $1,002,000
from $745,000 in the prior year due to increases in salary
expense, the use of outside collaborators and expense related
to the Phase II Small Business Innovation Research Grant for
the neuronal calcium channel blocker program (which grant was
completed during the year) and the six-month Phase I Small
Business Innovation Research Grant for the CPC-111 pro-drug
program (which was awarded to the Company during the current
year).

Depreciation and amortization expense increased 442% to
$612,000 from $113,000 in the prior year, principally as a
result of the acquisition of Glofil and Inulin during the
current year and the related amortization of that purchased
technology.

In addition, net interest and other income for the current year
increased 38.5% to $758,000 from $547,000 in the prior year
principally due to (i) the interest income from a larger
investment portfolio as a result of the various private
placements during the year (described below in Liquidity and
Capital Resources) and the Class A Warrant Program (also
described below in Liquidity and Capital Resources), which was
not available for all of the prior-year period because the
program began in November 1994 and was completed in February
1995 and (ii) fees and interest earned on a loan that the
Company made during the current year to a financial advisor.

Liquidity and Capital Resources

The Company  has  principally funded its  activities to date
through its initial public offering ("IPO") in November 1992,
which  raised  $5,951,000, subsequent exercises of its
Redeemable Class A Warrants in 1994 and early 1995, which
raised $10,497,000, exercises by the underwriter of the IPO of
its unit purchase options (and the Redeemable Class A Warrants within
such options), which raised $1,681,000, three private
placements of mandatorily convertible notes during July 1996,
which raised net proceeds of $7,464,000 (the "Notes") and the
Harvard Placement.

During the year, $3,973,000 in principal amount of the Notes
was converted into 954,000 shares of Common Stock, no par
value, of the Company.

At July 31, 1997, the Company had cash, cash equivalents and
short-term investments of $14,567,000, compared to $15,997,000
at July 31, 1996.  Also, the Company's working capital at July
31, 1997 declined to $13,053,000 from $15,384,000 at July 31,
1996, principally as a result of the issuance of the $1,200,000
promissory note to Schwarz Pharma as partial consideration for
the acquisition of Ethamolin, which is due and payable in
November 1997.

The Company expects that its cash needs will increase
significantly in future periods due to expansion of its
research and development programs, increased clinical testing
activity, growth of administrative, clinical and laboratory
staff and their related equipment and space needs. Management
believes that the Company's working capital will be sufficient
to fund the operations of the Company for approximately 24
months dependent, in part, on the timing of the commencement of
each phase of the clinical trials on CPC-111 and Ceresine and
the funding priorities that it gives its various research
programs, the results of clinical tests and research programs;
competing technological and market developments; the time and
costs involved in obtaining regulatory approvals and in
obtaining, maintaining and enforcing patents; the cost of
product acquisitions and their resulting cash flows and other
factors.

The Company expects to seek additional funds through exercises
of its currently outstanding options and warrants, public or
private equity financings,  collaborations or from other
sources. There can be no assurance that funds can be obtained
on desirable terms or at all. The Company may seek to raise
additional capital whenever conditions in the financial markets
are favorable, even if the Company does not have an immediate
need for additional cash at that time.

Item 8. Financial Statements and Supplementary Data.

The Financial Statements of the Company and Report of Ernst &
Young LLP, Independent Auditors are filed as exhibits hereto,
listed under Item 14 of this Report and incorporated herein by
reference.

Item 9. Changes in and Disagreements with Accountants on

Accounting and      Financial Disclosure.

None.

PART III.

Item 10.  Directors and Executive Officers of the Registrant.
The information regarding directors is hereby incorporated by
reference to the section entitled "Election of Directors" in
the Company's definitive Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the
Company's 1998 Annual Meeting of Shareholders (the "Proxy
Statement").


The information regarding executive officers appears under the
section entitled "Executive Officers of Registrant" appearing
in Item 1 of Part I of this Report.

Item 11.  Executive Compensation.
The information required by this item is hereby incorporated by
reference to the section entitled "Executive Compensation" in
the Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and
Management.
The information required by this item is hereby incorporated by
reference to the section entitled "Security Ownership of
Certain Beneficial Owners and Management" in the Proxy
Statement.

Item 13.  Certain Relationships and Related Transactions.
The information required by this item is hereby incorporated by
reference to the section entitled "Transactions with Related
Parties" in the Proxy Statement.

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-
K.
(a) (1)(2) Financial Statements and Schedules.
The financial statements are incorporated herein by reference
from Exhibit 99.1, which begins with the Table of Contents on Page F-
1.

(a) (3) Exhibits.

See Exhibit Index on page 30.

The following management compensation plans and arrangements are
required to be filed as exhibits pursuant to Item 14(c) of this report.

Exhibit
Number    Description
10.1      Forms of Incentive Stock Option and Nonstatutory Stock
Option.*
10.2      Amended 1992 Stock Option Plan.**
10.3      Employment Agreement, dated July 10, 1991 as amended
and restated September 1, 1992, between the Registrant and Paul J.
Marangos, Ph.D. *
10.4      Amendment No. 1 to Employment Agreement, dated May 9,
1994, between the Registrant and Paul J. Marangos, Ph.D.***
10.5      Amendment No. 2 to Employment Agreement, dated March 9, 1995,
between the Registrant and Paul J. Marangos, Ph.D.****
10.6      Amendment No. 3 to Employment Agreement, dated October 1,
1996, between the Registrant and Paul J. Marangos, Ph.D.*****
10.7      1993 Non-Employee Directors Stock Option Plan and related
form of Nonstatutory Stock Option. ******
____________
*    Filed as an exhibit to the Registrant's Registration
Statement on Form S-1, Registration No. 33-51682, and
incorporated herein by reference.
**   Filed as an exhibit to the Registrant's Form 10-Q for the
period ended January 31, 1995, and incorporated herein by
reference.
***  Filed as an exhibit to the Registrant's Form 10-K for the
fiscal
year ended July 31, 1994.
**** Filed as an exhibit to the Registrant's Form 10-K for the
fiscal year ended July 31, 1995.
***** Filed as an exhibit to the Registrant's Form 10-K for the
fiscal year ended July 31, 1996.
******Filed as an exhibit to the Registrant's Form 10-K for the
fiscal year ended July 31, 1993.
(b)  Reports on Form 8-K.

There were no reports on Form 8-K filed during the fourth quarter
of 1997.
(c)  Exhibits.

The exhibits required by this Item are listed under Item 14 (a)

(3).


(d)  Financial Statement Schedules.

There are no financial statement schedules to the Financial
Statements.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City and County of San Diego, State of
California, on the 24th day of October, 1997.

CYPROS PHARMACEUTICAL CORPORATION
By /s/ Paul J. Marangos
- -----------------------
Paul J. Marangos
Chairman of the Board,
President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Paul J. Marangos, and David
W. Nassif, and each of them, his attorney-in-fact, each with the
power of substitution, for him in any and all capacities, to sign
any amendments to this report, and to file the same, with exhibits
thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming
all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.

Signature              Title                             Date

/s/ Paul J. Marangos   Chairman of the Board, President  October 24,1997
- -------------------    and Chief Executive Officer and Director
Paul J. Marangos       (Principal Executive Officer)

/s/ David W. Nassif   Senior Vice President, Chief      October 24,1997
- -------------------   Financial Officer and Secretary
David W. Nassif       (Principal Financial and Accounting Officer)

/s/ Robert F. Allnutt    Director                       October 24,1997
- ---------------------
Robert F. Allnutt

/s/ Digby W. Barrios     Director                       October 24,1997
- --------------------
Digby W. Barrios

/s/ Virgil Thompson      Director                       October 24,1997
- -------------------
Virgil Thompson

/s/ Robert A. Vukovich   Director                       October 24,1997
 ----------------------
Robert A. Vukovich

Exhibit Index
Exhibit
Number         Description                                       Page
No.
2.1 (1)       Pharmaceutical Products Purchase and Distribution
Support Agreement as of  August 9, 1995 by and among Iso-Tex
Diagnostics, Inc., Cypros Pharmaceutical Corporation and Thomas
J. Maloney. (2)
2.2 (1)       Glofil Contract Manufacturing and Royalty
Agreement as of August 9, 1995 by and among Iso-Tex
Diagnostics, Inc., Cypros Pharmaceutical Corporation and Thomas
J. Maloney. (2)
2.3 (1)       Merger Agreement as of August 9, 1995 among
Cypros
Pharmaceutical Corporation, Iso-Tex Diagnostics "B", Inc. and
Jean and Thomas Maloney. (2)
2.4 (3)       Asset Purchase Agreement by and among Cypros
Pharmaceutical Corporation and Schwarz Pharma, Inc. dated
as of October 31, 1996.
2.5 (3)       Note and Security Agreement by and among Cypros
Pharmaceutical Corporation and Schwarz Pharma, Inc. dated
November 4, 1996.
2.6 (3)       Assumption Agreement by and among Schwarz Pharma,Inc.
and Cypros Pharmaceutical Corporation dated November 4, 1996.
2.7 (3)       Trademark Assignment by and among Schwarz Pharma, Inc.
and Cypros Pharmaceutical Corporation dated November 4, 1996.
2.8 (3)       Trademark Agreement by and among Schwarz Pharma, Inc.
and Cypros Pharmaceutical Corporation dated November 4, 1996.
3.1 (4)       Restated Articles of Incorporation of the Registrant.
3.2 (5)       Amendment to Restated Articles of Incorporation.
3.3 (4)       Bylaws, as amended.
4.1 (4)       Specimen stock certificate.
4.3 (4)       Specimen Redeemable Class B Warrant.
4.5 (4)       Form of Warrant Agreement.
4.6           Reference is made to Exhibits 3.1 and 3.2.
10.1 (4)      Forms of Incentive Stock Option and Nonstatutory Stock
Option.
10.2 (5)      Amended 1992 Stock Option Plan.
10.3 (4)      Employment Agreement, dated July 10, 1991 as
amended and restated September 1, 1992, between the Registrant
and Paul J. Marangos, Ph.D.
10.4 (6)      Amendment No. 1 to Employment Agreement, dated
May 9, 1994, between the Registrant and Paul J. Marangos, Ph.D.
10.5 (7)      Amendment No. 2 to Employment Agreement, dated
March 9, 1995, between the Registrant and Paul J. Marangos,Ph.D.
10.6 (8)         Amendment No. 3 to Employment Agreement, dated
October 1, 1996, between 31 the Registrant and Paul J.
Marangos, Ph.D.                                                   
10.7 (9)      1993 Non-Employee Directors Stock Option Plan
and related form of Nonstatutory  Stock Option.
10.8 (4)      License Agreement, dated as of August 20, 1992,
between the Registrant and Angel K. Markov, M.D. (with certain
confidential infomation in brackets deleted). (8)
10.9 (4)     License Agreement, dated as of August 27, 1992,
between the Registrant and University E..M., Inc. (with certain
confidential information in brackets deleted). (9)
10.10 (5)     Assignment of and Amendment to License Agreement
by and between University E.M., Inc., University of Cincinnati
and the Registrant.
10.11 (7)     License and Support Agreement, dated as of
February 18, 1993, between the Registrant and Elie Abushanab,
Ph.D. (with certain confidential information in brackets
deleted). (10)
10.12 (11)     Note Purchase Agreement dated July 11, 1996 by
and among Cypros Pharmaceutical Corporation and Paresco, Inc.
10.13 (11)     Note Purchase Agreement dated July 31, 1996 by
and among Cypros Pharmaceutical Corporation and Cameron Capital
Ltd.

Exhibit
Number    Description                                        Page
No.
23.1      Consent of Ernst & Young LLP, Independent Auditors.  33
24.1      Power of Attorney.  Reference is made to page 29.
99.1      Financial Statements.                                35
__________
(1)       Filed as an exhibit to the Registrant's Form 8-K dated
August 10, 1995 and incorporated herein by reference.

(2)       Certain confidential portions deleted pursuant to an
application for Order Granting Confidential Treatment Under the
Securities Exchange Act of 1934 and Rule 24b-2 Thereunder filed
concurrently with the Form 8-K.

(3)       Filed as an exhibit to the Registrant's Form 8-K dated
November 4, 1996 and incoroporated herein by reference.

(4)       Filed as an exhibit to the Registrant's Registration
Statement on Form S-1, Registration No. 33-51682, and
incorporated herein by reference.

(5)       Filed as an exhibit to the Registrant's Form 10-Q for
the period ended January 31,  1995, and incorporated herein by
reference.

(6)       Filed as an exhibit to the Registrant's Form 10-K for
the fiscal year ended July 31,  1994.

(7)       Filed as an exhibit to the Registrant's Form 10-K for
the fiscal year ended July 31, 1993.

(8)       Filed as an exhibit to the Registrant's Form 10-K for
fiscal year ended July 31, 1996.
(9)       Certain confidential portions deleted pursuant to
Order Granting Application Under the Securities Act of 1933 and Rule
406 Thereunder Respecting Confidential Treatment, dated
November 3, 1992.

(10)       Certain confidential portions deleted pursuant to
Order Granting Application Pursuant to Rule 24B-2 Under the
Securities Exchange Act of 1934 Respecting Confidential
Treatment, dated December 20, 1993.

(11)       Filed as an exhibit to the Registrant's Form 8-K
dated September 20, 1996 and incorporated herein by reference.

EX-23

EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


We consent to the incorporation by reference in the Registration
Statements (Form S-3 and S-8) of our report dated August 21, 1997
(except Note 5, as to which the date is October 9, 1997), with
respect to the financial statements of Cypros Pharmaceutical
Corporation included in the Annual Report (Form 10-K) for the
year ended July 31, 1997.



ERNST & YOUNG LLP


San Diego, California
October 27, 1997

EX-27

 

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Cypros' 1997 Audited Financial Statements and is qualified in its
entirety by reference to such Financial Statements.

       
                             
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          JUL-31-1997
<PERIOD-END>                               JUL-31-1997
<CASH>                                       5,101,710
<SECURITIES>                                 9,465,561
<RECEIVABLES>                                  355,425
<ALLOWANCES>                                         0
<INVENTORY>                                     93,177
<CURRENT-ASSETS>                            15,090,911
<PP&E>                                       7,853,903
<DEPRECIATION>                               1,600,098
<TOTAL-ASSETS>                              21,344,716
<CURRENT-LIABILITIES>                        2,038,364
<BONDS>                                      4,176,248
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                    32,344,793
<OTHER-SE>                                (17,344,885)
<TOTAL-LIABILITY-AND-EQUITY>                21,344,716
<SALES>                                      2,428,348
<TOTAL-REVENUES>                             2,428,348
<CGS>                                          538,725
<TOTAL-COSTS>                                  538,725
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                            (6,674,703)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                        (6,674,703)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                               (6,674,703)
<EPS-PRIMARY>                                   (0.54)
<EPS-DILUTED>                                        0
        

 

EX-99

EXHIBIT 99.1                              
                         
Form 10-K Items 14(a) (1) and (2)
                         
Cypros Pharmaceutical Corporation
                         
Years ended July 31, 1997, 1996 and 1995
with Report of Independent Auditors


Cypros Pharmaceutical Corporation

Form 10-K Items 14(a) (1) and (2)

Contents

Report of Ernst & Young LLP, Independent Auditors       F-2

Financial Statements (Item 14(a) (1)):

Balance Sheets                                          F-3
Statements of Operations                                F-4
Statements of Shareholders Equity                       F-5
Statements of Cash Flows                                F-6
Notes to Financial Statements                           F-7


Financial Statement Schedules (Item 14(a) (2)):

All financial statement schedules are omitted because the
information described therein is not applicable, not required
or is furnished in the financial statements or notes thereto.


Report of Independent Auditors


The Board of Directors and Shareholders
Cypros Pharmaceutical Corporation

We have audited the accompanying balance sheets of Cypros
Pharmaceutical Corporation as of July 31, 1997 and 1996, and
the related statements of operations, shareholders' equity,
and cash flows for each of the three years in the period
ended July 31, 1997.  These financial statements are the
responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial
statements based on our audits.
     
We conducted our audits in accordance with generally
accepted auditing standards.  Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements.  An audit also includes assessing the
overall financial statement presentation.  We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Cypros Pharmaceutical Corporation at July 31,
1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended
July 31, 1997 in conformity with generally accepted
accounting principles.
                              
ERNST & YOUNG LLP
                              
                              
August 21, 1997,
except for Note 5, as to which the date is
October 9, 1997

San Diego, California

Cypros Pharmaceutical Corporation
Balance Sheets


                                              July 31,
                                      1997         1996
                                           
Assets                                         
Current assets:                                
  Cash and cash equivalents 
  (Note 3)                        $ 5,101,710     $9,068,614 
  Short-term investments, held to                           
  maturity (Note 3)                 9,465,561      6,928,435
  Accounts receivable                 355,425        149,626
  Inventories (Note 3)                 93,177         63,386
  Other current assets                 75,038         61,409
                                                            
     Total current assets          15,090,911     16,271,470
                                    
Property, equipment and leasehold                    
improvements, net (Note 3)            675,686        608,206
Purchased technology, net of                                
accumulated                                                 
amortization of $1,220,838 and   
$438,238 at
July 31, 1997 and 1996 (Note 2)     5,060,875      2,629,427
Deferred financing costs, net of                
accumulated amortization of                    
$260,884 at July 31, 1997 (Note 1)    259,127        520,011
Licenses and patents, net of                    
accumulated amortization of                    
$118,376 and $87,277 at July 31,    
1997 and 1996, respectively (Note 1)  162,592        111,231

Other assets                           95,525        126,180
   
Total assets                      $21,344,716    $20,266,525
                                                        
                                               
Liabilities and shareholders'                  
equity
Current liabilities:                           
Accounts payable                     $365,386       $119,092
Accrued compensation                  121,605        155,748
Other accrued liabilities             131,800        231,864
Purchased asset obligations (Note   1,272,000        200,000
2)
Current portion of long-term debt                          
(Note 4)                               41,367         99,282
Current portion of capital lease                           
obligations (Note 5)                  106,206         81,035
                                                            
Total current liabilities           2,038,364        887,021
                                               
Long-term debt (Note 4)                     -         41,367
Capital lease obligations (Note       148,787        187,265
5)
Deferred rent (Note 4)                104,196        120,411
Mandatorily convertible             4,027,461      6,395,574
notes(Note 5)
                                                            
Shareholder's equity: (Note 6)                             
Common stock, 30,000,000 shares             
authorized,                
13,650,405 and 11,613,748                   
shares issued and                              
outstanding as of July 31, 1997   
and 1996                            
respectively                       32,344,793      23,421,428
Deferred compensation                (161,950)       (304,309)
Accumulated deficit               (17,156,935)    (10,482,232)
                                                         
Total shareholder's equity         15,025,908      12,634,887
                                                           
Total liabilities and                                  
shareholders' equity              $21,344,716     $20,266,525
                      

See accompanying notes.

Cypros Pharmaceutical Corporation
Statements of Operations



                               Years ended July 31,
                           1997        1996        1995
                                          
Net Sales                  $2,428,348  $1,275,240  $  -
                                 
Cost of Sales                 538,725     405,142     -
                                                       
                                                       
Gross Profit                1,889,623     870,098     -
                                  
Operating expenses:                                    
  Sales and Marketing        993,765      343,054     -
  General and              
  administrative           2,396,465    1,642,152 1,535,540         
  Clinical testing and     
  regulatory               1,967,334    1,389,128 1,516,947
  Research and             
  development              1,032,486    1,002,226   744,608
  Depreciation and         
  amortization             1,075,431      611,848   112,713                    
                                                       
Total operating expenses   7,465,481    4,988,408 3,909,808
                               
                                                       
                                                       
Loss from operations       (5,575,858) (4,118,310)(3,909,808)
                                                                                    
Research grant income          98,785     270,510    250,000
Interest and other          
income, net                   662,421     757,692    547,107
Amortization of discount                               
and costs                                              
on mandatorily
Convertible notes                    
(Note 5)                   (1,860,051)          -          -
                                                       
Net loss                  $(6,674,703)$(3,090,108)$(3,112,701)
                              
                                                       
                                                       
Net loss per share          $(0.54)        $(0.27)   $(0.32)
                                                       
                                                       
Shares used in computing                               
net loss per share         12,303,274  11,518,169  9,859,857
                                                                              


See accompanying notes.




Cypros Pharmaceutical Corporation
Statements of Shareholder's Equity
For each of the three years ended July 31, 1997, 1996 and 1995


CAPTION>
                       Common stock       Deferred
                                             
                     Shares    Amount     Compensation
                                                                                         
                                  
Balance at July 31,  8,019,780  9,926,561  $(170,940)
1994                       
   Exercise of Class                     
  A warramts (program
  II)                2,605,180  8,205,215       - 
  
  Exercise of Unit                      
  Purchase Option                               
  and underlying        
  Class A warrants     543,745  1,681,266       -
  Exercise of stock    
  options              183,312    528,924       -
  Deferred compensation                                       
  related to grant of  
  stock options and            
  warrants                -       603,029    (110,842)
  Amortization of                                  
  deferred                                    
  compensation            -         -          94,789
  Net loss                -         -            -                           
                                                   
Balance at July 31,  
1995                 11,352,017 20,944,995   (186,993)     
  Discount on                           
  mandatorily                     
  convertible notes       -      1,582,935       -
  Issuance of                           
  Common Stock,          
  net of offering       
  costs                 162,500    940,956       -
  Issuance of                           
  Common Stock           
  in business           
  acquisitions          169,231  1,032,309       -
  Issuance of                                      
  Common Stock          
  for services          200,000   284,375   (284,375)
  Common stock        
  repurchased          (280,000)(1,540,000)      -  
  Exercise of stock     
  options                10,000     35,163       -
  Deferred Compensation                                         
  related to grant of                                       
  stock options            -        140,695 (140,695)
  Amortization of                                  
  deferred compensation    -           -     307,754
  
  Net loss                 -           -        -                                        
                                                   
Balance at July 31, 
1996                 11,613,748 23,421,428  (304,309)
  Conversations of                      
  mandatorily                           
  convertible notes     953,907  3,972,538       -                               8 -
  Issuance of Common                          
  Stock,net of         
  offering costs      1,075,000  4,714,507       -
  Exercise of stock     
  options                 7,750     21,963       -
  Forfeitures of                                   
  stock options            -       (52,568)   52,568
  
  Deferred compensation                                         
  related to grant of                                       
  stock options            -       266,925  (266,925)

  Amortization of                                  
  deferred                                    
  compensation             -         -       356,716
  Net loss                 -         -          -     
                                                   
Balance at July 31, 
1997                13,650,405 $32,344,793 $(161,950)
            



CAPTION>
                      Accumulated   Total
                        Deficit     Shareholders'
                                    Equity
                                       
                              
Balance at July 31, 
1994                  $(4,279,423)  $5,476,198
  Exercise of Class                        
  A warrants (program
  II)                           -     8,205,215
  
  Exercise of Unit                         
  Purchase options                                   
  and underlying
  Class A warrants               -    1,681,266

  Exercise of stock                 
  options                        -      528,924
  Deferred compensation                               
  related to grant of
  stock options and
  warrants                       -      492,187
  Amortization of                          
  deferred compensation          -       94,789
    Net loss            (3,112,701)  (3,112,701)
                                        
                                           
Balance at July 31,
1995                   (7,392,124)    13,365,878
  Discount on                              
  mandatorily                       
  convertible notes            -       1,582,935
  Issuance of Common                              
  Stock,net of offer-
  ing costs                    -         940,956
  Issuance of Common                              
  Stock in business
  acquisitions                 -       1,032,309
  Issuance of Common                 
  Stock for services           -               -
  Common stock repurchased     -      (1,540,000)
  Exercise of stock                 
  options                      -          35,163
  Deferred compensation                   
  related to grant             
  of stock options             -               -
  Amortization of                          
  deferred compensation        -         307,754
  
    Net loss          (3,090,108)     (3,090,108)
                                       
                                           
Balance at July 31,
1996                 (10,482,232)     12,634,887

  Conversations of                         
  mandatorily                              
  convertible notes            -       3,972,538
  Issuance of Common
  Stock, net of offer-
  ing costs                            4,714,507
  Exercise of stock                
  options                      -          21,963
  Forfeitures of               
  stock options                -               -
  Deferred                     
  compensation                   
  related to grant             
  of stock options             -               -
  Amortization of                          
  deferred compensation        -          356,716
  
  Net loss            (6,674,703)      (6,674,703)
                                
                                           
Balance at July 31,
1997                $(17,156,935)     $15,025,908
             

See Accompany notes

Cypros Pharmaceutical Corporation
Statements of Cash Flows



                              Years ended July 31,
                         1997       1996         1995
                                        
Operating activities                        
Net loss               $(6,674,703) $(3,090,108) $(3,112,701)
                      
Adjustments to                                            
reconcile net
loss to net cash used
in operating activities:
  Amortization of
  deferred compensation     356,716      307,754      94,789
  Depreciation and                                        
  amortization            1,075,431      611,848     112,713
  Amortization of                                         
  discount and                                              
  costs on mandatorily
  convertible notes       1,860,051         -           -
  
  Expense related to                                      
  warrant issuance             -            -        492,187
  
  Deferred rent             (16,215)      39,892      10,889
  Write-off of patent          -            -         14,000
  Changes in operating                                    
  assets and liabilities,
  net of effects from
  acquisitions:
    Accounts receivable    (205,799)    (149,626)       -
    Inventories             (29,791)      18,829        -
    Other current assets    (13,629)      18,536     (41,897)
    Accounts payable        246,294      (19,445)   (138,572)
    Accrued liabilities     (56,948)     114,305     233,909
                                               
                                                          
Net cash flows used in                                    
operating activities     (3,458,593) (2,148,015)  (2,334,683)
                                                                                    
Investing activities                                      
Short-term investments   (2,537,126)  1,486,815   (3,957,538)
Investments in                                            
purchased technology     (2,014,048) (1,835,356)         -
Installment payment                                       
for purchased
technology                 (200,000)    (82,215)         -
Purchase of property,                                     
equipment and                                             
leasehold
improvements               (239,941)   (100,770)    (193,689)

Increase in licenses                                      
and patents                 (82,460)    (37,499)     (10,863)

Decrease in other assets     21,375       6,197       16,673
                                                    
                                                          
Net cash flows used in                                    
investing activities    (5,052,200)    (562,828)  (4,145,417)
                                                                                       
Financing activities                                      
Issuance of Common     
Stock, net               4,736,470      976,119   10,415,405
Issuance of                                               
mandatorily                
convertible notes             -       7,458,498         - 
Repurchase and                                            
retirement of                 
Common Stock                  -      (1,540,000)        -

Repayment of 
long-term debt             (99,282)     (99,283)     (99,282)

Repayments of capital                                     
leases/obligations         (93,299)     (42,622)     (17,439)
                                               
Net cash flows                                            
provided by            
financing activities     4,543,889    6,752,712   10,298,684                                   
                                                          
Increase in cash and                                      
cash equivalents        (3,966,904)   4,041,869    3,818,584

Cash and cash                                             
equivalents at         
beginning of year        9,068,614    5,026,745    1,208,161                                 
Cash and cash                                             
equivalents at        
end of year             $5,101,710   $9,068,614   $5,026,745                          
                                                          
Supplemental                                              
disclosures of
cash flow information:
Cash paid for interest    $123,997      $47,953      $39,170
                                                          
Noncash investing and                                     
financing activities:
Mandatorily                                               
convertible notes      
converted into Common                            
Stock                   $3,972,538      $  -         $  -
Equipment financed                                        
under capital leases       $79,992     $234,256       $89,549
                                                          
Purchased asset        
obligations             $1,200,000     $200,000      $  -                          
Common stock issued                                       
for acquisitions        $     -      $1,032,309      $  -



See accompanying notes.


1. Organization and Summary of Significant Accounting Policies

Organization and Business Activity

Cypros Pharmaceutical Corporation (the "Company") was incorporated
in San Diego, California on November 2, 1990.  The Company
develops and markets acute-care, hospital-based products.  The
Company is currently marketing three products, Ethamolin, Glofil
and Inulin, and developing two drugs, CPC-111 and Ceresine
(formerly CPC-211). The Company's pre-clinical and clinical
development programs focus on cytoprotective drugs designed to
reduce ischemia (low blood flow) induced tissue damage in acute-
care settings.  The Company's two clinical programs are currently
in five Phase II trials, which include three for CPC-111 (coronary
artery bypass grafting surgery, congestive heart failure and
sickle cell anemia crises), and two for Ceresine (stroke and head
injury).

Cash, Cash Equivalents and Short-term Investments

The Company considers highly liquid investments with remaining
maturities of three months or less when acquired, primarily money
market funds, to be cash equivalents.  Short-term investments
consist of certificates of deposit, money market funds, U.S.
government obligations and investment grade corporate debt
securities. The Company has established guidelines relative to
diversification and maturities that maintain safety and liquidity.
The Company has not experienced any losses on its cash equivalents
or short-term investments.  Management believes the credit risk
associated with these investments is limited due to the nature of
the investments.

Management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such
designations as of each balance sheet date. Debt securities are
classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to
maturity Held-to-maturity securities are carried at cost, adjusted 
for amortization of premiums and accretion of discounts.  Interest,
dividends and amortization on the securities classified as 
held-to-maturity are included in interest income.

Concentration of Credit Risk

The Company extends credit to its customers, primarily hospitals
and large pharmaceutical companies conducting clinical research,
in connection with its product

1. Organization and Summary of Significant Accounting Policies
(continued)

sales.  The Company has not experienced significant credit losses
on its customer accounts.  Two customers individually accounted
for 23% and 13% of current year sales.

Inventories

Inventories are stated at the lower of cost (first-in, first-out
method) or market.

Depreciation and Amortization

Property and equipment are stated at cost and depreciated over the
estimated useful lives of the assets (generally five years) using
the straight-line method.  Leasehold improvements are amortized
over the lesser of the estimated useful lives (seven years) or the
remaining term of the lease.

Purchased Technology

Purchased technology associated with the acquisitions of Glofil,
Inulin and Ethamolin is stated at cost and amortized over the
period estimated to be benefited (seven years).

Deferred Financing Costs

The Company has deferred banking, legal and accounting fees
associated with the issuance of $8 million in principal amount of
mandatorily convertible notes in 1996. These costs are amortized
over the term of the notes, which is three years, using the
effective interest method commencing with the closing of the
transactions.

License and Patent Costs

The Company capitalizes certain costs related to license rights
and patent applications.  Accumulated costs are amortized over the
estimated economic lives of the license rights and patents
(generally six years) commencing at the time the license rights
are granted or the patents are issued.

1. Organization and Summary of Significant Accounting Policies
(continued)

Revenue Recognition

Revenues from product sales of Ethamolin and whole vials of Glofil
and Inulin are recognized upon shipment.  Revenues from Glofil
unit dose sales are recognized upon receipt by the Company of
monthly sales reports from its third-party distributor.  The
Company is not obligated to accept returns of products sold that
have reached their expiration date.

Net Loss Per Share

Net loss per share is computed using the weighted average number
of common shares outstanding during the periods.

Reclassifications

Certain previously reported amounts have been reclassified to
conform with the 1997 presentation.

Use of Estimates

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

Accounting Standard on Impairment of Long-Lived Assets

Effective August 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of (SFAS No. 121), which requires impairment losses to be
recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the
assets' carrying amount. SFAS No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed
of.  The adoption of this standard had no impact on the Company's
financial statements.

1. Organization and Summary of Significant Accounting Policies
(continued)

Accounting Standard on Stock Based Compensation

Effective August 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 123 ("FAS 123"), Accounting and
Disclosure of Stock-Based Compensation.  As allowed under FAS 123,
the Company elected to continue to account for stock option grants
in accordance with Accounting Principles Board Opinion No. 25
("APB 25"), Accounting for Stock Issued to Employees, and related
interpretations.

Newly Issued Accounting Standards

Effective December 15, 1997, the Company will adopt Statement of
Financial Accounting Standards No. 128 ("FAS 128"), Earnings Per
Share.  Under FAS 128, primary earnings per share will be replaced
by basic earnings per share, which will exclude the dilutive
effect of common stock equivalents, such as stock options or
warrants.  Diluted earnings per share, which will replace fully
diluted earnings per share, will continue to include the dilutive
effect to all common stock equivalents.  The Company does not
believe the adoption of FAS 128 will have a material effect on its
calculation of net loss per share.

Effective December 15, 1997, the Company will adopt Statement of
Financial Accounting Standards No. 130 ("FAS 130"), Reporting
Comprehensive Income.  The Company does not believe the adoption
of FAS 130 will have a material effect on its financial position
or results of operations.

2. Acquisitions

On August 9, 1995, the Company acquired two businesses, including
(i) the New Drug Application for Glofil and finished goods
inventory of Glofil on hand at the time of closing from Iso-Tex
Diagnostics, Inc., a Texas corporation, (the "Glofil Acquisition")
and (ii) the New Drug Application for Inulin and the raw material
and finished goods inventory of Inulin on hand at the time of
closing from Iso-Tex Diagnostics "B," Inc. ("ITDB"), a Texas
corporation (the "Inulin Acquisition").  The Glofil Acquisition
was accomplished in an arms' length negotiation through a purchase
of assets and the Inulin Acquisition was accomplished through a
merger of ITDB with and into the Company (the "Merger").  The
total purchase price was $3,149,880, of which $1,582,215 in cash
and 169,231 newly issued shares of restricted Common Stock of the
Company (the "Restricted Shares") were paid at closing. The
Company used its working capital to make the cash payments for the
acquisitions at closing.

2. Acquisitions (continued)

Both acquisitions were accounted for using the purchase method
and, accordingly, the financial statements include the operations
of the businesses from the date of acquisition. As part of the
Glofil Acquisition, the Company made an additional cash payment of
$200,000 on January 15, 1996 and a final cash payment of $200,000
on August 9, 1996.  As part of the Inulin Acquisition, the Company
agreed to register the Restricted Shares, upon the request of the
sole stockholder of ITDB, at any time after one year from the date
of closing and if the registration statement has not become
effective within 90 days of the date of the holder's request, the
Company is obligated to repurchase the Restricted Shares at their
market value based upon the closing bid price of the Company's
Common Stock on such date. If the holder requests the Company to
Register the Restricted Shares, the Company intends to and has the
ability to register them within 90 days of such request.

On November 4, 1996, the Company acquired the New Drug
Application, the U.S. trademark for Ethamolin Injection (the
"Ethamolin Assets") and the finished goods inventory on hand at
closing from Schwarz Pharma, Inc., a Delaware corporation. The
total purchase price was $3,286,642, of which the Company paid
$2,086,642 in cash and issued a $1,200,000 note (the "Schwarz
Note") bearing interest at 8% per annum at closing. The principal
and interest on the Schwarz Note is secured by the Ethamolin
Assets. The Company used its working capital to make the cash
payment at closing. The note is due November 3, 1997.

The following unaudited pro forma data reflects the combined
results of operations of the Company as if the Glofil and Inulin
acquisitions had occurred on August 1, 1994 and the Ethamolin
acquisition had occurred on August 1, 1995:


                          Years end July 31,
                   1997        1996         1995
                                
Net Sales        $2,752,691  $2,402,006   $1,031,486
Net loss         (6,394,987) (2,679,376)  (2,993,386)
Net loss per      
share             (0.52)      (0.23)        (0.30)



3. Financial Statement Details

Short-Term Investments

All short-term investments of the Company are classified as held-
to-maturity.  The following is a summary of held-to-maturity
investments at amortized cost as of July 31:



                            1997          1996
                                       
                                    
Corporate debt securities    $10,465,202  $6,902,848
Money market funds             2,723,458   7,987,946
U.S. government obligations      995,770     749,780
Certificates of deposit              -        37,669
                                                  
                              14,184,430  15,678,243
Less: amounts classified                          
as cash equivalents           (4,718,869) (8,749,808)
                                               
Short-term investments        $9,465,561   $6,928,435
                                                 


As of July 31, 1997, the difference between cost and estimated
fair value of the held-to-maturity investments was not
significant.  Of the above-referenced 1997 investments, $8,905,005
mature at various dates through July 31, 1998 and $5,279,425 will
mature at various dates after July 31, 1998 through December 14,
2001.

Inventories

Inventories consist of the following at July 31:


               1997        1996
                     
Raw materials  $  4,252    $  3,437
Finished goods   88,925      59,949
              
               $ 93,177    $ 63,386
                       


3. Financial Statement Details (continued)

Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements consist of the
following as of July 31:


                                1997      1996
                                   
Laboratory equipment          $ 785,573  $570,865
Office equipment, furniture     
and fixtures                    284,902   224,932
Leasehold improvements          134,772    89,517
                                                 
                                                 
                              1,205,247   885,314
Less accumulated
depreciation and
amortization                   (529,561) (277,108)
                              $ 675,686  $608,206
                                                 


Depreciation expense was of $252,453, $138,471 and $83,313 for the
years ended July 31, 1997, 1996 and 1995, respectively.

Other Accrued Liabilities

At July 31, 1997 and 1996, other accrued liabilities consist
primarily of clinical costs related to the Phase II clinical
trials of CPC-111.

4. Long-Term Debt

As of July 31, 1997, the Company had an installment note payable
to a financial institution of $41,367, all of which was classified
as current.  The outstanding balance was collateralized by $84,048
of the Company's short-term investments as of July 31, 1997.  The
installment note bears interest at the prime rate plus 1.6% (or
10.10% at July 31, 1997) and is being repaid in monthly
installments through December 1997.  Interest expense incurred on
the installment note was $9,524, $19,897 and $29,947 for the years
ended July 31, 1997, 1996, and 1995, respectively.

5. Commitments

Leases

The Company leases its office and research facilities under
operating lease agreements and certain equipment under capital
lease agreements.  A security deposit of $64,260 under one of the
facilities lease agreements is included in deposits and other
assets.

5. Commitments (continued)

Minimum future obligations under both operating and capital leases
as of July 31, 1997 are as follows:



                               Operating    Capital
                               Leases       Leases    
                                      
1998                           $442,736     $130,982
1999                            464,942       94,284
2000                            491,649       62,734
2001                            418,356        8,048
2002                            127,310         -
                                          
                             $1,944,993      296,048
                               
                               
Less amounts representing      
interest                                     (41,055)
                                        
Present value of net minimum             
lease payments                               254,993
Current portion of capital               
lease obligations                           (106,206)
                                        
Long-term capital lease                  
obligations                                $ 148,787
                                         


Rent expense totaled $420,697, $193,880 and $107,952 for the years 
ended July 31, 1997, 1996 and 1995, respectively.  Equipment acquired
under capital leases totaled $228,878 and $277,669 (net of accumulated 
amortization of $181,347 and $52,564) at July 31, 1997 and 1996,
respectively.

Rent expense comprises the cost associated with two buildings
leased by the Company, its current headquarters located at 2714
Loker Avenue West in Carlsbad, California and its former
headquarters located at 2732 Loker Avenue West. In April 1996, the
Company subleased its former headquarters for the remainder of the
original lease plus an additional 36-month option. Total lease
income included in other income totals $62,870 for the year ended
July 31, 1997. Scheduled aggregate future income at July 31, 1997
is approximately $1,318,900. The Company is obligated to expend up
to $200,000 in improvements for the sublessee but is receiving a
rental rate that substantially exceeds the Company's rent expense
on the building plus the amortization of these improvements.

Mandatorily Convertible Notes

During the year ended July 31, 1996, the Company issued $8 million
in principal amount of non-interest bearing mandatorily
convertible notes (the "Notes") to institutional investors in
private placements under the provisions of the Securities and
Exchange Commission (the "SEC") Regulation D. The Notes are
convertible at the option of the investors into shares of the
Company's Common Stock at various dates from January 31, 1997
through July 31, 1999 at a discount to the market price of the
stock immediately

5. Commitments (continued)

preceding conversion, ranging from 15% to 25%, with the actual
discount depending on the length of time each investor has held
the note being converted. The Notes must be converted at various
dates through July 31, 1999. The Company is required to register
with the SEC the shares of Common Stock issuable upon conversion
of the Notes on or prior to the expiration of the allowable
conversion periods. The Notes were originally classified as a
component of shareholders' equity for several reasons, including
the fact that they are non-interest-bearing and convertible only
into Common Stock of the Company, absent unusual circumstances.
However, on August 26, 1997, in conjunction with an SEC review of
a registration statement filed by the Company and in consideration
of certain positions formally adopted by the SEC in March 1997,
the Company reclassified the Notes to long-term debt. The Notes
were recorded net of the $1,582,935 discount available upon
conversion (assuming full conversion at the earliest possible
dates), and the discount represents an effective interest rate of
33%. The discount has been added to Common Stock and was amortized
to expense during fiscal 1997.

As of July 31, 1997, $3,972,538 in principal amount of the Notes
had been converted into 953,907 shares of Common Stock.  Through
October 9, 1997, $2,413,062 in principal amount was converted into
725,789 shares of Common Stock and $1,614,399 of Notes remain to
be converted as of that date.

License Agreements

The Company has licenses to various patents for CPC-111 and
Ceresine, its two clinical development programs, for the remaining
term of the patents. The license agreements require payments of
cash, warrants or the issuance of stock options to the licensers
upon accomplishment of various milestones and the payment of
royalties to the licensers upon the commercial sale of products
incorporating the licensed compound.  Under the agreement for
Ceresine, the Company issued a warrant to the licensor in fiscal
1995 exercisable into 43,750 shares of the Company's Common Stock
at an exercise price of $1.60 per share,  as a result of
completion of Phase I trials of that compound. The only remaining
significant development milestone under these agreements is the
requirement that the Company pay the licensor of CPC-111 $250,000
upon the filing of a New Drug Application with the Food and Drug
Administration (the "FDA") for the approval to market that
compound. In the event milestone or royalty payments to the
licensor of CPC-111 are not made by the Company within specified
time periods, that licensor may elect to terminate the license
agreement and all rights thereunder. Such a termination could have
a significant adverse impact upon the Company.

6. Shareholders' Equity

Preferred Stock

The Company has authorized 1,000,000 shares of convertible
preferred stock.  As of July 31, 1996 and 1997, no such shares
were issued or outstanding.

Common Stock

During the year ended July 31, 1996, the Company purchased and
retired 280,000 shares of its outstanding Common Stock at $5.50
per share in a privately negotiated transaction.

Warrants

In connection with the Company's initial public offering in 1992
(the "Offering"), the Company issued 2,875,000 Redeemable Class A
and Class B Warrants.  During fiscal years 1994 and 1995, the
Company initiated special programs designed to encourage holders
of Redeemable Class A Warrants to exercise their warrants
immediately (the "Special Class A Warrant Special Programs").
Under the Special Class A Warrant Programs, the Company received
net proceeds of $10,497,005 from the exercise of 2,847,037
Redeemable Class A Warrants and the concurrent issuance of
3,345,236 shares of Common Stock and 1,423,512 Redeemable Class B
Warrants.

Subsequent to the end of the Special Class A Warrant Programs, the
Company issued a notice of mandatory redemption to the remaining
holders of Class A Warrants.  The holders of 20,250 Class A
Warrants exercised their warrants under their original terms,
resulting in $63,787 proceeds to the Company and the issuance of
20,250 shares of Common Stock.  The Company repurchased all of the
unexercised Class A Warrants outstanding at the end of the 30-day
mandatory redemption period for $0.02 per warrant.  As of July 31,
1997, there were no Redeemable Class A Warrants outstanding.

During the course of the Special Class A Warrant Programsthis
period, all of the 250,000 Unit Purchase Options issued to the
underwriter of the Offering were also exercised at $3.02 per
option, and the 250,000 Redeemable Class A Warrants within such
units were immediately exercised resulting in aggregate net
proceeds of $1,681,266 and the concurrent issuance of
543,745 shares of Common Stock and 375,000 Redeemable Class B
Warrants. The Company repurchased all of the remaining Class A
Warrants outstanding at $0.05 per share.  As of July 31, 1995,
there were no Redeemable Class A Warrants outstanding.

The Company issued an additional warrant in 1995 exercisable 
into 312,500 shares of the Company's Common Stock at a purchase
price of $5 per share to a firm as consideration for financial 
advisory services.  In January 1996,the Company canceled the 
warrant and issued 200,000 shares of Common Stock at $3.39 in 
lieu of the canceled warrant.

6. Shareholders' Equity (continued)

As of July 31, 1997, 4,673,512 Redeemable Class B
Warrants were outstanding.  Warrant holders are entitled to
purchase one share of Common Stock at $5.50 per share for each
warrant until November 3, 1997.  The Company is entitled to redeem
the warrants on not less than 30 days written notice at $0.02 per
warrant when the average closing bid price of the Common Stock
exceeds $9.60 per share over a period of 20 consecutive trading
days, ending within 15 days of the date of notice of redemption.

Stock Option Plans

The Company has elected to follow APB 25 in accounting for its
employee stock options because, as discussed below, the
alternative fair value accounting provided under FAS 123 requires
use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, when the exercise
price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no
compensation expense is recognized.

Pro forma information regarding net loss and loss per share is
required by FAS 123, and has been determined as if the Company has
accounted for its employee stock options under the fair value
method set forth in FAS 123. The fair value of these options was
estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions for
1997 and 1996: risk-free interest rates of 6.0%; dividend yields
of 0%; volatility factors of the expected market price of the
Company's Common Stock of 84%; and the weighted-average life of
the options of eight years.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective
assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing
models do not necessarily provide a single reliable measure of the
fair value of its employee stock options. For purposes of pro
forma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period. The
Company's pro forma net loss for the years ended July 31, 1997 and
1996 is as follows:



                    1997          1996
                            
Pro forma net loss  $(7,658,837)  $(3,943,018)
Pro forma loss per              
share               $  (0.62)     $    (0.34)
      


6. Shareholders' Equity (continued)

The results above are not likely to be representative of the
affects of applying FAS 123 on reported net income or loss for
future years as these amounts reflect the expense for only one or
two years of vesting. As of July 31, 1997, 2,266,288 shares of
Common Stock were reserved for issuance under the 1992 Stock
Option Plan (the "1992 Plan").  The 1992 Plan provides for the
grant of incentive and nonstatutory stock options with various
vesting periods, generally four years, to employees, directors and
consultants.  The exercise price of incentive stock options must
equal at least the fair market value on the date of grant, and the
exercise price of nonstatutory stock options may be no less than
85% of the fair market value on the date of grant.  The maximum
term of options granted under the 1992 Plan is ten years.

In June 1993, the Company adopted the 1993 Non-Employee Directors'
Stock Option Plan (the "1993 Plan"), under which 250,000 shares of
Common Stock were reserved for issuance.  The 1993 Plan provides
for the granting of 25,000 options to purchase Common Stock upon
appointment as a non-employee director and an additional 3,000
options each January thereafter, beginning January 1, 1994.
Options vest over four years.  The exercise price of the options
is 85% of the fair market value on the date of grant.  The maximum
term of options granted under the 1993 Plan is ten years.

The following table summarizes stock option activity under the
1992 and 1993 Plans:


                       Options     Weighted Average
                       Outstanding Exercise Price
                     
                             
Balance at July 31,
1994                     946,625        $3.19
    Granted              292,500        $5.28
    Exercised           (183,312)       $2.89
    Canceled             (37,813)       $4.33
                                                        
Balance at July 31,                     
1995                   1,018,000        $3.83 
     Granted             360,000        $5.30
     Exercised           (10,000)       $3.52
     Canceled            (12,188)       $5.40
                              
Balance at July 31,        
1996                   1,355,812        $4.21
     Granted             309,499        $4.33
     Exercised            (7,750)       $2.83
     Canceled           (219,215)       $4.47
                                          
Balance at July 31,                      
1997                   1,438,346        $4.25   


6. Shareholders' Equity (continued)

At July 31, 1997, options to purchase 1,009,152 shares of Common
Stock were exercisable and there were 1,077,852 shares available
for future grant under the 1992 and 1993 Plans.

The weighted average grant-date fair value for the options granted
during 1997 and 1996 were $3.40 and $4.39, respectively.

Exercise prices and weighted average remaining contractual life
for the options outstanding under the 1992 and 1993 Plans as of
July 31, 1997 are as follows:


Options Outstanding                          Options
                                             Exercisable
                                             
Range of      Number   Weighted     Weighted  Number  Weighted
Exercise      Outstand-Average      Average   Exer-   Average
Price         ing      Remaining    Exercise  cisable Exercise
                       Contrac-     Price             Price
                       tual Life
                                                       
$1.44         97,500   5.00         1.44       97,500  $1.44
$2.20-$2.46   93,000   6.00         2.22       91,177  $2.22
$3.06-$4.00  440,500   7.17         3.50      322,789  $3.47
$4.05-$4.95  365,750   7.65         4.50      240,789  $4.54
$5.00-$5.75  320,437   7.22         5.42      179,844  $5.37
$6.00-$6.80   76,249   6.64         6.26       55,439  $6.22
$7.86-$8.50   45,000   8.00         8.04       21,614  $8.05
                                     
           1,438,436                        1,009,152
                                           

The Company has recorded deferred compensation for the difference
between the price of options granted and the fair value of the
Company's Common Stock.  Deferred compensation is amortized to
expense during the vesting period of the related stock or options.

7. Income Taxes

The Company accounts for income taxes using the liability method
under Financial Accounting Standards Board Statement No. 109,
Accounting for Income Taxes.  Deferred income taxes reflect the
net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.

7. Income Taxes (continued)

Significant components of the Company's deferred tax assets and
liabilities as of July 31, 1997 and 1996 are as follows:


                                      1997       1996
                                                   
                                         
Deferred tax assets:                           
Net operating loss carryforwards   $4,554,000   $3,358,000
Capitalized research and           
development costs                     547,000      404,000
Research and development tax        
credit carryforwards                  530,000      378,000
Other - net                           820,000      212,000
                                                   
Total deferred tax assets           6,451,000    4,352,000
Valuation allowance                (6,451,000)  (4,352,000)
                                                   
Net deferred tax assets           $     -     $      -
                                             


At July 31, 1997, the Company has federal and California tax net
operating loss carryforwards of approximately $12,635,000 and
$2,305,000, respectively.  The federal and California tax loss
carryforwards will begin and have begun to expire in 2007 and
1997, respectively, unless previously utilized.  The Company also
has federal and California research and development tax credit
carryforwards of $413,000 and $183,000, respectively, which
will begin expiring in 2007 unless previously utilized.  The above
carryforwards were determined as if the Company were filing a tax
return at July 31, 1997; however, for tax return purposes the
Company uses a calendar year end.

Use of the Company's net operating loss and credit carryforwards
may be limited upon cumulative changes in ownership of more than
50%.  However, the Company does not believe such limitations will
have a material impact upon the Company's ability to utilize these
carryforwards.

The valuation allowance increased $2,099,000 from July 31,
1996 to July 31, 1997 due principally to the increase in deferred
tax assets resulting from the increase in tax net operating loss
carryforwards.  Realization of deferred tax assets is dependent on
future earnings, the timing and amount of which will be dependent
on scientific success, results of clinical trials and regulatory
approval of the Company's products currently under development.
Accordingly, the full valuation reserve has been established to
reflect these uncertainties.