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See accompanying notes.

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See accompanying notes.

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See accompanying notes.

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1.  Basis of Presentation

The information presented at October 3, 1999, and for the three and nine month periods then ended is unaudited, but includes all adjustments (consisting only of normal recurring accruals) that management at The Liposome Company, Inc. (the "Company") believes to be necessary for the fair presentation of results for the periods presented.  The January 3, 1999 balance sheet was derived from audited financial statements. These financial statements should be read in conjunction with the Company's audited financial statements for the year ended January 3, 1999, which were included as part of the Company's Annual Report on Form 10-K.  Certain reclassifications may have been made to the prior year financial statement amounts to conform with the presentation in the current year financial statements.

2.  Common Stock Outstanding and Per Share Information

The basic earnings per share calculation is based upon the weighted average number of common shares outstanding during a period.  The diluted earnings per share calculation is based upon the weighted average number of common shares outstanding and the dilutive common stock equivalents outstanding during a period.  Common stock equivalents are outstanding options under the Company's stock option plans and outstanding warrants.

Below is summary of the shares used in calculating basic and diluted earnings per share.

Weighted average number of shares of common stock outstanding for the three and nine month periods ended October 3, 1999 and September 27, 1998, increased by 908,000 and 685,000 shares, respectively.  The increases are primarily due to the impact of the exercises of stock options, issuance of restricted stock, 401(K) contributions, partially offset by the purchase of treasury stock.

On April 23, 1997, the Company issued 1,000,000 shares at $20.875 per share to a private investor for cash of $20,875,000.  At October 26, 1999, this investor has reported total holdings of approximately 22.85% of the Company's outstanding Common Stock.

Page 6 of 20

2.  Common Stock Outstanding and Per Share Information (continued)

Options and warrants to purchase 5,238,493 shares of Common Stock at a range of $1.19 to $27.63 per share were outstanding at October 3, 1999.  These options and warrants expire on various dates from November 30, 1999 to September 27, 2009.  Options and warrants to purchase 260,250 and 265,250 of shares of common stock were excluded from the diluted earnings per share calculation for the three and nine month periods ended October 3, 1999 respectively, as their effect would have been anti-dilutive.

Common Stock equivalents were not included in the computation of diluted earnings per share for the prior year period ended September 27, 1998 because the effect would be anti-dilutive to the net loss.

3.  Comprehensive Income

The following table details "Comprehensive Income" as defined in Statement of Financial Standards ("SFAS") No. 130 for the three and nine month periods ended October 3, 1999 and September 27, 1998.

4.  Inventories

Inventories are carried at the lower of actual cost or market and cost is accounted for on the first-in first-out (FIFO) basis.  The components of inventories are as follows:

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5.  Supplemental Disclosure of Cash Flow Information

The Company is a party in an adversarial proceeding filed in the United States Bankruptcy Court in Delaware by a chapter 7 bankruptcy trustee for the estate of the FoxMeyer Corporation, et al.  The complaint seeks to avoid and recover purported preferential transfers pursuant to 11 U.S.C. Sec. 547 and Sec. 550 from the Company in the amount of $2.3 million.  The Company believes it has meritorious defenses regarding this claim.

The Company is currently a party to various other legal actions arising out of the normal course of business, none of which are expected to have a material effect on the Company's financial position or results of operations.  

7.  Geographic Segment Data

The Company's biopharmaceutical operations are classified into two geographic areas: Domestic (United States) and International (primarily Western Europe and Canada).  Financial data (in thousands of dollars) for the three and nine months of 1999 and 1998 is as follows:

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8.  Major Customer Revenue Data

In the United States, the Company sells ABELCET^® primarily to national and regional wholesalers who in turn re-sell the product to hospitals and other service providers.  Internationally, sales are primarily made directly to marketing partners pursuant to marketing/distribution agreements with the Company who then re-sell the product to hospitals.

For the nine months ended October 3, 1999 and September 27, 1998 sales to wholesalers or other customers in excess of 10% of the Company's product revenues in any period were as follows:

Page 9 of 20

The following discussion may contain trend information and other forward-looking statements.  The Company's actual results could differ materially from the Company's historical results of operations and those discussed in the forward-looking statements.  Factors that could cause actual results to differ materially include, but are not limited to, those identified in "Certain Risk Factors."  All period references are to the Company's three and nine month periods ended October 3, 1999 and September 27, 1998 and the fiscal year ended January 3, 1999, unless otherwise indicated.  All per share amounts are presented on a diluted basis unless otherwise stated.

The following discussion and analysis should be read in conjunction with the Financial Statements and related notes thereto contained elsewhere herein, as well as the Company's 1998 Form 10-K and from time-to-time the Company's other filings with the Securities and Exchange Commission.

The Liposome Company, Inc. (the "Company") is a biopharmaceutical company engaged in the discovery, development, manufacturing and marketing of proprietary lipid- and lipid-based pharmaceuticals, primarily for the treatment of cancer and other related life-threatening illnesses. ABELCET^® (Amphotericin B Lipid Complex Injection), the Company's first commercialized product, has been approved for marketing for certain indications in the United States and 24 foreign markets and is the subject of marketing application filings in several other countries.  In the United States, ABELCET^® has been approved for the treatment of invasive fungal infections in patients who are refractory to or intolerant of conventional amphotericin B therapy.  International approvals have been received for primary and/or refractory treatment of these infections.  Currently all product sales are derived from ABELCET^®.

The Company is developing EVACET^TM (formerly TLC D-99), liposomal doxorubicin, as a treatment for metastatic breast cancer and potentially other cancers. Three Phase III clinical studies of EVACET^TM have been completed by the Company. The Company filed a New Drug Application ("NDA") for EVACET^TM with the FDA in December 1998. The Company has also filed for marketing clearance of EVACET^TM in the European Union and Canada in June 1999 and July 1999, respectively. On September 16, 1999, the Oncologic Drugs Advisory Committee ("ODAC") to the FDA found that there was not sufficient evidence to recommend for approval the Company's NDA for EVACET^TM for the first-line treatment of metastatic breast cancer in combination with cyclophosphamide. After consulting with the FDA, the Company, on October 14, 1999, announced that it was withdrawing its original NDA for EVACET^TM. The Company plans a resubmission of the NDA by the end of this year and will address the issues raised by the ODAC panel.

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Overview (continued)

On October 20, 1999, The Liposome Company's Board of Directors enlarged the Board from 9 to 10 Directors and elected Kenneth E. Johns, Jr. to fill the open position. Mr. Johns is engaged in the private practice of law in Dallas, Texas and is a Special Assistant to the President of Ross Financial Corporation. Ross Financial Corporation is the holder of approximately 22.85% of the Company's stock.

During August 1999, the Company announced it had entered into clinical trial collaborations with Bristol-Myers Squibb ("BMS") and Rhone-Poulenc Rorer Pharmaceuticals, Inc. ("RPRP"). The clinical trial with RPRP is designed to evaluate the safety of EVACET^TM in combination with Taxotere^® (docetaxel) for the treatment of metastatic breast cancer. The clinical trial collaboration with BMS is designed to evaluate the safety of EVACET^TM in combination with Taxol^® (paclitaxel) for the treatment of patients with metastatic breast cancer.

On October 27, 1998 the Company announced that the FDA had cleared its Investigational New Drug application for TLC ELL-12 (liposomal ether lipid).  A Phase I clinical trial has been designed to enroll adult patients with advanced solid tumors.  Patient enrollment for this trial commenced in February 1999.

The Company has a continuing discovery research program concentrating on oncology treatment and has a number of products in research.  These products include: the bromotaxols (hydrophobic derivatives of paclitaxel), some of which have shown anticancer activity in several experimental models; ceramides and sphingosines (molecules widely implicated in cell differentiation and apoptosis) certain of which the Company has identified as displaying anticancer activity; and fusogenic liposomes (liposomes specifically designed to fuse to cell membranes), which the Company hopes to use for the efficient delivery of genes to their intended targets.

On April 22, 1998 the Company announced it had entered into a three year contract manufacturing agreement with Astra USA, Inc. ("Astra").  The Company is processing and packaging Astra's M.V.I.^®-12 Unit Vial, an injectable multi-vitamin product used by severely ill, hospitalized patients in need of nutritional supplements.  The product is processed and packaged at the Company's Indianapolis facility, taking advantage of its modern, large-scale capabilities.  Under the terms of the agreement, Astra supplies bulk quantities of the vitamin product and the Company sterilizes, fills, packages and performs quality control on M.V.I.^®-12 Unit Vial.  

• Three Months Ended October 3, 1999:

Total revenues for the three months ended October 3, 1999 were $23,416,000 an increase of $4,769,000 or 25.6% compared to $18,647,000 for the quarter ended September 27, 1998.  The primary components of revenues for the Company are product sales of ABELCET^® and interest, investment and other income.

Net product sales of ABELCET^® for the third quarter ended October 3, 1999 were $21,801,000 compared to $17,638,000 for the third quarter of 1998.  The sales increase of $4,163,000 or 23.6%, is due primarily to higher U.S. and international sales volume.  Unit shipments of ABELCET^® worldwide increased by 20.3% over the comparable prior year period.

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Results of Operations (Continued)

Domestic sales in the third quarter of 1999 were $17,823,000, an increase of $3,462,000 or 24.1% from the comparable prior year period, while unit shipments increased 21.9%. The strong growth is due to the continued market penetration resulting from the successful impact of the tiered pricing program and expansion into the generic amphotericin B marketplace as patients use more drug and are treated for longer periods of time. Based on the latest independent market data available, ABELCET^® continues to hold the largest share of the lipid based amphotericin B products sold in the U.S. During 1997, the Company instituted a tiered pricing program by offering discounts to high volume purchasers.  The price reduction is affected by chargebacks paid to wholesalers based on their sales at contract prices to targeted hospitals.  The Company provides a reserve for the impact on sales for rebates and chargebacks and periodically evaluates the estimates used in establishing the reserve. The provision for the three months ended October 3, 1999 was approximately $9,100,000. During September 1999, the Company received FDA marketing clearance and launched a new ABELCET^® vial size (50 milligram), which contributed to the U.S. sales increase. The Company expects that this new vial size will encourage more cost-effective utilization of ABELCET^® and increase penetration into the market, particularly for pediatric patients.

International product sales were $3,978,000 in the third quarter of 1999 versus $3,277,000 in the third quarter of 1998, an increase of $701,000 or 21.4%, while unit volume increased by 14.4%.  The increase in revenue is primarily due to ABELCET^® sales growth in Canada, Australia and Turkey.

Interest, investment and other income for the three months ended October 3, 1999 and September 27, 1998 were $1,615,000 and $1,009,000, respectively.  The increase of $606,000 or 60.1% is primarily due to higher cash balances available for investment during the third quarter of 1999 and the realization of revenues from contract manufacturing activities which were initiated during 1999.

• Nine Months Ended October 3, 1999:

Total revenues for the nine months ended October 3, 1999 were $67,848,000 an increase of $11,882,000 or 21.2% compared to $55,966,000 for the nine months ended September 27, 1998.  The primary components of revenues for the Company are product sales of ABELCET^® and interest, investment and other income.

Net product sales of ABELCET^® for the nine months ended October 3, 1999 were $63,060,000 compared to $52,885,000 for the nine months of 1998.  The sales increase of $10,175,000 or 19.2%, is primarily due to higher U.S. and international sales volume.  Unit shipments of ABELCET^® worldwide increased by 22.2% over the comparable prior year period.

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Domestic sales in the nine months of 1999 were $50,906,000, an increase of $8,351,000 or 19.6% from the comparable prior year period, while unit shipments increased 21.1%. The strong growth is due to the continued market penetration resulting from the successful impact of the tiered pricing program and expansion into the generic amphotericin B marketplace as patients use more drug and are treated for longer periods of time. Based on the latest independent market data available, ABELCET^® continues to hold the largest share of the lipid based amphotericin B products sold in the U.S. During 1997, the Company instituted a tiered pricing program (as previously discussed with respect to the three months ended October 3, 1999). The Company provides a reserve for the impact on sales for rebates and chargebacks and periodically evaluates the estimates used in establishing the reserve. The provision for the nine months ended October 3, 1999 was approximately $28,660,000. During September 1999, the Company received FDA marketing clearance and launched a new ABELCET^® vial size (50 milligram), which contributed to the U.S. sales increase. The Company expects that this new vial size will encourage more cost-effective utilization of ABELCET^® and increase penetration into the market, particularly for pediatric patients.

International product sales were $12,154,000 in the nine months of 1999 versus $10,330,000 in the comparable prior year period, an increase of $1,824,000 or 17.7%.  The increase is primarily due to ABELCET^® sales growth in Canada, Europe and Australia.  While international sales revenues increased by 17.7%, unit volume increased by 26.7%.  The principal reason for this difference is the shift of sales from end users (direct distribution) to marketing partners.

Interest, investment and other income for the nine months ended October 3, 1999 and September 27, 1998 were $4,788,000 and $3,081,000, respectively.  The increase of $1,707,000 or 55.4% is primarily due to the realization of revenues from contract manufacturing activities during 1999, receipt of payments from Gilead Sciences, Inc. ("Gilead") (formerly NeXstar Pharmaceuticals, Inc.) as part of the settlement of patent litigation and the availability of higher cash balances for investment during the nine month period.

Expenses

-  Three Months Ended October 3, 1999:

The components of total expenses for the three months ended October 3, 1999 were cost of goods sold, research and development, selling, general and administrative and interest expense. Total expenses for the quarter ended October 3, 1999 were $20,025,000, an increase of $1,070,000 from the comparable prior year period.

Cost of goods sold for the quarter ended October 3, 1999 was $5,069,000 or $151,000 lower than the comparable prior year period.  The decrease is attributable to lower production costs for ABELCET^® resulting from manufacturing efficiencies at the Indianapolis manufacturing facility, improved yields due to the implementation of certain process enhancements and lower unit overhead absorption related to the contract manufacturing business.  Partially offsetting the reduction in cost of goods is the impact of higher sales unit volume.  Gross margin in the 1999 period was 76.7% compared to 70.4% in the 1998 period, an improvement of 6.3 percentage points.  This improvement is due to the manufacturing efficiencies discussed above.

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Research and development expense was $7,063,000 for the third quarter of 1999, compared to $5,520,000 for the prior year period. The increase of $1,543,000 or 28.0% is primarily due to costs associated with the preparation for the ODAC meeting for EVACET^TM in September and increased research and development activity for other projects in the Company's developmental pipeline.

Selling, general and administrative expenses for the quarter ended October 3, 1999 were $7,760,000 compared to $8,027,000 in the 1998 period.  The primary reason for the decrease is due to the lower depreciation and insurance charges in the 1999 quarter, partially offset by costs associated with pre-launch marketing and planning expenses related to EVACET^TM during the third quarter of 1999.

Interest expense was $133,000 in the third quarter of 1999 and $188,000 in the third quarter of 1998.  Interest expense is related to capital leases for the Princeton and Indianapolis manufacturing equipment. The decrease is related to the payoff of the mortgage on the Indianapolis land and building as well as the overall reduction in the debt outstanding on capital leases.

-  Nine Months Ended October 3, 1999:

The components of total expenses for the nine months ended October 3, 1999 were cost of goods sold, research and development, selling, general and administrative and interest expense. Total expenses for the nine months ended October 3, 1999 were $59,275,000, a decrease of $2,923,000 from the comparable prior year period.

Cost of goods sold for the nine months ended October 3, 1999 was $14,855,000 or $388,000 lower than the comparable prior year period.  The decrease is attributable to lower production costs for ABELCET^® resulting from manufacturing efficiencies at the Indianapolis facility, improved yields due to the implementation of certain process enhancements and lower unit overhead absorption related to the contract manufacturing business.  Partially offsetting the reduction in the cost of goods is the impact of higher sales unit volume.  Gross margin in the 1999 period was 76.4% compared to 71.2% in the 1998 period, an improvement of 5.2 percentage points.  This improvement is due to the manufacturing efficiencies discussed above.

Research and development expense was $20,084,000 for the nine months of 1999, compared to $21,293,000 for the prior year period. The reduction of $1,209,000 or 5.7% is primarily due to the completion of the Phase III clinical trials of EVACET^TM for which the Company filed a NDA with the FDA in December 1998, partially offset by increased research and development activity for other projects in the Company's developmental pipeline and costs associated with the preparation for the ODAC meeting for EVACET^TM in September.

Selling, general and administrative expenses for the nine months ended October 3, 1999 were $23,894,000 compared to $25,063,000 in 1998 period.  The primary reason for the decrease of $1,169,000 is due to the shift in European selling and marketing activities to marketing partners and the resulting reduction of international selling and marketing costs, partially offset by costs associated with pre-launch marketing and planning expenses for EVACET^TM.

Interest expense was $442,000 in the nine months of 1999 and $599,000 in the comparable 1998 period.  Interest expense is related to capital leases for the Princeton and Indianapolis manufacturing equipment. The decrease is primarily related to the payoff of the mortgage on the Indianapolis land and building in the third quarter of 1999 as well as the overall reduction in the debt outstanding on capital leases.

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Results of Operations (Continued)

Net income for the third quarter of 1999 was $3,091,000 or $0.08 per share (basic & diluted) compared to a net loss of ($308,000) or ($0.01) per share (basic and diluted) for the third quarter of 1998. Net income for the nine months ended October 3, 1999 was $8,273,000 or $0.21 per share (basic & diluted) compared to a net loss of ($6,232,000) or ($0.16) per share (basic and diluted) for the nine months ended September 27, 1998.  The number of shares of Common Stock used in 1999 included contingently issuable shares since the Company reported a net income in this period.  The Company did not include such shares in the 1998 period as the inclusion would have been anti-dilutive.

The Company had $67,908,000 in cash, restricted cash and marketable securities as of October 3, 1999. Included in this amount were cash and cash equivalents of $17,983,000, short-term investments of $44,403,000 and restricted cash of $5,522,000.  The Company invests its cash reserves in a diversified portfolio of high-grade corporate marketable and United States Government-backed securities.

Cash and marketable securities (both short-term and restricted cash) increased $13,565,000 from January 3, 1999 to October 3, 1999.  The primary components of the favorable impact on cash flow for the nine months was net income (net of depreciation, amortization and other non-cash charges) of $13,541,000 and stock option exercises of $3,776,000. The major uses of funds were payments on the capital lease, payoff of the note payable totaling $2,435,000 and the buildup of inventory of $1,619,000.

Inventories at October 3, 1999 increased $1,619,000 from January 3, 1999, primarily due to the building of raw material levels to meet current manufacturing demand and to ensure an adequate supply of key ingredients.

In July 1993, the Company entered into a capitalized lease financing agreement for certain manufacturing equipment providing for an initial lease term followed by options to extend the lease, or to return or purchase the equipment.  In December 1996, the agreement was amended to include an additional $6,101,000 of manufacturing equipment.  In November 1997 and January 1998, the Company exercised its options to purchase certain manufacturing equipment under the original 1993 lease for $1,583,000 and $495,000, respectively.  These amounts have been refinanced as a capital lease obligation under the lease agreement for a three-year period.  The lease is collateralized by $3,748,000 in a standby letter of credit which is in turn collateralized by AAA rated securities owned by the Company.  Pursuant to the December 1996 lease amendment, the Company is required to maintain a minimum balance of $25,000,000 in cash and marketable securities, including those securities collateralizing the letters of credit.  In addition, the Company completed an U.S. working capital revolving credit line agreement in early 1997, with a maximum capacity of $14,000,000.  All borrowings must be secured by approved accounts receivable and finished goods inventories.  There have been no advances made against this line through the date of this report.

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Results of Operations (Continued)

On July 14, 1997, the Company reacquired all development, manufacturing and marketing rights to EVACET^TM from Pfizer Inc ("Pfizer").  As part of the agreement, the Company has obtained from Pfizer a credit line of up to $10,000,000 to continue the development of EVACET^TM.  To the extent that any funding is actually used by the Company, the outstanding principal and interest would be repayable on the earlier of 180 days after FDA clearance to market EVACET^TM or in twenty quarterly installments commencing July 14, 2002. Pfizer at its option may elect to receive payment in the form of shares of Common Stock. At the end of the third quarter of 1999, there were no borrowings under this facility.

The Company had a mortgage-backed note to partially fund the purchase of the Indianapolis manufacturing facility.  The Company paid off the remaining principal balance and interest in the third quarter of 1999.

On April 23, 1997 the Company issued 1,000,000 shares of Common Stock at $20.875 per share to a private investor for cash of $20,875,000. At October 26, 1999, this investor has reported total holdings of approximately 22.85% of the Company's outstanding shares of Common Stock.

The Company expects to finance its operations and capital spending requirements from, among other things, the proceeds received from product sales, interest earned on investments and the proceeds from maturity or sale of certain investments.  Cash may also be provided to the Company by leasing arrangements for capital expenditures, financing of receivables and inventory under its line of credit, a line of credit from a former licensing partner, the licensing of its products and technology and the sale of equity or debt securities.  The Company believes that its product revenues and revenues from other sources, coupled with its available cash and marketable securities reserves, will be sufficient to meet its expected operating and capital cash flow requirements for the intermediate term.

The Year 2000 computer issue ("Y2K") refers to a condition in computer software where a two-digit field rather than a four-digit field is used to distinguish a calendar year.  For example, 1998 would be stored as "98", rather than "1998".  The basic problem is that when the year changes from 1999 (99) to the year 2000 (00), some computer programs will be unable to distinguish the correct date.  Such a situation could significantly interfere with the conduct of the Company's business, disrupt its operations and materially impact its financial condition.

In order to address this situation, the Company has conducted a Year 2000 assessment of its core business information systems including a wide variety of other information systems and related business processes (hereinafter, collectively referred to as the "Systems") used in its operations.  The goal of the assessment was to identify and determine the Y2K readiness of the Company's Systems. The task of assessing the Systems from a Y2K readiness perspective has been accomplished. Accordingly, the Company has developed a comprehensive remediation plan and scheduled the necessary hardware, software, and sub-component upgrades to remediate non-Y2K compliant systems.  The Systems investigated were categorized into the following three areas:

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Results of Operations (Continued)

The first category involves the traditional management information systems that include computers, telecommunication devices, application software, operating system software, and related peripherals. Due to the fact that the majority of the Systems installed and in use at the Company are new and utilize current technologies, the effort and expense to bring these Systems into Y2K compliance will not be material. Overall estimated costs for Systems remediation is expected to be less than $100,000. A portion of this estimate, $50,000, is for the replacement or upgrade of components that are, or would have been, included in 1999 and 2000 capital budgets but have been accelerated due to the Y2K issue. Approximately two thirds of the estimated $100,000 cost has already been expended to make the required hardware and software upgrades. All remaining tasks will be completed during the fourth quarter.

The second category involves manufacturing and facility systems including machines and devices used to manufacture, store, and test the Company's product.  It also includes the systems that control and monitor the Company's facilities such as HVAC, fire suppression, and elevators.  Equipment used in the manufacture and storage of product has been reviewed with regard to Y2K readiness.  Again, because of the absence of older legacy systems, a minimal amount of effort was required to make these systems compliant. Of the systems reviewed, substantially all were found to be compliant with no remedial actions required. The cost associated with bringing non- compliant equipment up to standard was less than $30,000.

The third category involves research systems including computer-controlled devices, calibration equipment, and similar instruments.  A review of the research systems equipment found the majority of the computers and laboratory equipment to be Y2K compliant.  The cost of replacing non-Y2K ready equipment was $30,000 and has been completed.

In addition to the assessment of the Systems, key suppliers and customers have been identified.  A survey form was developed and has been sent to each of these business entities in order to determine if their systems are Y2K compliant.  This is significant since delays in the shipment and receipt of critical supplies can impact the Company's production.  Problems would also exist if customers become unable to pay for the Company's product (e.g., their accounts payable system fails) or if they cannot electronically order, store, or track product in compliance with FDA requirements.  The Company is proactively addressing the Y2K issue with these vendors and suppliers in order to minimize risk from these external factors.

Based on the assessment of its Systems, the Company believes that the costs of addressing the Y2K issue will be less than $200,000.  Also based on the assessment of its Systems, the Company believes that it has minimized the potential for disruption of its business because of the Y2K event.  System tests simulating the spanning of critical Y2K dates did not reveal any date transition problems. Additionally, personnel will be onsite on January 1, 2000 in order to test the equipment and make certain that there are no unanticipated disruptions with the systems or service. Disaster recovery preparations have also been broadened to include redundant computer file servers and other network equipment. However, if key third parties such as suppliers and customers are not Y2K ready, such problems could have a material adverse impact on the Company's business.  To minimize the impact of supplier product shortages that may result, the Company plans to have sufficient supplies on hand to meet its production requirements.  The Company will also ensure that its customers have an adequate supply of ABELCET^® on hand to meet anticipated needs.

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This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and the Company intends that such forward-looking statements be subject to the safe harbors created thereby.  Examples of these forward-looking statements include, but are not limited to, (i) the progress of clinical trials and preclinical studies regarding EVACET^TM, TLC ELL-12 and other oncology products in the Company's research pipeline, (ii) the ability of ABELCET^® to maintain its position as the leading lipid-based formulation of amphotericin B in the U.S., (iii) the likelihood of future domestic and international regulatory approvals for EVACET^TM or any other product in the research pipeline, (iv) possible new licensing or contract manufacturing agreements, (v) future product revenues from ABELCET^®, EVACET^TM or any other product in the research pipeline, (vi) the future uses of capital, and financial needs of the Company, (vii) manufacturing efficiencies and other benefits to be realized from use of the Indianapolis facility and (viii) resolution of Year 2000 computer issues.  While the Company, based on management's current beliefs and judgment, makes these statements, they are subject to risks and uncertainties that could cause actual results to vary.  In evaluating such statements, stockholders and investors should specifically consider a number of factors and assumptions, including those discussed in the text and financial statements and their accompanying footnotes in this Report, as well as the Company's 1998 Form 10-K including the risk factors identified therein and from time-to-time the Company's other filings with the Securities and Exchange Commission.

Among these factors and assumptions that could affect the forward-looking statements in this Report are the following: (a) the commercialization of ABELCET^®

is still ongoing and the ultimate rate of sales of ABELCET^® is uncertain; (b) the Company's other products are in development and have not yet received regulatory approval for sale, and it is difficult to predict if and when such approvals will be received and, if approved, whether the products can be successfully developed, manufactured and marketed; (c) competitors of the Company have developed and are developing products that are competitive with the Company's products; (d) the rate of sales of the Company's products could be affected by regulatory actions, decisions by government health administration authorities or private health coverage insurers as to the level of reimbursement for the Company's products; (e) risks associated with international sales, such as currency exchange rates, currency controls, tariffs, duties, taxes, export license requirements and foreign regulations may adversely affect the Company's foreign operations; (f) uncertainty that key customers, vendors and suppliers of the Company will be Y2K compliant; (g) the levels of protection afforded by the Company's patents and other proprietary rights is uncertain and may be challenged; and (h) the Company has incurred annual losses in each prior year since its inception and there can be no assurance of profitability in any future annual period.

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2. Reports on Form 8-K

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATE: November 3, 1999

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