SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the quarterly period ended September 30, 2000 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: 00024889

CELL PATHWAYS, INC.
(Exact name of registrant as specified in its charter)

Delaware 23-2969600
------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)

702 Electronic Drive Horsham, Pennsylvania 19044
- ------------------------------------------ ------------------------
(Address of Principal Executive Office) (Zip Code)

(215) 706-3800
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)

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

Yes X No
----- ------

At October 31, 2000 there were 27,873,457 shares of Common Stock, par value
$0.01 per share, outstanding.
2
CELL PATHWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

INDEX TO FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000

PART 1 FINANCIAL INFORMATION (UNAUDITED) Page
----

Item 1 Financial Statements:

Condensed Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999............................................. 2

Condensed Consolidated Statements of Operations for the three
and nine months ended September 30, 2000 and 1999 and for the
period from inception (August 10, 1990) to September 30, 2000..... 3

Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999 and for the period
from inception (August 10, 1990) to September 30, 2000............ 4 - 5

Notes to Condensed Consolidated Financial Statements ............. 6 - 7

Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 8 - 11

Item 3 Quantitative and Qualitative Disclosures about Market Risk........ 11

PART II OTHER INFORMATION

Item 1 Legal Proceedings................................................. 12

Item 2 Change in Securities and Use of Proceeds.......................... 12

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

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

1
3
CELL PATHWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

SEPTEMBER 30, DECEMBER 31,
2000 1999
---- ----

ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................... $31,329,307 $32,013,118
Prepaid expenses and other.................................... 1,629,178 875,433
----------- -----------
Total current assets.................................... 32,958,485 32,888,551

EQUIPMENT, FURNITURE and LEASEHOLD IMPROVEMENTS, NET ........... 1,346,222 1,519,655
OTHER ASSETS (NOTE 4) .......................................... 1,073,251 870,765
----------- -----------
$35,377,958 $35,278,971
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of notes payable (Note 3)................ $236,445 $ --
Current installments of obligation under capital lease........ 75,312 146,260
Accounts payable.............................................. 611,839 1,510,569
Other accrued liabilities..................................... 2,638,291 2,125,483
----------- -----------
Total current liabilities............................... 3,561,887 3,782,312
----------- -----------

Notes payable, excluding current installments (NOTE 3) ........ 500,460 --
Obligation under capital lease, excluding current installments.. -- 33,917
----------- -----------

STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 10,000,000 and 5,000,000 shares
authorized, none issued and outstanding ...................... -- --
Common Stock, $.01 par value, 150,000,000 and 70,000,000 shares
authorized; 27,873,457 and 26,105,894 shares issued and
outstanding .................................................. 278,734 261,059
Additional paid-in capital...................................... 117,207,471 96,202,177
Stock subscription receivable from issuance of Common Stock..... (37,000) (37,000)
Deficit accumulated during the development stage................ (86,133,594) (64,963,494)
------------ ------------
Total stockholders' equity ............................. 31,315,611 31,462,742
---------- ----------
$35,377,958 $35,278,971
=========== ===========

The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.

2
4
CELL PATHWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

PERIOD FROM
INCEPTION
(AUGUST 10,
THREE MONTHS ENDED NINE MONTHS ENDED 1990) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------- ------------- -------------
2000 1999 2000 1999 2000
----------- ----------- ------------ ------------ ------------

EXPENSES:
Research and development............... $5,909,609 $3,526,994 $16,527,371 $11,645,229 $69,910,559
General and administrative............. 2,098,450 1,245,987 6,185,328 3,458,283 19,843,535
Provision for redemption of the
Redeemable Preferred Stock........... -- -- -- -- 1,017,000
----------- ----------- ------------ ------------ ------------
Total expenses....................... 8,008,059 4,772,981 22,712,699 15,103,512 90,771,094
INTEREST INCOME........................... 528,642 322,265 1,542,599 1,015,494 4,637,500
----------- ----------- ------------ ------------ ------------
NET.LOSS.................................. $(7,479,417) $(4,450,716) $(21,170,100) $(14,088,018) $(86,133,594)
=========== =========== ============ ============ ============

Basic and diluted net loss per Common
Share.................................. $(0.27) $(0.18) $(0.77) $(0.58)
========== ========== ========== ==========

Shares used in computing basic and
diluted net loss per Common Share..... 27,794,658 24,521,598 27,350,393 24,391,178
========== ========== ========== ==========

The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.

3
5
CELL PATHWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

PERIOD FROM
INCEPTION
NINE MONTHS ENDED (AUGUST 10,
SEPTEMBER 30, 1990) TO
-------------------------------- SEPTEMBER 30,
2000 1999 2000
------------ ------------ ------------

OPERATING ACTIVITIES:
Net loss....................................... $(21,170,100) $(14,088,018) $(86,133,594)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation expense and amortization.......... 590,751 406,434 1,511,317
Issuance of Common Stock for services
rendered..................................... -- -- 48,578
Issuance of Common Stock options for
services rendered............................ 214,660 -- 325,024
Provision for redemption of Redeemable
Preferred Stock.............................. -- -- 1,017,387
Write-off of deferred offering costs........... -- -- 469,515
Other.......................................... -- -- 68,399
(Increase) decrease in prepaid expenses and
other current assets......................... (738,745) (142,948) (1,295,552)
(Increase) decrease in other assets............ (192,671) 96,909 (272,559)
Increase (decrease) in accounts payable and
accrued liabilities.......................... (385,922) (985,670) 629,139
----------- ----------- -----------
Net cash flows used in operating activities.. (21,682,027) (14,713,293) (83,632,346)
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchase of equipment, furniture and
leasehold improvements ...................... (417,318) (342,689) (5,335,688)
Sale of leasehold improvements................. -- -- 3,000,000
Cash paid for deposits......................... 2,073 (16,000) (48,694)
----------- ----------- -----------
Net cash flows used in investing activities... (415,245) (358,689) (2,384,382)
----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from the issuance of Common Stock,
net of related offering costs................. -- -- 13,579,145
Proceeds from the exercise of warrants to
purchase Common Stock......................... 17,743,000 -- 17,743,000
Proceeds from the issuance of Common Stock
under the Employee Stock Purchase Plan........ 346,651 171,120 517,771
Proceeds from issuance of Convertible
Preferred Stock, net of related offering
costs......................................... -- -- 47,185,046
Proceeds from the transaction with Tseng
Labs, Inc. ................................... -- -- 27,966,372
Proceeds from exercise of Series E, F and G
warrants to purchase stock ................... 702,050 840,288 2,223,893
Proceeds from the exercise of options to
purchase Common Stock......................... 2,016,608 276,741 2,740,030
Decrease in shareholder receivable............. -- -- 23,626
Redemption of Redeemable Preferred Stock....... -- -- (546,051)
Proceeds from bridge loan...................... -- -- 791,000
Partner cash contributions..................... -- -- 5,312,355
Increase in restricted cash.................... (26,888) -- (666,998)
Principal payments under capital lease
obligations................................... (104,865) (93,061) (260,059)
Proceeds from borrowings....................... 800,000 -- 950,000
Repayment of borrowings........................ (63,095) -- (213,095)
----------- ----------- -----------
Net cash flows provided by financing
activities.................................. 21,413,461 1,195,088 117,346,035
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................... (683,811) (13,876,894) 31,329,307
CASH AND CASH EQUIVALENTS, beginning of
period........................................ 32,013,118 37,232,404 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period....... $31,329,307 $23,355,510 $31,329,307
=========== =========== ===========

The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.

4
6
CELL PATHWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)

(UNAUDITED)

PERIOD FROM
INCEPTION
(AUGUST 10,
NINE MONTHS ENDED 1990) TO
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -------------
2000 1999 2000
---- ---- -----------

SUPPLEMENTAL DISCLOSURES OF NONCASH
FINANCING ACTIVITIES:
Accrual of leasehold improvements payable.......... $-- $-- $848,000
=== === ===========
Accrual of deferred offering costs................. $-- $-- $441,375
=== === ===========
Conversion of partners' investment to
Preferred Stock................................... $-- $-- $5,312,355
=== === ===========
Conversion of bridge loan to Convertible
Preferred Stock................................... $-- $-- $791,000
=== === ===========
Conversion of Convertible Preferred Stock
for Common Stock.................................. $-- $-- $53,766,991
=== === ===========
Issuance of Convertible Preferred Stock to
investment advisors............................... $-- $-- $540,742
=== === ===========
Issuance of Common Stock as payment of
management bonus.................................. $-- $-- $59,200
=== === ===========
Redemption of Redeemable Preferred Stock for
Common Stock...................................... $-- $-- $545,949
=== === ===========
Sale of Common Stock in exchange for stock
subscription receivable........................... $-- $-- $37,000
=== === ===========
Sale of Convertible Preferred Stock in
exchange for stock subscription receivable........ $-- $-- $23,626
=== === ===========
Issuance of Common Stock as payment for
accounts payable.................................. $-- $-- $48,578
=== === ===========

The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.

5
7
CELL PATHWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000

(UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

Cell Pathways, Inc. was incorporated in Delaware in July 1998 as a
subsidiary of, and as of November 3, 1998 successor to, a Delaware corporation
of the same name. As the context requires, "Company" is used herein to signify
the successor and/or the predecessor corporations.

The Company is a pharmaceutical company focused on the research,
development and future commercialization of products to prevent and treat
cancer. The Company is in the development stage and has not generated any
product revenues to date, nor is there any assurance of any future product
revenues. The Company's intended products are subject to long development cycles
and there is no assurance the Company will be able to successfully develop,
manufacture, obtain regulatory approval for or market its products. During the
period required to develop its products, the Company plans to continue to
finance operations through debt and equity financings, corporate alliances or
through combinations thereof. There is no assurance, however, that such
additional funding will be available on terms acceptable to the Company, if at
all. The Company will continue to be considered in the development stage until
such time as it generates significant revenues from its principal operations. As
of September 30, 2000, the Company had a deficit accumulated during the
developmental stage of $86,133,594.

On November 3, 1998, the Company completed a financing through the
acquisition of Tseng Labs, Inc. ("Tseng") (a publicly held shell company) in
which the Company issued to Tseng stockholders approximately 5.5 million shares
of the Company's Common Stock and received net proceeds of approximately $26.4
million. The accompanying consolidated financial statements include the accounts
of the Company from inception (August 10, 1990) and the accounts of Tseng after
November 3, 1998.

Basis of Presentation

The unaudited condensed consolidated financial statements as of
September 30, 2000 and for the three and nine months ended September 30, 2000
and 1999, are unaudited but include all adjustments (consisting only of normal
recurring adjustments) which, in the opinion of management, are necessary to
state fairly the financial information set forth therein in accordance with
generally accepted accounting principles. The interim results may not be
indicative of the results that may be expected for the year. These financial
statements should be read in conjunction with the audited consolidated financial
statements for the year ended December 31, 1999 included in the Company's annual
report on Form 10-K filed with the Securities and Exchange Commission.

2. BASIC AND DILUTED NET LOSS PER COMMON SHARE

The Company provides basic and diluted net loss per Common share
pursuant to Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share." SFAS No. 128 requires dual presentation of basic and
diluted net loss per Common share. "Basic" net loss per Common share equals net
loss divided by the weighted average Common shares outstanding during the
period. "Diluted" net loss per Common share equals net loss divided by the sum
of the weighted average Common shares outstanding during the period plus Common
Stock equivalents. The Company's basic and diluted net loss per share amounts
are the same since the effect of the assumed exercise of stock options and
warrants is anti-dilutive. The amount of Common Stock equivalents excluded from
the calculation are options and warrants to purchase 2,429,088 and 2,037,491
shares of Common Stock as of September 30, 2000 and 1999, respectively.

6
8
3. MASTER LOAN AND SECURITY AGREEMENT

In July 2000, the Company signed a Master Loan and Security Agreement
("the Agreement") to provide financing for past and future equipment purchases.
The Agreement allows for the Company to borrow up to $2.0 million in various
installments through February 2001. Each installment is repayable over 36
months. The loans are collateralized by the respective equipment. Through
September 30, 2000, the Company has borrowed $800,000 under the Agreement.

4. LOANS TO EXECUTIVE OFFICER

As of September 30, 2000, other assets includes receivables for loans
to an executive officer totaling $311,609.

5. LITIGATION

In February and March of 1999, five different groups of shareholders
filed class actions in the United States District Court in Philadelphia against
the Company, and certain of its officers and directors alleging violations of
Section 11 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934. The complaints alleged that the Company made
false and misleading statements about the efficacy and near-term
commercialization of the Company's lead drug candidate, exisulind. The cases
were consolidated on March 12, 1999, and a consolidated amended complaint which
asserts claims under Section 10(b) and 20(a) of the Securities Exchange Act of
1934 and SEC Rule 10-b5 was filed on June 28, 1999 seeking an unspecified amount
of damages on behalf of a class of persons who traded in the Company's
securities between October 7, 1998 and February 2, 1999. The defendants moved to
dismiss the complaint on September 21, 1999. The motion to dismiss was denied on
January 27, 2000. On February 10, 2000, defendants filed a motion for
reconsideration, or, in the alternative, certification for immediate appeal,
both of which were denied by the district court by order dated March 16, 2000.
The defendants answered the complaint on March 13, 2000. On May 24, 2000,
defendants filed a petition for writ of mandamus in the Court of Appeals for the
Third Circuit, requesting that the Court of Appeals review the district court's
denial of the motion to dismiss. The Court of Appeals denied the petition for
writ of mandamus on September 29, 2000. The case is in discovery. The Company
believes the allegations are without merit and intends to vigorously defend the
litigation.

7
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Cell Pathways, Inc. was incorporated in Delaware in July 1998 as a
subsidiary of, and, as of November 3, 1998, the successor to, a Delaware
corporation of the same name. As the context requires, the "Company" or "CPI" is
used herein to signify the successor and/or the predecessor corporations.

The business of the Company is subject to substantial risks and
uncertainties. These risks and uncertainties relate to, among other factors, the
absence of Company-developed products approved for sale; the history of
operating losses; the early stage of development; the costs, delays and
uncertainties inherent in basic pharmaceutical research, drug development,
clinical trials and the regulatory approval process, with respect to both the
Company's current product candidates and its future product candidates, if any;
dependence on the development and market acceptance of Aptosyn(TM) (exisulind)
for one or more significant disease indications; the limited usefulness of data
obtained in laboratory tests, animal models and human clinical trials when
planning additional steps in product development and seeking regulatory
approval; the uncertainty of obtaining regulatory approval of any compound for
any disease indication; the delay, uncertainty and adversity arising from the
recent action of the FDA in issuing a "not approvable" letter with respect to
the New Drug Application ("NDA") submitted for Aptosyn(TM) (exisulind) for the
orphan drug condition of familial adenomatous polyposis; the uncertainty of the
effect of any product approval, if achieved, on the market price of the Common
Stock; the timing and scope of any approval which might be received for any
compound for any indication in the future; acceptance by providers of healthcare
reimbursement; the validity, scope and enforceability of patents; the actions of
competitors; dependence upon third parties; product liability; and the need for
further financing. These and other risks are detailed in the Company's reports
filed from time to time under the Securities Act of 1933 and/or the Securities
Exchange Act of 1934, including the sections entitled "Business," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Other Events" in the Company's reports on Form 10-K
for the year ended December 31, 1999 and Forms 10-Q and 8-K during 2000 and in
such registration statements on Form S-3 as may be filed from time to time.
Current and prospective investors are encouraged to read these filings as they
are made. They are available over the Internet from the SEC in its EDGAR
database or directly from the Company. Certain statements made in this document
or in those filings, and oral statements which may be made about them,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
those which express plan, anticipation, intent, contingency or future
development and/or otherwise are not statements of historical fact. These
statements are subject to risks and uncertainties, known and unknown, such as
the risks described above, which could cause actual results and developments to
differ materially from those expressed or implied in such statements. Given the
uncertainties affecting development stage pharmaceutical enterprises like the
Company, current and prospective investors are cautioned not to place undue
reliance on any such forward-looking statements, any of which may turn out to be
wrong due to inaccurate assumptions, unknown risks, uncertainties or other
factors. The Company undertakes no obligation to update or revise such
statements or the factors which may relate thereto.

OVERVIEW

Cell Pathways is a development stage pharmaceutical company focused on
the research, development and commercialization of products to prevent and treat
cancer. From the inception of the Company's business in 1990, operating
activities have related primarily to conducting research and development,
raising capital and recruiting personnel. The Company's initial investigational
new drug application ("IND") was filed with the U.S. Food and Drug
Administration ("FDA") in December 1993 for human clinical trials of the
Company's first product candidate, Aptosyn(TM). The Company filed an IND for its
second product candidate, CP461, in December 1998. In August 1999, the Company
submitted to the FDA a New Drug Application ("NDA") for Aptosyn(TM) for familial
adenomatous polyposis ("FAP"), an indication for which the Company had received
orphan drug designation. On September 25, 2000, the FDA issued a "not
approvable" letter noting deficiencies in the Company's NDA for Aptosyn(TM) for
FAP and finding the information provided as to the safety and efficacy of
Aptosyn(TM) to be inadequate for the FAP indication. The Company has notified
the FDA of its intention to amend the NDA and requested a meeting with the FDA
to address the deficiencies and the possible requirement for additional clinical
data. There can be no assurance that the Company will be able to address these
deficiencies adequately to achieve FDA approval for the Aptosyn(TM) NDA for FAP.
The Company is continuing to develop Aptosyn(TM) and CP461 in cancer and
precancerous conditions.

8
10
In July 2000, the Company announced that it has entered into an
Exclusive Marketing and Promotion Agreement (the "Nilandron Agreement") with
Aventis Pharmaceuticals, Inc. to market Nilandron(R) (nilutamide) to urologists
in the United States and Puerto Rico for use in patients who suffer from
prostate cancer. The Company began to market and promote Nilandron(R) in
September 2000 through the use of a dedicated sales force. Under the terms of
the Nilandron Agreement, Cell Pathways is responsible for all marketing and
promotion expenses and will receive a percentage of sales in excess of a
pre-established sales threshold.

On November 3, 1998, the Company CPI completed a financing through the
acquisition of Tseng Labs, Inc. ("Tseng") (a publicly held company with no
continuing operations which, subsequent to the transaction, became a subsidiary
of CPI), in which CPI issued to Tseng stockholders approximately 5.5 million
shares of CPI Common Stock and received net proceeds of approximately $26.4
million. In October 1999, the Company issued 1.555 million shares of Common
Stock for net proceeds of approximately $13.5 million. This increased the Common
Stock outstanding to 26.1 million shares. During the nine months ended September
30, 2000, the Company received approximately $20.8 million primarily from the
exercise of previously issued Common Stock warrants and options which increased
the Common Stock outstanding to 27.9 million shares.

The Company has not received any revenue from the sale of its products,
and none of its product candidates has been approved for marketing. The Company
does not anticipate that the revenues to the Company under the Nilandron
Agreement will be material. The Company's income has been limited to interest
income from investments, and its primary source of capital has been the sale of
its equity securities, including the transaction with Tseng. Annual losses were
$19,633,722 and $19,345,436 in 1999 and 1998, respectively. As of September 30,
2000, CPI's accumulated deficit was $86,133,594 and its unrestricted cash and
cash equivalents were $31,329,307. The Company anticipates that it will continue
to incur additional operating losses for the next several years. There can be no
assurance that any of its product candidates will be approved for marketing,
that profitability will be attained or, if profitability is achieved, that the
Company will remain profitable on a quarterly or annual basis in the future. The
Company's operating results will fluctuate from quarter to quarter. Some of
these fluctuations may be significant and, as a result, quarter to quarter
comparisons may not be meaningful.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2000 Compared with Three Months Ended
September 30, 1999. Total expenses for the three months ended September 30, 2000
were $8,008,059, an increase of $3,235,078 or 67.8% from the same period in
1999. Research and development expenses for the three months ended September 30,
2000 were $5,909,609, an increase of $2,382,615 or 67.5%, from the three months
ended September 30, 1999. Such increase was primarily due to purchases of raw
materials of Aptosyn(TM) for clinical trials and commercial supply, and expenses
associated with the continued development of the Company's second generation
compound CP461. General and administrative expenses were $2,098,450 for the
three months ended September 30, 2000, an increase of $852,463 or 68.4%, from
the same period in 1999. Such increase was primarily due to expenses associated
with the hiring and training of a sales organization to promote Nilandron(R) to
urologists engaged in the treatment of advanced prostate cancer.

Interest income was $528,642 for the three months ended September 30,
2000, an increase of $206,377 or 64.0% from the same period in 1999 primarily
due to higher average cash balances.

Nine Months Ended September 30, 2000 Compared with Nine Months Ended
September 30, 1999. Total expenses for the nine months ended September 30, 2000
were $22,712,699, an increase of $7,609,187 or 50.4% from the same period in
1999. Research and development expenses for the nine months ended September 30,
2000 were $16,527,371, an increase of $4,882,142 or 41.9%, from the nine months
ended September 30, 1999. Such increase was due to purchases of raw material of
Aptosyn(TM) for clinical trials and commercial supply, an increase in personnel,
and expenses to support the development of Aptosyn(TM) and CP461. General and
administrative expenses were $6,185,328 for the nine months ended September 30,
2000, an increase of $2,727,045 or 78.9%, from the same period in 1999. Such
increase was primarily due to expenses associated with preparations for the
commercialization of Aptosyn(TM) and expenses associated with the hiring and
training of a sales organization to promote Nilandron(R).

Interest income was $1,542,599 for the nine months ended September 30,
2000, an increase of $527,105 or 51.9% from the same period in 1999 primarily
due to higher average cash balances.

9
11
LIQUIDITY AND CAPITAL RESOURCES

Cell Pathways has financed its operations since inception primarily
with the net proceeds received from private placements of equity securities and
the transaction with Tseng. Financing activities have generated net proceeds of
$117,346,035 from inception through September 30, 2000. During the nine months
ended September 30, 2000, the Company's cash from financing activities increased
$21,413,461, primarily as a result of the exercise of Common Stock warrants and
options.

At September 30, 2000, the Company had cash and cash equivalents of
$31,329,307, a decrease of $683,811 from the cash and cash equivalent position
at December 31, 1999. Cash was used to finance the net loss of $21,170,100 in
the first nine months of 2000. Such use of cash was offset by approximately
$21,413,461 from financing activities, principally the exercise of Common Stock
warrants and options. During the nine months ended September 30, 2000, the
Company made advance payments of $1,114,653 towards future manufacturing
expenses for Aptosyn(TM) for clinical and commercial supplies.

The Company invests its excess cash primarily in low risk, highly
liquid money market funds and U.S. government treasuries. CPI had $666,998 in a
restricted account pledged as security for a letter of credit for a security
deposit under the lease of its Horsham, Pennsylvania facility, and as security
to a letter of credit for a portion of a software lease commitment.

During the nine months ended September 30, 2000 and 1999, the Company
acquired $417,318 and $342,689, respectively, in equipment, furniture and
leasehold improvements for its research laboratories and offices in its Horsham
facility.

The Company leases approximately 40,000 square feet of laboratory and
office space in Horsham, Pennsylvania under a ten-year lease which expires in
2008 and which contains two five-year renewal options. The Company believes its
facilities will be adequate for the foreseeable future.

Until such time as the Company receives significantly increased
revenues, the Company's cash position will continue to be reduced due to
expenditures in basic research, clinical research, product development,
marketing, selling and administrative activities. Failure to achieve regulatory
approvals for the Company's products currently in development would have a
material adverse effect on the Company. There can be no assurance that the
Company will be able to achieve FDA approval of Aptosyn(TM) for FAP or any
other indication, or that the Company will be able to receive FDA approval of
any of its product candidates. The Company anticipates that other developments
and its basic research, clinical research, product development, marketing,
selling and administrative activities will require additional funding.

12
The Company cannot predict the date of its first product approval, if
any, the rate of revenue generated from initial product sales, if achieved, or
the level of expense which may be associated with such initial product sales.
Accordingly, the Company anticipates that it will require additional financing
in the future to continue its research and development programs. Absent
sufficient revenue from product sales, CPI plans to finance its anticipated
growth and development largely through equity or debt financing and/or strategic
alliances with corporate partners. The Company believes, based on its current
operating plans, that its existing cash and cash equivalents balance of
$31,329,307 as of September 30, 2000, together with interest earned on these
balances, will provide sufficient working capital to sustain operations into the
second half of 2001. However, there can be no assurance the Company will not
require additional funding prior to that time, as the Company must adapt to
changing circumstances arising from within the Company's programs or from
outside the Company. There can be no assurance that additional equity or debt
financing or corporate collaborations will be available on terms acceptable to
CPI, if at all. Any additional equity financing would be dilutive to
stockholders. Debt financing, if available, may include restrictive covenants.
Corporate alliances could require the Company to give up certain marketing
rights or other rights to its potential products and technology. If additional
funds should be needed but are not available, CPI may be required to modify its
operations significantly or to obtain funds by entering into collaborative
arrangements or other arrangements on unfavorable terms. The failure by CPI to
raise capital on acceptable terms if and when needed would have a material
adverse effect on CPI's business, financial condition and results of operations.

INFLATION

The Company does not believe that inflation has had any significant
impact on its business to date.

INCOME TAXES

As of September 30, 2000, CPI has net operating loss carryforwards
("NOLs") for income tax purposes available to offset future federal income tax,
subject to limitations for alternative minimum tax. In addition, the Company has
other significant deferred tax assets that will also offset future income tax.
As the Company has not yet achieved profitable operations, management believes
the tax assets do not satisfy the realization criteria of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" and therefore the
Company has recorded a valuation allowance for the entire amount of its net tax
asset as of September 30, 2000. (Also see Note 11 of notes to consolidated
financial statements in the Company's annual report on Form 10-K.)

The Tax Reform Act of 1986 contains provisions that may limit the NOLs
available to be used in any given year upon the occurrence of certain events,
including significant changes in ownership interest. A change in ownership of a
company greater than 50% within a three-year period results in an annual
limitation on CPI's ability to utilize its NOLs from tax periods prior to the
ownership change. The Company believes that the transaction with Tseng triggered
such limitation. However, the Company does not expect such limitation to have a
significant impact on its operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

The Company's exposure to market risk for changes in interest rates
primarily relates to the Company's investment portfolio. The Company is averse
to principal loss and seeks to limit default risk, market risk and reinvestment
risk. In particular, the Company does not use derivative financial instruments
in its investment portfolio, places its investments with high quality issuers
and, except for investments with the U.S. Government, limits the amount of
credit exposure to any one issuer. The Company mitigates default risk by
investing in only the safest and highest credit quality securities,
predominantly those of the U.S. Government, and by positioning its portfolio to
respond appropriately to a significant reduction in a credit rating of any
investment issuer, guarantor or depository. The portfolio includes only
marketable securities with active secondary or resale markets to ensure
portfolio liquidity and has historically been invested in securities which have
original maturities of less than three months to ensure principal preservation.
As of September 30, 2000 and 1999, the Company was primarily invested in U.S.
Government securities and money market funds, which were classified as cash and
cash equivalents and restricted cash (included in other assets) in the Company's
financial statements. The investments had principal (or notional) amounts of
$32,229,300 and $24,400,048, respectively, which were equal to their fair value,
average interest rates of 5.7% and 4.6%, respectively, and maturities of less
than three months.

11
13
PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth in Note 5 to the notes to the Company's
condensed consolidated financial statements included herein is hereby
incorporated by reference.

ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS

During the three months ended September 30, 2000, the Company issued
234,179 shares of Common Stock for $3,278,506 pursuant to the exercise of
previously outstanding warrants issued in 1999; pursuant to the exemption
provided by Section 4(2) of the Securities Act. The Company plans to use the
proceeds from the aforementioned exercises of warrants to support its research
and development programs and for general corporate purposes.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) The following is a list of exhibits filed as part of the Form 10-Q.

27.1 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only, and not filed.

(b) Reports on Form 8-K.

The Company filed a Report on Form 8-K dated September 29, 2000,
reporting under Item 5 - Other Events.

14
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.

CELL PATHWAYS, INC.

Dated: November 3, 2000 By: /s/ Robert J. Towarnicki
--------------------------------------------
Robert J. Towarnicki

President, Chief Executive Officer and
Director (Principal Executive Officer)

Dated: November 3, 2000 By: /s/ Brian J. Hayden
--------------------------------------------
Brian J. Hayden

Chief Financial Officer; Vice President -
Finance; Treasurer (Principal Financial and
Accounting Officer)