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 March 31, 2002 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 April 30, 2002 there were 33,560,273 shares of Common Stock, par value $0.01
per share, outstanding.

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

INDEX TO FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2002

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

Item 1 Financial Statements:

Consolidated Balance Sheets as of March 31, 2002
and December 31, 2001............................................. 3

Consolidated Statements of Operations for the three
months ended March 31, 2002 and 2001 and for the period
from inception (August 10, 1990) to March 31, 2002................ 4

Consolidated Statements of Cash Flows for the
three months ended March 31, 2002 and 2001 and for the period
from inception (August 10, 1990) to March 31, 2002................ 5

Notes to Consolidated Financial Statements ....................... 6 - 8

Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 9 - 13

Item 3 Quantitative and Qualitative Disclosures about Market Risk........ 13 - 14

PART II OTHER INFORMATION

Item 1 Legal Proceedings................................................. 14

Item 2 Changes in Securities............................................. 14

Item 6 Exhibits and Reports on Form 8-K.................................. 14

Signatures........................................................ 15

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

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

MARCH 31, DECEMBER 31,
2002 2001
------------- -------------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 6,574,283 $ 2,905,767
Short-term investments ......................................... 19,455,399 24,808,148
Accounts receivable ............................................ -- 318,450
Prepaid expenses and other ..................................... 3,012,054 1,130,971
Due from insurance company ..................................... 2,000,000 2,000,000
------------- -------------
Total current assets ..................................... 31,041,736 31,163,336

EQUIPMENT, FURNITURE and LEASEHOLD IMPROVEMENTS .................. 940,198 992,856
RESTRICTED CASH .................................................. 464,759 463,499
NOTES RECEIVABLE FROM OFFICERS ................................... 957,549 944,397
OTHER ASSETS ..................................................... 1,041,202 57,400
------------- -------------
$ 34,445,444 $ 33,621,488
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of note payable ................................ $ 287,152 $ 277,473
Current installments of obligation under capital lease ......... 41,329 40,493
Accounts payable ............................................... 655,218 847,552
Accrued compensation ........................................... 436,967 764,843
Accrued litigation settlement and expense ...................... 2,275,737 2,642,822
Other accrued liabilities ...................................... 3,409,626 3,272,314
------------- -------------
Total current liabilities ................................ 7,106,029 7,845,497
------------- -------------
NOTE PAYABLE ..................................................... 104,808 180,330
------------- -------------
OBLIGATION UNDER CAPITAL LEASE ................................... 51,370 62,020
------------- -------------

STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 10,000,000 shares authorized,
none issued and outstanding .................................... -- --

Common Stock, $.01 par value, 150,000,000 shares authorized;
33,560,273 and 31,148,255 shares issued and outstanding ........ 335,602 311,482
Additional paid-in capital ..................................... 155,834,180 148,631,231
Stock subscription receivable from issuance of Common Stock .... -- (50,683)
Deferred Compensation .......................................... (69,907) (73,652)
Deficit accumulated during the development stage ............... (128,916,638) (123,284,737)
------------- -------------
Total stockholders' equity ............................... 27,183,237 25,533,641
------------- -------------
$ 34,445,444 $ 33,621,488
============= =============

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

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

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

PERIOD FROM
THREE MONTHS ENDED INCEPTION
MARCH 31, (AUGUST 10, 1990)
------------------------ TO
2002 2001 MARCH 31, 2002
---- ---- --------------

REVENUES ................................. $ -- $ 316,973 $ 1,271,925

EXPENSES:
Research and development .............. 4,311,246 3,782,214 97,717,482
Selling, general and administrative ... 2,259,476 1,942,632 31,937,393
Litigation settlement and expense ..... (850,000) -- 7,642,000
------------- ------------- -------------
Operating loss ...................... (5,720,722) (5,407,873) (136,024,950)
INTEREST INCOME, net ..................... 88,821 641,006 7,108,312
------------- ------------- -------------
NET LOSS ................................. $ (5,631,901) $ (4,766,867) $(128,916,638)
============= ============= =============

Basic and diluted net loss per Common
Share ................................. $ (0.18) $ (0.15)
============= =============
Shares used in computing basic and
diluted net loss per Common Share ..... 31,322,203 31,089,838
============= =============

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

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

PERIOD FROM
THREE MONTHS ENDED INCEPTION
MARCH 31, (AUGUST 10, 1990)
--------- TO
2002 2001 MARCH 31, 2002
---- ---- --------------

OPERATING ACTIVITIES:
Net loss ................................................ $ (5,631,901) $ (4,766,867) $(128,916,638)
Adjustments to reconcile net loss to net cash
used in operating activities:
Settlement of litigation through agreement to
Issue Common Stock ..................................... (850,000) -- 6,987,000
Depreciation and amortization expense ................... 128,400 128,612 2,408,252
Loss on disposal of assets .............................. -- -- 19,152
Interest income on notes receivable from officers ....... (13,152) (9,705) (68,595)
Interest income on promissory note from director ........ (284) -- (13,967)
Amortization of deferred compensation ................... 3,745 -- 4,993
Issuance of Common Stock for services rendered .......... -- -- 48,578
Issuance of Common Stock options for services rendered .. (22,273) (12,208) 452,053
Provision for redemption of Redeemable Preferred Stock .. -- -- 1,017,387
Write-off of deferred offering costs .................... -- -- 469,515
Decrease in accounts receivable ......................... 318,450 12,721 --
Other ................................................... -- -- 68,399
Increase in prepaid expenses and other current assets ... (1,881,083) (765,869) (2,693,428)
Increase in due from insurance company .................. -- -- (2,000,000)
(Increase) decrease in other assets ..................... (469) -- 92,898
Increase (decrease) in accounts payable and
accrued liabilities .................................... (382,898) 117,968 1,880,820
Increase (decrease) in accrued litigation
settlement and expense ................................. (367,085) -- 2,275,737
------------- ------------- -------------
Net cash flows used in operating activities ........... (8,698,550) (5,295,348) (117,967,844)
------------- ------------- -------------
INVESTING ACTIVITIES:
Purchase of equipment, furniture and
leasehold improvements .................................. (59,075) (24,917) (5,703,403)
Sale of leasehold improvements .......................... -- -- 3,000,000
Purchase of marketing and distribution rights ........... (1,000,000) -- (1,000,000)
Increase in notes receivable from officers .............. -- (60,000) (888,954)
Cash paid for deposits .................................. -- -- (50,767)
(Purchase) sale of short term investments ............... 5,352,749 (9,828,950) (19,455,399)
------------- ------------- -------------
Net cash flows used in investing activities ............ 4,293,674 (9,913,867) (24,098,523)
------------- ------------- -------------
FINANCING ACTIVITIES:
Proceeds from the issuance of Common Stock,
net of related offering costs .......................... 8,007,324 -- 44,707,573
Proceeds from the exercise of Series E, F,
G, and Common Stock warrants to purchase
stock .................................................. -- -- 19,966,894
Proceeds from the issuance of Common Stock
under the Employee Stock Purchase Plan ................. 92,018 88,505 777,328
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 the exercise of options to
purchase Common Stock .................................. -- 19,127 2,846,692
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 ............................. (1,260) (9,253) (464,759)
Cash received from stock subscription ................... 50,967 -- 50,967
Principal payments under capital lease obligations ...... (9,814) (38,218) (368,353)
Proceeds from borrowings ................................ -- -- 950,000
Repayment of borrowings ................................. (65,843) (57,405) (558,040)
------------- ------------- -------------
Net cash flows provided by financing activities ........ 8,073,392 2,756 148,640,650
------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents ............................................ 3,668,516 (15,206,459) 6,574,283
CASH AND CASH EQUIVALENTS, beginning of period .......... 2,905,767 49,528,407 --
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of period ................ $ 6,574,283 $ 34,321,948 $ 6,574,283
============= ============= =============

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002

(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, the successor to, a Delaware
corporation of the same name. As the context requires, the "Company" is used
herein to signify the successor and/or the predecessor corporations.

The Company is a development stage pharmaceutical company focused on
the research and development of products to treat and prevent cancer, the future
commercialization of such products and the marketing and selling of
oncology-related products produced by others. The Company has not generated any
revenues from the sale of its products to date, nor is there any assurance of
any future product revenues from the development of its products. 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 and corporate alliances. There is no
assurance, however, that such additional funding will be available on terms
acceptable to the Company, if at all. In September 2000, the Company commenced
the marketing of a product made by another company. The Company will continue to
be considered in the development stage until such time as it generates
significant revenues from operations, whether through the marketing of its own
products or through the sales and marketing of products manufactured by third
parties. Management believes that the Company's existing cash, cash equivalents
and short-term investments will be adequate to fund operations into the second
quarter of 2003, based on projected revenue and expenditure levels. As of March
31, 2002, the Company had a deficit accumulated during the development stage of
$128,916,638. Should appropriate sources of funding not be available on terms
acceptable to the Company, management would take action which could include the
delay of certain clinical trials and research activities until such time as
appropriate sources of funding were available.

On November 3, 1998, the Company completed a financing through the
acquisition of Tseng Labs, Inc. ("Tseng") (a publicly held company with no
continuing operations) 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.

In July 2000, the Company entered into an exclusive marketing and
promotion agreement (the "Nilandron Agreement") with Aventis Pharmaceuticals
Inc. ("Aventis"), to market Nilandron(R) (nilutamide) to urologists in the U.
S. and Puerto Rico for use in patients who suffer from prostate cancer. The
Company began to market and promote Nilandron(R) in September 2000. Under the
terms of the Nilandron Agreement, the Company is responsible for its marketing
and promotion expenses and receives from Aventis a percentage of the gross
margin on Aventis' sales in excess of a pre-established gross margin threshold,
if any.

In January 2002, the Company entered into a ten-year exclusive
distribution agreement (the "Gelclair Agreement") with Sinclair Pharmaceuticals
Ltd. ("Sinclair") to promote and distribute Gelclair(TM) Concentrated Oral Gel
in North America (U.S., Canada and Mexico). Gelclair(TM) is an oral gel
formulation for the management and relief of pain associated with inflammation
and ulceration of the mouth caused by chemotherapy or radiotherapy treatments
and other causes. The Company plans to promote Gelclair(TM) in the oncology
market. The Company will purchase Gelclair(TM) from Sinclair and resell to North
American markets, with any revenues derived from the sale of Gelclair(TM) being
recognized by the Company.

Basis of Presentation

The unaudited consolidated financial statements as of March 31, 2002
and for the three months ended March 31, 2002 and 2001 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, 2001
included in the Company's annual report on Form 10-K filed with the Securities
and Exchange Commission.

2. ACQUISITION OF PRODUCT RIGHTS

In January 2002, the Company entered into a ten-year exclusive
distribution agreement with Sinclair to promote and distribute Gelclair(TM) in
North America. The Company plans to promote Gelclair(TM) in the oncology market.
Under the Gelclair Agreement, the Company has paid Sinclair $1 million for the
exclusive right to market and distribute Gelclair(TM) in North America, which
amount has been capitalized and is being amortized over the ten-year term of the
Gelclair Agreement. Additionally, the Company has made a $2 million payment, in
the first quarter of 2002, for future inventory purchases, and has committed to
additional inventory purchases of $2 million, $3 million and $5 million in 2002,
2003 and 2004, respectively, and could be responsible for milestone payments
totaling $3 million related to the achievement of certain sales, patent and
clinical trial milestones. The Company will purchase Gelclair(TM) from Sinclair
and resell to North American markets, with any revenues derived from the sale of
Gelclair(TM) being recognized by the Company.

3. SHORT TERM INVESTMENTS

The Company invests in U.S. Government securities. Securities with
maturity greater than three months at the time of purchase are considered to be
investments. The investments are classified as held-to-maturity and are stated
at amortized cost. The carrying amount of the investments approximates fair
value due to their short maturity.

4. BASIC AND DILUTED NET LOSS PER COMMON SHARE

The Company presents 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 assumed exercise of stock options and warrants is
anti-dilutive due to the Company's losses. The amount of Common Stock
equivalents excluded from the calculation are options and warrants to purchase
8,905,022 and 7,878,879 shares of Common Stock as of March 31, 2002 and 2001,
respectively. In addition, the weighted average Common Stock outstanding
excludes 1,700,000 shares to be issued in connection with the settlement of
litigation (Note 5).

5. LITIGATION

In March, April and May of 2001, eleven stockholder class actions were
filed in the United States District Court for the Eastern District of
Pennsylvania against the Company and certain of its officers and directors
seeking unspecified damages. The lawsuits allege that the Company and its
officers made false and misleading statements about the Company's lead drug
candidate which caused artificial inflation of the Company's stock price during
the class period of October 27, 1999 to September 22, 2000, when the Company
announced that the FDA had informed the Company that it would be receiving a
"not approvable" letter for its new drug application for its leading drug
candidate. In February 2002, an agreement in principle was reached to settle
this litigation for the issuance of 1.7 million shares of Common Stock by the
Company and the payment of $2 million. In connection with the settlement, the
Company's insurance company has agreed to pay $2 million to the Company. This
settlement is subject to execution of a final agreement and court approval,
after which notice and an opportunity to object must be furnished to the class.
There is no assurance that the settlement will be approved or completed in a
timely fashion or at all. As of December 31, 2001, the Company recorded the fair
value of the 1.7 million shares of Common Stock of $7,837,000, as an increase to
additional paid-in capital and recorded a charge to litigation settlement
expense for the fair value of the Common Stock. As of March 31, 2002, the fair
value of the 1.7 million shares was adjusted to $6,987,000 based on the current
fair value of the shares as of March 31, 2002, which resulted in an $850,000
reduction to the litigation settlement expense and a decrease to additional
paid-in capital. In addition, the Company has accrued the $2 million to be paid
by the Company's insurance company as a

liability and recorded a corresponding asset due from the insurance company.
Until such time as the settlement is approved by the court, the Company will
adjust the above value of the 1.7 million shares based on the then current fair
value of the shares. Such adjustments will result in non-cash income or expense
in subsequent interim periods.

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.

Certain statements in this report, and oral statements made in respect
of this report, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such 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, which could cause actual
results and developments to differ materially from those expressed or implied in
such statements. Such risks and uncertainties relate to, among other factors;
the absence of approved products; history of operating losses and the need for
further financing; dependence on the development, regulatory approval and market
acceptance of one or more of our product candidates for one or more significant
disease indications; early stage of development; the costs, delays and
uncertainties inherent in scientific research, basic pharmaceutical research,
drug development, clinical trials and the regulatory approval process, with
respect to both our current product candidates and our future product
candidates, if any; the risk that the Company does not conduct the clinical
studies it may have planned to conduct or does not pursue development plans it
may have planned to pursue; uncertainty that additional studies, if any, may not
be positive; limitations on, or absence of, the predictive value of data
obtained in laboratory tests, animal models and human clinical trials when
planning additional steps in product development; uncertainty of obtaining
regulatory approval of any compound for any disease indication whether due to
adequacy of the development program, changing regulatory requirements or
otherwise; the risk that the U.S. Food and Drug Administration ("FDA") will stop
or further delay the Phase III lung cancer study or any other study as a result
of safety or otherwise; the risk that clinical studies do not result in the
safety and efficacy necessary to obtain regulatory approvals; the risks of
conducting clinical trials including the risk of conducting clinical trials of
our drugs in combination with other drug therapies; the commercial risk and risk
of liability in marketing and selling Gelclair(TM) Concentrated Oral Gel,
including the risk that prescribers do not prescribe the product and sales do
not materialize, the risks associated with product launch, manufacturing and
marketing risks, and the risk that the Company's sales of Gelclair(TM) are less
than the Company's minimum purchase obligations; the commercial risk and risk of
liability in providing marketing services promoting Nilandron(R) (nilutamide)
manufactured by Aventis Pharmaceuticals Inc. ("Aventis") including the risk that
Aventis' sales of Nilandron(R) do not exceed the threshold entitling the Company
to a percentage of gross margin; the risk that the Company may enter into, or
may fail to enter into, licensing, partnership or other collaborative
arrangements or strategic alliances which accord to other companies rights with
respect to one or more Company compounds, technologies or programs or in which
the Company acquires new rights and obligations; the volatility of the market
price of our Common Stock; our ability to sell securities registered under the
shelf registration statement; acceptance of any product candidates by physicians
and providers of healthcare reimbursement; the actions of competitors; the pace
of technological changes in the biopharmaceutical industry; dependence upon
third parties; the validity, scope and enforceability of patents; the risk of
pending or future class action securities litigation; potential product
liability claims; and availability and adequacy of insurance.

These and other risks are detailed in our reports filed from time to
time under the Securities Act and/or the Securities Exchange Act, including the
sections entitled "Business," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Other Events" in
our annual reports on Form 10-K, quarterly reports on Form 10-Q and periodic
reports on Form 8-K and in such registration statements on Form S-3 as we may
file from time to time. You are encouraged to read these filings as they are
made. They are available over the Internet from the SEC in its EDGAR database at
http://www.sec.gov and from the Company. Be sure to read the "Risk Factors" in
Item 1 of Form 10-K (and also the discussion of the related subject matters
appearing in Item 1 of Form 10-K).

Given the uncertainties affecting pharmaceutical companies in the
development stage, you 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. No
forward-looking statement can be guaranteed; actual future results may vary
materially.

Both forward-looking statements and statements of historic fact must be
understood in the context of the risks referred to above which characterize our
development-stage business. We undertake no obligation to update or revise the
statements made herein or the risk factors that may relate thereto.

OVERVIEW

Cell Pathways, Inc. is a development stage pharmaceutical company
focused on the research and development of products to treat and prevent cancer,
the future commercialization of such products and the marketing and selling of
oncology-related products produced by others. 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
and, commencing in September 2000, the marketing of a product made by another
company. 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(R)
(exisulind). 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 use of Aptosyn(R) in treating familial adenomatous
polyposis, an orphan drug indication. In September 2000, the Company received a
"not approvable" letter from the FDA for this NDA. The Company currently is
focusing its development resources on Aptosyn(R) and CP461 in various cancer
indications. In March 2001, the Company initiated a Phase III randomized,
placebo controlled, double-blind multi-center study of 600 patients with
advanced non-small cell lung cancer ("NSCLC"), refractory to standard
platinum-containing combination chemotherapy, designed to evaluate Aptosyn(R) in
combination with Taxotere(R) versus Taxotere(R) and placebo. In October 2001,
the FDA put this study on clinical hold to new patient accrual pending
completion of a planned interim safety analysis. Patients already enrolled on
the protocol were allowed to continue treatment. Subsequent reviews by both the
independent data and safety monitoring board ("DSMB") and the FDA resulted in
the lifting of the clinical hold in December 2001 at which time the Company
resumed enrollment of new patients. In the third quarter of 2001, the Company
initiated pilot Phase IIa studies of CP461 in various cancer indications.

On November 3, 1998, CPI completed a financing through the acquisition
of Tseng Labs, Inc. ("Tseng") (a publicly held company with no continuing
operations) 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. During the year ended
December 31, 2000, the Company received approximately $23.1 million from the
issuance of 3.2 million shares of Common Stock and approximately $20.8 million
primarily from the exercise of previously issued Common Stock warrants and
options. In March 2002, the Company received approximately $8.0 million from the
issuance of 2.4 million shares of Common Stock. Common Stock outstanding at
March 31, 2002 and December 31, 2001 was 33.6 million and 31.1 million shares,
respectively.

In July 2000, the Company entered into an exclusive marketing and
promotion agreement (the "Nilandron Agreement") with Aventis Pharmaceuticals
Inc. ("Aventis"), to market Nilandron(R) (nilutamide) to urologists in the U.S.
and Puerto Rico for use in patients who suffer from prostate cancer. The Company
began to market Nilandron(R) in September of 2000. Under the terms of the
Nilandron Agreement, the Company is responsible for its marketing and promotion
expenses and receives from Aventis a percentage of the gross margin on Aventis'
sales in excess of a pre-established gross margin threshold, if any. The Company
did not recognize any revenue under the Nilandron Agreement in the first quarter
of 2002. For the first quarter of 2001, revenue of $316,973 was recognized under
the Nilandron Agreement.

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's income has been limited to interest income from investments and
revenues from the Nilandron Agreement beginning in the fourth quarter of 2000,
and its primary source of capital has been the sale of its equity securities,
including the transaction with Tseng. Net losses were $31,404,435 and
$26,916,808 for the years ended December 31, 2001 and 2000, respectively, and
the net loss for the three months ended March 31, 2002 was $5,631,901. As of
March 31, 2002, the accumulated deficit was $128,916,638 and the cash, cash
equivalents and short-term investments were $26,029,682. The Company anticipates
that it will continue to incur additional operating losses for the next several
years and that it will need to raise additional capital to sustain its
operations. Should appropriate sources of funding not be available on terms
acceptable to the

Company, management would take action which could include the delay of certain
clinical trials and research activities until such time as appropriate sources
of funding were available. There can be no assurance that any of the Company's
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 March 31, 2002 Compared with Three Months Ended
March 31, 2001.

Total expenses for the three months ended March 31, 2002 were
$5,720,722, a decrease of $4,124 or less than 1.0% from the same period in 2001.
Included in total expenses for the three months ended March 31, 2002 is an
$850,000 non-cash reduction of litigation settlement and expense related to the
Company's agreement in principle to settle its securities class action
litigation. This adjustment to the amount previously recorded as of December 31,
2001 represents the change in the fair value of the 1.7 million shares of the
Company's Common Stock to be issued in connection with the settlement. Until
such time as the settlement is approved by the court, the Company will adjust
the value of the 1.7 million shares based on the then current fair value of the
shares. Such adjustment will result in non-cash income or expense in subsequent
interim periods.

Research and development ("R&D") expenses for the three months ended
March 31, 2002 were $4,311,246, an increase of $529,032, or 14.0% from the same
period in 2001. This increase was primarily due to clinical study expenses
associated with the Company's Phase III clinical trial of Aptosyn(R) in
combination with Taxotere(R) in patients with non-small cell lung cancer, and
three ongoing pilot Phase IIa clinical trials of CP461 in patients with chronic
lymphocytic leukemia, hormone-refractory prostate cancer and renal ("kidney")
cell carcinoma. Selling, general and administrative ("S,G&A") expenses were
$2,259,476 for the three months ended March 31, 2002, an increase of $316,844,
or 16.3% from the same period in 2001. This increase was primarily due to
personnel expenses for our in-house sales force and consulting expenses related
to licensing Gelclair(TM).

For the three months ended March 31, 2002 there was no revenue received
from the Nilandron Agreement since Aventis' gross margin on sales of
Nilandron(R) did not exceed the pre-established gross margin threshold due,
in part, to a one-time adjustment for contractual pricing. For comparative
purposes, revenues from the Nilandron Agreement were $316,973 for the three
months ended March 31, 2001.

Interest income, net of interest expense, was $88,821 for the three
months ended March 31, 2002, a decrease of $552,185 from the same period of
2001, due to lower average cash balances and lower interest rates on
investments.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations since inception primarily with
the net proceeds received from the sale of equity securities, including the
transaction with Tseng. Financing activities have generated net proceeds of
$148.6 million from inception through March 31, 2002.

At March 31, 2002, the Company had cash, cash equivalents, and
short-term investments of $26,029,682, a decrease of $1,684,233 from the
comparable balances at December 31, 2001. This decrease was primarily the result
of cash used to fund operation for the three months ended March 31, 2002, $3
million in payments to Sinclair for both the licensing rights to market
Gelclair(TM) and initial inventory commitments and a $0.6 million clinical trial
recruitment milestone payment for Aptosyn(R) in non-small cell lung cancer.
Partially offsetting the cash used in the first three months of 2002 was $8
million of cash received from a private placement of 2.4 million shares of the
Company's Common Stock. The Company invests its excess cash primarily in low
risk, highly liquid money market funds and U.S. government securities. At March
31, 2002 the Company had a portion of its excess cash invested in U.S.
government securities with original maturities in excess of three months,
thereby requiring such investments to be classified as short-term investments.
At March 31, 2002, the Company had $464,759 in a restricted cash account pledged
for a security deposit under the lease of its Horsham, Pennsylvania facility.

In March 2002, the Company sold 2,390,107 shares of Common Stock in a
private placement, mainly to institutional investors, at a price of $3.70 per
share, resulting in net proceeds of approximately $8.0 million. With each share
of Common Stock purchased, the Company issued a warrant to purchase twenty-five
one-hundredths (0.25) shares of the Company's Common Stock at $4.74 per share.
The warrants are exercisable until March 26, 2006.

CPI 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.

In March, April and May of 2001, eleven stockholder class actions were
filed in the United States District Court for the Eastern District of
Pennsylvania against the Company and certain of its officers and directors
seeking unspecified damages. The lawsuits alleged that the Company and its
officers made false and misleading statements about the Company's lead drug
candidate which caused artificial inflation of the Company's stock price during
the class period of October 27, 1999 to September 22, 2000, when the Company
announced that the FDA had informed the Company that it would be receiving a
"not approvable" letter for its NDA for its leading drug candidate. In February
2002, an agreement in principle was reached to settle this litigation for the
issuance of 1.7 million shares of Common Stock by the Company and the payment of
$2 million. In connection with the settlement, the Company's insurance company
has agreed to pay $2 million to the Company. This settlement is subject to
execution of a final agreement and court approval, after which notice and an
opportunity to object must be furnished to the class. There is no assurance that
the settlement will be approved or completed in a timely fashion or at all. As
of December 31, 2001, the Company recorded the fair value of the 1.7 million
shares of Common Stock of $7,837,000 as an increase to additional paid-in
capital and recorded a charge to the litigation settlement expense for the fair
value of the Common Stock and the estimated legal costs of $655,000. As of March
31, 2002 the Company reduced the value of the 1.7 million shares by $850,000
resulting in a reduction to both the litigation settlement expense and
additional paid-in capital based on the current fair value of the Common Stock
as of March 31, 2002. In addition, the Company has accrued the $2 million to be
paid by the Company's insurance company as a liability and recorded a
corresponding asset due from the insurance company.

Under the Gelclair Agreement, in the first quarter ended March 31,
2002, the Company has paid Sinclair $1 million for the exclusive right to market
and distribute Gelclair(TM) in North America and $2 million for future inventory
purchases. The Company has committed to additional inventory purchases of $2
million, $3 million and $5 million in 2002, 2003 and 2004, respectively, and
could be responsible for milestone payments totaling $3 million related to the
achievement of certain sales, patent and clinical trial milestones.

The Company anticipates the annual expenditures for preclinical
studies, clinical trials, product development, research, selling and marketing,
and general and administrative expenses will increase significantly in future
years. CPI anticipates that it will need to raise additional capital. There can
be no assurance that the Company will be able to successfully complete the
clinical development of Aptosyn(R), CP461 or any other drug candidate for any
indication, that the FDA will grant approval of any drug candidate for any
indication, or that the other developments or expansions in CPI's research,
development and commercialization and sales and marketing programs will
ultimately lead to revenues or profitability for the Company.

CPI cannot predict the date of its first product approval, if any, the
rate of revenue generated from initial product sales, if achieved, the level of
expense which may be associated with such initial product sales, or the level of
revenue and expense associated with the marketing and/or selling of products
made by others. The Company anticipates that it will require additional
financing in the future to continue its research and development programs. Until
such time as CPI is able to generate sufficient revenue, if ever, CPI plans to
finance its anticipated growth and development largely through equity or debt
financing and/or strategic or corporate alliances. CPI believes, based on its
current operating plans, that its existing, cash, cash equivalents and
short-term investments balance of approximately $26.0 million as of March 31,
2002, together with interest earned on these balances, will be adequate to fund
operations into the second quarter of 2003. However, there can be no assurance
that 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 and 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. Should appropriate sources of funding not be
available on terms acceptable to the Company, management would take action which
could include the delay of certain clinical trials and research activities until
such time as appropriate sources of funding was available. Any additional equity
financing would be dilutive to stockholders. Debt financing, if available, may
include restrictive covenants and also may be dilutive. Corporate alliances
would generally 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, the Company 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 March 31, 2002, 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 March 31, 2002. (Also see Note 11 of notes to consolidated financial
statements in the Company's December 31, 2001 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.

CRITICAL ACCOUNTING POLICIES

Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 2 of the notes to consolidated financial statements,
in the Company's December 31, 2001 annual report on Form 10-K, includes a
summary of our significant accounting policies and methods used in the
preparation of our consolidated financial statements. While, the preparation of
our consolidated financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
reported amounts of expenses during the reporting period, we do not believe the
Company's financial statements are significantly affected by complex accounting
policies and methods, given our stage of development.

REVENUE RECOGNITION

We recognize revenue under the Nilandron Agreement in the period in
which marketing services are performed if Aventis' gross margin of sales of
Nilandron(R)for that period exceed specified thresholds. In January 2002, we
entered into the Gelclair Agreement to market and distribute Gelclair(TM) in
North America. We anticipate commencing sales of Gelclair(TM) in the second
quarter of 2002. While we have not finalized the sales terms for Gelclair(TM),
the recognition of revenue from the sale of Gelclair(TM) could be subject to
certain pricing allowances or rights of product return granted to potential
customers. To the extent that we offer such terms to our customers, this could
have an impact on our revenue recognition policy for sales of Gelclair(TM).

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 seven months to ensure principal preservation.
As of March 31, 2002, the Company was primarily invested in U.S. Government
securities and money market funds, which were classified as cash, cash
equivalents and short-term

investments in the Company's financial statements. The investments had principal
(or notional) amounts of $19,549,000 which were equal to their fair value, an
average interest rate of 1.9% and maturities of less than one year.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 2. CHANGES IN SECURITIES.

In March 2002, the Company sold 2,390,107 shares of Common Stock in a
private placement, to institutional investors, at a price of $3.70 per share,
resulting in net proceeds of approximately $8.0 million after fees and expenses
of approximately $0.8 million. With each share of Common Stock purchased, the
Company issued a warrant to purchase twenty-five one-hundredths (0.25) shares of
the Company's Common Stock at $4.74 per share. The warrants are exercisable
until March 26, 2006. The shares and warrants were issued pursuant to the
exemption provided by section 4(2) of the Securities Act of 1933.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) None.

(b) There were no reports on Form 8-K filed during the quarter ending March
31, 2002.

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: May 03, 2002 By: /s/ Robert J. Towarnicki
--------------------------------------------
Robert J. Towarnicki

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

Dated: May 03, 2002 By: /s/ Brian J. Hayden
--------------------------------------------
Brian J. Hayden

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