CASI Pharmaceuticals, Inc (DE) - Annual Report: 2003 (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

Commission file number 0-20713

ENTREMED, INC.

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

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

Title

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 [X] No[  ]

As of June 30, 2003, the aggregate market value of the shares of common stock held by non-affiliates was approximately $131,258,000.

As of March 9, 2004, 36,973,012 shares of the Company’s common stock were 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, 2003

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. (NASDAQ: ENMD) is a clinical-stage biopharmaceutical company developing therapeutics primarily for the treatment of cancer. Panzem^®, the Company’s lead drug candidate, is currently in clinical trials for cancer, as well as preclinical development for indications outside of oncology. EntreMed’s research and development programs are designed to identify new chemical entities by understanding the interrelationships of cell cycle regulation, inflammation, coagulation and angiogenesis – processes vital to the treatment of multiple diseases, including cancer. These programs have led to the identification of new therapeutic targets such as inhibition of the tissue factor pathway and the proteinase-activated receptor-2 (PAR-2). Based on these targets, EntreMed scientists are designing additional drug candidates for in-house development or partnering opportunities.

     We believe that our drug candidates may prove useful 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.

     During the summer of 2002, we chose to shift our financial and scientific focus to our small molecule programs. At that time, we announced our intention to no longer develop our protein-based programs for the drug candidates, endostatin and angiostatin. While we maintained our on-going endostatin and angiostatin clinical trials, we minimized our protein-related costs and pursued business opportunities for other organizations to continue the development of these proteins. We transferred the licenses for endostatin and angiostatin in February 2004 and are no longer involved with the development these compounds.

     We were incorporated under Delaware law in 1991, and our principal executive offices are located at 9640 Medical Center Drive, Rockville, Maryland 20850, and our telephone number is (240)864-2600.

SCIENTIFIC BACKGROUND

     We developed our initial drug pipeline based upon comprehensive research into the relationship between malignancy and the process of angiogenesis (the growth of new blood vessels). This research led us to focus on drug candidates that act on four cellular pathways common to a variety of biological processes important in multiple diseases: cell cycle regulation, inflammation, coagulation and angiogenesis. Our drug candidates have potential applications in oncology and 80 other diseases because they are involved with one or more of these pathways.

     Cell Cycle Regulation. Cell cycle regulation is the replication, differentiation and death of cells. One specific aspect of cell cycle regulation is the control of programmed cell death (apoptosis). In certain disease states, such as cancer, atherosclerosis and endometriosis, the balance between cell proliferation and cell death may be altered, resulting in inappropriate cell growth. Our compounds impact biochemical pathways in specific cells that result in their death via apoptosis. This resulting apoptosis can provide stability or regression of the disease process. Our preclinical studies have demonstrated induction of endothelial cell and tumor cell apoptosis in the absence of significant toxicities.

     Inflammation. Inflammation is broadly defined as the process involving the reaction of tissue to injury or disease. The condition may be either local or systemic and can be divided into acute (immediate) and chronic (prolonged) patterns. The endothelial cell responses involved in angiogenesis (formation of new blood vessels) and hemostasis are central to inflammatory diseases. In contrast to acute inflammation, which is manifested by vascular changes, edema, and largely neutrophil infiltration, chronic inflammation is characterized by infiltration with mononuclear leukocytes, tissue destruction, angiogenesis, and fibrosis. As a result, the cellular pathways involved in acute and chronic inflammation can be overlapping or distinct. Inflammation is a process that is associated with

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many pathologies, including cancer, cardiovascular disease and arthritis. Many of our compounds demonstrate ant-inflammatory properties in preclinical models.

     Coagulation. In pathologic conditions, such as cancer and cardiovascular disease, a chronic procoagulant state (clot forming tendency) exists that facilitates disease progression. Our novel compounds specifically target cellular receptors and pathways involved in the procoagulant state. These receptors and pathways are not specific to endothelial cells, but are also present on activated leukocytes, inflamed tissues and malignant tumor cells. Because of this targeted activity, our compounds have potential applicability in a variety of diseases where these pathways are important in the progression of the illness.

     Angiogenesis. Angiogenesis is a multi-step process that triggers the migration and proliferation of endothelial cells to form new blood vessels. Angiogenesis occurs as part of more than 80 disease states. Our drug candidates do not interfere with normal angiogenesis (essential during the first three months of embryonic development and for menstrual cycling and wound healing), but target only endothelial cells associated with disease. Because of this selectivity, to date our compounds have a strong safety profile with no clinically significant side effects.

PRODUCT PIPELINE

     Small molecules are the focus of our drug candidate 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.

ENTREMED DRUG CANDIDATE PIPELINE
(AS OF MARCH 2004)

     Panzem^®. Although it is a naturally occurring estrogen metabolite, Panzem^® (2-Meth-oxyestradiol, 2ME2) has no undesired estrogenic activity. Panzem^® has multiple mechanisms of action and inhibits angiogenesis, microtubule formation, HIF-1a and osteoclastic activity and induces apoptosis (cell death). As a result of these

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mechanisms, Panzem^® may have potential therapeutic applications not only in cancer, but also in diseases associated with the eye, heart, inflammation, women’s health, bone and skin. Specifically, in preclinical studies, Panzem^® has demonstrated therapeutic effects in models for certain types of blindness, osteoporosis and other diseases.

     In the case of cancer, Panzem^® inhibits endothelial cell growth and also directly kills tumor cells. The drug candidate has shown no cross resistance with cell lines resistant to various chemotherapy agents. Panzem^® has been administered to more than 160 advanced cancer patients to date and has exhibited a strong safety profile. Panzem^® has been tested in cancer patients as a single agent, as well as in combination with chemotherapeutics. Clinicians have reported signs of clinical benefit in patients with advanced cancer, including a complete response and a few partial responses, as well as stable disease. (See table below.) In September 2003, we selected Panzem^® reformulations intended to increase the amount of Panzem^® that circulates in the patient’s bloodstream by increasing absorption. We are exploring alternative delivery options and expect a new Panzem^® formulation to enter into clinical trials during the first half of 2004.

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

     Analogs of 2ME2. Using various analytical methods, we are designing new chemical compounds to inhibit tumor growth and angiogenesis activities. Specifically, we are modifying the chemical structure of 2-methoxyestradiol (2ME2) at various positions as well as synthesizing molecules with combinations of these modifications. Several of the resulting analogs have shown improved in vitro antiproliferative activities in tumor and endothelial cells and good oral pharmacokinetic profiles in rodents. We have advanced our lead analogs into preclinical in vivo testing. These in vivo investigations are evaluating antitumor and antiangiogenic activities, formulation optimization and adsorption, distribution, metabolism and excretion (ADME). The goal of these studies is to identify an IND candidate in oncology. In adhering to our business model, we are continuing to explore non-oncology applications with the analogs for out-licensing/co-development purposes. We have discovered all the analogs in-house and the respective intellectual property belongs exclusively to us.

     Proteinase Activated Receptor-2 (PAR-2) Inhibitors. In December 2003, we presented data on our discovery that PAR-2, a cell surface receptor that activates inflammatory processes, also plays a critical role in tumor growth and formation of new blood vessels in preclinical models. In addition, we have designed the first compounds known to block PAR-2. Specifically, we developed the first peptide PAR-2 antagonist, 520p. Using the 520p structure as a template, we have designed mimetic antagonists, including 547m, which demonstrates a ten-fold increase in antitumor activity when compared to 520p peptide in preclinical models. PAR-2 may be a target for potential therapeutic applications in oncology and diseases associated with inflammation and angiogenesis. All intellectual property associated with the PAR-2 program and its resulting compounds belong exclusively to us.

     Tissue Factor Pathway Inhibitors (TFPI). We have identified a peptide fragment of TFPI, a naturally occurring anti-coagulant protein that blocks tumor growth and angiogenesis in in vivo models. While this peptide

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inhibits metastatic tumor and blood vessel growth, it does not appear to affect normal blood clotting—a hurdle long associated with the development of TFPI and other coagulation inhibitors for oncology. We have begun using the peptide as a template to design small molecules with similar, but improved, properties. The resulting mimetic compounds may be less costly and more predictable to develop as therapeutics with possible treatment applications for oncology, as well as inflammatory and cardiovascular diseases. We have also identified the TFPI peptide’s mechanism of action. We have strong intellectual property surrounding the TFPI research program.

     Other New Chemical Entities for Oncology/Inflammation. We are currently designing new molecules by using various tools, including medicinal chemistry software. The synthesized molecules are then screened in a variety of assays with the goal of identifying hit compounds that may have therapeutic applications in oncology and inflammation, two closely linked pathologies. The resulting compounds from this program will be our property and we will own the intellectual property related to this program.

     ENMD 0996 Immunomodulator. We are currently developing immunomodulators that target fibroblast growth factor-2 (FGF-2), a naturally-occurring protein that stimulates angiogenesis. By blocking FGF-2, the formation of new blood vessel associated with tumors is inhibited. This is a fundamentally new approach to stopping tumor growth. In preclinical studies, our FGF-2 immunomodulator, ENMD 0996, inhibited tumor development by up to 90% in animal models without toxicity. Furthermore in laboratory mice, ENMD 0996 demonstrated no effect upon wound healing or reproduction – two normal processes involving angiogenesis. Currently, we are focusing on the product development of ENMD 0996 by using various analytical methods, including peptide truncation, to identify optimal formulations. We plan to move forward its work with immunumodulators and specifically ENMD 0996 through a development partnership. We discovered ENMD 0996 and the intellectual property belongs exclusively to us.

CORPORATE FOCUS & STRATEGY

     We believe that the small molecule programs offer the most promising candidates for successful commercialization for the following reasons:

     Multiple Mechanisms of Action. Unlike many therapeutic compounds that affect only one cellular activity, our compounds have numerous actions. With multiple mechanisms of action (MOA), one compound can attack one disease through several pathways, as well as impact different diseases. For example, Panzem^®’s MOAs include the inhibition of angiogenesis, microtubule formation, HIF-1α and osteoclastic activity and the induction of apoptosis. As a result of these mechanisms, Panzem^® has the potential to attack cancer cells through directed routes and also may attack diseases associated with the eye, heart, inflammation, women’s health, bone and skin.

     Versatility. With multiple mechanisms, small molecules are our most versatile compounds in terms of possible therapeutic applications. While preclinical and clinical efforts in oncology continue, preclinical applications in ophthalmology, cardiovascular disease, inflammatory disease, women’s health, bone disease and dermatology are also being explored. We signed an agreement with Allergan in January 2002, to explore Panzem^® as a potential treatment for macular degeneration.

     Preclinical & Clinical Progress to Date. Based on Panzem^®’s clinical profile in cancer patients, we plan to move forward with additional clinical trials. Our other programs have also produced encouraging data and the potential versatility that warrant further development.

     Intellectual Property Position. With the exception of Panzem^®, we have discovered and developed our other compounds and these compounds are our property. This lessens our obligation to make future milestone, royalty and/or licensing payments. We plan to continue support of our in-house discovery and development efforts.

     Economic Viability. Our small molecules compounds are more economical and versatile when compared to the costs and therapeutic applications associated with protein programs. These compounds are more predictable than proteins in development and scale-up. This feature translates into lower development, manufacturing, and other associated costs. Additionally, small molecules may have the greatest economic return because they offer a

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number of potential therapeutic applications and may be delivered to the patient orally, topically or by other means.

     With our corporate focus on small molecules, we are fully funding the research and development of Panzem^® and the New Chemical Entities we have discovered. We are also fully funding the business activities related to their development.

BUSINESS DEVELOPMENT

     Oncology is our clinical and commercial focus. Our scientific research, however, has also provided data that support the preclinical development of our compounds in non-oncology applications, specifically in ophthalmology, cardiology, inflammatory disease, women’s health, orthopedics and dermatology. These data increase the potential value of our drug candidates without additional development expense. Therefore, our strategy is to continue developing small molecule compounds for oncology, while – simultaneously – pursuing strategic alliances and multiple licensing partnerships for these compounds in other therapeutic areas. For example, in 2002, we finalized an agreement with Allergan for the localized use of Panzem^® in ophthalmology. This type of partnership does not increase our expenses nor decrease our primary oncology focus, but may bring revenue to us. The funds raised through non-oncology partnerships are expected to help support our small molecule programs currently being developed for oncology use.

     Our business plan creates new opportunities to build on our in-house scientific talent and expertise. For instance, while researching Panzem^®, we acquired an in-depth understanding of the compound’s biological characteristics, leading to the development of proprietary New Chemical Entities related to 2ME2 – compounds that may offer targeted therapeutics in certain diseases. We are also applying our scientific expertise in cancer and cellular pathways, specifically with respect to inflammation, angiogenesis, coagulation and apoptosis, in order to expand business opportunities in other non-oncology indications.

     We have transferred the majority of our scientific assets outside the core small molecule business strategy with the completion of two business transactions. First, in September 2003, we licensed the localized delivery of the endostatin and angiostatin genes for ophthalmology to Oxford BioMedica in return for an initial cash payment and Oxford BioMedica common stock. If successful, we could receive up to $10 million on the achievement of regulatory/clinical milestones and also royalties on future product sales.

     In our second transaction in February 2004, we transferred rights for our protein-based drug candidate programs, endostatin and angiostatin, in an agreement with Children’s Medical Center Corporation in Boston (CMCC) and Alchemgen Therapeutics, Inc. Under the agreement, CMCC and Alchemgen are continuing the development of endostatin and angiostatin and bear all expenses associated with the programs, including costs that we may incur in transferring these compounds. In exchange, we receive upfront and future cash and royalty payments. Under the terms of the three-party agreement, the Houston-based, privately-held company Alchemgen received exclusive rights to market endostatin and angiostatin in Asia. CMCC holds the license for the rest of the world. We will receive 20% of all future proceeds (e.g. upfront, milestone and royalty payments) resulting from any subsequent CMCC license outside of Asia.

EMPLOYEES

     As of December 31, 2003, we had 44 full-time employees and one part-time employee. Twenty-six employees work 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.

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RELATIONSHIPS – CORPORATE AND NON-PROFIT

     Corporate Transactions.

     Contract Manufacturing. The manufacturing efforts for the production of our 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^® 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.

     Sponsored Research Agreements. To complement our in-house research and development efforts, we have entered into agreements with outside scientists to conduct specific projects as outlined below. We maintain rights — for a specific period of time following funding expiration — to all discoveries and data from research supported by our funds. The funds received in accordance with these agreements partially support the scientists’ laboratory, research personnel and research supplies.

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     Collaborative Research and Development Agreements (CRADAs). We extended one existing CRADA with the National Cancer Institute:

     Clinical Trial Centers. As of December 31, 2003, 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.

     Following the February 2004 transfer of the licenses for endostatin and angiostatin, we own or have licensed on an exclusive basis a total of 42 patent applications and issued patents in the United States for our product candidates. We have a total of 83 pending patent applications and issued patents in the United States and other countries.

     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 nine pending United States patent applications and eight 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^® extend until the underlying patents expire.

     We own the technology associated with our 2ME2 analogs, PAR-2 inhibitors, TFPI peptides, NCEs for oncology and inflammation and the ENMD 0996 immunomodulator.

     Many 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^® 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^®, APOMIDE, VASCULOSTATIN, ENTREVEST and PHOSAIC in the U.S. Patent and Trademark Office.

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 applicable statutes and the regulations govern, among other things, the testing, manufacturing, safety, efficacy, labeling, storage, record keeping, advertising and other promotional

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practices involving biologics or new drugs, as the case may be. FDA clearances or approvals must be obtained before clinical testing, and before manufacturing and marketing of biologics or drugs.

     Preparing drug candidates for FDA approval has been historically a costly and time-consuming process. Generally, in order to gain FDA permission to test a new agent, 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 conduct clinical studies to demonstrate the safety and effectiveness necessary to obtain FDA approval of 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 for agents to be used to treat cancer patients 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 obtained 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 six to twelve months, the entire FDA review process may take several years to receive approval. Notwithstanding the submission of relevant data, the FDA may ultimately decide that the BLA or NDA does not satisfy its regulatory criteria and deny the approval. Further, the FDA may require additional 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.

     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.

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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.

     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

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, 2003, we had an accumulated deficit of approximately $232,813,000. Losses have continued since December 31, 2003. We also will be required to conduct substantial research and development and clinical testing activities for 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 may rely 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 be unable 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

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our products, we are subject to risks of failure that are inherent in the development of products and therapeutic procedures. 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.

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

     Animals are not people, and testing 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 and clinical trials. We do not expect that these product candidates will be commercially available for several years, if ever.

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 increase materially:

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. Testing of our product candidates will be required, and failure can occur at any stage of testing. 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.

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     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.

Our Efforts to Reformulate Panzem^® May Not be Successful

     We are reformulating our lead product candidate, Panzem^®, in an effort to increase its concentration in the blood stream. We are also exploring several oral dosage forms for delivering Panzem^®. Our reformulated product may not work as well in humans as it has in preclinical testing and may not lead to increased concentration in the blood stream. This process, part of normal drug development, may or may not result in a commercially viable drug candidate.

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 candidates 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 product candidates. 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 be unable 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 be unable to develop or contract for these capacities when required to do so in connection with our business.

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     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. While we have undertaken preliminary activities with alternative bulk manufacturers, we do not have arrangements in place with these alternative suppliers if our current supplier AKZO Nobel was unable to deliver the product in necessary quantities. The current clinical drug product is manufactured by University of Iowa College of Pharmacy using a non-proprietary encapsulation process that is readily transferable to another GMP facility. The new formulations to be used in the clinic will be manufactured at a yet-to-be-announced GMP facility.

     As discussed above, 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 be unable 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 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 be unable 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. 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 violated 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.

Manufacturing Our Product Candidates May Not Be Commercially Feasible

     The manufacturing processes for several of the small molecules we are developing 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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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 be unable to meaningfully protect our rights to unpatented trade secrets. We require our employees to complete confidentiality training that specifically addresses trade secrets. All employees, consultants, and advisors are required 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 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.

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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.

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.

AVAILABLE INFORMATION

     Our electronic filings with the U.S. Securities and Exchange Commission (including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to these reports) are available free of charge through our web site at www.entremed.com as soon as reasonably practicable after we electronically file with or furnish them to the U.S. Securities and Exchange

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

     EntreMed is subject in the normal course of business to various legal proceedings in which claims for monetary or other damages may be asserted. Management does not believe such legal proceedings, except as otherwise disclosed herein, are material.

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

          None.

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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:

     On March 9, 2004, the closing price of our common stock, as reported by the Nasdaq National Market, was $3.34 per share. As of March 9, 2004 there were approximately 893 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.

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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     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, 2003, 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. Our research and development efforts are focused on the identification and development of new chemical entities utilizing our understanding of the interrelationships of cell cycle regulation, inflammation, coagulation and angiogenesis — processes vital to the treatment of multiple diseases, including cancer. In 2003 we reformulated our lead drug candidate Panzem® and we are evaluating various oral dosage forms. Our expenses will likely exceed our revenues as we continue the development of Panzem® and bring other drug candidates into clinical trials.

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 consolidated 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, 2003, 2002 and 2001.

     Revenues. Revenues increased 34% in 2003 to $1,576,000 from $1,176,000 in 2002 and decreased 37% in 2002 from $1,862,000 in 2001. These variations resulted from changes in collaborative research and development revenues, grant revenues, royalties and licensing revenues. Collaborative research and development revenues, resulting primarily from work performed on commercial research and development contracts, decreased to $668,000 in 2003 from $835,000 in 2002. We did not receive any collaborative research and development revenues in 2001. Collaborative research and development revenues in 2002 and 2003 primarily represent work under a NIH sponsored contract, which was completed in 2003. Therefore, we do not currently anticipate a significant amount of collaborative research and development revenues in 2004. We also recognized grant revenue of $508,000 in 2003 compared to $132,000 in 2002 and $358,000 in 2001. 2003 grant revenues represent a grant, sponsored by the FDA, that provided financial support for our Phase II Endostatin clinical trial in patients with neuroendocrine tumors. 2002 and 2001 grant revenues were funds received from a Small Business Innovative Research, or SBIR, program of the National Institutes of Health. The decrease in grant revenues in 2002 reflects our 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(R)) of $1,440,000 for the year ended December 31, 2001. We did not recognize revenue under this agreement in 2002 or 2003 as a result of the sale of our right to receive royalty income from Celgene’s sales of thalidomide (THALOMID(R)) in 2001. Licensing revenues increased to $310,000 in 2003 from $115,000 in 2002. The increase results primarily from the recognition as licensing revenue the value of the initial net cash and shares of common stock received under a licensing agreement with Oxford Biomedica, PLC and Oxford Biomedica (UK) Limited in addition to the revenues 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. We did not receive any licensing revenues in 2001.

     Research and Development Expenses. From inception through December 31, 2003 we have incurred research and development expenses of approximately $222,000,000. Included in this amount are the expenses related to our three lead product candidates, Panzem^®, Endostatin and Angiostatin. At December 31, 2003 the accumulated expenses for each of these development projects are $24,143,000, 71,299,000 and 35,484,000, respectively. Project expenses for Panzem^® of $6,328,000, Endostatin of $1,107,000 and Angiostatin of $808,000 are reflected in our 2003 R&D expenses of $14,252,000. Research and Development expenses were $31,308,000 in 2002 and $54,201,000 in 2001. Project costs for Panzem^®, Endostatin and Angiostatin were $3,150,000, $8,949,000 and $4,839,000 in 2002, and $7,390,000, $19,719,000 and $9,249,000 in 2001, respectively. The 2003 decrease reflects the Company’s shift in focus to small molecules and the resulting dramatic decrease in costs associated with Endostatin and Angiostatin. 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 $3,694,000 in project expenses from the inception of the program.

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     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, 2003, 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:

     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.

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     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 $14,252,000 in 2003 from $31,308,000 in 2002 and from $54,201,000 in 2001. The cost decrease in 2003 reflects the shift in emphasis from the protein product candidates towards our small molecule programs including Panzem^®. The 2003 decreases are primarily associated with the following:

     Also reflected in our 2003 research and development expenses are payments to outside services providers of approximately $2,357,000, patent costs of $916,000 and facility and related expenses of $1,736,000. In 2002, these expenses totaled $1,080,000, $1,574,000 and $1,912,000, respectively. The 2003 increase in outside services relates to our Panzem® reformulation efforts. The decrease in patent cost reflects our shift in focus to small molecules, which resulted in the elimination of some programs.

     General and Administrative Expenses. 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 approximately $7,023,000 in 2003 from $13,932,000 in 2002 and $14,473,000 in 2001. The 2003 decrease reflects the Company’s late 2002 shift in focus and the resulting reductions in staff. Also reflected in the 2002 and 2001 amounts are 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

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price. The Abbott and Celgene litigations were settled and the terms of the Bristol-Myers Squibb repurchase agreement were renegotiated in 2002.

     Interest expense. As a result of the recapitalization of MaxCyte, there is no interest expense recorded in 2003. In 2002 interest expense increased 13% to $391,000 from $345,000 in 2001. The 2002 and 2001 amounts result primarily from the accrual of interest relating to MaxCyte’s issuance of convertible promissory notes.

     Investment income. Investment income decreased by 35% in 2003 to $206,000 as a result of continued low yields on interest bearing cash accounts and investments. Investment income was $318,000 in 2002, a decrease of 78% from $1,438,000 in 2001.

     Dividends on Series A convertible preferred stock. The Consolidated Statement of Operations for the year ended December 31, 2003 reflects a dividend of $1,005,000 relating to Series A Convertible Preferred Stock held by Celgene pursuant to a Securities Purchase Agreement dated December 31, 2002. The Series A Preferred Stock will accumulate dividends at a rate of 6% and will participate in dividends declared and paid on the common stock, if any. All accrued dividends must be paid before any dividends may be declared or paid on the Common Stock.

     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(R) payable by Celgene Corporation to the Company under an agreement dated as of December 9, 1998 by and between the Company and Celgene.

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 2004 and the foreseeable future before we commercialize any products. In addition, under the terms of the Panzem^® license agreement, we must be diligent in bringing potential products to market and may be required to make future milestone payments of up to $850,000. 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.

     At December 31, 2003, we had cash and short-term investments of approximately $36,941,000 with working capital of approximately $33,406,000, reflecting the three financing transactions, netting approximately $37,758,000, completed in 2003. In connection with these financing transactions, we paid to Ferghana Partners Inc. success fees of approximately $1,580,000. Our Chairman serves as Chairman of the Board of Directors of Ferghana Partners, Inc., a non-executive position without day-to-day responsibilities. In addition, in 2003 we also paid Ferghana Partners, Inc. success fees of approximately $1,475,000 related to the Celgene transaction that was consummated in December 2002. Approximately seventy percent of the fees paid to Ferghana in 2003 would have been paid under agreements that existed prior to our Chairman joining EntreMed’s Board of Directors in February 2003. Our agreements with Ferghana expire on March 31, 2004.

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     To accomplish our business plans, we will be required to continue to conduct substantial development activities for all of our proposed products. Under our current operating plans, expenditures on development activities are expected to be approximately $21,000,000, net of operating revenues, in 2004. Based on our assessment of our current capital resources and the actions discussed below, and in the absence of additional financing, we believe that we will have adequate resources to fund operations into 2005. Our estimate may change, however, based on our decisions with respect to future clinical trials related to Panzem^®, developments in our business including the acquisition of additional intellectual property and other investments in new or complimentary technology and our success in executing our current business plan.

     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 may continue to seek capital through the public or private sale of securities, if market conditions are favorable for doing so. 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. There can be no assurance that we will be successful in seeking additional capital.

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, 2003.

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 on 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, 2003.

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.

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          None.

ITEM 9A. 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 reviewed and evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the President and Chief Operating Officer and its Chief Financial Officer have concluded that these disclosure controls and procedures are effective as of December 31, 2003. There were no significant changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2003 that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.

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PART III

ITEM 10-14. 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 Registrant; Item 11: Executive Compensation; Item 12: Security Ownership of Certain Beneficial Owners and Management; Item 13: Certain Relationships and Related Transactions; and Item 14, Principal Accounting Fees and Services 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.

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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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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