10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
________________________

[ X ] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Fiscal Year ended July
31, 1998
                               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
Carlsbad, California                    92008
(Address of principal executive offices)(Zip Code)

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)
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 26,1998, the Registrant had 15,711,877 shares of
Common Stock, no par value, outstanding, and  the aggregate
market value of the shares held by non-affiliates on that date
was $29,563,000 based upon the last sales price of the
Registrant's Common Stock reported on the American Stock
Exchange.*

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 3,264,437 shares of Common Stock held by directors,
executive officers and shareholders whose beneficial ownership
exceeds ten percent of the shares outstanding on October 26,
1998. 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 1999 Annual
Meeting of Shareholders to be filed on or before November 28,
1998 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

Cypros Pharmaceutical Corporation (the "Company") is a specialty
pharmaceutical company which develops and markets products for
the critical care 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. In addition, the Company
intends to launch two burn/wound care products, Neoflo and
Sildaflo, in the next year. The Company's development programs
target ischemic (impaired blood flow) disorders and the Company
is currently conducting a Phase III clinical trial on Cordox
(formerly CPC-111) in sickle cell crisis patients. The Company is
also planning (i) Phase III clinical trials of Cordox in other
ischemic disorders, such as coronary artery bypass grafting
surgery ("CABG") and (ii) other pivotal clinical trials of
Ceresine in closed head injury patients.

Acquisitions of Approved Products to Build Commercial
Capabilities.  The Company has an 11-person sales and marketing
force directed at the critical care market. In advance of the
potential approval of Cordox and Ceresine by the U.S. Food and
Drug Administration ("FDA"), the Company is building a sales,
marketing and distribution capability through the acquisition of
already approved products; Glofil-125 and Inulin, which it
acquired in August 1995, and Ethamolin, which it acquired in
November 1996 from Schwarz Pharma, Inc. In November 1997, the
Company acquired a patented drug delivery technology, Dermaflo,
and two FDA-approved products, Neoflo and Sildaflo, which it is
planning to launch during the next year into the burn and wound
care markets.  The Company will continue to build its sales and
marketing force as it completes additional acquisitions. During
the fiscal year ended July 31, 1998, the net sales of the
Company's three acquired products reached $3,446,000, a 42%
increase over the $2,428,000 recorded during the prior fiscal
year.

Cordox and Ceresine: Ischemia Therapies in Late Stage Development
Serving Unmet Medical Needs. There are several million cases of
ischemia-induced disorders annually in the United States,
resulting in over seven 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").  Ischemic
disorders include heart attack, stroke, surgery, trauma and
various anemias. Currently approved drugs for treating
cardiovascular ischemia, such as "clot busting" drugs, serve to
re-establish blood flow but do not have direct cytoprotective
effects on the ischemic tissue. The Company believes that the
drugs it is developing, Cordox and Ceresine, if approved 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 the
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. Cordox and Ceresine
are designed to act during and after ischemia by maintaining
cellular ATP levels or accelerating their restoration. Cordox (a
natural substance) and Ceresine are more amenable to being used
early in the patient management process, which is critical in
acute care settings.

Further, Cordox 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 Cordox and Ceresine
should 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, 1998, the Company released
positive data in its Phase II trial of Cordox in sickle cell
anemia crisis patients, completed and filed a Phase III protocol
with the FDA and began recruiting clinical trial sites for the
Phase III trial. In addition, the Company also filed a U.S.
patent application during the year based upon the data from the
Phase II trial and in September 1998 was informed by the U.S.
Patent and Trademark Office that all claims had been allowed.
This patent provides specific coverage for the use of Cordox in
sickle cell anemia crisis patients to reduce the painful
occlusive ischemic episodes.

Pre-clinical Programs Focused on Ischemic Disorders. Further
implementing its overall strategy of developing drugs that
protect cells from ischemic damage, the Company is conducting pre-
clinical studies on additional compounds intended to reduce the
neurodegeneration associated with stroke and traumatic head
injury.  The Company believes that these drugs may 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 for which the Company
received a $100,000 Small Business Innovation Research Phase I
grant during the past year; and (iii) a novel series of compounds
which inhibit the release of EAA (especially glutamate) from
glial cells in the brain. 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 Cordox prodrugs
with improved pharmacokinetic and pharmacodynamic properties that
will permit oral delivery of Cordox and also access to the
central nervous system.

Acquired Pharmaceutical Products

The Company's strategy includes building near-term sustainability
with the cash flow from acquired pharmaceutical products with the
goal of reducing its overall cash consumption rate and building
its sales, marketing and distribution infrastructure in advance
of the potential approval of Cordox and Ceresine by the FDA.

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 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
Glofil-125, is the most accurate and direct means of determining
GFR.

Glofil-125 and Inulin are FDA-approved 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, 1998, the
Company recorded sales from these two products of $1,227,000 and
one customer using Glofil-125 for clinical trials of a renal
therapeutic accounted for 33% of these sales and 12% of the
Company's total sales. That customer has terminated those trials
and the Company expects its sales of Glofil to suffer for the
next six to nine months.

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 creatinine or creatinine clearance tests.
This improved accuracy can be essential to reliably monitoring
disease progression and intervention, as well as assessing renal
impairment in its early and most treatable stage.

In addition, the serum creatinine test involves blood draws and
an average time of 3-4 hours to complete, and the creatinine
clearance test involves 24-hour urine collection, followed by an
additional 3-4 hours of analysis time. The Company is currently
funding a clinical study of Glofil-125 at the University of Texas
Southwest Medical Center to prove the viability of a 45 minute
test. If the study is successful, the Company believes that
Glofil will have a significant competitive advantage over the
other tests.

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 inability of the Company
to include Glofil in the protocols of other clinical studies of
renal therapeutics.

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.  The Company
is aware of 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.
During the fiscal year ended July 31, 1998, the Company recorded
sales from this product of $2,296,000 and one wholesaler
accounted for 35% of these sales and 23% of total sales.
However, there is strong competition from another drug,
Sotradecol, which is being prescribed off-label, and from band
ligation, a form of surgery.

The Dermaflo Technology and the Neoflo and Sildaflo Products.  In
November 1997, the Company acquired the Dermaflo technology, a
patented topical drug delivery system, from Enquay, Inc. for a
combination of cash and royaties on net sales. The technology is
a polymer matrix system that can store a variety of different
drugs and release them at a desired rate over an extended period
of time so that optimal clinical response is obtained. Included
in the assets acquired were two FDA-approved products, Neoflo and
Sildaflo, and a substantial amount of manufacturing equipment.

Neoflo and Sildaflo, the first two products that the Company
expects to launch using the Dermaflo technology address consumer
needs in both the over-the-counter and acute care markets. Neoflo
is a dressing that incorporates the triple antibiotic, polymyxin
B sulfate, bacitracin zinc and neomycin sulfate. The Company
intends to manufacture Neoflo in various sizes, small sizes to
address the over-the-counter market (through a distributor) and
larger sizes for the hospital market. Sildaflo is a dressing that
incorporates silver sulfadiazine, the most widely-used topical
antimicrobial for the treatment of burns. The Company intends to
manufacture Sildaflo in various large sizes to address the
hospital/burn clinic market. Initially, the Company intends to
address the critical care markets with its own sales force.

The Company believes the extended-release nature of the
technology will result in decreased treatment-related costs,
increased patient compliance and reduced pain and discomfort,
resulting in a marketing advantage for the products sold using
the Dermaflo technology. While it is difficult to determine the
market potential of Neoflo and Sildaflo, it is known that silver
sulfadiazine and the triple antibiotic have combined sales of
approximately $60 million in the United States in their non-
controlled-release forms.

The Company will be manufacturing the Dermaflo products itself,
has located a facility in Kansas City, Missouri for that purpose,
has installed some of the equipment in that facility and is
beginning to manufacture test batches of the Neoflo product. The
facility will require tenant improvements and a series of
validations to manufacture the Sildaflo product, and therefore,
the Company believes that Neoflo in both its over-the-counter and
acute care sizes will be on the market before Sildaflo. Both
products are expected to be on the market in the next year.

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 acute
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, Cordox, 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 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 and a
lesser number of people native to the Mediterranean region.
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 occlude capillaries and
result in severe and disseminated ischemia (termed vaso-occlusive
events or "VOE"). Most sickle cell patients undergo multiple VOEs
each year. Cordox has been shown pre-clinically to help reduce
this "sickling" process and to reduce pain in sickle cell disease
patients. The Company is  evaluating it in a Phase III trial of
sickle cell anemia crisis patients. The FDA has granted orphan
drug designation to Cordox in this indication.

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 cell-damaging 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 Cordox 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, Cordox 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 believed 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.

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 re-established. 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, Cordox 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 pre-
empt 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 starting a Phase III clinical trial on Cordox in
sickle cell crisis patients. The Company has also released
substantial amounts of data from its CABG trial of Cordox and its
traumatic head injury trial of Ceresine and is planning Phase III
trials in both of these indications.

Cordox.  Cordox is a small phophoryllated sugar 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 underlie reperfusion injury. The Company has
licensed or obtained several issued U.S. patents which cover the
use of Cordox in several  acute ischemic indications and a U.S.
patent on a novel formulation of Cordox.

There are numerous published U.S. and foreign clinical studies
with Cordox, where more than 500 patients were administered the
drug, indicating that Cordox is well tolerated in humans with
little or no side effects. These studies indicate that the drug
improves heart function and recovery in various ischemic
situations where the heart is injured.  In addition, 317 patients
have participated in the four Phase II trials of Cordox under the
Company's IND and the drug continues to be well tolerated.

A total of 125 CABG patients participated in the Company's double-
blind, placebo-controlled Phase II trial, and the data released
demonstrates that in patients receiving the active drug, Cordox
(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.

In October 1997, the Company released positive data from a 47-
patient double-blind, placebo-controlled,  dose-ranging Phase II
clinical trial with Cordox 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 Cordox.  The Company
has licensed or obtained two issued U.S. patents covering the use
of Ceresine in cerebral ischemia. 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 and converting it to acetyl coA. This
results 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 exhibited no serious side effects at the dose levels in that
study.  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.

The Company's Phase II clinical trial data on Ceresine in closed
head injury patients showed that the drug crosses the blood-brain
barrier at high levels and very quickly thereafter reduces brain
lactate levels substantially. This effect lasted for at least 12
hours. Serum lactate levels were also reduced substantially in
the drug-treated group.  The strength of this data has led the
Company to announce that it will pursue the Phase III development
of Ceresine in this indication and in July 1998, the FDA granted
expedited development status to Ceresine in head injury under
Subpart E of the FDA regulations.  In addition, the Company has
completed enrollment in a Phase II clinical trial on Ceresine in
stroke patients. 103 patients have participated in the Phase I
and two Phase II trials of Ceresine under the Company's IND and
the drug continues to be well tolerated.


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. During the past yeart, the Company
licensed an additional U.S. patent from the University of Rhode
Island which covers the composition of additional CPC-400 series
compounds.

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.  Also, a number of
these EAA receptor blockers have recently failed in various
stroke and head injury clinical trials.

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, 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.

Cordox.  The Company has obtained an exclusive license from Dr.
Markov to four U.S. patents covering the use of Cordox 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 such 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 such milestones.

Manufacturing

The Company does not currently manufacture any of its acquired
products or its products in development but is undertaking to
manufacture the Dermaflo products.  The finished forms of Glofil,
Inulin, Ethamolin, Cordox and Ceresine are manufactured for the
Company under contract by established manufacturers and
alternative manufacturers have been qualified for Cordox and
Ceresine. In the case of Inulin, Cordox and Ceresine, the Company
is responsible for obtaining the bulk drug from a third party and
delivering it to the finished goods manufacturer. In the case of
Inulin and Ceresine, the Company has qualified alternative
sources of supply for the bulk drug.  There can be no assurance
that any of the Company's bulk or finished goods 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 bulk manufacturer for Cordox,
or a substitute finished goods manufacturer for Inulin, Glofil
and Ethamolin or any other of its products which would meet these
requirements or that lots will not have to be recalled with the
attendant financial consequences to the Company.

In addition, the Dermaflo product line is the Company's first
attempt at in-house manufacturing of any of its products and
there can be no assurance that the Kansas City facility will be
completed, or when completed, will be approved by the FDA, or
when approved will have the capacity to meet demand. Although the
Company believes the facility will meet cGMP requirements, the
Company has not manufactured any products using the Dermaflo
technology yet in the facility. The Company also faces risks
inherent in the operation of a single facility for the
manufacture of Dermaflo products, including risks of unforeseen
plan shutdowns due to personnel, equipment or other factors. Any
delay in the manufacturing of Dermaflo products could result in
delays of product shipments, which could have a material adverse
effect on the Company's business, financial condition and results
of operations. Further, the Company is relying on third parties
to supply it with the active ingredients for the Neoflo and
Sildaflo products in bulk form, and there can be no assurance
that such third parties may not cause delays in the manufacture
or shipments of these Dermaflo products.

The Company's limited manufacturing experience and its dependence
upon others for the manufacture of bulk or finished forms of its
products may adversely affect the future profit margin, if any,
on the sale of those products and the Company's ability to
develop and deliver products on a timely and competitive basis.
In the event the Company is unable to manufacture its products,
directly or indirectly through others, on commercially acceptable
terms, it may not be able to commercialize its products as
planned.

Sales and Marketing

The Company currently has a director of marketing, a customer
service representative, a product manager, a national sales
manager and six 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, pharmaceutical companies of all sizes, 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 the Company's products 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, state and local authorities 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 produuct 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, state and local statutes and regulations could
materially adversely affect the Company's ability to
commercialize its products 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 governmental
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 such 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 that companies
engaged in pharmaceutical development, such as the Company, pay
user fees of at least $100,000 upon submission of an NDA. In
addition to regulations enforced by the FDA, the Company 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 products, 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 products. The Company currently owns
or has licensed a total of 13 U.S and foreign patents covering
Cordox and Ceresine in a variety of ischemic disorders. It also
holds an exclusive license to 5 U.S. and foreign patents on the
Dermaflo technology, 2 issued U.S. patents on adenosine
metabolism inhibitors, 2 issued U.S. patents on the use of
disulfiram in ischemic disorders and an issued U.S. patent of
aminoglycosides as neuroprotective agents.

In addition to the patents issued and allowed as mentioned above,
the Company has also filed several other patent applications in
the United States and abroad on its various products 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 members 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 head
University of Texas, Houston            trauma

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

Robert Parks, M.D., Ph.D.
Professor Emeritus 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,                    Medicinal chemistry/ion
Merck Sharp & Dohme 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,       Glial cell release of
Albany Medical College                  glutamate

Elie Abushanab, Ph.D.                   Medicinal chemistry/
                                        adenosine

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

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

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

Cerebrovascular Clinical Trials Advisory Board

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

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

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

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

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

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 26, 1998, the Company had 42 full-time employees,
eight of whom hold Ph.D. degrees, two of whom also hold an M.D.
degree and one of whom holds a J.D. degree.  Twelve of the full-
time employees are employed in finance and general
administration, seven in clinical and regulatory affairs, eight
in quality control and quality assurance, four in pre-clinical
research and development, and eleven 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 26, 1998:

Name                    Age  Position

Paul J. Marangos,       51   Chairman of the Board, President
Ph.D.                        and Chief Executive Officer

Zofia E. Dziewanowska,  59   Senior Vice President, Drug
Ph.D, M.D.                   Development and Regulatory Affairs

David W. Nassif,        44   Senior Vice President, Chief Financial
J.D.                         Officer and Secretary

Larry A. Risen          36   Vice President of Corporate Development

Brian W. Sullivan       39   Vice President of Product Development

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, the most recent of which 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.

Zofia E. Dziewanowska, Ph.D., M.D., joined the Company in October
1997 as the Senior Vice President of Drug Development and
Regulatory Affairs.  From May 1994 to October 1997, she was the
Senior Vice President, Global Clinical Affairs, of Genta
Incorporated ("Genta"), a publicly-traded pharmaceutical company
principally engaged in developing a proprietary drug delivery
technology to develop oral controlled-release  formulations.
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 currently holds 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. Dr. Dziewanowska 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.

Larry A. Risen joined the Company in November 1994 as Associate
Director of Business Development, was promoted to Director of
Business Development in August 1995 and to Vice President of
Corporate Development in September 1998. From August 1990 to
November 1994, Mr. Risen was employed at Gen-Probe, Inc., a
developer, manufacturer and marketer of diagnostic tests; first
as Product Manager from August 1990 to November 1993 and as
Marketing Manager from November 1993 to November 1994. Mr. Risen
holds a B.Sc. degree in Biology from the University of Iowa.

Brian W. Sullivan, Ph.D., joined the Company in April 1994 as
Associate Director, Chemistry, was promoted to Director of
Pharmaceutical Chemistry in November 1995 and  to Vice President
of Product Development in September 1998. From 1985 to April
1994, Dr. Sullivan was employed at Hybritech, Inc., a developer,
manufacturer and marketer of in vitro diagnostic products;  first
as Research Scientist from 1985 to 1991 and then as a Scientific
Investigator from 1991 to 1994. Dr. Sullivan holds a B.A. in
Chemistry and a Ph.D. in Marine Natural Products Chemistry from
the University of California, San Diego.

Item 2. Properties.

The Company leases two buildings in Carlsbad, California at a
total monthly rental of $37,651. All of the Company's operations
are located in 18,339 square feet of space located at 2714 Loker
Avenue West (the "2714 Space"). In April 1997, the Company
subleased its other building at 2732 Loker Avenue West (the "2732
Space") to another pharmaceutical company (the "Subtenant").
     
The Company has leases on two floors in the 2714 Space, one of
which commenced in April 1996 and has a term of 69 months, and
the other of which commenced in 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 spent approximately $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.

In July 1998, the Company was served with a complaint in the
United States Bankruptcy Court for the Southern District of New
York by the Trustee for the Liquidation of the Business of A.R.
Baron & Co., Inc. ("A.R. Baron") and the Trustee of The Baron
Group, Inc. (the "Baron Group"), the parent of A.R. Baron. The
complaint alleges that A.R. Baron and the Baron Group made
certain preferential or fraudulent transfers of funds to the
Company prior to the commencement of bankruptcy proceedings
involving A.R. Baron and the Baron Group. The Trustee is seeking
return of the funds, totalling $3.2 million. The Company believes
that the Trustee's claims are unfounded and intends to contest
the allegations in the complaint vigorously. The Company contends
that the transfers challenged by the Trustee relate to (i) the
exercise by A.R. Baron in 1995 of unit purchase options issued to
it in 1992 as part of its negotiated compensation for
underwriting the Company's initial public offering and (ii) the
repayment by the Baron Group of the principal and interest (at
12% per annum) payments and certain loan extension fees related
to certain collateralized loans made to it by the Company in 1995
and 1996. The Company believes that it has insurance coverage
sufficient to cover any costs, expenses or losses that might be
incurred in connection with this action.

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, 1998.

PART II.

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

The Common Stock of the Company was quoted on the Nasdaq National
Market System  under the symbol "CYPR" until January 1998. In
January 1998, the Company was listed on the American Stock
Exchange, Inc. under the symbol "CYP". The Redeemable Class B
Warrants of the Company were also quoted on the Nasdaq National
Market System under the symbol "CYPRZ" until November 3, 1997,
when they expired.
     
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 and the American Stock
Exchange, Inc., as reported in published financial sources, for
the periods that the Common Stock was quoted or listed.



Year ended July 31,   High                  Low
1998
                                      
First Quarter         $6.12                 $3.75
Second Quarter        $6.00                 $3.81
Third Quarter         $4.75                 $3.50
Fourth Quarter        $5.43                 $3.37
                                            
Year ended July 31,   High                  Low
1997
First Quarter         $5.75                 $3.48
Second Quarter        $5.75                 $3.63
Third Quarter         $5.88                 $4.00
Fourth Quarter        $5.81                 $4.00


The last sales price of the Common Stock on October 26, 1998 was
$2.375.

According to a survey of non-objecting beneficial owners as of
August 23, 1998, there were 2,373 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.

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,
                       1994     1995     1996     1997     1998
                                            
                         (in thousands, except per share data)
Statement of                                                     
Operations Data:                                                 
Net sales            $      - $      - $  1,275 $  2,428 $  3,446
Gross profit                -        -      870    1,890    2,675
Total operating        
expenses                 2,565    3,910   4,988    7,466    9,139
Loss from operations    (2,565)  (3,910) (4,118)  (5,576)  (6,464)
Other income             
(expense), net             190      797   1,028   (1,099)     891
                                                                 
Net loss                (2,375)  (3,113) (3,090)  (6,675)  (5,573)
Net loss per share -                                             
basic and diluted       (0.32)   (0.32)   (0.27)   (0.54)   (0.37)

Shares used in                                                   
computing
net loss per                                                 
share - basic 
and diluted              7,358    9,860  11,518   12,303   15,187                                         
                                       At July 31,
Balance Sheet Data:    1994     1995     1996     1997     1998
                                                             
                                    (in thousands)
Cash, cash                                                   
equivalents and
short-term          
investments           $ 5,666  $13,442  $15,997  $14,567  $13,444
Working capital         5,284   12,934   15,384   13,076   13,378
Total assets            6,206   14,175   20,266   21,345   19,736
Long-term debt            240      195    6,624    4,176      217
Common stock            9,927   20,945   23,421   32,345   41,328
Accumulated deficit    (4,279)  (7,392) (10,482) (17,157) (22,730)
Total shareholders'                                              
equity                  5,476   13,366   12,635   15,026   18,511


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, acquired a third FDA-
cleared product, Ethamolin, in November 1996, and acquired the
Dermaflo technology in November 1997. The Company has sustained
an accumulated deficit of $22,730,000 from inception through July
31, 1998. As the Company will not have 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, 1998 compared to year ended July 31, 1997

During the fiscal year ended July 31, 1998, the Company sustained
a loss of $5,573,000 (or $.37 per share, basic and diluted)
compared to a loss of $6,675,000 (or $.54 per share, basic and
diluted) for the prior fiscal year. Gross profit for 1998 of
$2,676,000 on sales of Glofil, Inulin and Ethamolin, plus other
income of $1,150,000 (interest, grant, and rental income) were
offset by $9,139,000 in expenses for sales and marketing, general
and administrative, clinical testing and regulatory, pre-clinical
research and development and depreciation and amortization and
$259,000 in amortization of discount and costs on its mandatorily
convertible notes (the "Notes"). During the prior fiscal year,
the gross profit of $1,890,000 on sales of Glofil and Inulin and
other income of $761,000 (principally interest income) was offset
by $7,465,000 in expenses for sales and marketing, general and
administrative, clinical testing and regulatory, and pre-clinical
research and development as well as depreciation and
amortization.

During the third quarter, the Company announced that its largest
Glofil customer had informed the Company that it would be
terminating two clinical trials which require Glofil to be used
as part of their protocols. Those trials have terminated and as
stated previously in the third quarter, the Company expects the
loss of sales to this customer to slow the rate of overall sales
growth for the next six to nine months.

Sales and marketing expense increased by 31.8% to $1,310,000 from
$994,000 in the prior year, principally as a result of additional
promotional costs for Glofil and increased payroll expense from
pay raises and the hiring of additional personnel.

General and administrative expense increased by 35.5% to
$3,247,000 from $2,396,000 in the prior year. Approximately 52%
of the increase was due to the expenditures related to acquiring
the Dermaflo technology and scaling up the manufacturing of the
Dermaflo products. Sometime during the fiscal year ending July
31, 1999, the Company expects to have at least one Dermaflo
product available for sale at which point most of the ongoing
Dermaflo expense will be accounted for as cost of sales and the
Company's gross profit margin on both an absolute and percentage
basis will suffer until sales of the Dermaflo products reach a
certain level. The remainder of the increase reflected increased
legal fees.

Clinical testing and regulatory expense increased by 28.2% to
$2,521,000 from $1,967,000 in the prior year, principally as the
result of increased staffing in the quality assurance/quality
control department, increased use of data input and management,
statistical and other consultants to accelerate, finish and
report on the Company's various clinical trials and certain
toxicology studies performed during the period.

Pre-clinical research and development expense decreased by 20.4%
to $822,000 from $1,032,000 in the prior year, principally due to
a decrease in staffing and the completion of certain contract
studies.

Depreciation and amortization expense increased by 15.3% to
$1,239,000 from $1,075,000 in the prior year, principally as a
result of the acquisition of Ethamolin during the prior year and
the related amortization of that purchased technology.

Sublease income increased 100% to $171,062 in the current year
due to the sublease of the Company's former corporate
headquarters. Interest and other income increased by 22.2% to
$809,000 from $662,000 in the prior  year, principally due to the
additional interest earned on the proceeds from the exercise of
the Company's Redeemable Class B Warrants in November 1997.
Research and grant income increased 71.7% to 170,000 from 99,000
in the prior year, principally due to the receipt of two
additional Small Business Innovation Research grants during the
current year versus the receipt of one in the prior year. The
amortization of discount and costs on the Notes decreased 86.1%
to $259,000 from $1,860,000 in the prior year. The majority of
the principal amount of the Notes was converted in the prior
year, and thus, a larger amount of amortization expense occurred.
The remaining principal balance of the Notes was converted in the
current year.

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, basic and diluted)
compared to a loss of $3,090,000 (or $.27 per share, basic and
diluted) 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 1997
fiscal year were offset by $7,465,000 in expenses for sales and
marketing, general and administrative, clinical testing and
regulatory, pre-clinical research and development and
depreciation and amortization and $1,860,000 in amortization of
discount and costs on the Notes. During the 1996 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 for sales and marketing, general and
administrative, clinical testing and regulatory, pre-clinical
research and development and depreciation and amortization.

Sales and marketing expense increased by 190% to $994,000 in
fiscal 1997 from $343,000 in fiscal 1996, 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
in fiscal 1997 from $1,642,000 in fiscal 1996. Approximately 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 in fiscal 1997 from $1,389,000 in fiscal 1996,
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 1997 fiscal
year and the related amortization of that purchased technology.

During the 1997 fiscal 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.

Liquidity and Capital Resources

The Company  has  principally funded its  activities to date
through various issuances of equity securities, which have raised
total net proceeds of $35.0 million, as well as product sales.

At  July 31, 1998, the Company had cash, cash equivalents and
short-term investments of $13,444,000 compared to $14,567,000, at
July 31, 1997.  At July 31, 1998, working capital was
$13,378,000, compared to $13,076,000 at July 31, 1997.  The
increase in both balance sheet items was principally due to the
receipt of net proceeds of $4,708,000 from the exercise of
856,026 the Company's Redeemable Class B Warrants prior to their
expiration in November 1997, offsetting the Company's cash spent
on operations for the year.

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 Cordox 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, 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.

Impact of the Year 2000 Issue

The Year 2000 problem is the result of computer applications
being written using two digits rather than four digits to define
the applicable year. Any of the Company's computer applications
(and computer applications used by any of the Company's
customers, collaborators and manufacturers) that have time-
sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in system
failures or miscalculations causing disruption of operations.

The Company has modified or replaced portions of its software so
that its computer systems will function properly with respect to
dates in the year 2000 and thereafter. The costs associated with
such modifications were not materially significant. The Company
believes that, with these modifications to existing software and
conversions to new software, the Year 2000 problem will not pose
significant operational problems for its computer systems.
However, because of the many uncertainties associated with Year
2000 compliance issues, and because the Company's assessment is
necessarily based on information from third-party customers,
collaborators and manufacturers, there can be no assurance that
the Company's assessment is correct or as to the materiality or
effect of any failure of such assessment to be correct.

The Company has initiated a program to determne whether the
computer applications of its significant customers, collaborators
and manufacturers will be upgraded in a timely manner. The
Company has not completed its review and it is unknown whether
the computer applications of its customers, collaborators and
manufacturers will be Year 2000 compliant. The Company has not
determined the extent to which any disruption in the computer
applications of third parties caused by the Year 2000 issues will
affect the Company's operations. However, any disruptions in
payments by customers or in the manufacture of the Company's
products could have a material adverse effect upon the Company's
business, financial condition and results of operations.

Item 7A. Quantitative and Qualitative Disclosure About Market
Risk.

The Company invests its excess cash in interest-bearing
investment-grade securities. The Company holds all such
securities for the remaining term of the security. Therefore, the
Company believes that it is not subject to material interest rate
risks on such investments, other than the creditworthiness of the
issuer of such securities. In addition, the Company does not
utilize market risk sensitive instruments, positions or
transactions in any material fashion and does not believe it
maintains any material exposure to such market risk
sensitivities.

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 1999 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 32.

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      Employment Agreement dated December 6, 1997 between the
Registrant and Zofia E. Dziewanowska, M.D., Ph.D.*****
10.8      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-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-Q for the
period ended October 31, 1997.
******    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 1998.
(c)  Exhibits.

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

(3).


(d)  Financial Statement Schedules.

No financial statement schedules are required.

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 26th day
of October, 1998.

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       October 26, 1998
- --------------------  Board, President and
Paul J. Marangos      Chief Executive
                      Officer and Director
                      (Principal Executive
                      Officer)

/s/ David W. Nassif   Senior Vice           October 26, 1998
- --------------------  President, Chief
David W. Nassif       Financial Officer
                      and Secretary
                      (Principal Financial
                      and Accounting
                      Officer)

/s/Robert F. Allnutt  Director              October 26, 1998
- --------------------
Robert F. Allnutt

/s/ Digby W. Barrios  Director              October 26, 1998
- --------------------
Digby W. Barrios

/s/ Virgil Thompson   Director              October 26, 1998
- --------------------
Virgil Thompson

/s/Robert A.Vukovich  Director              October 26, 1998
- --------------------
Robert A. Vukovich



Exhibit Index
Exhibit
Number         Description
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.
3.4            Certificate of Adoption of Bylaw Amendment.
4.1 (4)        Specimen stock certificate.
4.2            Reference is made to Exhibits 3.1 and 3.2.
10.1 (4)       Forms of Incentive Stock Option and Nonstatutory Stock
Option.
10.2           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 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 information in brackets deleted). (8)


Exhibit
Number    Description
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 (12) Employment Agreement dated December 6, 1997 between the
Registrant and Zofia E. Dziewanowska, M.D., Ph.D.
23.1      Consent of Ernst & Young LLP, Independent Auditors.
24.1      Power of Attorney.  Reference is made to page 31.
27        Financial Data Schedule. (Exhibit 27 is submitted as an
exhibit only in the electronic format of this Annual Report on
Form 10-K submitted to the Securities and Exchange Commission.)
99.1      Financial Statements.
__________

(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 incorporated 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
the 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.

(12)      Filed as an exhibit to the Registrant's Form 10-Q for the
period ended October 31, 1997.

EX-3

CYPROS PHARMACEUTICAL CORPORATION                 EXHIBIT 3.4
CERTIFICATE OF ADOPTION OF
BYLAW AMENDMENT

David W. Nassif certifies that:

1.   He is a Vice President and Secretary of Cypros
Pharmaceutical Corporation (the"Corporation"), a California
corporation.

2.   In his above capacity as Secretary he has access to the
corporate records of said Corporation;

3.   The following resolution was duly moved, seconded and
adopted by a unanimous written consent of the Board of Directors
of the Corporation dated November 6, 1995, and that subsequently
the following resolution was duly moved, seconded and
adopted by a majority of the 11,404,373 outstanding shares of
Common Stock of the Corporation entitled to vote at its Annual
Meeting of Shareholders held at the executive offices of the
Corporation on January 22, 1996 (the "Annual Meeting") in
accordance with Section 903 (a) (1) of the General Corporation
Law of the State of California;

RESOLVED, that Article III, Section 2 of the Bylaws of the
Company, as amended, is amended to read in its entirety as
follows:

"Section 2.  -   Number and Qualification of Directors.The
number of directors of the Corporation shall be not less
than four (4) nor more than (7). The exact number of
directors shall be five (5) until changed, within the limits
specified above, by a bylaw amending this Section 2, duly
adopted by the board of directors or by the shareholders.
The indefinite number of directors may be changed, or a
definite number fixed without provision for an indefinite
number, by a duly adopted amendment to the articles of
incorporation or by an amendment to this bylaw duly adopted
by the vote or written consent of holders of a majority of
the outstanding shares entitled to vote. No amendment may
change the stated maximum number of authorized directors to
a number greater than two (2) times the stated minimum
number of directors minus (1)."

I further declare under  penalty of perjury under the laws of the
State of California that the matters set forth in this
certificate are true and correct of my own knowledge.

IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of
February, 1996.

/s/ David W. Nassif
- --------------------
David W. Nassif
Vice President and Secretary

EX-10

EXHIBIT 10.2



CYPROS PHARMACEUTICAL CORPORATION
1992 STOCK OPTION PLAN
Adopted by the Board of Directors and Shareholders on August 20,
1992
Amended by the Committee on August 31, 1993
Amended by the Committee on November 15, 1993
Amended by the Committee on November 4, 1994
Amended by the Committee and the Board of Directors on November 14, 1997

1.   PURPOSES.

(a)  The purpose of the Plan is to provide a means by which
selected Employees and Directors of and Consultants to the
Company, and its Affiliates, may be given an opportunity to
purchase stock of the Company.

(b)  The Company, by means of the Plan, seeks to retain the
services of persons who are now Employees or Directors of or
Consultants to the Company, to secure and retain the services of
new Employees, Directors and Consultants, and to provide
incentives for such persons to exert maximum efforts for the
success of the Company.

(c)  The Company intends that the Options issued under the Plan
shall, in the discretion of the Board or any Committee to which
responsibility for administration of the Plan has been delegated
pursuant to subsection 3(c), be either Incentive Stock Options or
Nonstatutory Stock Options.  All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options
at the time of grant, and in such form as issued pursuant to
section 6, and a separate certificate or certificates will be
issued for shares purchased on exercise of each type of Option.

2.   DEFINITIONS.

(a)  "Affiliate" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms
are defined in Sections 424(e) and (f) respectively, of the Code.

(b)  "Board" means the Board of Directors of the Company.

(c)  "Code" means the Internal Revenue Code of 1986, as amended.

(d)  "Committee" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.

(e)  "Company" means Cypros Pharmaceutical Corporation, a
California corporation.

(f)  "Consultant" means any person, including an advisor, engaged
by the Company or an Affiliate to render services and who is
compensated for such services, provided that the term
"Consultant" shall not include Directors who are paid only a
director's fee by the Company or who are not compensated by the
Company for their services as Directors.

(g)  "Continuous Status as an Employee, Director or Consultant"
means the employment or relationship as a Director or Consultant
is not interrupted or terminated by the Company or any Affiliate.
The Board, in its sole discretion, may determine whether
Continuous Status as an Employee, Director or Consultant shall be
considered interrupted in the case of:  (i) any leave of absence
approved by the Board, including sick leave, military leave, or
any other personal leave; provided, however, that for purposes of
Incentive Stock Options, any such leave may not exceed ninety
(90) days, unless reemployment upon the expiration of such leave
is guaranteed by contract (including certain Company policies) or
statute; or (ii) transfers between locations of the Company or
between the Company, Affiliates or its successor.

(h)  "Director" means a member of the Board.

(i)  "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.

(j)  "Employee" means any person, including Officers and
Directors, employed by the Company or any Affiliate of the
Company.  Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute
"employment" by the Company.

(k)  "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

(l)  "Non-Employee Director" means a Director who either (i) is
not a current Employee or Officer of the Company or its parent or
subsidiary, does not receive compensation (directly or
indirectly) from the Company or its parent or subsidiary for
services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would
not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act ("Regulation S-K")), does not
possess an interest in any other transaction as to which
disclosure would be required under Item 404(a) of Regulation S-K,
and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K;
or (ii) is otherwise considered a "non-employee" for purposes of
Rule 16b-3.

(m)  "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of
the Code and the regulations promulgated thereunder.

(n)  "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.

(o)  "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.

(p)  "Option" means a stock option granted pursuant to the Plan.

(q)  "Option Agreement" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an
individual Option grant.  The Option Agreement is subject to the
terms and conditions of the Plan.

(r)  "Optioned Stock" means the common stock of the Company
subject to an Option.

(s)  "Optionee" means an Employee, Director or Consultant who
holds an outstanding Option.

(t)  "Outside Director" means a Director who is considered an
"outside director" for purposes of Section 162(m) of the Code.

(u)  "Plan" means this 1992 Stock Option Plan.

(v)  "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect with respect to the Company
when discretion is being exercised with respect to the Plan.

3.   ADMINISTRATION

(a)  The Plan shall be administered by the Board unless and until
the Board delegates administration to a Committee, as provided in
subsection 3(c).

(b)  The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:

(i)  To determine from time to time which of the persons eligible
under the Plan shall be granted Options; when and how the Option
shall be granted; whether the Option will be an Incentive Stock
Option or a Nonstatutory Stock Option; the provisions of each
Option granted (which need not be identical), including the time
or times such Option may be exercised in whole or in part; and
the number of shares for which an Option shall be granted to each
such person.

(ii) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for
its administration.  The Board, in the exercise of this power,
may correct any defect, omission or inconsistency in the Plan or
in any Option Agreement, in a manner and to the extent it shall
deem necessary or expedient to make the Plan fully effective.

(iii)     To amend the Plan as provided in Section 11.

(c)  The Board may delegate administration of the Plan to a
committee composed of not fewer than two (2) members (the
"Committee"), all of the members of which Committee may be, in
the discretion of the Board, Non-Employee Directors.  If
administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the
powers theretofore possessed by the Board (and references in this
Plan to the Board shall thereafter be to the Committee), subject,
however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by
the Board.  The Board may abolish the Committee at any time and
revest in the Board the administration of the Plan.
Notwithstanding anything in this Section 3 to the contrary, at
any time, the Board or the Committee may delegate to a committee
of one or more members of the Board the authority to grant
Options to eligible persons who are not then subject to Section
16 of the Exchange Act.

4.   SHARES SUBJECT TO THE PLAN.

(a)  Subject to the provisions of Section 10 relating to
adjustments upon changes in stock, the stock that may be sold
pursuant to Options shall not exceed in the aggregate two million
seven hundred sixty-six thousand two hundred and eighty-eight
(2,766,288) shares of the Company's common stock.  If any Option
shall for any reason expire or otherwise terminate without having
been exercised in full, the stock not purchased under such Option
shall again become available for the Plan.

(b)  The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.

     5.   ELIGIBILITY.

(a)  Incentive Stock Options may be granted only to Employees.
Nonstatutory Stock Options may be granted only to Employees,
Directors or Consultants.

(b)  No person shall be eligible for the grant of an Option if,
at the time of grant, such person owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more
than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of any of its Affiliates
unless the exercise price of such Option is at least one hundred
ten percent (110%) of the fair market value of such stock at the
date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.

(c)  In any calendar year, no Employee shall be eligible to be
granted Options covering an aggregate number of shares greater
than one hundred thousand (100,000) shares.

6.   OPTION PROVISIONS.

Each Option shall be in such form and shall contain such terms
and conditions as the Board shall deem appropriate.  The
provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof
by reference in the Option or otherwise) the substance of each of
the following provisions:

(a)  Term.  No Option shall be exercisable after the expiration
of ten (10) years from the date it was granted.

(b)  Price.  The exercise price of each Incentive Stock Option
shall be not less than one hundred percent (100%) of the fair
market value of the stock subject to the Option on the date the
Option is granted.  The exercise price of each Nonstatutory Stock
Option shall be not less than eighty-five percent (85%) of the
fair market value of the stock subject to the Option on the date
the Option is granted.

(c)  Consideration.  The purchase price of stock acquired
pursuant to an Option shall be paid, to the extent permitted by
applicable statutes and regulations, either (i) in cash at the
time the Option is exercised, or (ii) at the discretion of the
Board or the Committee, either at the time of the grant or
exercise of the Option, (A) by delivery to the Company of other
common stock of the Company, (B) according to a deferred payment
arrangement or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other common
stock of the Company) with the person to whom the Option is
granted or to whom the Option is transferred pursuant to
subsection 6(d), or (C) in any other form of legal consideration
that may be acceptable to the Board.

In the case of any deferred payment arrangement, interest shall
be payable at least annually and shall be charged at the minimum
rate of interest necessary to avoid the treatment as interest,
under any applicable provisions of the Code, of any amounts other
than amounts stated to be interest under the deferred payment
arrangement.

(d)  Transferability.  An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and
distribution, and shall be exercisable during the lifetime of the
person to whom the Option is granted only by such person.  A
Nonstatutory Stock Option shall only be transferable by the
Optionee upon such terms and conditions as are set forth in the
option agreement for such Nonstatutory Stock Option, as the Board
or the Committee shall determine in its discretion.

(e)  Vesting.  The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments
(which may, but need not, be equal).  The Option Agreement may
provide that from time to time during each of such installment
periods, the Option may become exercisable ("vest") with respect
to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to
such period and/or any prior period as to which the Option became
vested but was not fully exercised.  During the remainder of the
term of the Option (if its term extends beyond the end of the
installment periods), the Option may be exercised from time to
time with respect to any shares then remaining subject to the
Option.  The Option may be subject to such other terms and
conditions on the time or times when it may be exercised (which
may be based on performance or other criteria) as the Board may
deem appropriate.  The vesting provisions of individual Options
may vary but in each case will provide for vesting of at least
twenty percent (20%) of the total number of shares subject to the
Option per year.  The provisions of this subsection 6(e) are
subject to any Option provisions governing the minimum number of
shares as to which an Option may be exercised.

(f)  Securities Law Compliance.  The Company may require any
Optionee, or any person to whom an Option is transferred under
subsection 6(d), as a condition of exercising any such Option,
(1) to give written assurances satisfactory to the Company as to
the Optionee's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced
in financial and business matters, and that he or she is capable
of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option;
and (2) to give written assurances satisfactory to the Company
stating that such person is acquiring the stock subject to the
Option for such person's own account and not with any present
intention of selling or otherwise distributing the stock.  These
requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the
shares upon the exercise of the Option has been registered under
a then currently effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), or
(ii) as to any particular requirement, a determination is made by
counsel for the Company that such requirement need not be met in
the circumstances under the then applicable securities laws.

(g)  Termination of Employment or Relationship as a Director or
Consultant.  In the event that an Optionee's Continuous Status as
an Employee, Director or Consultant terminates (other than upon
the Optionee's death or Disability), the Optionee may exercise
his or her Option, but only within such period of time as is
determined by the Board (which period shall not be less than
thirty (30) days from the date of such termination), and only to
the extent that the Optionee was entitled to exercise it at the
date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement).
If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the
Option shall terminate, and the shares covered by such Option
shall revert to the Plan.

(h)  Disability of Optionee.  In the event an Optionee's
Continuous Status as an Employee, Director or Consultant
terminates as a result of the Optionee's Disability), the
Optionee may exercise his or her Option, but only within twelve
(12) months from the date of such termination (or such period of
time as is determined by the Board which period shall not be less
than six (6) months from the date of such termination), and only
to the extent that the Optionee was entitled to exercise it at
the date of such termination (but in no event later than the
expiration of the term of such Option as set forth in the Option
Agreement).  If, at the date of termination, the Optionee is not
entitled to exercise his or her entire Option, the shares covered
by the unexercisable portion of the Option shall revert to the
Plan.  If, after termination, the Optionee does not exercise his
or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to
the Plan.

(i)  Death of Optionee.  In the event of the death of an
Optionee, the Option may be exercised, at any time within twelve
(12) months following the date of death (or such period of time
as is determined by the Board which period shall not be less than
six (6) months following the date of death) by the Optionee's
estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, and only to the extent the
Optionee was entitled to exercise the Option at the date of death
(but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement).  If, at the time of
death, the Optionee was not entitled to exercise his or her
entire Option, the shares covered by the unexercisable portion of
the Option shall revert to the Plan.  If, after death, the
Optionee's estate or a person who acquired the right to exercise
the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate, and
the shares covered by such Option shall revert to the Plan.

(j)  Withholding.  To the extent provided by the terms of an
Option Agreement, the Optionee may satisfy any federal, state or
local tax withholding obligation relating to the exercise of such
Option by any of the following means or by a combination of such
means:  (1) tendering a cash payment; (2) authorizing the Company
to withhold shares from the shares of the common stock otherwise
issuable to the participant as a result of the exercise of the
Option; or (3) delivering to the Company owned and unencumbered
shares of the common stock of the Company.

7.   COVENANTS OF THE COMPANY.

(a)  During the terms of the Options, the Company shall keep
available at all times the number of shares of stock required to
satisfy such Options.

(b)  The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock
upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the
Securities Act either the Plan, any Option or any stock issued or
issuable pursuant to any such Option.  If, after reasonable
efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under
the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options
unless and until such authority is obtained.

8.   USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of stock pursuant to Options shall
constitute general funds of the Company.

9.   MISCELLANEOUS.

(a)  Neither an Optionee nor any person to whom an Option is
transferred under subsection 6(d) shall be deemed to be the
holder of, or to have any of the rights of a holder with respect
to, any shares subject to such Option unless and until such
person has satisfied all requirements for exercise of the Option
pursuant to its terms.

(b)  Nothing in the Plan or any instrument executed or Option
granted pursuant thereto shall confer upon any Employee,
Director, Consultant or Optionee any right to continue in the
employ of the Company or any Affiliate (or to continue acting as
a Director or Consultant) or shall affect the right of the
Company or any Affiliate to terminate the employment or
relationship as a Director or Consultant of any Employee,
Director, Consultant or Optionee with or without cause.

(c)  To the extent that the aggregate fair market value
(determined at the time of grant) of stock with respect to which
Incentive Stock Options granted after 1986 are exercisable for
the first time by any Optionee during any calendar year under all
plans of the Company and its Affiliates exceeds one hundred
thousand dollars ($100,000), the Options or portions thereof
which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.

10.  ADJUSTMENTS UPON CHANGES IN STOCK.

(a)  If any change is made in the stock subject to the Plan, or
subject to any Option (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate
structure or otherwise), the Plan and outstanding Options will be
appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares
and price per share of stock subject to outstanding Options.

(b)  In the event of:  (1) a merger or consolidation in which the
Company is not the surviving corporation or (2) a reverse merger
in which the Company is the surviving corporation but the shares
of the Company's common stock outstanding immediately preceding
the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise
then to the extent permitted by applicable law:  (i) any
surviving corporation shall assume any Options outstanding under
the Plan or shall substitute similar Options for those
outstanding under the Plan, or (ii) such Options shall continue
in full force and effect.  In the event any surviving corporation
refuses to assume or continue such Options, or to substitute
similar options for those outstanding under the Plan, then such
Options shall be terminated if not exercised prior to such event.
In the event of a dissolution or liquidation of the Company, any
Options outstanding under the Plan shall terminate if not
exercised prior to such event.

11.  AMENDMENT OF THE PLAN.

(a)  The Board at any time, and from time to time, may amend the
Plan.  However, except as provided in Section 10 relating to
adjustments upon changes in stock, no amendment shall be
effective unless approved by the shareholders of the Company
within twelve (12) months before or after the adoption of the
amendment, where the amendment will:

(i)  Increase the number of shares reserved for Options under the
Plan;

(ii) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires shareholder
approval in order for the Plan to satisfy the requirements of
Section 422 of the Code); or

(iii)     Modify the Plan in any other way if such modification
requires shareholder approval in order for the Plan to satisfy
the requirements of Section 422 of the Code or to comply with the
requirements of Rule 16b-3.

(b)  It is expressly contemplated that the Board may amend the
Plan in any respect the Board deems necessary or advisable to
provide Optionees with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations
promulgated thereunder relating to Incentive Stock Options and/or
to bring the Plan and/or Incentive Stock Options granted under it
into compliance therewith.

(c)  Rights and obligations under any Option granted before
amendment of the Plan shall not be altered or impaired by any
amendment of the Plan unless (i) the Company requests the consent
of the person to whom the Option was granted and (ii) such person
consents in writing.

12.  TERMINATION OR SUSPENSION OF THE PLAN.

(a)  The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on August 1,
2002.  No Options may be granted under the Plan while the Plan is
suspended or after it is terminated.

(b)  Rights and obligations under any Option granted while the
Plan is in effect shall not be altered or impaired by suspension
or termination of the Plan, except with the consent of the person
to whom the Option was granted.

13.  EFFECTIVE DATE OF THE PLAN.

The Plan shall become effective as determined by the Board, but
no Options granted under the Plan shall be exercised unless and
until the Plan has been approved by the shareholders of the
Company, and, if required, an appropriate permit has been issued
by the Commissioner of Corporations of the State of California.

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, 1998, with respect to the financial
statements of Cypros Pharmaceutical Corporation included in
the Annual Report (Form 10-K) for the year ended July 31,
1998.



ERNST & YOUNG LLP


San Diego, California
October 26, 1998

EX-27

 

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-K for the Period Ended July 31, 1998 and is qualified in its
entirety by reference to such financial statements

       
                             
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          JUL-31-1998
<PERIOD-END>                               JUL-31-1998
<CASH>                                       3,015,890
<SECURITIES>                                10,428,580
<RECEIVABLES>                                  516,886
<ALLOWANCES>                                         0
<INVENTORY>                                     83,078
<CURRENT-ASSETS>                               214,765
<PP&E>                                       1,893,120
<DEPRECIATION>                               (829,554)
<TOTAL-ASSETS>                              19,735,640
<CURRENT-LIABILITIES>                          881,483
<BONDS>                                        157,656
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                    41,328,470
<OTHER-SE>                                (22,817,138)
<TOTAL-LIABILITY-AND-EQUITY>                19,735,640
<SALES>                                      3,445,955
<TOTAL-REVENUES>                             3,445,955
<CGS>                                          770,437
<TOTAL-COSTS>                                  770,437
<OTHER-EXPENSES>                             9,139,410
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                              68,293
<INCOME-PRETAX>                            (5,572,869)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                        (5,572,869)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                               (5,572,869)
<EPS-PRIMARY>                                   (0.37)
<EPS-DILUTED>                                   (0.37)
        

 

EX-99

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

Cypros Pharmaceutical Corporation

Years ended July 31, 1998, 1997 and 1996
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
Audited 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 Ernst & Young LLP, 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, 1998 and 1997, and
the related statements of operations, shareholders' equity,
and cash flows for each of the three years in the period
ended July 31, 1998.  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
accounting principles used and significant estimates made by
management, as well as evaluating 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,
1998 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended
July 31, 1998, in conformity with generally accepted
accounting principles.
                              


ERNST & YOUNG LLP

                              
San Diego, California
August 21, 1998





Cypros Pharmaceutical Corporation
Balance Sheets



                                      July 31,
                                      1998          1997
                                                        
                                                   
                                               
Assets                                             
Current assets:                                    
  Cash and cash equivalents (Note 3)  $ 3,015,890   $  5,101,710
  Short-term investments, held to                            
  maturity                                                     
  (Note 3)                             10,428,580      9,465,561
  Accounts receivable                     516,886        355,425
  Inventories (Note 3)                     83,078         93,177
  Prepaid expenses and other current                         
  assets                                  214,765         75,038
                                                             
                                                             
    Total current assets               14,259,199     15,090,911
                                                             
Property, equipment and leasehold                            
  improvements, net (Note 3)            1,063,566        675,686
Purchased technology, net of                                 
accumulated amortization of
$2,118,226 and $1,220,838 at July 31,                       
1998 and 1997,respectively (Note 2)    4,163,487       5,060,875

Deferred financing costs, net of                              
accumulated amortization of $520,011                         
and $260,884 at July 31, 1998 and  
1997, respectively                             -         259,127
Licenses and patents, net of                                  
accumulated amortization of $160,212                         
and $118,376 at July 31, 1998 and         
1997, respectively                        176,927       162,592
                                                             
Other assets                               72,461        95,525
                                                             
                                                             
    Total assets                      $19,735,640   $21,344,716
                                                                                                                      
                                                             
Liabilities and shareholders' equity                         
Current liabilities:                                         
  Accounts payable                    $   551,191       365,386
  Accrued compensation                    125,434       109,778
  Other accrued liabilities                15,641       118,658
  Purchased asset obligations (Note                          
  2)                                           -      1,272,000
  Current portion of long-term debt                   
  (Note 4)                                  97,477       41,367
  Current portion of capital lease                           
  obligations (Note 5)                      91,740      106,206
                                                             
                                                             
    Total current liabilities              881,483    2,013,395
                                                             
Long-term debt (Note 4)                     59,408           - 
                                 
Capital lease obligations (Note 5)         157,656      148,787
Deferred rent                              125,761      129,165
Mandatorily convertible notes
(Note 5)                                         -    4,027,461
                                                             
Shareholders' equity (Note 6):                               
  Common stock, 30,000,000 shares                            
  authorized, 15,711,877 and
  13,650,405 shares issued
  and outstanding as of July 31,                            
  1998 and  1997, respectively          41,328,470   32,344,793
  Deferred compensation                    (87,334)    (161,950)
  Accumulated deficit                   (22,729,804)(17,156,935)
                                                            
                                                             
     Total shareholders' equity         18,511,332   15,025,908
                                                             
     Total liabilities and                                   
     shareholders'equity               $19,735,640  $21,344,716
                                                            



See accompanying notes.



Cypros Pharmaceutical Corporation
Statements of Operations



                                                      
                             
                            Years ended
                            July 31,
                            1998          1997        1996
                                                         
                                                      
                                             
Net sales                   $ 3,445,955  $ 2,428,348  $ 1,275,240
Cost of sales                   770,437      538,725      405,142
                                                     
Gross profit                  2,675,518    1,889,623      870,098

Operating expenses:                                   
 Sales and marketing          1,309,963      993,765      343,054
 General and administrative   3,246,619    2,396,465    1,642,152
 Clinical testing and                    
 regulatory                   2,521,386    1,967,334    1,389,128
 Pre-clinical research and                           
 development                    822,225    1,032,486    1,002,226
 Depreciation and             
 amortization                 1,239,217    1,075,431      611,848                       
                                                      
Total operating expenses      9,139,410    7,465,481    4,988,408
                                                    
                                                      
Loss from operations         (6,463,892) (5,575,858)   (4,118,310)
Research grant income           169,834      98,785       270,510
Interest and other income,   
net                             809,254     662,421       757,692
Sublease income, net(Note 5)    171,062           -             -
Amortization of discount and                          
costs on mandatorily
converible notes
(Note 5 )                      (259,127) (1,860,051)            -
       
                                                      
Net loss                    $(5,572,869)$(6,674,703)  $(3,090,108)
                                                                      
Net loss per share, basic                             
and diluted                      $(0.37)     $(0.54)       $(0.27)
                                                    
Shares used in computing net                           
loss per share, basic
diluted                      15,186,984 12,303,274     11,518,169
                                                    


See accompanying notes.


Cypros Pharmaceutical Corporation
Statements of Shareholders' Equity
Years ended July 31, 1998, 1997 and 1996


                                 Common Stock 
                                                         Deferred
                                 Shares     Amount       Compensation

                                                    
                                                
Balance at July 31, 1995         11,352,017 $20,944,995  $(186,993)
                               
  Discount on mandatorily                                       
  convertible notes                       -   1,582,935         -
  notes
  Issuance of common stock, net                                 
  of offering costs                 162,500     940,956         -
  offering costs
  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)
  grant of stock options
  Amortization of deferred                                      
  compensation                             -         -     307,754
  Net loss                                 -         -           -
Balance at July 31, 1996          11,613,748 23,421,428   (304,309)
 Conversion of mandatorily                                     
 convertible notes                   953,907  3,972,538          -
 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)
 Conversion of mandatorily                                      
 convertible notes                 1,205,446  4,025,588          -
 Issuance of common stock upon                                 
 exercise of B Warrants              856,026  4,707,576          -
 Deferred compensation related                                 
 to grant of stock options                 -    250,513   (250,513)
 Amortization of deferred
 compensation                              -         -     325,129
  Net loss                                 -         -           -
                                                                
                                                     
Balance at July 31, 1998          15,711,877$41,328,470  $(87,334)
        


Cypros Pharmaceutical Corporation
Statements of Shareholders' Equity (Continued)


                                                
                                                
                                 Accumulated    Total
                                 Deficit        Equity
                                               
                                          
                                                          
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 offering 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
 Conversion of mandatorily                               
 convertible notes                          -    3,972,538
 Issuance of common stock, net                           
 of offering 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
 Conversion of mandatorily                             
 convertible notes                           -   4,025,588
 Issuance of common stock upon                          
 exercise of B Warrants                      -   4,707,576
 Deferred compensation related               -           
 to grant of stock options                   -           -
 Amortization of deferred                    -           
 compensation                                -     325,129
  Net loss                          (5,572,869) (5,572,869)
                                                                                                                   
Balance at July 31, 1998          $(22,729,804)$18,511,332
                                                          

See accompanying notes.




Cypros Pharmaceutical Corporation
Statements of Cash Flows


                                  Years ended July 31,
                            1998           1997          1996
                                                       
                                                   
                                                
Operating activities                               
Net loss                    $(5,572,869   $(6,674,703)  $(3,090,108)

Adjustments to reconcile                                     
net loss to net cash
used in operating                                           
activities:
  Amortization of deferred
  compensation                  325,129       356,716      307,754
  Depreciation and                                           
  amortization                1,239,217     1,075,431      611,848
  Amortization of discount                                   
  and costs on mandatorily
  convertible notes             259,127     1,860,051            -
  Deferred rent                  (3,404)      (16,215)      39,892
  Write-off of patent            41,311             -            -
  Changes in operating                                       
  assets and liabilities, net of
  effects from acquisitions:                                         
    Accounts receivable        (161,461)     (205,799)    (149,626)
    Inventory                    10,099       (29,791)      18,829
    Prepaid expenses and                                     
    other current expenses     (139,727)      (13,629)      18,536

    Accounts payable            185,805       246,294      (19,445)
    Accrued compensation                                     
    and other accrued
    liabilities                 (87,361)      (56,948)     114,305
Net cash flows used in                                       
operating activities         (3,904,134)   (3,458,593)  (2,148,015)

                                                             
Investing activities                                         
Short-term investments         (963,019)   (2,537,126)   1,486,815
Investment in purchased                                      
technology                            -    (2,014,048)  (1,835,356)
Installment payment for                                      
purchased technology         (1,272,000)     (200,000)     (82,215)
Purchase of property,                                        
equipment and leasehold  
improvements                   (587,265)     (239,941)    (100,770)
Increase in licenses and                                     
patents                         (97,482)      (82,460)     (37,499)
Decrease in other assets         23,064        21,375        6,197
                                                             
Net cash flows used in                                       
investing activities         (2,896,702)   (5,052,200)    (562,828)
                                                           
Financing activities                                         
Issuance of common stock,                                    
net                           4,707,576     4,736,470      976,119
Cash paid for repurchase of                                  
mandatorily convertible notes    (1,873)            -           - 
Issuance of mandatorily                                      
convertible notes                     -             -    7,458,498
Repurchase and retirement                                    
of common stock                      -             -    (1,540,000)
Issuance of long-term debt      209,406            -             -
Repayment of long-term debt     (93,888)      (99,282)     (99,283)
Repayments of capital lease                                  
obligations                    (106,205)      (93,299)     (42,622)
                                                             
Net cash flows provided by                                   
financing activities          4,715,016     4,543,889    6,752,712
                                                             
                                                             
Increase (decrease) in cash                                  
and cash equivalents         (2,085,820)   (3,966,904)   4,041,869

                                                             
Cash and cash equivalents                                    
at beginning of year          5,101,710     9,068,614    5,026,745
                                                             
Cash and cash equivalents                                    
at end of year               $3,015,890    $5,101,710   $9,068,614
                                                             
                                                             
Supplemental disclosures of                                  
cash flow information:
Cash paid for interest       $  132,269   $   123,997   $  47,953
                                                             
Noncash investing and                                        
financing activities:
Conversion of mandatorily 
convertible notes           $4,025,588    $ 3,972,538   $       -
Equipment financed under                                     
capital lease obligations   $  100,608    $    79,992   $  234,256
                                                             
Purchased asset obligation                                   
incurred for acquisition    $        -    $ 1,200,000   $  200,000
                                                             
Common stock issued for                                      
acquisitions                $        -    $         -  $ 1,032,309
                                                             

See accompanying notes.


Cypros Pharmaceutical Corporation
Notes to Financial Statements
July 31, 1998

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, will be launching
two burn/wound care products and is developing two drugs,
Cordox (formerly CPC-111) and Ceresine. 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 and
Cordox and Ceresine are in late-stage clinical trials in two
settings:  sickle cell crisis and traumatic brain injury.

Cash, Cash Equivalents and Short-Term Investments

The Company considers highly liquid investments with
remaining maturities of three months or less when acquired
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 the 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 sales.

The Company has not experienced significant credit losses on
its customer accounts.  Two customers individually accounted
for 23% and 12% 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 deferred banking, legal and accounting fees
associated with the issuance of $8 million in principal
amount of mandatorily convertible notes in 1996. These costs
were amortized over the term of the notes, which was three
years, using the effective interest method commencing with
the closing of the transactions.  In fiscal 1998, upon the
conversion of the remaining balance of the notes, all such
costs were fully amortized.

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.

Accounting Standard on Impairment of Long-Lived Assets

In accordance with 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 121"), the Company regularly evaluates its long-
lived assets for indicators of possible impairment.  To
date, no such indicators have been identified.

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

In the second quarter of the fiscal year ended July 31,
1998, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS 128"), which
replaced the calculation of primary and fully diluted net
loss per share with basic and diluted net income or loss per
share.  Basic net income or loss per share is calculated
using the weighted average number of common shares
outstanding.  Diluted net income or loss per share is
calculated using the weighted average number of common
shares outstanding plus the dilutive effect of options and
warrants, if any, using the treasury stock method.  All net
loss per share amounts for all periods have been presented,
and where appropriate restated, to conform to the SFAS 128
requirements and the recently effective Securities and
Exchange Commission Staff Accounting Bulletin No. 98.

Stock Options

The Company has elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25") and related Interpretations in
accounting for its employee stock options because the
alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS 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 or exceeds the market price of the
underlying stock on the date of grant, no compensation
expense is recognized.

Recently Issued Accounting Standards

Effective August 1, 1998, the Company will adopt Statement
of Financial Accounting Standards No. 130, Reporting
Comprehensive Income (Loss) ("SFAS 130"). SFAS 130 requires
that all components of comprehensive income (loss),
including net income (loss), be reported in the financial
statements in the period in which they are recognized.

Comprehensive income (loss) is defined as the change in
equity during the period from transactions and other events
and circumstances from non-owner sources. Net income (loss)
and other comprehensive income (loss), including unrealized
gains and losses on investments, shall be reported, net of
their related tax effect, to arrive at comprehensive income
(loss).  The Company does not believe comprehensive loss
will be different than the net loss previously reported.

Effective August 1, 1998, the Company will adopt Statement
of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS
131"). SFAS 131 redefines segments and requires companies to
report financial and descriptive information about their
operating segments. The Company has determined that it
operates in one business segment and therefore the adoption
of SFAS 131 will not affect the Company's financial
statements.

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.

Reclassifications

Certain previously reported amounts have been reclassified
to conform with the 1998 presentation.

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 the Company paid $1,582,215 in cash
from

its working capital and issued 169,231 shares of restricted
Common Stock of the Company (the "Restricted Shares") which
were paid at closing.

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.

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 from its working
capital and issued a $1,200,000 8% note (the "Schwarz Note")
which was paid in full during fiscal year 1998.

All of these acquisitions were accounted for using the
purchase method and, accordingly, the financial statements
include the operations of the businesses from the date of
acquisition. The following unaudited pro forma data reflects
the combined results of operations of the Company as if the
Glofil Acquisition and the Inulin Acquisition had occurred
on August 1, 1994 and the Ethamolin acquisition had occurred
on August 1, 1995:



                       Years end July 31,
                        1997         1996
                            
Net sales             $2,752,691  $2,402,006
Net loss              (6,394,987) (2,679,376)
Net loss per share        (0.52)      (0.23)


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 at July 31:




                                      1998         1997
                                                     
                                          
Corporate debt securities         $ 9,933,424   $10,465,202
Money market funds                  2,656,423     2,723,458
U.S. government obligations           495,156       995,770
                                                
                                                
                                   13,085,003    14,184,430
Less: amounts classified as cash                
equivalents                        (2,656,423)   (4,718,869)
                                                
Short-term investments            $10,428,580   $ 9,465,561
                                                


As of July 31, 1998, the difference between cost and
estimated fair value of the held-to-maturity investments was
not significant.  Of the above-referenced 1998 investments,
$6,265,682 mature at various dates through July 31, 1999 and
$4,162,898 will mature at various dates after July 31, 1999
through December 14, 2001.


Inventories

Inventories consist of the following at July 31:


                 1998      1997
                             
                   
                                  
Raw materials    $ 2,087   $ 4,252
Finished goods    80,991    88,925
                                  
                                  
                 $83,078   $93,177
                                  


Property, Equipment and Leasehold Improvements

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


                             1998        1997
                                           
                                      
                                
Laboratory equipment       $756,525   $785,573
Office equipment,                               
furniture and                            
fixtures                    783,446    284,902
Leasehold improvements      353,149    134,772
                                        
                                                
                          1,893,120  1,205,247
Less accumulated                                
depreciation                          
and amortization           (829,554)  (529,561)
                                                
                                                
                        $1,063,566  $  675,686
                                              


Depreciation and amortization expense totaled $299,993,
$252,453 and $138,471 for the years ended July 31, 1998,
1997 and 1996, respectively.

4. Long-Term Debt

Long-term debt consists of the following at July 31:


CAPTION>
                                          1998      1997
                                                      
                                            
Note payable to a pharmaceutical                   
company due November 1999,                        
collateralized by certain purchased               
assets totaling $234,000, bearing                 
interest at 8% until November 1998 and            
4% thereafter, payable in three       
semiannual installments starting      
November 1998, of $39,300, $46,200 and
$48,500, plus interest                 $142,025   $     -
                                                   
Note payable to a leasing company due              
November 2001, collateralized by real             
property, bearing interest at 10%,                
payable in 53 monthly installments of 
$438 including interest                  14,860         -
                                                   
Note payable to a financial institution            
due December 1997, collateralized by              
$84,048 of the Company's short-term               
investments at July 31, 1997, bearing 
interest at prime plus 1.6% (10.10% at
July 31, 1997)                                -    41,367
                                                  
                                        156,885    41,367
Less current portion                    (97,477)  (41,367)
                                                
Total                                             
                                      $  59,408  $      -
                                                


Interest expense incurred on these notes totaled $10,748,
$9,524 and $19,897 for the years ended July 31, 1998, 1997
and 1996, 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
other assets.

Minimum future obligations under both operating and capital
leases as of July 31, 1998 are as follows:



                                      Operating  Capital
                                      Leases     Leases       
                                          
1999                                  $464,942   $108,903
2000                                   491,649     87,794
2001                                   418,356     33,111
2002                                   127,310     25,061
2003                                               25,061
Thereafter                                   -     10,443
                                                
                                                
                                    $1,502,257    290,373
                                                                          
Less amounts representing interest                (40,977)
                                                
                                                
Present value of net minimum lease              
payments                                          249,396
Current portion of capital lease               
obligations                                       (91,740)  
                                                
Long-term capital lease obligations              $157,656
                                                


Rent expense totaled  $445,095, $420,697 and $193,880 for
the years ended July 31, 1998, 1997 and 1996, respectively.
The net book value of the equipment acquired under capital
leases totaled $222,101 and $228,878 (net of accumulated
amortization of $288,732 and $181,347) at July 31, 1998 and
1997, 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 term
plus an additional 36 month option. Net sublease income
totaled $171,062 for the year ended July 31, 1998. Scheduled
aggregate future sublease income at July 31, 1998 is
approximately $1,128,081.

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 were 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 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 were all converted
at various dates through July 31, 1998, except for $1,873
which was paid in cash. 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 year 1997.

License Agreements

The Company has licenses to various patents for Cordox 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. The only remaining significant
development milestone under these agreements is the
requirement that the Company pay the licensor of Cordox
$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 Cordox 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, 1998 and 1997, no such
shares were issued or outstanding.

Warrants

As of July 31, 1997, 4,673,512 Redeemable Class B Warrants
were outstanding.  In November 1997, the Company received
net proceeds of $4,707,576 from the exercise of 856,026
Redeemable Class B Warrants and the concurrent issuance of
856,026 shares of

Common Stock. During fiscal year 1998, all Redeemable Class
B Warrants expired and none are outstanding at July 31,
1998.

Stock Option Plans

Pro forma information regarding net loss and loss per share
is required by SFAS 123, and has been determined as if the
Company has accounted for its employee stock options under
the fair value method set forth in SFAS 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 1998, 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 79% for 1998 and 84% for 1997 and
1996; 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, 1998, 1997 and 1996 is as follows:



                         1998        1997        1996
                                                   
                                              
                                        
Pro forma net loss     $(6,844,607) $(7,658,837)  $(3,943,018)
                                                         
Pro forma net loss                                        
per share, basic and    
diluted                  $(0.45)       $(0.62)     $(0.34)

As of July 31, 1998, 2,766,288 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
                          Outstanding   Average
                                        Exercise Price
                                  
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              (219,125)          $4.47
Balance at July 31, 1997 (1,438,436)          $4.25
     Granted                749,700           $4.85
     Exercised                    -           $   -
     Canceled              (295,647)          $5.08
Balance at July 31, 1998  1,892,489           $4.36
                                


At July 31, 1998, options to purchase 1,254,699 shares of
Common Stock were exercisable and there were 623,799 shares
available for future grant under the 1992 and 1993 Plans.

The weighted average grant-date fair value for the options
granted during 1998, 1997 and 1996 were $3.74, $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, 1998 are as follows:



          Options Outstanding                   Options
                                              Exercisable
                                                   
                                                     
                            Weighted    Weighted             Weighted
Range of                    Average     Average              Average
Exercise     Number         Remaining   Exercise Number      Exercise
Price        Outstanding    Contractual Price    Exercisable Price        
                            Life
                                            
$1.44         97,500        4.05       $1.44     97,500    $1.44
$2.20-$2.46   93,000        4.78       $2.22     93,000    $2.32
$3.06-$4.00  571,833        7.74       $3.70    398,452    $3.70
$4.05-$4.95  293,449        7.89       $4.68    204,524    $4.42
$5.00-$5.75  717,958        6.03       $5.33    362,762    $5.33
$6.00-$6.80   76,249        5.10       $6.31     67,524    $6.31
$7.86-$8.50   42,500        7.03       $8.08     30,937    $8.08
                                                   
           1,892,489       $4.36             1,254,699
                                          


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.

Significant components of the Company's deferred tax assets
and liabilities as of July 31, 1998 and 1997 are as follows:



                                         1998       1997
                                                      
                                           
Deferred tax liabilities:                             
 Purchased technology                 $  267,000 $  423,000
 Total Deferred tax liabilities          267,000    423,000
                                                 
Deferred tax assets:                                  
Net operating loss carryforwards       6,439,000  4,554,000
Capitalized research and development      
costs                                    569,000    547,000
Research and development tax credit      
carryforwards                            836,00     530,000
Other - net                              53,000   1,243,000
                                           
Total deferred tax assets             7,897,000   6,874,000
Valuation allowance                  (7,630,000) (6,451,000)
                                                 
                                                      
Net deferred tax assets             $         -  $        -
                                                      


At July 31, 1998, the Company has federal and California tax
net operating loss carryforwards of approximately
$17,520,000 and $5,335,000, respectively.  The federal tax
loss carryforwards will begin to expire in 2007, unless
previously utilized.  The California tax loss carryforwards
began expiring in 1997 (approximately $340,000 expired in
1998 and will continue to expire unless previously
utilized).  The Company also has federal and California
research and development tax credit carryforwards of
approximately $666,000 and $263,000, 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, 1998; however, for tax
return purposes the Company uses a calendar year end.

In accordance with the Internal Revenue Code, the use of the
Company's net operating loss and credit carryforwards may be
limited upon cumulative changes in ownership of more than
50%.

The valuation allowance increased $1,179,000 from July 31,
1997 to July 31, 1998 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.

8. Legal Proceedings

In July 1998, the Company was served with a complaint in the
United States Bankruptcy Court for the Southern District of
New York by the Trustee for the liquidation of the business
of A. R. Baron & Co., Inc. ("A.R. Baron") and the Trustee of
The Baron Group, Inc. (the "Baron Group"), the parent of
A. R. Baron.  The complaint alleges that A. R. Baron and the
Baron Group made certain preferential or fraudulent
transfers of funds to the Company prior to the commencement
of bankruptcy proceedings involving A. R. Baron and the
Baron Group.  The Trustee is seeking return of the funds
totaling $3.2 million.  The Company believes that the
Trustee's claims are unfounded and intends to contest the
allegations in the complaint vigorously.  The Company
contends that the transfers challenged by the Trustee relate
to (i) the exercise by A. R. Baron in 1995 of unit purchase
options issued to it in 1992 as part of its negotiated
compensation for underwriting the Company's initial public
offering and (ii) the repayment by the Baron Group of the
principal and interest (at 12% per annum) payments and
certain loan extension fees related to certain
collateralized loans made to it by the Company in 1995 and
1996.  The Company believes that it has insurance coverage
sufficient to cover any costs, expenses, or losses that
might be incurred in connection with this action.

9. Year 2000 Issue (unaudited)

The Company has modified or replaced portions of its
software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter.  The
Company believes that, with these modifications to existing
software and conversions to new software, the Year 2000
Issue will not pose significant operational problems for its
computer systems.