CASI Pharmaceuticals, Inc (DE) - Annual Report: 2002 (Form 10-K)

FORM 10-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C., 20549

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 For the
fiscal year ended December 31, 2002

Commission file number 0-20713

ENTREMED, INC.
______________
(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (240) 864 - 2600

Securities registered pursuant to Section 12 (g) of the Act:

Title
______________
Common Stock, Par Value $.01 Per Share

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment to this Form 10-K [x]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). [ ] Yes [ ] No

As of June 30, 2002, the aggregate market value of the shares of common stock held by non-affiliates was approximately $ 64,896,000.

As of March 19, 2003, 24,418,566 shares of the Company’s common stock was outstanding.

Documents incorporated by reference

See Part III hereof with respect to incorporation by reference from the registrant’s definitive proxy statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 and the Exhibit Index hereto.

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ENTREMED, INC.
FORM 10-K — FISCAL YEAR ENDED DECEMBER 31, 2002

Contents and Cross Reference Sheet

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This report contains and incorporates by reference certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements may be identified by forward-looking words such as “may,” “will,” “expect,” “anticipate” or similar words. These forward-looking statements include, among others, statements regarding our business strategy, the timing of our clinical trials and the expected increases in our expenses.

     Our forward-looking statements are based on information available to us today, and we will not update these statements. Our actual results may differ significantly from those discussed in our forward-looking statements due to, among other factors, our history of operating losses and anticipation of future losses; the value of our common stock; uncertainties relating to our technological approach; uncertainty of our product candidate development; our need for additional capital and uncertainty of additional funding; our dependence on collaborators and licensees; intense competition and rapid technological change in the biopharmaceutical industry; uncertainties relating to our patent and proprietary rights; uncertainties relating to clinical trials; government regulation and uncertainties of obtaining regulatory approval on a timely basis or at all; our dependence on key personnel, research collaborators and scientific advisors; uncertainties relating to health care reform measures and third-party reimbursement; risks associated with product liability; and other factors discussed in our other filings with the Securities and Exchange Commission. You are encouraged to review the risk factors included in this report.

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PART I

ITEM 1. BUSINESS

OVERVIEW

     EntreMed, Inc. is a clinical-stage biopharmaceutical company developing drug candidates that target cellular pathways associated with abnormal blood vessel growth (angiogenesis), inflammation and programmed cell death (apoptosis). These targets are associated with over 80 diseases such as cancer, blindness and atherosclerosis. The Company’s clinical drug candidates, led by the small molecule Panzem^®, have shown a strong safety profile with neither toxicity nor clinically significant side effects reported to date. Further, doctors have reported tumor regression and disease stabilization in some clinical oncology patients that have received EntreMed drug candidates. The Company also has a rich pipeline of compounds, consisting primarily of small molecules, peptides and small molecules that mimic peptides in preclinical development. These compounds target processes that occur in a wide variety of diseases by inducing apoptosis, as well as inhibiting inflammatory and angiogenic (blood vessel growth) pathways.

     We believe that Panzem^®, Endostatin, Angiostatin and our other compounds, particularly our small molecules, may prove effective in treating certain cancers and a broad range of other diseases. To date, however, we have not conducted clinical trials in diseases outside of cancer. We believe that our product candidates may have significant advantages over traditional cancer therapies, including a reduced likelihood of resistance, fewer side effects and the ability to be self-administered and administered in conjunction with other therapies.

SCIENTIFIC BACKGROUND

     Typically, angiogenesis involves the growth of tiny blood vessels, called capillaries, which extend from an existing blood vessel into the body’s tissues to provide nutrients and remove waste products. In humans, angiogenesis is essential during the first three months of embryonic development and during adulthood as a normal physiological process in menstrual cycling, fetal development and wound healing.

     Angiogenesis also occurs during disease states, as in the case of cancer (where the growth of new blood vessels is necessary to sustain tumor growth), certain types of blindness (where the newly formed blood vessels block vision) and psoriasis (where there is excessive blood vessel growth on the skin). We believe that angiogenesis inhibitors may have significant advantages over traditional therapies for these indications. Further, we believe that our compounds target or turns off the angiogenesis process at the most effective point – blood vessel (endothelial) cell proliferation and migration that is only associated with angiogenesis involved in these types of diseases. We also believe that compounds targeting mechanisms prior to this signature event may not be specific enough to be effective and have shown early signs of toxicity, side effects or drug resistance. We believe that compounds targeting the steps that follow endothelial cell proliferation and migration occur too late in the process and may not be effective. We also believe that endothelial cell proliferation and migration are the key step in the process of angiogenesis and will prove to be the most effective and safest approach to target, with the least negative effect on the body’s natural processes, and with reduced likelihood of drug resistance.

     In addition to angiogenesis, we are also researching other pathways, including those that induce apoptosis and inhibit inflammation with angiogenesis. We plan to continue to investigate these pathways in a wide number of disease areas.

PIPELINE

     Small molecules are the focus of our drug pipeline. We believe this class of compounds provides us a range of potential therapeutic applications in which the compounds can be delivered systemically or locally using various drug delivery and drug formulation technologies.

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PORTFOLIO OF DRUG CANDIDATES

CLINICAL DRUG CANDIDATES

     Our clinical drug candidates – Panzem^®, Endostatin and Angiostatin – are in four ongoing Phase II trials, with over 350 patients having enrolled in a total of 17 Phase I and II trials in the United States and Europe, including four trials sponsored by the National Cancer Institute. This does not include a clinical trial with ENMD 0995 being conducted at the Mayo Clinic for patients with multiple myeloma. As part of our December 2002 transaction with Celgene Corporation, we are transitioning data generating from the ENMD 0995 trial to Celgene (see Business Development). We do not intend to initiate new Endostatin and Angiostatin trials (see Corporate Focus & Strategy). We are testing all three drug candidates in cancer patients (a) as single agents and (b) in combination with chemotherapeutics or radiation therapy. The drug candidates have collectively demonstrated compelling safety profiles with signs of antitumor activity.

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*NCI-sponsored trial. EntreMed provides only the drug candidate for this trial.

     Panzem^®. A naturally occurring estrogen metabolite, Panzem^® (2-Methoxyestradiol, 2ME2) is a small molecule that attacks cancer in two ways. Like EntreMed’s other drug candidates, Panzem^® inhibits endothelial cell growth as an anti-angiogenesis drug. In addition, Panzem^® also directly kills tumor cells. Panzem^® has shown no cross resistance with cell lines resistant to various chemotherapy agents, and no evidence of behaving like the hormone estrogen, even though the compound is an estrogen by-product. EntreMed scientists have described Panzem^®’s mechanism of action as specifically causing programmed cell death (apoptosis). In preclinical studies, Panzem has demonstrated effects in blindness, osteoporosis and other diseases.

     Panzem^® has been administered in capsule form to more than 140 patients to date and has exhibited a strong safety profile. Clinicians have reported patients with signs of clinical benefit, including tumor regression and stable disease. The Company is currently working to reformulate Panzem^® to increase its bioavailablity, or rate of absorption, in the patient’s blood stream. A brief history of Panzem^® follows:

     Endostatin. Endostatin is a recombinant protein version of a naturally occurring fragment of collagen XVIII that blocks endothelial cell migration and inhibits the growth and development of primary tumors and metastases in mice. EntreMed scientists have shown that Endostatin’s mechanism of action involves binding to tropomyosin, a molecule involved in endothelial cell movement. Endostatin has been administered to over 170 patients by three routes of administration – intravenous delivery, continuous infusion (pump) and subcutaneous injection (self-injected shot). All routes have shown a strong safety profile, with some patients receiving Endostatin for over 22 months with no dose-limiting toxicity. Clinicians have reported stable disease and tumor regression in some patients. A brief Endostatin timeline is summarized below:

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     Angiostatin. Angiostatin is a naturally occurring fragment of plasminogen that binds to Angiomotin (a novel protein that regulates endothelial cell motility). Angiostatin has been administered to over 80 patients as a single agent and in combination studies with radiation therapy or chemotherapeutic drugs (paciltaxel and carboplatin). Angiostatin has shown a strong safety profile with no dose-limiting toxicity and no side effects. Clinicians have reported some patients with stable disease. A brief overview of Angiostatin’s development is below:

DISCOVERY & PRECLINICAL PROGRAM

     We are concentrating our scientific expertise and research and development funding on the continued development of small molecule compounds. We are identifying new small molecules that are currently under evaluation as potential product candidates, including:

     Panzem (2ME2) Analogs. Based on our in-depth understanding of Panzem,^® also known as 2-Methosyestradiol or 2ME2, we are developing analogs or a “second generation” of Panzem^®-related compounds. These analog compounds may offer a more targeted therapeutic effect in certain diseases than the parent compound Panzem^®.

     Proteinase Activated Receptor-2 (PAR2) Inhibitors. PAR2 is a cell surface receptor that activates inflammatory processes, including those involved in arthritis, asthma and cancer. We are developing inhibitors of this receptor that may be useful in treating these and other inflammatory diseases.

     Tissue Factor Pathway Inhibitor (TFPI). TFPI is a natural inhibitor of blood clotting that has also shown antitumor activity in animals. We have identified a mechanism underlying these effects and we are identifying additional compounds with similar activity.

CORPORATE FOCUS & STRATEGY

     During the summer of 2002, we chose to shift our financial and scientific focus to our small molecule programs, led by our clinical drug candidate Panzem^® (2ME2). Historically, we were known for our development of our protein drug candidates Endostatin and Angiostatin. However, we believe our small molecules programs, including Panzem^® and its 2ME2 analogs, are potentially our most valuable assets because they offer the broadest potential for success for the following reasons:

     Preclinical and clinical progress to date. Our small molecule compounds have produced encouraging data and potential versatility that warrant their being moved into the next stages of development.

     Intellectual Property Position. Many of the small molecules have been discovered and developed in-house by EntreMed scientists, and are the property of EntreMed. Therefore, we lessen our obligations to pay milestone, royalty or licensing fees. We will continue to support our in-house discovery and development efforts.

     Versatility. Our small molecules are also our most versatile compounds, in terms of possible therapeutic applications. While we continue our efforts in oncology, we are also researching applications in cardiovascular disease, bone disease, women’s health, dermatology, inflammation and ophthalmology.

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     Economical Feasibility. Our small molecules are more economically feasible when we compared the costs and potential therapeutic benefits associated with our small molecule and our protein programs. Small molecules are more predictable in development and scale-up. This translates into lower development, manufacturing, and other associated costs. Additionally, our small molecules may have the greatest economic return because they offer a number of potential therapeutic applications.

     With our focus now on small molecules, we have funded the continued research and development of Panzem^®, its analogs, and our other small molecule programs. We are also supporting business activities related to their development. We believe that we have the in-house expertise necessary to put our scientific strategies into action. The scientists in our small molecule programs were retained during our recent staff reductions and are key to the successful commercialization of these compounds.

     Having made the decision to be a small molecule company, we then focused our efforts to minimize ongoing protein-related costs, while preserving each program’s value for potential business opportunities. We ended virtually all collaborative research projects with academic institutions and significantly reduced protein program staff. While we continue our current Endostatin and Angiostatin clinical trials, we will not initiate new trials using our protein drug candidates. We are continuing our co-development and licensing efforts for our protein programs.

BUSINESS DEVELOPMENT

     As we have prioritized our small molecule program, we have refocused our business plan to ensure that our business and scientific efforts are properly directed towards commercialization of what we consider our best drug candidates. Our business plan creates new opportunities to maximize our scientific talent and expertise. For instance, while researching and developing Panzem^®, EntreMed scientists acquired an in-depth understanding of the compound’s characteristics. This has led to the in-house development of proprietary 2ME2 analogs – compounds that may offer more targeted therapeutic effects than their parent compound, Panzem^®, in certain diseases. We are also leveraging our in-house scientific expertise to understand disease pathways in addition to abnormal blood vessel growth. We have developed proprietary small molecule compounds that target processes that occur in a wide variety of diseases by inducing apoptosis, as well as inhibiting inflammatory and angiogenesis pathways. We plan to continue to investigate these new therapeutic pathways and their commercial applications in various diseases.

     We are realigning our on-going discussions with potential partners now that we are focusing on our small molecule programs. This new focus has broadened our partnership priorities for oncology and non-oncology applications. We continue our co-development and licensing efforts for our protein programs, including our two clinical candidates, Endostatin and Angiostatin. We are also working to monetize scientific assets that are not essential to our core business. We are actively working to find the appropriate partners that may be interested in licensing and developing these compounds. We are also exploring co-development relationships and funded-research opportunities with other biotechnology and pharmaceutical companies. We anticipate that by leveraging our scientific expertise through these types of arrangements, we will have the opportunity to bring additional funds to the Company, while maintaining our core small molecule focus.

     In December 2002, we sold our thalidomide analog programs to Celgene Corporation in a transaction with an aggregate value of approximately $27 million. Under the terms of the agreement, Celgene received all rights to the EntreMed thalidomide analog programs, including ENMD 0995 and ENMD 0997. In addition, we transferred to Celgene other assets and intellectual property with respect to our thalidomide analogs. In return, we received cash payments and equity investments in the form of convertible preferred stock and warrants. We also agreed with Celgene to dismiss recent lawsuits filed regarding patents and patent applications relating to ENMD 0995, the lead Phase I drug candidate in our thalidomide analog programs.

     The December 2002 agreement was our second licensing transaction with Celgene. In 1998, when we were conducting Phase II oncology trials with thalidomide, we licensed thalidomide to Celgene for angiogenesis-related uses only. All thalidomide analogs, including ENMD 0995, were excluded from that 1998 license agreement. Today, the originally licensed thalidomide molecule, now called THALOMID^® by Celgene, is approved by the Food

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and Drug Administration as a treatment for leprosy, but is used widely on an investigational basis for the treatment of multiple myeloma and other cancers. The original thalidomide and the thalidomide analogs licensed under the December 2002 agreement are separate and structurally distinct molecules.

EMPLOYEES

     As of December 31, 2002, we had 58 full-time employees, of which 36 were employed in our research and development department. We may hire additional personnel in addition to utilizing part-time or temporary consultants on an as-needed basis. None of our employees are represented by a labor union and we believe our relations with our employees are satisfactory.

RELATIONSHIPS – CORPORATE AND NON-PROFIT

     Strategic Alliance. In January 2002, we entered into a five-year strategic alliance with Allergan to develop small molecules for ophthalmic uses with local delivery to the eye. The first candidate to be developed is Panzem^® for treatment of age-related macular degeneration.

     Contract Manufacturing. The manufacturing efforts for the production of EntreMed’s clinical trial materials are performed by contract manufacturing organizations. Established relationships coupled with supply agreements have secured the necessary resources to ensure adequate supply of clinical materials to support our clinical development program. We believe that our current strategy of outsourcing manufacturing is cost-effective and allows for the flexibility we require.

     Panzem^®, the Company’s lead small molecule clinical drug candidate, is currently bulk manufactured by Akzo Nobel. We do not anticipate any challenges in securing contract manufacturing capacity at Akzo Nobel or another manufacturer to produce Panzem^®. Commonly, small molecule-based contract manufacturing facilities are more readily available than biological facilities because these compounds are more predictable in development and scale-up and, therefore, less costly in terms of time and money to produce.

     As a result of our focusing on the small molecule programs, we did not anticipate manufacturing additional protein-based materials. We are maintaining our relationship with our past protein contract manufacturer, Chiron Corporation, although we do not intend to utilize their manufacturing capacity in the future.

     Sponsored Research Agreements. As part of our transition to a small-molecule focus and to maximize resources to support our internal R&D efforts, we did not renew or we terminated our sponsored research agreements. We do, however, maintain rights — for a specific period of time following funding expiration — to all discoveries and data from research supported by our funds. Of note, we did not renew our collaborative research agreements with three scientists, Drs. Folkman, D’Amato and Moulton, at Children’s Hospital and we terminated our agreement with Harvard Medical School to fund Dr. Bjorn Olsen.

     Collaborative Research and Development Agreements (CRADAs). We have two CRADAs with the National Cancer Institute:

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     Clinical Trial Centers. As of December 31, 2002, we are conducting clinical trials at the following institutions:

PATENTS, LICENSES AND PROPRIETARY RIGHTS

     Our success will depend in part on our ability to obtain patent protection for our products, both in the United States and abroad. The patent position of biotechnology and pharmaceutical companies, in general, is highly uncertain and involves complex legal and factual questions.

     As of December 31, 2002, we own or have licensed on an exclusive basis a total of 81 patent applications and issued patents in the United States for our product candidates of which we own 36 and we license on an exclusive basis 45. We have a total of 157 patent applications pending in the United States and other countries.

     We have exclusively licensed from Children’s Hospital, Boston, 14 pending United States patent applications and five issued patents covering Endostatin, fragments of Endostatin, nucleic acid coding for Endostatin, the use of Endostatin as a therapeutic agent, and the use of Endostatin as a diagnostic agent. The patent applications also cover the combination of Endostatin and other chemotherapeutic agents, such as Angiostatin, as a therapeutic composition. We have a United States patent application directed to the production of Endostatin.

     We have licensed exclusively from Children’s Hospital, Boston, four pending United States patent applications and nine issued patents covering Angiostatin, nucleic acid coding for Angiostatin, the use of Angiostatin as a therapeutic agent and the use of Angiostatin as a diagnostic agent. We also have two United States patent applications directed to peptides and proteins that bind specifically to Angiostatin. We have a United States patent application directed to the production of Angiostatin.

     In addition, we have exclusively licensed technology from Children’s Hospital, Boston, which covers the use of steroid-derived small molecular weight compounds such as Panzem^® that are antimitotic and antiangiogenic agents. A patent application has been filed covering purified Panzem^® as a composition of matter. There are ten pending United States patent applications and six issued United States patents covering this technology. Patent applications also cover estrogen-related compounds with anti-fungal activity and the treatment of localized atherosclerosis.

     The terms of the licenses for Panzem^®, angiostatin, endostatin and thalidomide extend until the underlying patents expire.

     Patent applications corresponding to the above-described United States patent applications have been filed in Europe, Japan, Canada, Australia, and other selected countries.

     We have registered the trademarks ENTREMED, PANZEM, ANGIOSTATIN and THE ANGIOGENESIS COMPANY in the U.S. Patent and Trademark Office and have applied for registration of the mark in selected foreign countries. We have filed for registration of the marks PANZEM, VAREXIS, MERISIS, APOMIDE, VASCULOSTATIN, ENTREVEST and PHOSAIC in the U.S. Patent and Trademark Office.

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GOVERNMENT REGULATION

     Our development, manufacture, and potential sale of therapeutics are subject to extensive regulation by United States and foreign governmental authorities.

     The Food and Drug Administration (FDA) will regulate our product candidates currently being developed as drugs or biologics. New drugs are subject to regulation under the Federal Food, Drug, and Cosmetic Act, and biological products, in addition to being subject to certain provisions of that Act, are regulated under the Public Health Service Act. We believe that drug products developed by us or our collaborators will be regulated either as biological products or as new drugs. Both statutes and the regulations promulgated thereunder govern, among other things, the testing, manufacturing, safety, efficacy, labeling, storage, record keeping, advertising and other promotional practices involving biologics or new drugs, as the case may be. FDA approval or other clearances must be obtained before clinical testing, and before manufacturing and marketing of biologics or drugs.

     Obtaining FDA approval has historically been a costly and time-consuming process. Generally, in order to gain FDA premarket approval, a developer first must conduct preclinical studies in the laboratory and in animal model systems to gain preliminary information on an agent’s effectiveness and to identify any safety problems. The results of these studies are submitted as a part of an investigational new drug (IND) application for a drug or biologic, which the FDA must review before human clinical trials of an investigational drug can begin. The IND includes a detailed description of the clinical investigations to be undertaken.

     In order to commercialize any products, we or our collaborators must sponsor and file an IND and be responsible for initiating and overseeing the clinical studies to demonstrate the safety and effectiveness that are necessary to obtain FDA approval of any such products. For INDs sponsored by us or our collaborators, we or our collaborators will be required to select qualified investigators (usually physicians within medical institutions) to supervise the administration of the products, and ensure that the investigations are conducted and monitored in accordance with FDA regulations, including the general investigational plan and protocols contained in the IND.

     Clinical trials of drugs or biologics are normally done in three phases, although the phases may overlap. Phase I trials are concerned primarily with the safety and preliminary effectiveness of the drug, involve a small group ranging from 15 - 40 subjects, and may take from six months to over one year to complete. Phase II trials normally involve 30 - 200 patients and are designed primarily to demonstrate effectiveness in treating or diagnosing the disease or condition for which the drug is intended, although short-term side effects and risks in people whose health is impaired may also be examined. Phase III trials are expanded clinical trials with larger numbers of patients which are intended to evaluate the overall benefit-risk relationship of the drug and to gather additional information for proper dosage and labeling of the drug. Phase III clinical trials generally take two to five years to complete, but may take longer. The FDA receives reports on the progress of each phase of clinical testing, and it may require the modification, suspension, or termination of clinical trials, if it concludes that an unwarranted risk is presented to patients, or, in Phase II and III, if it concludes that the study protocols are deficient in design to meet their stated objectives.

     If clinical trials of a new product are completed successfully, the sponsor of the product may seek FDA marketing approval. If the product is regulated as a biologic, the FDA will require the submission and approval of a Biologics License Application (BLA) before commercial marketing of the biologic. If the product is classified as a new drug, an applicant must file a New Drug Application (NDA) with the FDA and receive approval before commercial marketing of the drug. The BLA or NDA must include detailed information about the product and its manufacture and the results of product development, preclinical studies and clinical trials.

     The testing and approval processes require substantial time and effort and there can be no assurance that any approval will be granted on a timely basis, if at all. Although it is the policy of the FDA to complete the review of the initial submission of BLAs and NDAs within ten months, the entire FDA review process may take up to two years to receive approval. If questions arise during the FDA review process, approval can take more than five years. Notwithstanding the submission of relevant data, the FDA may ultimately decide that the BLA or NDA does not satisfy its regulatory criteria for approval or there is inadequate demonstration of compliance with Good Manufacturing Practices (GMP) and on either basis deny the approval. Further, the FDA may require additional

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clinical studies before making a decision on approval. In addition, the FDA may condition marketing approval on the conduct of specific post-marketing studies to further evaluate safety and effectiveness. Even if FDA regulatory clearances are obtained, a marketed product is subject to continual regulatory requirements and review relating to GMP, adverse event reporting, promotion and advertising, and other matters. Discovery of previously unknown problems or failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market, as well as possible civil or criminal sanctions.

     As of December 31, 2002, the FDA is evaluating an extensive plan to reorganize which FDA centers review what types or classes of drug candidates. Although reorganization is anticipated, it has not been finalized. We do not anticipate a change in center review responsibility for our drug candidates. Based on the current FDA organizational structure, Panzem^®, its 2ME2 analogs, and other compounds in our small molecules programs are expected to be regulated as new chemical entities by the FDA’s Center for Drug Evaluation and Research. Generally, as new chemical entities are discovered, formal IND-directed toxicology studies will be required prior to human testing. The remainder of the developmental and regulatory requirements will be similar to that of any new drug.

     Angiostatin and Endostatin, each a naturally occurring substance, are considered biologics and are expected to be regulated by the FDA’s Center for Biologics Evaluation and Research. As genetically engineered and endogenous proteins, Angiostatin and Endostatin will face unique and specific regulation hurdles, such as those related to the manufacture of the products and the behavior of the products in the body. The regulatory requirements for recombinant proteins have been developed for other endogenous molecules and Angiostatin and Endostatin are expected to follow these established guidelines. As with Panzem^® and our other small molecule compounds, the remainder of the developmental and regulatory requirements for Angiostatin and Endostatin will be similar to that of any new drug.

COMPETITION

     Competition in the pharmaceutical, biotechnology and biopharmaceutical industries is intense and based significantly on scientific and technological factors, the availability of patent and other protection for technology and products, the ability and length of time required to obtain governmental approval for testing, manufacturing and marketing and the ability to commercialize products in a timely fashion. Moreover, the biopharmaceutical industry is characterized by rapidly evolving technology that could result in the technological obsolescence of any products that we develop.

     We compete with many specialized biopharmaceutical firms, as well as a growing number of large pharmaceutical companies that are applying biotechnology to their operations. Many biopharmaceutical companies have focused their development efforts in the human therapeutics area, and many major pharmaceutical companies have developed or acquired internal biotechnology capabilities or made commercial arrangements with other biopharmaceutical companies. These companies, as well as academic institutions, governmental agencies and private research organizations, also compete with us in recruiting and retaining highly qualified scientific personnel and consultants.

     Our competition will be determined in part by the potential indications for which our product candidates may be developed and ultimately approved by regulatory authorities. We may rely on third parties to commercialize our products, and accordingly, the success of these products will depend in significant part on these third parties’ efforts and ability to compete in these markets. The success of any collaboration will depend in part upon our collaborative partners’ own competitive, marketing and strategic considerations, including the relative advantages of alternative products being developed and marketed by our collaborative partners and our competitors.

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     Many other companies and research institutions are investigating the role of angiogenesis generally and specifically as it may be useful in developing therapeutics to treat various diseases associated with abnormal blood vessel growth. In studies available to date, these angiogenic inhibitors have shown varying effectiveness in inhibiting blood vessel growth, as well as differing degrees of bioavailability and toxicity. Significant further preclinical and clinical development of these products is needed prior to an assessment of the more significant competitive product candidates in the antiangiogenic disease indications targeted by us.

     Many of our existing or potential competitors have substantially greater financial, technical and human resources than we do and may be better equipped to develop, manufacture and market products. In addition, many of these competitors have extensive experience in preclinical testing and human clinical trials and in obtaining regulatory approvals. The existence of competitive products, including products or treatments of which we are not aware, or products or treatments that may be developed in the future, may adversely affect the marketability of products that we may develop.

RISK FACTORS

     The following risks and uncertainties are not the only ones facing us. Additional risks and uncertainties that we are unaware of or that we currently believe are not material could also materially adversely affect our business, financial condition or result of operations. In any case, the value of the common stock could decline, and you could lose all or part of your investment. You should also refer to the other information contained in this report or incorporated herein by reference, including our consolidated financial statements and the notes to those statements. See also, “Special Note Regarding Forward-Looking Statements.”

WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES

     To date, we have been engaged primarily in research and development activities. Although we have received license fees and research and development funding from a former collaborator, limited revenues on royalties from sales of THALOMID^®, and certain research grants, we have not derived significant revenues from operations.

     At December 31, 2002, we had an accumulated deficit of approximately $213,318,618. Losses have continued since December 31, 2002. We also will be required to conduct substantial research and development and clinical testing activities for all of our proposed products. We expect that these activities will result in operating losses for the foreseeable future before we commercialize any products, if ever. In addition, to the extent we rely on others to develop and commercialize our products, our ability to achieve profitability will depend upon the success of these other parties. To support our research and development of certain product candidates, we also rely to a significant extent on cooperative agreements from governmental and other organizations as a source of support. If our cooperative agreements were to be reduced to any substantial extent, it may impair our ability to continue our research and development efforts. Even if we do achieve profitability, we may not be able to sustain or increase it.

DEVELOPMENT OF OUR PRODUCTS IS AT AN EARLY STAGE AND IS UNCERTAIN

     Our proposed products and research programs are in the early stage of clinical development and require significant, time-consuming and costly research and development, testing and regulatory clearances. In developing our products, we are subject to risks of failure that are inherent in the development of products and therapeutic procedures based on innovative technologies. For example, it is possible that any or all of these proposed products or procedures will be ineffective or toxic, or otherwise will fail to receive necessary FDA clearances. There is a risk that the proposed products or procedures will be uneconomical to manufacture or market or will not achieve market acceptance. There is also a risk that third parties may hold proprietary rights that preclude us from marketing our proposed products or that others will market a superior or equivalent product. Further, our research and development activities might never result in commercially viable products.

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     Our product candidates are at the clinical and preclinical stages of development. Although several of our product candidates have demonstrated some success in preclinical studies, they may not prove to be similarly effective in humans.

     Testing of drug candidates on animals may occur under different conditions than testing in people. There are many regulatory steps that must be taken before any of these product candidates will be eligible for FDA approval and subsequent sale, including the completion of preclinical (animal) and clinical (human) trials. We do not expect that these product candidates will be commercially available for several years, if ever.

WE MUST SHOW THE SAFETY AND EFFICACY OF OUR PRODUCT CANDIDATES THROUGH CLINICAL TRIALS, THE RESULTS OF WHICH ARE UNCERTAIN

     Before obtaining regulatory approvals for the commercial sale of our products, we must demonstrate, through preclinical studies (animal testing) and clinical trials (human testing), that our proposed products are safe and effective for use in each target indication. We currently have three product candidates undergoing 9 phase I and phase II clinical trials at 11 different sites. Further testing of our product candidates will be required, and failure can occur at any stage of testing. Acceptable results from initial preclinical studies and clinical trials of products under development are not necessarily indicative of results that will be obtained from subsequent or more extensive preclinical studies and clinical testing in humans. Clinical trials may not demonstrate sufficient safety and efficacy to obtain the required regulatory approvals or result in marketable products. The failure to adequately demonstrate the safety and efficacy of a product under development could delay or prevent regulatory approval of the potential product.

     Clinical trials for the product candidates we are developing may be delayed by many factors, including that potential patients for testing are limited in number. The failure of any clinical trials to meet applicable regulatory standards could cause such trials to be delayed or terminated, which could further delay the commercialization of any of our product candidates. Any such delays will increase our product development costs. If such delays are significant they could negatively affect our financial results and the commercial prospects for our products.

MARKETING OUR PRODUCTS OUTSIDE OF THE UNITED STATES WILL ENTAIL ADDITIONAL COSTS

     We plan to eventually market our products outside of the United States. This will entail foreign regulatory approvals in countries that may have different requirements from the regulatory process in the United States, subjecting our products to additional clinical trials and approvals, as well as licensing, manufacturing and labeling standards, even though the products may be fully approved for manufacture, marketing and distribution in the United States. In order to satisfy any additional requirements that might be imposed by foreign governments, we may incur additional costs that will inhibit our profitability. If the relevant approvals cannot be obtained or will be too expensive to obtain, we might not be able to distribute our product candidates in foreign markets, despite the expenditure of time, effort and funds in an attempt to do so.

WE ARE UNCERTAIN WHETHER ADDITIONAL FUNDING WILL BE AVAILABLE FOR OUR FUTURE CAPITAL NEEDS AND COMMITMENTS

     We will require substantial funds in addition to our existing working capital to develop our product candidates and otherwise to meet our business objectives. We have never generated enough revenue during any period since our inception to cover our expenses and have spent, and expect to continue to spend, substantial funds to continue our research and development and clinical programs. Any one of the following factors, among others, could cause us to require additional funds or otherwise cause our cash requirements in the future to materially increase:

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WE MAY NEED NEW COLLABORATIVE PARTNERS TO DEVELOP AND COMMERCIALIZE PRODUCTS, AND IF WE ENTER INTO SUCH ARRANGEMENTS WE MAY GIVE UP CONTROL OVER THE DEVELOPMENT AND APPROVAL PROCESS AND DECREASE OUR POTENTIAL REVENUE

     We plan to develop and commercialize our product portfolio with or without corporate alliances and partners. Nonetheless, we intend to explore opportunities for new corporate alliances and partners to help us develop, commercialize and market our products. We expect to grant to our partners certain rights to commercialize any products developed under these agreements, and we may rely on our partners to conduct research and development efforts and clinical trials on, obtain regulatory approvals for, and manufacture and market any products licensed to them. Each individual partner will seek to control the amount and timing of resources devoted to these activities generally. We anticipate obtaining revenues from our strategic partners under such relationships in the form of research and development payments and payments upon achievement of certain milestones. Since we generally expect to obtain a royalty for sales or a percentage of profits of products licensed to third parties, our revenues may be less than if we retained all commercialization rights and marketed products directly. In addition, there is a risk that our corporate partners will pursue alternative technologies or develop competitive products as a means for developing treatments for the diseases targeted by our programs.

     We may not be successful in establishing any collaborative arrangements. Even if we do establish such collaborations, we may not successfully commercialize any products under or derive any revenues from these arrangements. Our strategy also involves entering into multiple, concurrent strategic alliances to pursue commercialization of our core technologies. There is a risk that we will not be able to manage simultaneous programs successfully. With respect to existing and potential future strategic alliances and collaborative arrangements, we will depend on the expertise and dedication of sufficient resources by these outside parties to develop, manufacture, or market products. If a strategic alliance or collaborative partner fails to develop or commercialize a product to which it has rights, we may not recognize any revenues on that particular product.

WE HAVE NO CURRENT MANUFACTURING OR MARKETING CAPACITY AND RELY ON ONLY ONE SUPPLIER FOR SOME OF OUR PRODUCTS

     We do not expect to manufacture or market products in the near term, but we may try to do so in certain cases. We do not currently have the capacity to manufacture or market products and we have limited experience in these activities. If we elect to perform these functions, we will be required to either develop these capacities, or contract with others to perform some or all of these tasks. We may be dependent to a significant extent on corporate partners, licensees, or other entities for manufacturing and marketing of products. If we engage directly in manufacturing or marketing, we will require substantial additional funds and personnel and will be required to comply with extensive regulations. We may not be able to develop or contract for these capacities when required to do so in connection with our business.

     We are currently manufacturing products for clinical trials on a contract basis. Panzem^®, our lead small molecule clinical drug candidate, is currently bulk manufactured by Akzo Nobel. As a result of our focusing on the small molecule programs, we did not anticipate manufacturing additional protein-based materials. We are maintaining our relationship with our past protein contract manufacturer, Chiron Corporation, although we do not intend to utilize their manufacturing capacity in the future.

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     We do not have arrangements in place with alternative suppliers if our current supplier is unable to deliver the product in necessary quantities. Therefore, we depend on all such third-party manufacturers to perform their obligations effectively and on a timely basis. These third parties may not meet their obligations and any such non-performance may delay clinical development or submission of products for regulatory approval, or otherwise impair our competitive position. Any significant problem experienced by one of our suppliers could result in a delay or interruption in the supply of materials to us until such supplier resolves the problem or an alternative source of supply is located. Any delay or interruption would likely lead to a delay or interruption of manufacturing operations, which could negatively affect our operations. Although we have identified alternative suppliers for our product candidates, we have not entered into contractual or other arrangements with them. If we needed to use an alternate supplier for any product, we would experience delays while we negotiated an agreement with them for the manufacture of such product. In addition, we may not be able to negotiate manufacturing terms with a new supplier that are as favorable as the terms we have with our current suppliers.

     Problems with any manufacturing processes could result in product defects, which could require us to delay shipment of products or recall products previously shipped. In addition, any prolonged interruption in the operations of the manufacturing facilities of one of our sole-source suppliers could result in the cancellation of shipments. A number of factors could cause interruptions, including equipment malfunctions or failures, or damage to a facility due to natural disasters or otherwise. Because our manufacturing processes are or are expected to be highly complex and subject to a lengthy FDA approval process, alternative qualified production capacity may not be available on a timely basis or at all. Difficulties or delays in our manufacturing could increase our costs and damage our reputation.

     The manufacture of pharmaceutical products can be an expensive, time consuming, and complex process. Manufacturers often encounter difficulties in scaling-up production of new products, including problems involving production yields, quality control and assurance, and shortages of personnel. Delays in formulation and scale-up to commercial quantities could result in additional expense and delays in our clinical trials, regulatory submissions, and commercialization.

FAILURE OF MANUFACTURING FACILITIES PRODUCING OUR PRODUCT CANDIDATES TO MAINTAIN REGULATORY APPROVAL COULD DELAY OR OTHERWISE HINDER OUR ABILITY TO MARKET OUR PRODUCT CANDIDATES

     Any manufacturer of our product candidates will be subject to applicable Good Manufacturing Practices (GMP) prescribed by the FDA or other rules and regulations prescribed by foreign regulatory authorities. We and any of our collaborators may not be able to enter into or maintain relationships either domestically or abroad with manufacturers whose facilities and procedures comply or will continue to comply with GMP and who are able to produce our small molecules and proteins.

     Should manufacturing agreements be entered into, our collaborators and we will be dependent upon such manufacturers for continued compliance with GMP. Failure by a manufacturer of our products to comply with GMP could result in significant time delays or our inability to obtain marketing approval or, should we have market approval, for such approval to continue. Changes in our manufacturers could require new product testing and facility compliance inspections. In the United States, failure to comply with GMP or other applicable legal requirements can lead to federal seizure of violative products, injunctive actions brought by the federal government, and potential criminal and civil liability on the part of a company and its officers and employees. Because of these and other factors, we may not be able to replace our manufacturing capacity quickly or efficiently, in the event that our current or future manufacturers are unable to manufacture our products at one of more of their facilities.

THE MANUFACTURE OF OUR PRODUCT CANDIDATES, MAY NOT BE COMMERCIALLY FEASIBLE

     The manufacturing processes for several of the small molecules and proteins we are developing as product candidates have not yet been tested at commercial levels, and it may not be possible to manufacture these materials in a cost-effective manner.

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OUR PRODUCTS MAY NOT ACHIEVE MARKET ACCEPTANCE

     Our success will be dependent on market acceptance of our products in the United States and, later, in international markets. Since we have not received the necessary approvals to sell our products in the United States or elsewhere, we cannot predict whether any of our products will achieve market acceptance, either in the United States or abroad. A number of factors may limit the market acceptance of our products, including the timing of regulatory approval and market entry relative to competitive products, the availability of alternative therapies or treatments, the price of our products relative to any alternatives, the availability of third-party reimbursement to pay for them, and the extent of the marketing efforts by competitors. Other risk factors identified in this section also may affect market acceptance of our product candidates.

WE DEPEND ON PATENTS AND OTHER PROPRIETARY RIGHTS, SOME OF WHICH ARE UNCERTAIN

     Our success will depend in part on our ability to obtain patents for our products, both in the United States and abroad. The patent position of biotechnology and pharmaceutical companies in general is highly uncertain and involves complex legal and factual questions. Risks that relate to patenting our products include the following:

     For several of the products that we are developing, including Panzem™, composition of matter patents are not available because the compounds are in the public domain. In these cases, only patents covering the “use” of the product are available. In general, patents covering a new use for a known compound can be more difficult to enforce against infringers of the use claims in the patent.

     Our potential products may conflict with patents that have been or may be granted to competitors, universities or others. As the biotechnology industry expands and more patents are issued, the risk increases that our potential products may give rise to claims that may infringe the patents of others. Such other persons could bring legal actions against us claiming damages and seeking to enjoin clinical testing, manufacturing and marketing of the affected products. Any such litigation could result in substantial cost to us and diversion of effort by our management and technical personnel. If any of these actions are successful, in addition to any potential liability for damages, we could be required to obtain a license in order to continue to manufacture or market the affected products. We may not prevail in any action and any license required under any needed patent might not be made available on acceptable terms, if at all.

     We are a party to sponsored research agreements and license agreements that require us to make milestone payments upon attainment of certain regulatory milestones. Failure to meet such milestones could result in the loss of certain rights to compounds covered under such license agreements.

     We also rely on trade secret protection for our confidential and proprietary information. However, trade secrets are difficult to protect and others may independently develop substantially equivalent proprietary information and techniques and gain access to our trade secrets and disclose our technology. We may not be able to meaningfully protect our rights to unpatented trade secrets. We require our employees, consultants, and advisors to execute a confidentiality agreement when beginning an employment or a consulting relationship with us. The agreements generally provide that all trade secrets and inventions conceived by the individual and all confidential information developed or made known to the individual during the term of the relationship automatically become our exclusive property. Employees and consultants must keep such information confidential and may not disclose such information to third parties except in specified circumstances. However, these agreements may not provide

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meaningful protection for our proprietary information in the event of unauthorized use or disclosure of such information.

     To the extent that consultants, key employees, or other third parties apply technological information independently developed by them or by others to our proposed projects, disputes may arise as to the proprietary rights to such information. Any such disputes may not be resolved in our favor. Certain of our consultants are employed by or have consulting agreements with other companies and any inventions discovered by them generally will not become our property.

THE EXPIRATION OF OUR RELATIONSHIP WITH CHILDREN’S HOSPITAL, BOSTON, COULD LIMIT OUR ABILITY TO ACQUIRE PRODUCT CANDIDATES AND SUBJECT US TO INCREASED COMPETITION

     As part of our transition to a small-molecule focus and to maximize resources to support our internal R&D efforts, we did not renew or we terminated our sponsored research agreements. We do, however, maintain rights — for a specific period of time following funding expiration — to all discoveries and data from research supported by our funds. Of note, our collaborative research agreements with Children’s Hospital, expired on September 30, 2002. Under that agreement with Children’s Hospital, we provided funding for some of their research projects on blood vessel growth. In return, we obtained licenses to discoveries resulting from that research. Children’s Hospital, originally discovered endostatin , angiostatin, and the small molecule that makes up Panzem. We have received licenses from Children’s Hospital, for each these discoveries.

     Prior to the September 30, 2002, expiration date, researchers at Children’s Hospital, may have used our funds to conduct research that may result in other potential products that may be used to treat cancer in a variety of ways, including by antiangiogenesis. Although we believe that, pursuant to our agreement, we are entitled to license and use a wide variety of products related to antiangiogenesis, Children’s Hospital, may take a different position. Children’s Hospital, has licensed, and may in the future license, products to our existing and potential competitors. Because Children’s Hospital, has, in the past, been an important source of product candidates for us, the expiration of this collaboration may limit our ability to acquire future product candidates and may subject us to increased competition.

OUR POTENTIAL PRODUCTS ARE SUBJECT TO GOVERNMENT REGULATORY REQUIREMENTS AND AN EXTENSIVE APPROVAL PROCESS

     Our research, development, preclinical and clinical trials, manufacturing, and marketing of most of our product candidates are subject to an extensive regulatory approval process by the FDA and other regulatory agencies in the United States and abroad. The process of obtaining FDA and other required regulatory approvals for drug and biologic products, including required preclinical and clinical testing, is time consuming and expensive. Even after spending time and money, we may not receive regulatory approvals for clinical testing or for the manufacturing or marketing of any products. Our collaborators or we may encounter significant delays or costs in the effort to secure necessary approvals or licenses. Even if we obtain regulatory clearance for a product, that product will be subject to continual review. Later discovery of previously unknown defects or failure to comply with the applicable regulatory requirements may result in restrictions on a product’s marketing or withdrawal of the product from the market, as well as possible civil or criminal penalties.

WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY

     The pharmaceutical and biotechnology industries are intensely competitive and we expect competition from other companies and other research and academic institutions to increase. In addition to competing with universities and other research institutions to develop products, technologies, and processes, we may compete with other companies to acquire the rights to products, technologies, and processes developed by universities and other

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research institutions. Many of these companies have substantially greater financial and research and development capabilities than we have and have substantially greater experience in undertaking preclinical and clinical testing of products, obtaining regulatory approvals and manufacturing and marketing pharmaceutical products. We are aware of a number of other companies and academic institutions that are pursuing angiogenesis research and are testing other angiogenesis inhibitors.

     These other companies and academic institutions may be larger and may have significantly greater financial resources, or be supported by large entities with greater financial resources, than are currently available to us. They may also have established marketing and distribution channels. The drug industry is characterized by intense price competition, and we anticipate that we will face this and other forms of competition. Developments by others may render our products or technologies obsolete or noncompetitive, and we may not be able to keep pace with technological developments. Competitors may develop products that use an entirely different approach or means of accomplishing the desired therapeutic effect that our products seek to achieve which may be more effective or less costly, or both. Accordingly, our competitors may succeed in commercializing products more rapidly than we do. If these competitors develop their products more rapidly and complete the regulatory process sooner, we may not be able to successfully compete with them.

     The pharmaceutical and biotechnology industries are rapidly evolving. We may not be able to develop products that are more effective or achieve greater market acceptance than our competitors’ products. Our competitors may succeed in developing products and technologies that are more effective than those being developed by us or that render our products and technologies less competitive or obsolete. While we do not know the potential effectiveness of these products in comparison to our product candidates, it is possible that these products will be more effective than our products, will be easier to manufacture, will come to market before any of our products or will achieve market acceptance over our products.

POTENTIAL PRODUCTS MAY SUBJECT US TO PRODUCT LIABILITY FOR WHICH INSURANCE MAY NOT BE AVAILABLE

     The use of our potential products in clinical trials and the marketing of any pharmaceutical products may expose us to product liability claims. We have obtained a level of liability insurance coverage that we believe is adequate in scope and coverage for our current stage of development. However, our present insurance coverage may not be adequate to protect us from liabilities we might incur. In addition, our existing coverage will not be adequate as we further develop products, and in the future adequate insurance coverage and indemnification by collaborative partners may not be available in sufficient amounts or at a reasonable cost. If a product liability claim or series of claims are brought against us for uninsured liabilities, or in excess of our insurance coverage, the payment of such liabilities could have a negative effect on our business and financial condition.

THE MARKETABILITY OF OUR POTENTIAL PHARMACEUTICAL PRODUCTS MAY DEPEND ON REIMBURSEMENT AND REFORM MEASURES IN THE HEALTH CARE INDUSTRY

     Our success may depend, in part, on the extent to which reimbursement for the costs of therapeutic products and related treatments will be available from third-party payors such as government health administration authorities, private health insurers, managed care programs, and other organizations. Over the past decade, the cost of health care has risen significantly, and there have been numerous proposals by legislators, regulators, and third-party health care payors to curb these costs. Some of these proposals have involved limitations on the amount of reimbursement for certain products. Similar federal or state health care legislation may be adopted in the future and any products that our collaborators or we seek to commercialize may not be considered cost-effective. Adequate third-party insurance coverage may not be available for us to establish and maintain price levels that are sufficient for realization of an appropriate return on our investment in product development. Moreover, the existence or threat of cost control measures could cause our corporate collaborators to be less willing or able to pursue research and development programs related to our product candidates.

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WE ARE SUBJECT TO RISK DUE TO OUR USE OF HAZARDOUS MATERIALS

     Our research and development involves the controlled use of hazardous biological, chemical, and radioactive materials. We are subject to federal, state, and local laws and regulations governing the use, manufacture, storage, handling, and disposal of such materials and certain waste products. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by such laws and regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, we could be held liable for any damages that result. Such liability could have a negative impact on our financial condition and results of operations.

ITEM 2. PROPERTIES

     We currently lease approximately 46,000 square feet of space (approximately 32,000 square feet of which is laboratory space) in Rockville, Maryland. The lease expires in February 2009. We believe that our existing facilities will be adequate to accommodate the implementation of our current business plan.

ITEM 3. LEGAL PROCEEDINGS

     On November 19, 2002, the lead Phase I drug candidate in our thalidomide analog programs, ENMD 0995 and its patents became the center of legal actions. Celgene Corporation requested that the D.C. U.S. District Court issue preliminary and permanent injunctions directing James E. Rogan, Under Secretary of Commerce for Intellectual Property and PTO Director, to withdraw specific ENMD 0995 patent applications, as licensed to us, from issuance. We were named as a co-defendant with Under Secretary Rogan in the case. We filed our own lawsuit on November 21, 2002, in the U.S District Court for the Southern District of Maryland, asking that the Court declare three of Celgene’s patents invalid, find that Celgene has violated U.S. antitrust laws, and award us unspecified civil and punitive damages.

     As part of Celgene’s December 31, 2002, purchase of our thalidomide analog programs, Celgene and we agreed to dismiss the aforementioned lawsuits filed regarding patents and patent applications relating to ENMD 0995. The EntreMed v. Celgene case was dismissed by Stipulation on January 2, 2003 and was signed by the judge on January 3, 2003. The Celgene v. Rogan case was dismissed by the Plaintiff on February 25, 2003.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     Our common stock began trading publicly on the Nasdaq National Market under the symbol “ENMD” on June 12, 1996. The following table sets forth the high and low closing price for our common stock by quarter, as reported by the Nasdaq National Market, for the periods indicated:

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     On March 19, 2003, the closing price of our common stock, as reported by the Nasdaq National Market, was $1.00 per share. As of March 19, 2003 there were approximately 850 holders of record of our common stock.

     Since our initial public offering in 1996, we have not paid cash dividends on our common stock. We currently anticipate that any earnings will be retained for the continued development of our business and we do not anticipate paying any cash dividends on our common stock in the foreseeable future.

Recent Sales of Unregistered Securities

     On December 31, 2002 we issued to Celgene Corporation (i) 3,350,000 shares of our newly-created Series A Convertible Preferred Stock, par value $1.00 per share and (ii) warrants to purchase up to 7,000,000 shares of our common stock, for $16.75 million. The Series A Preferred Stock is convertible into an aggregate of 16,750,000 shares of our common stock at an equivalent price of $1.00 per share. The securities were sold pursuant to Section 4(2) of the Securities Exchange Act of 1934 as a transaction not involving a public offering.

ITEM 6. SELECTED FINANCIAL DATA

     The following selected consolidated financial data set forth below has been derived from our audited consolidated financial statements. The data should be read in conjunction with the consolidated financial statements and related notes, Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and other financial information included elsewhere in this annual report on Form 10-K.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this report. See “Risk Factors”.

OVERVIEW

     Since our inception in September 1991, we have devoted substantially all of our efforts and resources to sponsoring and conducting research and development on our own behalf and through collaborations. Through December 31, 2002, all of our revenues have been generated from license fees, research and development funding, royalty payments, the sale of royalty rights, and certain research grants; we have not generated any revenue from direct product sales. We anticipate our primary revenue sources for the next few years to include research grants and collaboration payments under current or future arrangements. The timing and amounts of such revenues, if any, will likely fluctuate and depend upon the achievement of specified research and development milestones, and results of operations for any period may be unrelated to the results of operations for any other period.

CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES

     The preparation of our financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results could differ materially from those estimates. The items in our financial statements requiring significant estimates and judgments are as follows:

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RESULTS OF OPERATIONS

Years Ended December 31, 2002, 2001 and 2000.

     Revenues. Revenues decreased 37% in 2002 to $1,176,000 from $1,862,000 in 2001 and decreased 49% in 2001 from $3,672,000 in 2000. The 2002 revenues include $835,000 of collaborative research and development revenues resulting primarily from work performed on commercial research and development contracts. Included in grant revenues are funds received from a Small Business Innovative Research, or SBIR, program of the National Institutes of Health of $132,000, $358,000 and $401,000 in 2002, 2001 and 2000, respectively. The decrease reflects the shift in focus to small molecule programs. In accordance with our 1998 collaborative sublicensing agreement for thalidomide with Celgene, we recognized net royalty revenues from Celgene’s sales of thalidomide (THALOMID^®) of $1,438,000 for the year ended December 31, 2001, a decrease of 54% from $3,115,000 in 2000. We did not recognize revenue under this agreement in 2002 as a result of the sale of our right to receive royalty income from Celgene’s sales of thalidomide (THALOMID^®) in 2001. Licensing revenues primarily result from the January 2002 five-year strategic alliance with Allergan, to develop and commercialize small molecule angiogenic inhibitors for treatment and prevention of diseases and conditions of the eye.

     Research and Development Expenses. From inception through December 31, 2002 we have incurred research and development expenses of $208,000,000. Included in this amount are the expenses related to our three lead product candidates, Panzem™, Endostatin and Angiostatin. At December 31, 2002 the accumulated expenses for each of these development projects are $17,815,000, $70,192,000 and $34,676,000 respectively. Project expenses for Panzem™ of $3,150,000, Endostatin of $8,949,000 and Angiostatin of $4,839,000 are reflected in our 2002 R&D expenses of $31,308,000. Research and Development expenses were $54,201,000 in 2001 and $42,744,000 in 2000. Project costs for Panzem™, Endostatin and Angiostatin were $7,390,000, $19,719,000 and $9,249,000 in 2001, and $4,228,000, $22,433,000 and $3,661,000 in 2000, respectively. In 2002 we brought a fourth product candidate into the clinic. ENMD 0995, a thalidomide analog, was subsequently sold as part of the sale of our thalidomide analog program to Celgene Corporation in December 2002. We incurred $3,663,000 in project expenses from the inception of the program including $1,655,000 in 2002.

     The expenditures that will be necessary to execute our business plan are subject to numerous uncertainties, which may adversely affect our liquidity and capital resources. As of December 31, 2002, three of our proprietary product candidates, Panzem™, Endostatin and Angiostatin, were in various stages of clinical trials. Completion of clinical trials may take several years or more, but the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product candidate.

     We estimate that clinical trials of the type we generally conduct are typically completed over the following timelines:

     The duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trial protocol, including, among others, the following:

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     We test our potential product candidates in numerous pre-clinical studies to identify indications for which they may be product candidates. We may conduct multiple clinical trials to cover a variety of indications for each product candidate. As we obtain results from trials, we may elect to discontinue clinical trials for certain product candidates or for certain indications in order to focus our resources on more promising product candidates or indications.

     An important element of our business strategy is to pursue the research and development of a range of product candidates for a variety of oncology and non-oncology indications. This allows us to diversify the risks associated with our research and development expenditures. As a result, we believe our future capital requirements and our future financial success are not substantially dependent on any one product candidate. To the extent we are unable to maintain a broad range of product candidates, our dependence on the success of one or a few product candidates would increase.

     Our proprietary product candidates also have not yet achieved FDA regulatory approval, which is required before we can market them as therapeutic products. In order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval, the FDA must conclude that our clinical data establish safety and efficacy. Historically, the results from pre-clinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals.

     Furthermore, our business strategy includes the option of entering into collaborative arrangements with third parties to complete the development and commercialization of our products. In the event that third parties take over the clinical trial process for one of our product candidates, the estimated completion date would largely be under the control of that third party rather than us. We cannot forecast with any degree of certainty which proprietary products or indications, if any, will be subject to future collaborative arrangements, in whole or in part, and how such arrangements would affect our capital requirements.

     As a result of the uncertainties discussed above, among others, we are unable to estimate the duration and completion costs of our research and development projects. Our inability to complete our research and development projects in a timely manner or our failure to enter into collaborative agreements, when appropriate, could significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seek additional, external sources of financing from time to time in order to continue with our business strategy. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.

     Research and development expenses consist primarily of compensation and other expenses related to research and development personnel, research collaborations, costs associated with pre-clinical testing and clinical trials of our product candidates, including the costs of manufacturing the product candidates, and facilities expenses. Research and development expenses decreased to approximately $31,308,000 in 2002 from $54,201,000 in 2001 and from $42,744,000 in 2000. The cost decrease in 2002 reflects the shift in emphasis from the protein product candidates towards our small molecule programs including Panzem™. The 2002 decreases are primarily associated with the following:

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     General and administrative expenses include compensation and other expenses related to finance, business development and administrative personnel, professional services and facilities.

     General and administrative expenses decreased to $13,932,000 in 2002 from $14,473,000 in 2001 and $11,646,000 in 2000. The higher levels in 2002 and 2001 resulted primarily from increased legal fees associated with the Abbott and Celgene litigations, and charges of $1,995,000 and $1,367,000 in 2002 and 2001, respectively, related to the potential repurchase of our common stock from Bristol-Myers Squibb and the related guaranteed minimum purchase price. The Abbott and Celgene litigations were settled in 2002 and the terms of the Bristol-Myers Squibb repurchase agreement were renegotiated.

     Interest expense. In 2002 interest expense increased 13% to $391,000 from $345,000 in 2001. The 2001 amount increased 43% from 2000 interest expense of $241,000. The increases in 2002 and 2001 reflect the accrual of interest relating to MaxCyte’s issuance of additional convertible promissory notes.

     Investment income. Investment income decreased by 78% in 2002 to $318,000 as a result of lower yields and lower balances in interest bearing cash accounts. Investment income was $1,438,000 in 2001, a decrease of of 34% from $2,165,000 in 2000.

     Gain on sale of asset. The Consolidated Statement of Operations for the year ended December 31, 2002 reflects a gain of $2,940,000 resulting from a purchase agreement by and between Celgene and the Company. Celgene purchased our right, title and interest in a licensing agreement with Children’s Hospital and certain other property described as the thalidomide analog program. The gain on the transaction is reflected net of transaction fees and other costs, including cash payments and warrants issued to Children’s Hospital.

     Gain on the discharge of liabilities. The Consolidated Statement of Operations for the year ended December 31, 2002 also reflects a gain of $2,175,000 resulting from the renegotiation and settlement of $8,086,000 of the Company’s current liabilities. The terms of the settlement agreements, reached with five creditors, including Bristol-Myers Squibb, required the use of cash, stock and warrants to satisfy the renegotiated obligations.

     Gain on sale of royalty interest. The Consolidated Statement of Operations for the year ended December 31, 2001 reflects a gain of approximately $22,400,000 resulting from a purchase agreement by and between Bioventure Investments kft (“Bioventure”) and the Company. Bioventure purchased our right, title and interest to the net royalty payments on THALOMID^® payable by Celgene Corporation to the Company under an agreement dated as of December 9, 1998 by and between the Company and Celgene.

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LIQUIDITY AND CAPITAL RESOURCES

     To date, we have been engaged primarily in research and development activities. As a result we have incurred and expect to continue to incur operating losses for 2003 and the foreseeable future before we commercialize any products. In addition, under the terms of certain licensing agreements, we must be diligent in bringing potential products to market and may be required to make future milestone payments of up to $2,685,000. If we fail to comply with the milestones or fail to make any required sponsored research or milestone payment, we could face the termination of the relevant sponsored research or license agreement.

     In August and September 2002, we announced a realignment of research and development programs to reduce expenses and focus resources on the development of our clinical candidates. In conjunction with this plan, we reduced our headcount by approximately 50% and eliminated funding of research collaborations that do not support our clinical programs. We have recorded charges of approximately $775,000 relating to severance and other termination costs this year. We also have announced our intention to maintain our clinical programs for Endostatin and Angiostatin although we do not plan to initiate new clinical trials while we explore licensing opportunities for these two proteins. These actions, coupled with decreased manufacturing activity, resulted in a significant reduction in operating expenses in the fourth quarter. With the shift to small molecule programs we expect operating costs to remain at reduced levels for 2003.

     In December 2002 the Company reached agreements with five creditors, including BMS, to settle $8,086,000 in current liabilities. The Company issued consideration of $5,911,000 in cash, stock and warrants to satisfy the renegotiated obligations, resulting in a $2,175,000 gain on discharge of liabilities. 1,314,000 shares of common stock, net of the 291,666 repurchased from BMS, and warrants to purchase 675,000 shares of common stock were issued in December 2002 and 1,147,872 shares of common stock were issued in January 2003.

     To accomplish our business plans, we will be required to continue to conduct substantial development activities for all of our proposed products. Expenditures on these activities are expected to approximate $14,000,000 in 2003. In addition, our results of operations will also reflect additional restructuring charges of approximately $1,000,000 relating to other organizational changes as we complete our transition to small molecule programs. We will also record the accrual of the 6% dividend on the convertible preferred stock issued to Celgene in the amount of $1,005,000.

     We intend to continue to pursue strategic relationships to provide resources for the further development of our product candidates. There can be no assurance, however, that these discussions will result in relationships or additional funding. In addition, we will continue to seek capital through the public or private sale of securities. If we are successful in raising additional funds through the issuance of equity securities, stockholders likely will experience substantial dilution, or the equity securities may have rights, preferences or privileges senior to those of the holders of our common stock. If we raise funds through the issuance of debt securities, those securities would have rights, preferences and privileges senior to those of our common stock.

If we are unable to raise additional capital, we will take one or more of the following actions:

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     Based on our assessment of the availability of capital and the above described actions, in the absence of new financing, we believe we will have adequate resources to fund operations into 2004. At December 31, 2002, we had cash and cash equivalents of approximately $24,067,000 with working capital of approximately $7,716,000. Our working capital calculation is negatively impacted by the consolidation of MaxCyte, a former majority owned subsidiary. Reflected on our consolidated balance sheet is approximately $4,773,000 in convertible debt as described below.

     Our subsidiary MaxCyte, has issued convertible promissory notes having values of $4,773,000 and $3,278,000 as of December 31, 2002 and 2001, respectively. The interest rates on the notes range from 3% to 8%, and the notes mature in 2003. The notes, plus the accrued interest, are convertible to common stock of MaxCyte at any time at the option of the holder and are subject to a mandatory conversion to Series B Convertible Preferred Stock upon the occurrence of certain specified events. Holders of the promissory notes also received warrants to purchase a total of 13,675 shares of common stock of EntreMed. Repayment of convertible promissory notes issued by MaxCyte is the sole responsibility of MaxCyte.

     In November 2002, the Board of Directors of both EntreMed and MaxCyte adopted a plan to recapitalize MaxCyte. In conjunction with the recapitalization, MaxCyte raised new funding of $625,000 through the issuance of its convertible promissory notes. As a result of the recapitalization, the Company no longer has majority ownership and will no longer financially support MaxCyte. The Company will no longer consolidate MaxCyte effective the first quarter of 2003, the first reporting period for which no funding will have been provided. Had the Company not consolidated MaxCyte as of December 31, 2002, stockholders’ equity would have increased by approximately $4,500,000.

     In December 2000 , we exercised our option to repurchase shares of our common stock from BMS for $13.143 per share. Shares repurchased totaled 291,666 for a repurchase price of $3,833,367 . Shares repurchased from BMS are accounted for as treasury stock. In December we reached an agreement with BMS under which we agreed to make cash payments in 2002 and 2003 totaling $1,000,000 and issue 650,000 warrants to purchase shares of common stock in exchange for the return of the final 291,666 shares of common stock held by BMS and in full satisfaction of all obligations pursuant to the December 2001 agreement.

     On October 31, 2002 we were notified by the Nasdaq Listing Qualifications Department that EntreMed’s common stock was subject to delisting from the Nasdaq National Market because it was not in compliance with Marketplace Rule 4450(b)(1)(A), which requires that our common stock have a market value of listed securities of $50 million. We subsequently requested an appeal hearing before a Nasdaq Listing Qualifications Panel. At the hearing, held in December 2002, we presented a plan for EntreMed to return to compliance and remain in compliance with the continued listing standards for the Nasdaq National Market.

     In February 2003 we received a determination from the Nasdaq Listing Qualifications Panel to continue the listing of EntreMed’s securities on the Nasdaq National Market. As part of the determination, EntreMed must file the Form 10-K for the fiscal year ended December 31, 2002 and the Form 10-Q for the quarter ended March 31, 2003 with the SEC and Nasdaq evidencing shareholders’ equity of at least $10,000,000 on or before March 31, 2003 and May 15, 2003, respectively.

     In order to fully comply with the Nasdaq Panel’s continued listing determination, EntreMed must be able to demonstrate compliance with all requirements for continued listing on the Nasdaq National Market and to notify

26

Nasdaq of any significant events that occur until the Form 10-Q is filed. The Nasdaq Panel reserves the right to modify or terminate this exception upon review of the Company’s reported financial results and to reconsider the terms of this exception, if there is a material change in EntreMed’s financial or operational character. In the letter notifying us of its decision, the Nasdaq Panel observed that we had presented a “definitive plan” that will enable us to evidence compliance with all requirements for continued listing on the Nasdaq National Market within a reasonable period of time and to sustain compliance with those requirements over the long term.

INFLATION AND INTEREST RATE CHANGES

     Management does not believe that our working capital needs are sensitive to inflation and changes in interest rates.

CONTRACTUAL OBLIGATIONS

The table below sets forth our contractual obligations at December 31, 2002.

     *MaxCyte is a consolidating entity for reporting purposes and as such these convertible debts are reflected on the consolidated financial statements. Repayment of these convertible debts is the sole responsibility of MaxCyte.

ITEM 7(a) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The primary objective of our investment activities is to preserve our capital until it is required to fund operations while at the same time maximizing the income we receive from our investments without incurring investment market volatility risk. Our investment income is sensitive to the general level of U.S. interest rates. In this regard, changes in the U.S. interest rates affect the interest earned our cash and cash equivalents. Due to the short term nature of our cash and cash equivalent holdings, a 10% movement in market interest rates would not materially impact on the total fair market value of our portfolio as of December 31, 2001.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The response to this item is submitted in a separate section of this report. See Index to Consolidated Financial Statements on Page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

     None.

PART III

ITEM 10-13. INCORPORATED BY REFERENCE FROM THE COMPANY’S PROXY STATEMENTS

     Except as set forth below, the information called for by Item 10: Directors and Executive Officers of the

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Registrant; Item 11: Executive Compensation; Item 12: Security Ownership of Certain Beneficial Owners and Management; and Item 13: Certain Relationships and Related Transactions will be included in and is incorporated by reference from the registrant’s definitive proxy statement to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934 within 120 days after the close of its fiscal year.

Item 14. CONTROLS AND PROCEDURES

     Under the supervision and with the participation of the Company’s President and Chief Operating Officer and its Chief Financial Officer (its principal executive officer and principal financial officer), management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures within 90 days of the filing date of this annual report. Based on the evaluation, the President and Chief Operating Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls after the date of the evaluation.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  1. FINANCIAL STATEMENTS — See index to Consolidated Financial Statements.

2.     Schedules

     All financial statement schedules are omitted because they are not applicable, not required under the instructions or all the information required is set forth in the financial statements or notes thereto.

3.     Exhibits

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29

30

__________

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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

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CERTIFICATIONS

I, Neil J. Campbell, certify that:

Date: March 28, 2003

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CERTIFICATIONS

I, Dane R. Saglio, certify that:

Date: March 28, 2003

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The following consolidated financial statements of EntreMed, Inc. are included in Item 8:

F-1

Report of Independent Auditors

Board of Directors and Shareholders
EntreMed, Inc.

We have audited the accompanying consolidated balance sheets of EntreMed, Inc. as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2002. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of EntreMed, Inc. at December 31, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.

As discussed in Note 1 to the consolidated financial statements, in 2002 the Company changed its method for accounting for classification of gains from the early estinguishment of debt to comply with the accounting provisions of Statement of Financial Accounting Standard No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.”

F-2

EntreMed, Inc.
Consolidated Balance Sheets

See accompanying notes.

F-3

EntreMed, Inc.
Consolidated Statements of Operations

See accompanying notes.

3.     RELATED PARTY TRANSACTIONS

The Company receives legal services from two law firms with which two of the Company’s directors and officers are associated. The majority of the 2001 and 2000 amounts represent patent work. The 2002 amount reflects the costs associated with the three litigations settled in 2002. Legal expenses from related parties are included in the following accounts within the statements of operations:

F-4

ENTREMED, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Periods Ended December 31, 2002, 2001 and 2000