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<SEC-DOCUMENT>0000950124-01-504079.txt : 20020410
<SEC-HEADER>0000950124-01-504079.hdr.sgml : 20020410
ACCESSION NUMBER:		0000950124-01-504079
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		6
CONFORMED PERIOD OF REPORT:	20010930
FILED AS OF DATE:		20011114

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SHEFFIELD PHARMACEUTICALS INC
		CENTRAL INDEX KEY:			0000894158
		STANDARD INDUSTRIAL CLASSIFICATION:	PHARMACEUTICAL PREPARATIONS [2834]
		IRS NUMBER:				133808303
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-12584
		FILM NUMBER:		1791071

	BUSINESS ADDRESS:	
		STREET 1:		425 WOODSMILL RD
		CITY:			ST LOUIS
		STATE:			MO
		ZIP:			63017
		BUSINESS PHONE:		3145799899

	MAIL ADDRESS:	
		STREET 1:		425 WOODSMILL RD
		CITY:			ST LOUIS
		STATE:			MO
		ZIP:			63017

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	SHEFFIELD MEDICAL TECHNOLOGIES INC
		DATE OF NAME CHANGE:	19940606
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>c66107e10-q.txt
<DESCRIPTION>FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2001
<TEXT>
<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

          [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                    FOR THE QUARTER ENDED SEPTEMBER 30, 2001


                         Commission file number 1-12584


                         SHEFFIELD PHARMACEUTICALS, INC.
             (Exact name of registrant as specified in its Charter)


          DELAWARE                                      13-3808303
  (State of Incorporation)                 (IRS Employer Identification Number)


<TABLE>
<S>                                               <C>                       <C>
     14528 SOUTH OUTER FORTY ROAD                 63017               (314) 579-9899
        ST. LOUIS, MISSOURI                    (Zip Code)        (Registrant's telephone,
(Address of principal executive offices)                           including area code)
</TABLE>



           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


      Title of Class                   Name of each exchange on which registered
Common Stock. $.01 par value                      American Stock Exchange



          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                      None


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
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. [X] Yes [ ] No

The number of shares outstanding of the Registrant's Common Stock is 28,953,302
shares as of November 9, 2001.

<PAGE>



                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)

                                    FORM 10-Q
                    For the Quarter Ended September 30, 2001

                                Table of Contents



<TABLE>
<CAPTION>

                                                                                       Page
                                                                                       ----
<S>                                                                                    <C>
                                     PART I

Item 1.  Financial Statements

Consolidated Balance Sheets as of September 30, 2001
   and December 31, 2000.................................................................3

Consolidated Statements of Operations
  for the three and nine months ended September 30, 2001 and 2000 and for
  the period from October 17, 1986 (inception) to September 30, 2001 ....................4

Consolidated Statements of Stockholders' Equity
  (Net Capital Deficiency) for the period from October 17, 1986
  (inception) to September 30, 2001 .....................................................5

Consolidated Statements of Cash Flows
  for the nine months ended September 30, 2001 and 2000 and for the period from
  October 17, 1986 (inception) to September 30, 2001.....................................6

Notes to Consolidated Financial Statements ..............................................7

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

                                     PART II
Item 2.  Changes in Securities...........................................................13

Item 6.  Exhibits and Reports on Form 8-K................................................13

Signatures...............................................................................14
</TABLE>


                                       2

<PAGE>


PART I: FINANCIAL INFORMATION
Item 1. Financial Statements


                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                       September 30,        December 31,
                                                                                          2001                 2000
                                                                                       -------------        ------------
                                                                                        (unaudited)
<S>                                                                                    <C>                   <C>
                                        ASSETS
Current assets:
    Cash and cash equivalents ...............................................           $  2,118,149        $  3,041,948
    Marketable equity securities.............................................                      -             327,422
    Milestone advance receivable.............................................                      -           1,000,000
    Prepaid expenses and other current assets ...............................                522,048             540,272
                                                                                        ------------        ------------
       Total current assets .................................................              2,640,197           4,909,642
                                                                                        ------------        ------------

Property and equipment:
    Laboratory equipment ....................................................                341,815             271,748
    Office equipment ........................................................                245,019             211,609
    Leasehold improvements ..................................................                 25,309              18,320
                                                                                        ------------        ------------
       Total at cost ........................................................                612,143             501,677
    Less accumulated depreciation and amortization ..........................               (324,065)           (235,389)
                                                                                        ------------        ------------
       Property and equipment, net ..........................................                288,078             266,288
                                                                                        ------------        ------------
Patent costs, net of accumulated amortization of $17,144 and
     $9,287, respectively....................................................                286,858             258,897
Other assets.................................................................                 29,344              15,830
                                                                                        ------------        ------------
    Total assets ............................................................           $  3,244,477        $  5,450,657
                                                                                        ============        ============

      LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)

Current liabilities:
    Accounts payable and accrued liabilities ................................           $    955,368        $  1,234,765
    Sponsored research payable ..............................................                235,757             235,757
    Note payable ............................................................              2,000,000                   -
                                                                                        ------------        ------------
       Total current liabilities ............................................              3,191,125           1,470,522

Convertible promissory note .................................................              2,000,000           2,000,000
Long-term debt ..............................................................              3,000,000           2,000,000
Other long-term liabilities .................................................                560,677             393,855
Commitments and contingencies ...............................................                      -                   -
                                                                                        ------------        ------------
    Total liabilities .......................................................              8,751,802           5,864,377
Minority interest in subsidiary..............................................                      -                   -

Stockholders' equity (net capital deficiency):
    Preferred stock, $.01 par value, authorized 3,000,0000 shares:
       Series C cumulative convertible preferred stock, authorized 23,000
         shares; issued and outstanding 14,450 and 13,712 shares at
         September 30, 2001 and December 31, 2000, respectively..............                    145                 137
       Series D cumulative convertible exchangeable preferred stock,
         authorized 21,000 shares; 13,325 and 12,870 issued and
         outstanding at September 30, 2001 and December 31, 2000,
         respectively........................................................                    133                 129
       Series E cumulative convertible non-exchangeable preferred stock,
         authorized 9,000 shares; 2,049 and 1,004 shares issued and
         outstanding at September 30, 2001 and December 31, 2000,
         respectively........................................................                     21                  10
       Series F convertible non-exchangeable preferred stock, 5,000 shares
         authorized; 5,000 shares issued and outstanding at
         September 30, 2001 and December 31, 2000............................                     50                  50
    Common stock, $.01 par value, authorized 100,000,000 shares; issued and
         outstanding 29,153,932 and 28,791,643 shares at September 30, 2001
         and December 31, 2000, respectively.................................                291,539             287,916
      Additional paid-in capital ............................................             82,862,873          80,108,095
      Other comprehensive income ............................................                      -             157,467
      Deficit accumulated during development stage ..........................            (88,662,086)        (80,967,524)
                                                                                        ------------        ------------
            Total stockholders' equity (net capital deficiency)..............             (5,507,325)           (413,720)
                                                                                        ------------        ------------
Total liabilities and stockholders' equity (net capital deficiency)..........           $  3,244,477        $  5,450,657
                                                                                        ============        ============
</TABLE>

                 See notes to consolidated financial statements.

                                       3

<PAGE>


                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)

                      CONSOLIDATED STATEMENTS OF OPERATIONS
       For the Three and Nine Months Ended September 30, 2001 and 2000 and
     for the Period from October 17, 1986 (inception) to September 30, 2001
                                   (Unaudited)

<TABLE>
<CAPTION>

                                              Three Months Ended                   Nine Months Ended        October 17, 1986
                                                September 30,                        September 30,           (inception) to
                                         ---------------------------      ----------------------------        September 30,
                                             2001            2000             2001            2000                 2001
                                         -----------     -----------      ------------     -----------      ----------------
<S>                                      <C>             <C>              <C>              <C>                <C>
Revenues:
  Contract research revenue.........     $         -     $    46,109      $    869,095     $   291,784        $  1,770,045
  Sublicense revenue................               -               -             5,000               -           1,370,000
                                         -----------     -----------      ------------     -----------        ------------
     Total revenues.................               -          46,109           874,095         291,784           3,140,045

Expenses:
  Acquisition of research and
   development in-process
   technology.......................               -               -                 -               -          29,975,000
  Research and development..........       1,686,046         892,411         4,666,181       2,677,189          33,439,042
  General and administrative........       1,031,562         521,060         2,909,362       1,907,205          27,244,447
                                         -----------     -----------      ------------     -----------        ------------
     Total expenses.................       2,717,608       1,413,471         7,575,543       4,584,394          90,658,489
                                         -----------     -----------      ------------     -----------        ------------

Loss from operations................      (2,717,608)     (1,367,362)       (6,701,448)     (4,292,610)        (87,518,444)

Interest income.....................           4,362          21,193            55,127         115,685             786,076
Interest expense....................         (95,039)        (57,267)         (204,286)       (164,424)         (1,002,001)
Realized gain (loss) on sale of
  marketable securities.............          79,706          67,031            79,706         119,645              (5,580)
Minority interest in loss
  of subsidiary.....................         135,758          18,264           318,260          62,663           3,458,332
                                         -----------     -----------      ------------    ------------        ------------
Loss before extraordinary item......      (2,592,821)     (1,318,141)       (6,452,641)     (4,159,041)        (84,281,617)
Extraordinary item..................               -               -                 -               -              42,787
                                         -----------     -----------      ------------    ------------        ------------
Net loss............................     $(2,592,821)    $(1,318,141)     $ (6,452,641)    $(4,159,041)       $(84,238,830)
                                         ===========     ===========      ============     ===========        ============

Accretion of mandatorily redeemable
  preferred stock...................               -               -                 -               -            (103,400)
                                         -----------     -----------      ------------     -----------        ------------
Net loss - attributable to
  common shares.....................     $(2,592,821)    $(1,318,141)     $ (6,452,641)    $(4,159,041)       $(84,342,230)
                                         ===========     ===========      ============     ===========        ============

Weighted average common shares
  outstanding-basic and diluted.....      29,052,998      28,100,673        28,949,802      27,888,877          10,313,147

Net loss per share of common stock -
    basic and diluted:
    Loss before extraordinary item..     $     (0.09)    $     (0.05)     $      (0.22)    $     (0.15)       $      (8.18)
    Extraordinary item..............               -               -                 -               -                   -
                                         -----------     -----------      ------------     -----------        ------------
    Net loss per share..............     $     (0.09)    $     (0.05)     $      (0.22)    $     (0.15)       $      (8.18)
                                         ===========     ===========      ============     ===========        ============
</TABLE>



                 See notes to consolidated financial statements.

                                       4


<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
     For the Period from October 17, 1986 (Inception) to September 30, 2001
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                 Notes                                   Deficit          Total
                                                              receivable                    Other       accumulated    stockholders'
                                                            in connection   Additional   comprehen-       during       equity (net
                                     Preferred     Common    with sale of    paid-in    sive income     development     capital
                                       stock       stock        stock        capital       (loss)          stage       deficiency)
                                     --------- ------------ -------------  -----------  -----------   ------------- -------------
<S>                                  <C>       <C>            <C>          <C>           <C>         <C>           <C>
Balance at October 17, 1986......... $       - $          -   $       -    $         -   $       -   $          -  $           -
Common stock issued.................         -   11,484,953     100,000     30,539,185           -              -     42,124,138
Reincorporation in Delaware at $.01
  par value.........................         -  (11,220,369)          -     11,220,369           -              -              -
Common stock subscribed.............         -            -    (110,000)             -           -              -      (110,000)
Common stock options and
  warrants issued...................         -            -           -        240,868           -              -        240,868
Issuance of common stock in
  connection with acquisition of
  Camelot Pharmacal, L.L.C..........         -        6,000           -      1,644,000           -              -      1,650,000
Common stock options extended.......         -            -           -        215,188           -              -        215,188
Accretion of issuance costs for
  Series A preferred stock..........         -            -           -              -           -       (103,400)      (103,400)
Series C preferred stock issued.....       115            -           -     11,499,885           -              -     11,500,000
Series C preferred stock dividends..         4            -           -        413,996           -       (415,112)        (1,112)
Comprehensive income (loss):
  Unrealized loss on marketable
    securities......................         -            -           -              -    (222,226)             -              -
  Net loss..........................         -            -           -              -           -    (54,638,251)             -
  Comprehensive income (loss).......         -            -           -              -           -              -   (54,860,477)
                                     --------- ------------   ---------    -----------   ---------  -------------  -------------
Balance at December 31, 1998........       119      270,584     (10,000)    55,773,491    (222,226)   (55,156,763)       655,205
Common stock issued.................         -        2,504      10,000         89,059           -              -        101,563
Series C preferred stock dividends..         9            -           -        865,991           -       (868,277)        (2,277)
Series D preferred stock issued.....       120            -           -     12,014,880           -              -     12,015,000
Series F preferred stock issued.....        50            -           -      4,691,255           -              -      4,691,305
Common stock warrants issued........         -            -           -        203,452           -              -        203,452
Comprehensive income (loss):
  Unrealized gain on marketable
    securities......................         -            -           -              -     391,613              -              -
  Net loss..........................         -            -           -              -           -    (17,384,788)             -
  Comprehensive income (loss).......         -            -           -              -           -              -   (16,993,175)
                                     --------- ------------   ---------    -----------   ---------  -------------  -------------
Balance at December 31, 1999........       298      273,088           -     73,638,128     169,387    (73,409,828)       671,073
Common stock issued.................         -       15,738           -      3,796,072           -              -      3,811,810
Repurchase and retirement of
  common stock......................         -         (910)          -      (312,279)           -              -       (313,189)
Series C preferred stock dividends..         9            -           -        931,991           -       (934,045)        (2,045)
Series D preferred stock dividends..         9            -           -        854,991           -       (855,750)          (750)
Series E preferred stock issued.....        10            -           -        999,990           -              -      1,000,000
Series E preferred stock dividends..                      -           -          4,000           -         (4,750)          (750)
Common stock warrants issued........         -            -           -        195,202           -              -        195,202
Comprehensive income (loss):
  Unrealized loss on marketable
    securities......................         -            -           -              -     (11,920)             -              -
  Net loss..........................         -            -           -              -           -     (5,763,151)             -
  Comprehensive income (loss).......         -            -           -              -           -              -    (5,775,071)
                                     --------- ------------   ---------    -----------   ---------  -------------  -------------
Balance at December 31, 2000........       326      287,916           -     80,108,095     157,467    (80,967,524)      (413,720)
Common stock issued.................         -        3,623           -        390,060           -              -        393,683
Series C preferred stock dividends..         8            -           -        737,992           -       (740,784)        (2,784)
Series D preferred stock dividends..         4            -           -        454,996           -       (455,455)          (455)
Series E preferred stock issued.....        10            -           -        999,990           -              -      1,000,000
Series E preferred stock dividends..         1            -           -         44,999           -        (45,682)          (682)
Common stock warrants issued........         -            -           -        126,741           -              -        126,741
Comprehensive income (loss):
  Unrealized loss on marketable
    securities......................         -            -           -              -    (157,467)              -             -
  Net loss..........................         -            -           -              -           -     (6,452,641)             -
  Comprehensive income (loss).......         -            -           -              -           -              -     (6,610,108)
                                     --------- ------------   ---------    -----------   ---------  -------------  -------------
Balance at September 30, 2001....... $     349 $    291,539   $       -    $82,862,873   $       -  $(88,662,086)  $ (5,507,325)
                                     ========= ============   =========    ===========   =========  =============  =============
</TABLE>

                 See notes to consolidated financial statements.


                                      5

<PAGE>


                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
          For the Nine Months Ended September 30, 2001 and 2000 and for
       the Period from October 17, 1986 (inception) to September 30, 2001
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                   Nine Months Ended           October 17, 1986
                                                                     September 30,               (inception) to
                                                            ------------------------------       September 30,
                                                                 2001             2000               2001
                                                            ------------      ------------      ---------------
<S>                                                         <C>               <C>                <C>
Cash outflows from operating activities:
    Net loss.........................................       $(6,452,641)      $(4,159,041)       $(84,238,830)
Adjustments to reconcile net loss to net cash
   used by development stage activities:
     Issuance of common stock, stock
       options/warrants for services.................           126,741            77,002           2,819,368
     Depreciation and amortization...................            96,533            96,622             694,868
     Non-cash acquisition of research and
       development in-process technology.............                 -                 -           1,650,000
     (Gain) loss realized on sale of marketable
       securities....................................           (79,706)         (119,645)              5,580
     Decrease (increase) in prepaid expenses & other
       current assets................................            18,224          (224,037)           (581,089)
     Decrease in milestone advance receivable........         1,000,000                 -                   -
     (Increase) decrease in other assets.............           (49,332)          (62,054)           (274,305)
     Increase (decrease) in accounts payable
       and accrued liabilities.......................            38,018          (235,167)            839,520
     (Decrease) increase in sponsored
       research payable..............................                 -           (73,052)            812,827
     Other...........................................          (149,043)           95,918             149,005
                                                            ------------      -----------        ------------
Net cash used by operating activities................        (5,451,206)       (4,603,454)        (78,123,056)
                                                            ------------      -----------        ------------
Cash flows from investing activities:
     Proceeds from sale of marketable securities.....           249,661           164,656             844,420
     Acquisition of laboratory and office
       equipment, and leasehold improvements.........          (110,466)          (57,602)           (782,285)
     Other...........................................                 -                 -             (57,087)
                                                            ------------      -----------        ------------
Net cash provided (used) by investing activities.....           139,195           107,054               5,048
                                                            ------------      -----------        ------------

Cash flows from financing activities:
     Payments on debt and capital leases.............            (5,471)           (4,739)           (848,080)
     Net proceeds from issuance of:
        Debt.........................................         3,000,000                 -          10,050,000
        Common stock.................................                 -                 -          23,433,660
        Preferred stock..............................         1,000,000         1,000,000          34,741,117
     Proceeds from exercise of warrants/stock options           393,683         1,584,325          13,671,589
     Repurchase and retirement of common stock.......                 -         (313,189)            (313,189)
     Other...........................................                 -                 -            (500,024)
                                                            ------------      -----------        ------------
Net cash provided by financing activities............         4,388,212         2,266,397          80,235,073
                                                            ------------      -----------        ------------

Net (decrease) increase in cash and cash equivalents.          (923,799)       (2,230,003)          2,117,065
Cash and cash equivalents at beginning of period.....         3,041,948         3,874,437               1,084
                                                            ------------      -----------        ------------
Cash and cash equivalents at end of period...........       $ 2,118,149       $ 1,644,434        $  2,118,149
                                                            ============      ===========        ============

Noncash investing and financing activities:
     Common stock, stock options/warrants issued
     for services....................................       $   126,741       $    77,002        $  2,819,368

     Common stock redeemed in payment of notes
       receivable....................................                 -                 -              10,400
     Acquisition of research and development
       in-process technology.........................                 -                 -           1,655,216
     Common stock issued for intellectual
       property rights...............................                 -                 -             866,250
     Common stock issued to retire debt..............                 -                 -             600,000
     Common stock issued to redeem convertible
       securities....................................                 -                 -           5,353,368
     Securities acquired under sublicense agreement..                 -                 -             850,000
     Equipment acquired under capital lease..........                 -                 -             121,684
     Notes payable converted to common stock.........                 -                 -             749,976
     Stock dividends.................................         1,239,000         1,112,000           4,680,369

Supplemental disclosure of cash flow information:
  Interest paid......................................       $     1,560       $     1,777        $    280,820
</TABLE>



                 See notes to consolidated financial statements.

                                       6

<PAGE>


                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2001
                                   (Unaudited)

1.   BASIS OF PRESENTATION

     The accompanying unaudited consolidated financial statements have been
     prepared in accordance with the instructions to Form 10-Q of the Securities
     and Exchange Commission and should be read in conjunction with the
     financial statements and notes thereto included in the Company's Annual
     Report on Form 10-K for the year ended December 31, 2000. In the opinion of
     management, all adjustments (consisting only of normal recurring accruals)
     necessary to present fairly the financial position, results of operations,
     stockholders' equity and cash flows at September 30, 2001 and for all
     periods presented have been made. Certain information and footnote
     disclosures normally included in financial statements prepared in
     accordance with generally accepted accounting principles have been
     condensed or omitted. The results of operations for the three and nine
     months ended September 30, 2001 and 2000 are not necessarily indicative of
     the operating results for the full years.

     The consolidated financial statements include the accounts of Sheffield
     Pharmaceuticals, Inc. and its wholly owned subsidiaries, Systemic Pulmonary
     Delivery, Ltd., Ion Pharmaceuticals, Inc., and CP Pharmaceuticals, Inc.,
     and its 80.1% owned subsidiary, Respiratory Steroid Delivery, Ltd., and are
     herein referred to as "Sheffield" or the "Company." All significant
     intercompany transactions are eliminated in consolidation.

     The Company is focused on the development and commercialization of later
     stage pharmaceutical products that utilize the Company's unique proprietary
     pulmonary delivery technologies. The Company is in the development stage
     and to date has been principally engaged in research, development and
     licensing efforts. The Company has generated minimal operating revenue,
     sustained significant net operating losses, and requires additional capital
     that the Company intends to obtain through out-licensing as well as through
     equity and debt offerings to continue to operate its business. Even if the
     Company is able to successfully develop new products, there can be no
     assurance that the Company will generate sufficient revenues from the sale
     or licensing of such products to be profitable.


2.   BASIC LOSS PER COMMON SHARE

     Basic net loss per share is calculated in accordance with Statement of
     Financial Accounting Standards No. 128, Earnings Per Share. Basic net loss
     per share is based upon the weighted average common stock outstanding
     during each period. Potentially dilutive securities such as stock options,
     warrants, convertible debt and preferred stock, have not been included in
     any periods presented as their effect is antidilutive.

     On October 17, 2001, as part of the September 28, 2001 amendment of the
     Company's 1998 agreement with Zambon Group, SpA ("Zambon"), the Company
     repurchased from Zambon, 214,997 shares of common stock for $3.0233 per
     share ("Repurchase Price"). In addition, the Company received an option,
     expiring December 31, 2002, to repurchase the remaining shares of the
     Company's common stock held by Zambon at the Repurchase Price. In the event
     the Company completes a sublicense for the North American rights or a
     sublicense for the non- North American rights to the Premaire respiratory
     products prior to December 31, 2002, the Company will repurchase from
     Zambon 882,051 shares of the Company's common stock on each of the events.

3.   LONG-TERM DEBT

     In September 2001, in connection with the amendment of its 1998 agreement
     with Zambon, the Company entered into a Loan and Security Agreement (the
     "Loan") with Zambon, pursuant to which Zambon agreed to lend the Company
     $2.5 million. The Company received $1.0 million upon signing of the Loan,
     with additional borrowings of $1.0 million and $.5 million to be made on
     January 1, 2002 and April 1, 2002, respectively. The Loan provides for
     interest on principal and annually compounded interest at a fixed rate of
     2% per annum and is secured by certain security interests in respiratory
     products developed in the Premaire. One third of the principal balance,
     together with interest, is payable by the Company upon the Company's
     execution of an agreement with one or more third parties to develop,
     co-promote and/or sell certain products in North America, with all
     remaining unpaid principal and interest due on December 31, 2005. The
     outstanding principal balance of the Loan at September 30, 2001, and
     December 31, 2000, was $1.0 million and $0, respectively.

                                       7
<PAGE>
     As part of the amendment of its 1998 agreement with Zambon, the terms of
     all milestone advances received from Zambon were modified in that the
     Company shall repay $1.0 million of the advance milestone payments upon the
     earlier of December 31, 2003, or upon the first regulatory approval for
     either albuterol or an inhaled steroid delivered in the Premaire. The
     remaining $1.0 million advance shall be repaid by the Company on the
     earlier of December 31, 2005, or the regulatory approval of the second
     product (albuterol or an inhaled steroid) delivered in the Premaire. Due to
     the modification in the repayment terms, the advances, totaling $2.0
     million at both September 30, 2001 and December 31, 2000, have been
     reclassified in the Company's balance sheet as long-term debt.


4.   RECLASSIFICATIONS

     Certain amounts in the prior year financial statements and notes have been
     reclassified to conform to the current year presentation.


                                       8

<PAGE>

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of
Operations

The following contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. All forward-looking statements involve risks
and uncertainty. Although the Company believes that the assumptions underlying
the forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this report will prove to be
accurate. The Company's actual results may differ materially from the results
anticipated in the forward-looking statements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Important Factors
that May Affect Future Results" included herein for a discussion of factors that
could contribute to such material differences. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved. The Company disclaims any obligation to update or revise the
information provided in this report to reflect future events.


OVERVIEW

The Company provides innovative, cost-effective pharmaceutical therapies by
combining state-of-the-art pulmonary drug delivery technologies with existing
and emerging therapeutic agents. The Company is developing a range of products
to treat respiratory and systemic diseases in its proprietary Premaire(TM)
Delivery System ("Premaire") and Tempo(TM) Inhaler ("Tempo"). The Company is in
the development stage and, as such, has been principally engaged in the
development of its pulmonary delivery systems. The Company and its development
partners currently have ten products in various stages of development.

In 1997, the Company acquired the Premaire Delivery System, a portable
nebulizer-based pulmonary delivery system, through a worldwide exclusive license
and supply arrangement with Siemens AG ("Siemens"). During the second half of
1998, the Company acquired the rights to an additional pulmonary delivery
technology, the Tempo Inhaler, from a subsidiary of Aeroquip-Vickers, Inc.
("Aeroquip-Vickers"). The Tempo technology is a new generation propellant-based
pulmonary delivery system. Additionally, during 1998, Sheffield licensed from
Elan Corporation, plc ("Elan") the Ultrasonic Pulmonary Drug Absorption System
("UPDAS"), a novel disposable unit dose nebulizer system, and Elan's Absorption
Enhancing Technology ("Enhancing Technology"), a therapeutic agent to increase
the systemic absorption of drugs. In October 1999, the Company licensed Elan's
Nanocrystal(TM) technology to be used in developing certain inhaled steroid
products.

Using the above pulmonary delivery systems and technologies as platforms, the
Company has established strategic alliances for developing some of its initial
products with Elan and Siemens.

In June 1998, the Company sublicensed to Zambon Group SpA ("Zambon") worldwide
marketing and development rights to respiratory products to be delivered by the
Premaire in return for an equity investment in the Company (approximately 10%).
From June 1998 to September 2001, Zambon funded the development costs for the
respiratory compounds delivered by Premaire. In September 2001, the Company
amended its 1998 agreement with Zambon whereby Sheffield regained the rights to
the Premaire previously granted to Zambon. As part of the amended agreement,
Zambon provided a low-interest, $2.5 million loan to Sheffield to progress the
development of the Premaire respiratory program. Upon commercialization, Zambon
will be entitled to certain royalties on payments received by Sheffield for
albuterol, ipratropium and cromolyn sales for specified periods.

As part of a strategic alliance with Elan, the Company is developing therapies
for non-respiratory diseases to be delivered to the lungs using both Tempo and
Premaire. In 1998, the systemic applications of Premaire and Tempo were licensed
to Systemic Pulmonary Delivery, Ltd. ("SPD"), a wholly owned subsidiary of the
Company. In addition, two Elan technologies, UPDAS(TM) and the Enhancing
Technology, were also licensed to SPD. The Company retained exclusive rights
outside of the strategic alliance to respiratory disease applications utilizing
the Tempo technology and the two Elan technologies. Two systemic compounds for
pulmonary delivery are currently under development. For the treatment of
breakthrough pain, the Company is developing morphine delivered through
Premaire. Ergotamine, a therapy for the treatment of migraine headaches, is
currently being developed for use in Tempo.

In addition to the above alliance with Elan, in 1999, the Company and Elan
formed a joint venture, Respiratory Steroid Delivery, Ltd. ("RSD"), to develop
certain inhaled steroid products to treat respiratory diseases using Elan's
NanoCrystal technology. The inhaled steroid products to be developed include a
propellant-based steroid formulation for delivery through the Tempo(TM) Inhaler,
a solution-based unit-dose-packaged steroid formulation for delivery using a
conventional tabletop nebulizer, and a solution-based steroid formulation for
delivery using the Premaire(TM) Delivery System.

                                        9

<PAGE>

RESULTS OF OPERATIONS

Revenue

Contract research revenues primarily represented revenues earned from a
collaborative research agreement with Zambon relating to the development of
respiratory applications of Premaire. Contract research revenue for the third
quarter of 2001 and 2000 were $0 and $46,109, respectively. The decrease for the
third quarter 2001 was due to Sheffield no longer performing development work
for Zambon as a result of Sheffield regaining the Premaire respiratory rights in
the third quarter of 2001. For the first nine months of 2001 and 2000, contract
research revenues were $869,095 and $291,784, respectively. The increase for the
first nine months of 2001 is due to higher costs associated with Premaire device
development work and testing prior to the start of Phase III Premaire-albuterol
clinical trials, partially offset by the Company no longer performing
development work for Zambon in the third quarter of 2001. Costs of contract
research revenue approximated such revenues and were included in research and
development expenses. Future contract research revenues and expenses are
anticipated to fluctuate depending, in part, in obtaining additional
collaborative agreements and upon the success of current clinical studies.

The Company's ability to generate material revenues is contingent on the
successful commercialization of its technologies and other technologies and
products that it may acquire, followed by the successful marketing and
commercialization of such technologies through licenses, joint ventures and
other arrangements.

Research and Development

Research and development ("R&D") expenses were $1,686,046 and $892,411 for the
third quarter of 2001 and 2000, respectively. For the nine months ended
September 30, 2001 and 2000, R&D costs were $4,666,181 and $2,677,189,
respectively. The increase for both the third quarter and the first nine months
primarily reflects higher development expenses related to RSD's unit-dose and
Premaire steroid products, higher costs related to development, design and
testing of the Tempo Inhaler, and higher costs associated with Premaire device
development work and testing prior to the start of Phase III Premaire-albuterol
clinical trials. The increase in research and development expenses also reflects
slightly higher expenses related to formulation and feasibility work associated
with new product development in the area of polypeptides, partially offset by
nonrecurring costs incurred in the first nine months of 2000 associated with
modifications made to the Premaire Delivery System to enhance its commercial
appeal.

General and Administrative

General and administrative expenses were $1,031,562 and $521,060 for the
quarters ended September 30, 2001, and 2000, respectively, and $2,909,362 and
$1,907,205 for the first nine months of 2001 and 2000, respectively. The
increase for both the third quarter and the first nine months of 2001 was
primarily due to higher consulting costs and legal fees associated with expanded
business development activities.

Interest

Interest income was $4,362 and $21,193 for the third quarter of 2001 and 2000,
respectively, and $55,127 and $115,685 for the first nine months of 2001 and
2000, respectively. The decrease in interest income for both the third quarter
and first nine months of 2001 was primarily due to less cash available for
investment and lower yields on those investments.

Interest expense was $95,039 and $57,267 for the third quarter of 2001 and 2000,
respectively, and $204,286 and $164,424 for the first nine months of 2001 and
2000, respectively. The increase for both the third quarter and first nine
months of 2001 resulted from interest associated with the August 2001 $2 million
convertible promissory note with Elan Pharma International Ltd. ("Elan Pharma").

Realized Gain on Sale of Marketable Securities

Realized gain on sale of marketable securities was $79,706 and $67,061 for the
third quarter 2001 and 2000, respectively, and $79,706 and $119,645 for the
first nine months of 2001 and 2000, respectively. These gains resulted from the
sale of 283,188 and 45,000 shares for the third quarter of 2001 and 2000,
respectively, and 283,188 and 75,000 shares for the first nine months of 2001
and 2000, respectively, of the Company's investment in Lorus Therapeutics, Inc.
("Lorus"). As of September 20, 2001, the Company had no remaining investment in
Lorus.

                                       10

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2001, the Company had $2,118,149 in cash and cash equivalents
compared to $3,041,948 at December 31, 2000. The decrease of $923,799 primarily
reflects $6,451,206 of cash disbursements used primarily to fund operating
activities, partially offset by the receipt of a $1.0 million milestone advance
from Zambon, $1.0 million from the issuance of 1,000 shares of the Company's
Series E Cumulative Convertible Preferred Stock, $2.0 million from the proceeds
of an unsecured promissory note from Elan Pharma, $1.0 million from the proceeds
of a secured loan from Zambon, and $393,683 in net proceeds from the exercise of
common stock options and warrants.

In September 2001, in connection with the amendment of its 1998 agreement with
Zambon, the Company entered into a Loan and Security Agreement ("Loan
Agreement") with Zambon, pursuant to which Zambon agreed to lend the Company
$2.5 million. The Company received $1.0 million upon signing of the Loan
Agreement, with additional borrowings of $1.0 million and $.5 million to be made
on January 1, 2002 and April 1, 2002, respectively. The Loan Agreement provides
for interest on principal and annually compounded interest at a fixed rate of 2%
per annum and is secured by certain security interests in respiratory products
developed in the Premaire. One third of the principal balance, together with
interest, is payable by the Company upon the Company's execution of an agreement
with one or more third parties to develop, co-promote and/or sell certain
products in North America, with all remaining unpaid principal and interest due
on December 31, 2005.

On October 17, 2001, as part of the amendment of its 1998 agreement with Zambon,
the Company repurchased from Zambon, 214,997 shares of common stock for $3.0233
per share ("Repurchase Price"). In addition, the Company received an option,
expiring December 31, 2002, to repurchase the remaining shares of the Company's
common stock held by Zambon at the Repurchase Price. In the event the Company
completes a sublicense for the North American rights or a sublicense for the
non-North American rights to certain Premaire respiratory products prior to
December 31, 2002, the Company will repurchase from Zambon 882,051 shares of the
Company's common stock on each of the events.

In August 2001, the Company entered into a Note Purchase Agreement with Elan
Pharma, pursuant to which Elan Pharma agreed to lend the Company $2 million. All
borrowings under the Note Purchase Agreement are evidenced by an unsecured
promissory note of the Company of up to $4 million that provides for interest on
principal and semi-annually compounded interest at a fixed rate of 10% per annum
and a maturity date 360 days after the last funding under the Note Purchase
Agreement, or upon the earlier occurrence of one or more specified events.

In October 1999, as part of a licensing agreement with Elan, the Company
received gross proceeds of $17,015,000 related to the issuance to Elan of 12,015
shares of Series D Cumulative Convertible Exchangeable Preferred Stock and 5,000
shares of Series F Convertible Non-Exchangeable Preferred Stock. In turn, the
Company made an equity investment of $12,015,000 in a joint venture, RSD,
representing an initial 80.1% ownership. The remaining proceeds from this
preferred stock issuance will be utilized for general operating purposes. As
part of the agreement, Elan also committed to purchase, on a drawdown basis, up
to an additional $4.0 million of the Company's Series E Preferred Stock, of
which $2.0 million of such commitment remains outstanding. The proceeds from the
Series E Preferred Stock will be utilized by the Company to fund its portion of
RSD's operating and development costs.

In May 1999, in conjunction with the completion of its Phase I/II
Premaire-albuterol trial, Zambon provided the Company with a $1.0 million
interest-free advance against future milestone payments. In January 2001, the
Company received an additional $1.0 million interest-free milestone advance
resulting from the demonstration of the technical feasibility of delivering an
inhaled steroid formulation in Premaire. The proceeds from these advances are
not restricted as to their use by the Company. As part of the amendment of its
1998 agreement with Zambon, the terms of the milestone advances were modified in
that the Company shall repay $1.0 million of the advance milestone payments upon
the earlier of December 31, 2003, or upon the first regulatory approval for
either albuterol or an inhaled steroid delivered in the Premaire. The remaining
$1.0 million advance shall be repaid by the Company on the earlier of December
31, 2005, or the regulatory approval of the second product (albuterol or an
inhaled steroid) delivered in the Premaire. Due to the modification in the
repayment terms, the advances have been reclassified in the Company's balance
sheet as long-term debt.

Since its inception, the Company has financed its operations primarily through
the sale of securities and convertible debentures, from which it has raised an
aggregate of approximately $81.9 million through September 30, 2001, of which
approximately $30.0 million has been spent to acquire certain in-process
research and development technologies, and $33.4 million has been incurred to
fund certain ongoing technology research projects. The Company expects to incur
additional costs in the future, including costs relating to its ongoing research
and development activities, and preclinical and clinical testing of its product
candidates. The Company may also bear considerable costs in connection with
filing, prosecuting, defending and/or enforcing its patent and other
intellectual property claims. Therefore, the Company will need substantial
additional capital before it will recognize significant cash flow from
operations, which is contingent on the successful commercialization of the
Company's


                                       11

<PAGE>

technologies. There can be no assurance that any of the technologies to which
the Company currently has or may acquire rights can or will be commercialized or
that any revenues generated from such commercialization will be sufficient to
fund existing and future research and development activities.

Because the Company does not expect to generate significant cash flows from
operations for at least the next few years, the Company believes it will require
additional funds to meet future costs. In an effort to meet its capital
requirements, the Company is currently evaluating various financing alternatives
including private offerings of its securities, debt financing, and collaboration
and licensing arrangements with other companies. There can be no assurance that
the Company will be able to obtain such additional funds or enter into such
collaborative and licensing arrangements on terms favorable to the Company, if
at all. The Company's development programs may be curtailed if future financings
are not completed.

IMPORTANT FACTORS THAT MAY AFFECT FUTURE RESULTS

The following are some of the factors that could affect the Company's future
results. They should be considered in connection with evaluating forward-looking
statements contained in this report and otherwise made by the Company or on the
Company's behalf, because these factors could cause actual results and
conditions to differ materially from those projected in forward-looking
statements.

The Company's future results are subject to risks and uncertainties including,
but not limited to, the risks that (1) the Company may not be able to obtain
additional financing on acceptable terms, or at all, to continue to fund its
operations, and may be required to delay, reduce the scope of, or eliminate one
or more of its research and development programs, or obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates or
products that the Company would otherwise seek to develop; (2) the Company's
product opportunities may not be successfully developed, proven to be safe and
efficacious in clinical trials, may not meet applicable regulatory standards,
may not receive the required regulatory approvals, or may not be produced in
commercial quantities at reasonable costs or be successfully commercialized and
marketed; (3) the Company may default in payments required under certain
licensing agreements, thereby potentially forfeiting its rights under those
agreements; (4) due to rapid technological change and innovation, the Company
may not have a competitive advantage in its fields of technology or in any of
the fields in which the Company may concentrate its efforts; (5) government
regulation may prevent or delay regulatory approval of the Company's products;
(6) the Company may not develop or receive sublicenses or other rights related
to proprietary technology that are patentable, one or more of the Company's
pending patents may not issue, any issued patents may not provide the Company
with any competitive advantages, or issued patents may be challenged by third
parties; (7) the Company may not have the resources available to build or
otherwise acquire its own marketing capabilities, or agreements with other
pharmaceutical companies to market the Company's products may not be reached on
terms acceptable to the Company; (8) manufacturing and supply agreements entered
into by the Company may not be adequate or the Company may not be able to
enter into future manufacturing and supply agreements on acceptable terms; (9)
private health insurance and government health program reimbursement price
levels may not be sufficient to provide a return to the Company on its
investment in new products and technologies; (10) the Company may not be able to
maintain or obtain product liability insurance for any future clinical trials;
(11) the failure to meet the American Stock Exchange's ("AMEX") listing
guidelines may result in the Common Stock of the Company no longer being
eligible for listing on the AMEX, which would make it more difficult for
investors to dispose of, or to obtain accurate quotations as to the market value
of the Company's Common Stock and would make it more difficult for the Company
to raise additional funds; (12) announcements of developments in the medical
field generally, or in the Company's research areas or by the Company's
competitors specifically, may have a materially adverse effect on the market
price of, the Company's Common Stock; (13) the exercise of options and
outstanding warrants, the conversion of the Company's currently outstanding
convertible securities or convertible promissory notes, or conversion of
convertible securities issuable in the future may significantly dilute the
market price of shares of the Company's Common Stock, and could impair the
Company's ability to raise capital through the future sale of its equity
securities.

Readers are also directed to other risks and uncertainties discussed, as well as
to further discussion of the risks described above, in other documents filed by
the Company with the Securities and Exchange Commission. The Company
specifically disclaims any obligation to update or revise any forward-looking
information, whether as a result of new information, future developments, or
otherwise.


                                       12
<PAGE>


PART II: OTHER INFORMATION

Item 2.   Changes in Securities.

          The following unregistered securities were issued by the Company
          during the quarter ended September 30, 2001.

<TABLE>
<CAPTION>
                                             Number of
          Date of Sale/   Description of     Shares        Offering Price  Purchase
          Issuance        Securities Issued  Sold/Issued   per Share ($)   or Class
          -------------   -----------------  ------------  --------------  --------
          <S>             <C>                <C>           <C>             <C>
          September 2001  Common Stock        98,611         $1.375        Advisors in
                                                                           lieu of cash
                                                                           consideration
</TABLE>





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

          No reports on Form 8-K were filed during the quarter ended
          September 30, 2001.


<TABLE>
<CAPTION>
          Exhibits
          --------
          <S>      <C>
          10.32    Amendment to Sublicense and Development Agreement dated September 29, 2001, between
                   Sheffield Pharmaceuticals, Inc. and Inpharzam International S.A.

          10.33    Loan and Security Agreement dated September 29, 2001, between Sheffield Pharmaceuticals,  Inc.
                   and Inpharzam International, S.A.

          10.34    Promissory Note dated September 29, 2001 issued to Inpharzam International, S.A.

          10.35    Note Purchase Agreement dated August 14, 2001 between Sheffield Pharmaceuticals, Inc. and Elan Pharma
                   International Ltd. (portions of this exhibit are omitted and were filed separately with the Securities and
                   Exchange Commission pursuant to the Company's application requesting confidential treatment in accordance with
                   Rule 24b-2 as promulgated under the Securities Exchange Act of 1934, as amended).

          10.36    Promissory Note dated August 14, 2001 issued to Elan Pharma International Ltd. (portions of this exhibit are
                   omitted and were filed separately with the Securities and Exchange Commission pursuant to the Company's
                   application requesting confidential treatment in accordance with Rule 24b-2 as promulgated under the Securities
                   Exchange Act of 1934, as amended).

</TABLE>


                                       13

<PAGE>


                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





                                           SHEFFIELD PHARMACEUTICALS, INC.



Dated:  November 13, 2001           /s/ Loren G. Peterson
                                    --------------------------------------------
                                    Loren G. Peterson
                                    President & Chief Executive Officer




Dated:  November 13, 20001          /s/ Scott A. Hoffmann
                                    --------------------------------------------
                                    Scott A. Hoffmann
                                    Vice President & Chief Financial Officer
                                    (Principal Financial and Accounting Officer)



                                       14

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.32
<SEQUENCE>3
<FILENAME>c66107ex10-32.txt
<DESCRIPTION>AMENDMENT TO SUBLICENSE AND DEVELOPMENT AGREEMENT
<TEXT>
<PAGE>


                                                                   EXHIBIT 10.32

                AMENDMENT TO SUBLICENSE AND DEVELOPMENT AGREEMENT

         This AMENDMENT TO SUBLICENSE AND DEVELOPMENT AGREEMENT (the
"Amendment") is made this 28th day of September, 2001, by and between SHEFFIELD
PHARMACEUTICALS, INC., a Delaware corporation having a principal place of
business at 14528 South Outer Forty Road, Suite #205, St. Louis, Missouri 63017
("Sheffield") and INPHARZAM INTERNATIONAL, S.A., a corporation organized under
the laws of Switzerland and having its principal executive offices at Via
Industria 1, 6814 Cadempino, Switzerland and its affiliates, including Zambon
Group, S.p.A. (collectively, "Inpharzam"). Sheffield and Inpharzam may be
referred to collectively as the "Parties".

         WHEREAS, Sheffield holds (i) the exclusive worldwide right to be
supplied with Devices pursuant to the terms of a certain Basic Supply Agreement
by and between Sheffield and Siemens Aktiengesellschaft Keramik und
Porzellanwerk ("Siemens"), dated March 21, 1997, and (ii) the exclusive
worldwide rights in and to the Sublicensed Patent Rights and Technology pursuant
to the terms of Sheffield's License Agreement with Siemens, dated March 21,
1997, and by virtue of its own development work;

         WHEREAS, Sheffield and Inpharzam entered into a Sublicense and
Development Agreement, dated June 15, 1998 (the "Sublicense Agreement"),
providing for among other things, an arrangement whereby Inpharzam would be (i)
supplied with Devices to facilitate the development of certain Licensed Products
and (ii) expected to develop, market and sell the Licensed Products;

         WHEREAS, pursuant to such Sublicense Agreement and in partial
consideration for Inpharzam's purchase of 2,646,153 shares of the Common Stock
of Sheffield (the "Inpharzam Shares"), Sheffield granted an exclusive Sublicense
to Inpharzam for the Sublicensed Patent Rights and the Technology in the Field
in the Territory;

         WHEREAS, based on mutual discussions and negotiations between them,
Sheffield and Inpharzam desire to amend the Sublicense Agreement and modify
their respective obligations under the Sublicense Agreement, including, without
limitation, (i) a termination of the sublicense between Sheffield and Inpharzam,
(ii) a termination of certain payments to be made by Sheffield to Inpharzam, and
(iii) providing for the repurchase or disposition of the Inpharzam Shares;

         NOW THEREFORE, in consideration of the foregoing recitals and the
mutual promises set forth herein and for other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereby,
intending to be legally bound, agree that the Sublicense Agreement is hereby
amended as of the date of this Amendment as follows:

         1. Definitions. Except as otherwise provided herein, capitalized terms
used in this Amendment and in the premises shall have the respective meanings
ascribed to them in the Sublicense Agreement. Except as otherwise provided
herein, section references in this Amendment correspond to those section numbers
set forth in the Sublicense Agreement.


<PAGE>


         2. Termination of Development Program. Except with respect to Section
3.3 of the Sublicense Agreement, which is hereby amended and restated to read as
follows, and Section 3.4 of the Sublicense Agreement which shall remain
unchanged, the balance of Section 3 therein is hereby deleted, and the rights,
duties and obligations of the Parties set forth therein with respect to the
Development Program are hereby terminated as of the date of this Amendment.

Section 3.3 is hereby amended and restated to read as follows:

3.3      Inventions

         (a) All intellectual property rights such as patents, patent
applications, inventions, data, know-how and the like (hereinafter "Intellectual
Property"), owned or controlled by either party prior to the parties entering
into this Agreement or the Option Agreement, shall remain the property of such
party, subject only to the rights granted herein and to Sheffield's obligations
under the Siemens Agreements.

         (b) All Intellectual Property which relates to Licensed Products
pursuant to this Agreement, the Development Plan or any work performed by
Inpharzam which was conceived and/or first reduced to practice during the term
of this Agreement or the Option Agreement, dated April 14, 1998, between
Sheffield and Inpharzam, by personnel employed by or on behalf of either party
shall be the property of Sheffield subject only to Sheffield's obligations under
the Siemens Agreements. Should Sheffield elect to file patent applications for
the same, Sheffield may do so, employing an attorney or agent that Sheffield
shall select in its sole discretion and at its sole cost. Inpharzam shall
cooperate fully in the prosecution and enforcement of any patent application or
patent resulting therefrom and such patents or patent applications shall be the
sole property of Sheffield.

         3. Termination of Sublicense. Section 4.1 of the Sublicense Agreement
is hereby deleted in its entirety and the sublicense to the Sublicensed Patent
Rights and the Technology in the Field granted to Inpharzam therein is hereby
terminated in all respects.

         4. Amendments to Section 4.2 of Sublicense Agreement.

                  (a) Section 4.2(b) of the Sublicense Agreement is hereby
deleted. In connection with such deletion of Section 4.2(b), the Subscription
Agreement referred to therein, including any provisions relating to the grant of
an option to purchase shares of common stock of Sheffield, shall have no further
force or effect as of the date hereof.

                  (b) Inpharzam will retain its designee to the Board of
Directors of Sheffield as set forth in Section 4.2(c) of the Sublicense
Agreement until such time as the first repurchase of the Inpharzam Shares
described in Section 13(a) hereof is consummated. Following such repurchase,
Inpharzam shall have no further rights to any board seat, or any board observer
or information rights. Notwithstanding the foregoing, nothing in this Section
shall be deemed a waiver of any (i) applicable shareholder information rights to
which Inpharzam is entitled under Delaware law or (ii) reports with respect to
royalty payments on the Subject Products, described in Exhibit B, to which
Inpharzam is entitled under the Sublicense Agreement.


                                       2

<PAGE>


                  (c) Section 4.2(d) of the Sublicense Agreement is amended as
provided in Section 15 of this Amendment.

                  (d) Sections 4.2(e), (f), (g), (h) and (i) of the Sublicense
Agreement are hereby deleted in their entirety.

         5. Termination of Royalties. The royalty obligations set forth in
Section 4.3 of the Sublicense Agreement, pursuant to which Inpharzam is to have
made royalty payments to Sheffield, are hereby terminated. Any royalty
obligations continuing between the parties from and after the date of this
Amendment are set forth in Section 16 of this Amendment. The provisions of
Sections 4.4, 4.5, 4.6, 4.7 and 4.8 are hereby amended so that they shall be
deemed to apply only to the payment obligations of Sheffield to Inpharzam set
forth in Section 16 of this Amendment.

         6. Regulatory, Co-Promotion. Sections 4.9 and 4.10 of the Sublicense
Agreement with respect to regulatory authority and promotion and marketing are
hereby deleted in their entirety.

         7. Manufacture and Data.

            (a) Section 5.4(a) and 5.4 (c) of the Sublicense Agreement are
hereby deleted. Section 5.4(b) is hereby amended so that the disclosure
obligations of Inpharzam shall survive, on a product by product basis, with
respect to each Licensed Product until FDA approval or Non-US Regulatory
Authority is obtained and the disclosure obligations of Sheffield shall continue
until such time as the board seat of Inpharzam is terminated. Thereafter,
Sheffield shall have no further disclosure obligations to Inpharzam, except to
the extent that Inpharzam is threatened to be made a party to litigation against
which Inpharzam is not fully indemnified by Sheffield.

            (b) Except with respect to Section 7(d), which shall remain
unchanged, the balance of Section 7 is hereby deleted.

         8. Termination of Commercial Efforts. Sections 6.1 and 6.3 of the
Sublicense Agreement are hereby deleted. Section 6.2 is hereby amended and
restated to read as follows:

6.2 Sheffield hereby agrees that it shall use commercially reasonable efforts,
or shall cause its Affiliates or sublicensees to use commercially reasonable
efforts, to seek FDA approval for and to market and sell the Licensed Products
described in Exhibit B in the Field in the United States.

         9. Assumption of Contracts. On or as soon as practicable following the
date of execution and delivery of this Amendment, or as soon thereafter as
practicable but as of the date of this Amendment, Inpharzam shall assign to
Sheffield, and Sheffield shall assume all obligations of Inpharzam accruing from
and after the date of this Amendment with respect to, the contracts set forth on
Exhibit A attached hereto and made a part hereof. As soon as practicable
following the execution of this Amendment, Inpharzam shall provide Sheffield
with copies of all contracts and documents executed in connection with the
Sublicense Agreement, whether or not such contracts or documents have expired or
are no longer valid. Inpharzam acknowledges and agrees that, except with respect
to the contracts set forth on Exhibit A, it has not entered into any



                                       3

<PAGE>


leases, employment arrangements, or other material contracts by which Sheffield
may be bound. Inpharzam hereby covenants and agrees that it shall be solely
responsible for obtaining the consents of any third party required for the
transfer or assignment of such contracts or agreements including, without
limitation, any fees or expenses in connection therewith.

         10. Amendments to Section 8 of the Sublicense Agreement.

             (a) Section 8.6 is hereby deleted in its entirety.

             (b) The first sentence of Section 8.2 of the Sublicense Agreement
is hereby deleted in its entirety.

             (c) In the event a third-party shall be infringing any rights to
the Licensed Products described in Exhibit B which, in Sheffield's reasonable
determination will result in a material adverse effect on the royalty payments
provided in Section 16 below, Sheffield shall use commercially reasonable
efforts to cause the infringing third party to cease and desist from such
infringement.

             (d) The balance of Section 8 shall remain unchanged.

         11. Amendments to Section 9 of the Sublicense Agreement.

             (a) Sections 9.1, 9.2, 9.3, 9.4, 9.6, 9.7 and 9.8 of the Sublicense
Agreement are hereby deleted.

             (b) Section 9.9 of the Sublicense Agreement shall be amended by
changing the words "subsection 5.4(e)" to "subsection 5.4(d)".

         12. Amendments to Section 17 of the Sublicense Agreement. Section 17.8
of the Sublicense Agreement is hereby deleted. Section 17.1 of the Sublicense
Agreement is hereby amended and restated to read as follows:

             17.1 This Agreement (including the Appendices attached hereto), as
amended by that certain Amendment to Sublicense and Development Agreement, dated
September 28, 2001, and the Confidentiality Agreement constitute the entire
agreement between the parties and, except as noted in Article 2 of this
Agreement, supersede all prior written or oral agreements or understandings
concerning the subject matter thereof or in conflict with their terms.

         13. Repurchase of Inpharzam Shares.

             (a) As of the date of this Amendment, Sheffield shall repurchase
from Inpharzam 214,997 of the Inpharzam Shares for an aggregate purchase price
of Six Hundred Forty Two Thousand Eight Hundred Forty One Dollars and 03/100
dollars ($642,841.03) (the "Initial Repurchase"). Solely in connection with the
Initial Repurchase under this subsection (a), Inpharzam shall make a payment of
$642,841.03 on account of an invoice presented to Inpharzam by Sheffield for
unreimbursed expenses. Such payment for unreimbursed expenses in the amount of
$642,841.03 represents all amounts due and owing on account of such invoice and
represents all amounts owing by Inpharzam to Sheffield, except as otherwise
provided in this


                                       4

<PAGE>


Amendment. Simultaneously with the execution and delivery of this Amendment, or
as soon thereafter as shall be practicable (but not later than five days after
such execution and delivery), Inpharzam shall deliver to Sheffield a certificate
representing the 214,997 Inpharzam Shares.

                  (b) In addition, Inpharzam hereby grants to Sheffield an
option to repurchase from Inpharzam, at any time before December 31, 2002, any
Inpharzam Shares not otherwise purchased by Sheffield pursuant to this Section
13, at the Redemption Price, as defined in subsection (d) below.

                  (c) To the extent that either of the following two events
occurs prior to December 31, 2002, Sheffield shall repurchase Inpharzam Shares
from Inpharzam in the following manner:

                      (i) In the event Sheffield completes a sublicense for the
                      North American rights to Licensed Products with a third
                      party, Sheffield will repurchase, at the Redemption Price,
                      882,051 Inpharzam Shares; and

                      (ii) In the event Sheffield completes a sublicense for the
                      ex-North American rights to Licensed Products with a third
                      party, Sheffield will repurchase, at the Redemption Price,
                      an additional 882,051 Inpharzam Shares.

Notwithstanding the foregoing, the number of Inpharzam Shares which Sheffield
shall be obligated to purchase pursuant to the first to occur of clause (i) or
clause (ii) above shall be reduced by the number of Inpharzam Shares repurchased
under the Initial Repurchase.

                  (d) For purposes of this Amendment, the redemption price per
share shall equal $3.03 (the "Redemption Price").

                  (e) To the extent that there remain Inpharzam Shares on
December 31, 2002 (the "Remaining Inpharzam Shares") which shall not have been
repurchased under this Section 13, such shares shall be free and clear of any
restriction on resale, other than restrictions of applicable federal and state
securities laws, and Inpharzam shall be permitted to sell such shares to any
third party in any manner desired, subject only to applicable securities laws.
Upon the request of Inpharzam, Sheffield agrees promptly to remove any
restrictive legend or legends on the certificate or certificates representing
the Remaining Inpharzam Shares.

         14. Deliveries/Transfer of Intellectual Property. Simultaneously upon
the execution and delivery of this Amendment, Inpharzam will deliver, transfer,
convey and assign to Sheffield all Intellectual Property referred to in Section
3.3 of the Sublicense Agreement, as amended hereby. Inpharzam shall cooperate
and assist in the transfer to Sheffield of all Investigational New Drug
Applications ("IND'S") and all other regulatory filings relating to the
Sublicense Agreement for which Inpharzam is a sponsor. Inpharzam will do each
and every act as may be necessary or reasonably requested by Sheffield to
evidence the transfer of ownership of such Intellectual Property to Sheffield.


                                       5

<PAGE>


         15. Repayment of Loan. Section 4.2(d) of the Sublicense Agreement is
hereby deleted in its entirety and is hereby replaced by the following:

         (d) It is expressly acknowledged and agreed that Inpharzam has extended
an interest-free line of credit in the amount of Two Million Dollars to
Sheffield, $1,000,000 on May 10, 1999, and $1,000,000 on January 11, 2001 (the
"Line of Credit Loan"). It is expressly understood and agreed that Sheffield
shall repay the Line of Credit Loan as follows:

             (i) Sheffield shall make a payment of One Million Dollars on the
earlier of (x) December 31, 2003 or (y) the first regulatory approval date for
either Albuterol or the inhaled steroid; and

             (ii) Sheffield shall make a final repayment on the Line of Credit
Loan in the amount of One Million Dollars ($1,000,000) on the earlier of (x)
December 31, 2005 or (y) the first regulatory approval date for the second of
the products to be approved (either Albuterol or the inhaled steroid).

         16. Continuing Royalty Obligations. From and after the date hereof,
Sheffield may, solely or in conjunction with a third party sublicensee or
commercial partner, continue development activities with respect to the
Sublicensed Patent Rights and the Technology in the Field. In the event that
certain products, described on Exhibit B, reach commercialization as a direct
result of any prior development efforts conducted by Inpharzam under the
Sublicense Agreement, Inpharzam shall be entitled to royalties derived from such
products, if any, as set forth on Exhibit B.

         Except with respect to the stock repurchase and royalty obligations set
forth herein, and the repayment of the Line of Credit Loan, and except as
otherwise expressly set forth in this Amendment or the Sublicense Agreement, as
amended hereby, Sheffield shall have no further obligation to make payments of
any type to Inpharzam from and after the date of execution and delivery of this
Amendment.

         17. Representations and Warranties of Sheffield. Sheffield hereby
represents and warrants to Inpharzam as follows:

             (a) Organization, Good Standing and Qualification. Sheffield is a
corporation duly organized and validly existing under, and by virtue of, the
laws of the State of Delaware and is in good standing under such laws. Sheffield
is duly qualified and is authorized to do business and is in good standing as a
foreign corporation in all jurisdictions in which the nature of its activities
and of its properties (both owned and leased) makes such qualification
necessary, except for those jurisdictions in which failure to do so would not
have a material adverse effect on Sheffield or its business.

             (b) Corporate Power. Sheffield has all requisite corporate power
and authority to own and operate its properties and assets, to execute and
deliver this Amendment and to carry out the provisions of this Amendment and the
Sublicense Agreement, as amended hereby, and to carry on its business as
presently conducted and as presently proposed to be conducted.


                                       6

<PAGE>


                  (c) Authorization. All corporate action on the part of
Sheffield, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Amendment, the performance of all
obligations of Sheffield hereunder and under the Sublicense Agreement, as
amended hereby, has been taken. This Amendment and the Sublicense Agreement, as
amended hereby, constitute the valid and binding obligations of Sheffield,
enforceable in accordance with their terms.

                  (d) Compliance with Other Instruments, None Burdensome, etc.
Sheffield is not in violation of any term of its Certificate of Incorporation,
as amended to date, or its By-Laws, or, to the best of its knowledge, in any
material respect, of any term or provision of any material mortgage,
indebtedness, indenture, contract, agreement, instrument, judgment or decree,
any order, statute rule or regulation applicable to Sheffield where such
violation would materially and adversely affect Sheffield. The execution,
delivery and performance of and compliance with this Amendment and the
Sublicense Agreement, as amended hereby, and the performance of such agreements,
with or without the passage of time or giving of notice, will not result in any
material violation of, or conflict with, or constitute a material default under,
Sheffield's Certificate of Incorporation or By-Laws or any of its agreements or
result in the creation of, any mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of Sheffield or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to Sheffield, its business or operations or any of its
assets or properties.

                  (e) Reporting Status. Sheffield's Common Stock is registered
under Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Sheffield has filed in a timely manner all documents that
Sheffield was required to file under the Exchange Act during the 12 months
preceding the date of this Amendment, and all such documents ("SEC Reports")
complied in all material respects with the requirements of the Exchange Act as
of their respective filing dates, and the information contained therein as of
the date thereof did not contain an untrue statement of a material fact, or omit
to state a material fact required to be stated therein, or necessary to make the
statements therein in light of the circumstances under which they were made, not
misleading.

         18. Representations and Warranties of Inpharzam. Inpharzam hereby
represents and warrants to Sheffield as follows:

                  (a) Organization, Good Standing and Qualification. Inpharzam
is a corporation duly organized and validly existing under, and by virtue of,
the laws of Switzerland and is in good standing under such laws. Inpharzam is
duly qualified and is authorized to do business and is in good standing as a
foreign corporation in all jurisdictions in which the nature of its activities
and of its properties (both owned and leased) makes such qualification
necessary, except for those jurisdictions in which failure to do so would not
have a material adverse effect on Inpharzam or its business.

                  (b) Corporate Power. Inpharzam has all requisite corporate
power and authority to own and operate its properties and assets, to execute and
deliver this Amendment and to carry out the provisions of this Amendment and the
Sublicense Agreement, as amended


                                       7

<PAGE>


hereby, and to carry on its business as presently conducted and as presently
proposed to be conducted.

                  (c) Authorization. All corporate action on the part of
Inpharzam, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Amendment, the performance of all
obligations of Inpharzam hereunder and under the Sublicense Agreement, as
amended hereby, has been taken. This Amendment and the Sublicense Agreement, as
amended hereby, constitute the valid and binding obligations of Inpharzam,
enforceable in accordance with their terms.

                  (d) Compliance with Other Instruments, None Burdensome, etc.
The execution, delivery and performance of and compliance with this Amendment
and the Sublicense Agreement, as amended hereby, and the performance of such
agreements, with or without the passage of time or giving of notice, will not
result in any material violation of, or conflict with, or constitute a material
default under, Inpharzam's organization documents or any of its agreements.

         19. Releases Of Liability.

                  (a) Except with respect to third party infringement claims
which may arise, Sheffield hereby remises, releases and forever discharges
Inpharzam, and its present and former parents, subsidiaries, affiliates, agents,
employees, attorneys, servants, predecessors, successors, and assigns
(hereinafter collectively referred to as the "Inpharzam Released Parties") of
and from any and all manner of debts, contracts, agreements, promises, claims,
demands, actions, suits, causes of action or other liabilities of any kind,
nature or description whatsoever, in law, equity, arbitration or any other
forum, state or federal, whether absolute or contingent, known or unknown,
foreseen or unforeseen, which Sheffield, its present and former parents,
subsidiaries, affiliates, agents, employees, attorneys, servants, predecessors,
successors, and assigns ever had, now has or hereinafter can, shall or may have
against the Inpharzam Released Parties, upon, by reason of or relating directly
or indirectly to the performance of their respective obligations through the
date of this Amendment under the Sublicense Agreement.

                  (b) Except with respect to third party infringement claims
which may arise, Inpharzam hereby remises, releases and forever discharges
Sheffield, and its present and former parents, subsidiaries, affiliates, agents,
employees, attorneys, servants, predecessors, successors, and assigns
(hereinafter collectively referred to as the "Sheffield Released Parties") of
and from any and all manner of debts, contracts, agreements, promises, claims,
demands, actions, suits, causes of action or other liabilities of any kind,
nature or description whatsoever, in law, equity, arbitration or any other
forum, state or federal, whether absolute or contingent, known or unknown,
foreseen or unforeseen, which Inpharzam, its present and former parents,
subsidiaries, affiliates, agents, employees, attorneys, servants, predecessors,
successors, and assigns ever had, now has or hereinafter can, shall or may have
against the Sheffield Released Parties, upon, by reason of or relating directly
or indirectly to the performance of their respective obligations through the
date of this Amendment under the Sublicense Agreement.

         20. Cooperation. Inpharzam shall cooperate with all reasonable requests
made by Sheffield to facilitate any due diligence investigation which may be
performed by a potential


                                       8

<PAGE>


third-party sublicensee of any or all of the Sublicensed Patent Rights and
Technology. Inpharzam shall also cooperate with all reasonable requests for
information made by Sheffield to provide copies of all relevant documentation
with respect to the expired contracts, including reasonable access to all
personnel who worked on such contracts, and those documents described in Section
9 of this Amendment and on Exhibit A hereto. Inpharzam shall have the right to
identify possible partners to take over Inpharzam's former development role
under the Sublicense Agreement. Any such possible partner shall be evaluated in
good faith by Sheffield, but Sheffield shall not be obligated to pursue any
discussions initiated by Inpharzam if Sheffield concludes, in its sole
discretion, that further consideration of the potential partnership is not
commercially justified.

         21. Public Statements. Inpharzam will cooperate with Sheffield to make
any and all appropriate public disclosures that may be required by Sheffield's
status as a public entity. Neither Party will issue any press release or make
any public statements, relating to this Amendment, the Sublicense Agreement or
the Parties without the prior written consent of the other.

         22. Survival of Obligations. Except as otherwise set forth herein, the
Sublicense Agreement, including all provisions relating to confidentiality,
cooperation and the representations and warranties contained therein, are hereby
ratified and confirmed by the Parties hereto and shall remain in full force and
effect.

         23. Notices. Section 16 of the Sublicense Agreement is hereby deleted
and replaced with the following language:

16. Notices. All notices and other communication required or permitted to be
given under or in connection with this Agreement shall be in writing and shall
be deemed given if delivered personally or by facsimile transmission (receipt
verified), express courier services (signature required), telexed, or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice; provided, that notices of a change of address
shall be effective only upon receipt thereof):

If to Inpharzam:                         If to Sheffield:
- ---------------                          ---------------
Inpharzam International                  Sheffield Pharmaceuticals, Inc.
Via Industria 1                          3136 Winton Road South, Suite 306
6814 Cadempino, Switzerland              Rochester, NY  14623
Attn:  Managing Director                 Attn:  Chairman
Fax:  011-41919664351                    Fax:  716-292-0522

With a copy to:                          With a copy to:
- --------------                           --------------
Zambon Group, S.p.A.                     Sheffield Pharmaceuticals, Inc.
2091 Bresso                              14528 South Outer Forty Road, Suite 205
Via Lillo del Duca, 10                   St. Louis, MO  63017
Milan, Italy                             Attn: Corporate Secretary
Attn:  Chairman                          Fax:  314-579-9799


                                       9

<PAGE>


         24. Counterparts. This Amendment may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the Parties and delivered to the other Party.

                            [Signature Page Follows]




                                       10

<PAGE>


         IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as
of the date first written above.

                                       SHEFFIELD PHARMACEUTICALS, INC.



                                       By: /s/ Thomas M. Fitzgerald
                                           -------------------------------------
                                           Name:  Thomas M. Fitzgerald
                                           Title: Chairman


                                       INPHARZAM INTERNATIONAL, S.A.



                                       By: /s/ Roberto Rettani
                                           -------------------------------------
                                           Name:  Roberto Rettani
                                           Title: Vice President




                                       11


<PAGE>


                                    EXHIBIT A

                            Contracts To Be Assigned
                            ------------------------

1.   Research Agreement, dated June 22, 2000, by and between Zambon Corporation
     and Edwin A. Bronsky, M.D.

2.   Contract No. ZAM CL-052250, dated June 23, 2000, by and between Zambon
     Corporation and Coromed, Inc.




                                       12

<PAGE>


                                    EXHIBIT B

                                Royalty Payments

Sheffield shall pay to Inpharzam royalties as a percentage of Sheffield's Net
Proceeds, if any, resulting from the sale of any of the Licensed Products
described in this Exhibit B (the "Subject Products") under the Sublicense
Agreement, in accordance with the following schedule:

o    Ten percent (10%) of Net Proceeds received by Sheffield with respect to MSI
     (Metered Solution Inhaler) Albuterol, for so long as Sheffield receives
     such Net Proceeds.

o    Eight percent (8%) of Net Proceeds received by Sheffield with respect to
     MSI Ipratropium, during the first five (5) years of commercial sale and
     Sheffield is in receipt of net royalties from such third-party sublicensee.

o    Eight percent (8%) of Net Proceeds received by Sheffield with respect to
     MSI Cromolyn during the first five (5) years of commercial sale and
     Sheffield is in receipt of such Net Proceeds.

The term "Net Proceeds" shall mean:

     (a) Net Sales by Sheffield or any affiliated company resulting from the
sale of any Subject Products;

     (b) Royalties paid to Sheffield by any sublicensee or joint venturer of
Sheffield resulting from the sale of any Subject Products;

     (c) Notwithstanding the terms of subsections (a) and (b), all payments
constituting Net Proceeds pursuant to this Exhibit B shall be net of any
existing royalty or other payment obligations to Siemens with respect to the
Licensed Products.




                                       13

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.33
<SEQUENCE>4
<FILENAME>c66107ex10-33.txt
<DESCRIPTION>LOAN AND SECURITY AGREEMENT
<TEXT>
<PAGE>


                                                                   EXHIBIT 10.33

                           LOAN AND SECURITY AGREEMENT

         THIS LOAN AND SECURITY AGREEMENT, dated as of September 28, 2001, is
made and entered into by and between SHEFFIELD PHARMACEUTICALS, INC., a Delaware
corporation ("Borrower"), and INPHARZAM INTERNATIONAL, S.A., a Swiss corporation
("Lender").

                              W I T N E S S E T H:
                               -------------------

         WHEREAS, Borrower desires to borrow $2,500,000 from Lender, and Lender
is willing to make such loan to Borrower, on the terms and conditions set forth
herein;

         NOW, THEREFORE, the parties hereto, intending to be legally bound,
agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

         1.1 DEFINED TERMS. The following terms when used in this Agreement
shall have the following meanings:

         "Agreement" means, on any date, this Loan and Security Agreement as
originally in effect on the hereof and as thereafter from time to time amended,
supplemented or otherwise modified and in effect on such date.

         "Authorized Officer" means Borrower's officers whose signatures and
incumbency shall have been certified to Lender pursuant to Section 4.1(d).

         "Borrower" is defined in the preamble.

         "Business Day" means any day which is neither a Saturday or Sunday nor
a legal holiday on which banks are authorized or required to be closed in New
York, New York, U.S.

         "Change in Control" means the acquisition by any Person, or two or more
Persons acting in concert, of beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934) of 50% or more of the outstanding shares of voting stock of
Borrower.

         "Collateral" is defined in Section 3.1.

         "Default" means any Event of Default or any condition, occurrence or
event which, after notice or lapse of time or both, would constitute an Event of
Default.

         "Default Rate" means 15% per annum.

         "Disbursement" is defined in Section 2.1.


<PAGE>


         "Dollar" and the sign "$" mean lawful money of the United States.

         "Event of Default" is defined in Section 8.1.

         "Initial Disbursement" is defined in Section 2.1.

         "Instrument" means any contract, agreement, indenture, mortgage,
document or writing (whether by formal agreement, letter, or otherwise) under
which any obligation is evidenced, assumed or undertaken, or any Lien (or right
or interest therein) is granted or perfected.

         "Lender" is defined in the preamble of this Agreement.

         "Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property to secure payment of a debt or
performance of an obligation or other priority or preferential arrangement of
any kind or nature whatsoever.

         "Loan" is defined in Section 2.1.

         "Loan Document" means this Agreement, the Note and each other
agreement, document or Instrument executed and delivered in connection with this
Agreement, as any and all of the foregoing may be amended, supplemented, amended
and restated, or otherwise modified from time to time in accordance with the
provisions hereof and thereof.

         "Loan Rate" means 2.0% per annum.

         "Note" means the promissory note of Borrower payable to Lender, in the
form of Exhibit A hereto (as such promissory note may be amended, supplemented,
endorsed or otherwise modified from time to time), evidencing the Loan, and any
other promissory notes accepted from time to time in substitution therefor or
renewal thereof.

         "Obligations" means all obligations (monetary or otherwise) of
Borrower, however created, arising, or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter existing, or due or to become due,
which arise out of or in connection with this Agreement, the Note or any other
Loan Document.

         "Organic Document" means Borrower's certificate of incorporation,
bylaws and all stockholder agreements, voting trusts and similar arrangements
applicable to any of its authorized shares of capital stock.

         "Person" means any natural person, corporation, firm, association,
government, governmental agency or any other entity, whether acting in an
individual, fiduciary or other capacity.

         "UCC" shall mean the Uniform Commercial Code as in effect from time to
time and enacted in the State of New York, U.S.

         "United States" or "U.S." means the United States of America.


                                       2

<PAGE>


         1.2 USE OF DEFINED TERMS. Unless otherwise defined or the context
otherwise requires, terms for which meanings are provided in this Agreement
shall have such meanings when used in the Note and each Loan Document, notice
and other communication delivered from time to time in connection with this
Agreement or any other Loan Document.

         1.3 CROSS-REFERENCES. Unless otherwise specified, references in this
Agreement and in each other Loan Document to any Article are references to such
Article of this Agreement or such other Loan Document, as the case may be.


                                   ARTICLE II

                                      LOAN

         2.1 LOAN. Subject to the terms and conditions hereof, Lender shall make
a term loan (the "Loan") to Borrower. The principal amount of the Loan shall be
Two Million Five Hundred Thousand Dollars ($2,500,000), and shall be disbursed
as follows (each, a "Disbursement"):

                  (a) $1,000,000 upon execution of this Agreement and
fulfillment of all conditions set forth in Article IV hereof (the "Initial
Disbursement");

                  (b) $1,000,000 on January 1, 2002; and

                  (c) $500,000 on April 1, 2002.

         2.2 NOTE. The Loan shall be evidenced by the Note. The Note shall be of
even date herewith, shall bear interest at the rates and be repayable as to
principal and interest in accordance with the terms hereof and as specified in
the Note. In the event of any conflict between the provisions hereof and those
set forth in the Note, the provisions in this Agreement shall control.

         2.3 PREPAYMENTS. Borrower may, at its option, prepay the Loan in whole
at any time or in part from time to time, free of any prepayment penalties or
premiums. All amounts paid by Borrower to Lender shall first be applied to any
outstanding taxes, fees, penalties, charges and assessments due Lender, then to
interest accrued but unpaid and then to principal.


                                   ARTICLE III

                               SECURITY AGREEMENT

         3.1 SECURITY INTEREST. To secure the prompt payment of the Loan and the
performance of Borrower's other Obligations under this Agreement, Borrower
hereby irrevocably grants to Lender a first and continuing security interest in
the Sublicensed Patent Rights, as that term is defined in the Sublicense and
Development Agreement (the "Sublicense Agreement"), dated June 15, 1998, between
Borrower and Lender, as amended (the "Collateral").


                                       3


<PAGE>


         3.2 TITLE, SUBORDINATION, ETC. Borrower has and shall retain all rights
necessary or appropriate to grant Lender the first security interest and other
rights in the Collateral contained herein free and clear of all liens, claims,
security, interests and other encumbrances, except those created hereby in favor
of Lender and any pre-existing rights of Siemens Aktiengesellschaft Keramik and
Porzellanwerk ("Siemens") as owner of some or all of the Sublicensed Patent
Rights, and Borrower shall warrant and defend its right, title and/or interest
in and to the Collateral, subject to the rights of Lender and/or Siemens,
against the claims and demands of all Persons whomsoever. Without limiting the
generality of the foregoing, Borrower shall not pledge, assign or otherwise
encumber, or permit any Liens or security interests to attach to, any of the
Collateral, nor permit any of the Collateral to be levied upon under any legal
process; provided, however, that Borrower shall:

                  (a) be permitted to sublicense the Collateral, or any part
thereof, to one or more bona fide third parties, provided that such sublicenses
are negotiated at arms-length on commercially reasonable terms. In the event
that such a sublicense is granted, the security interest granted to the Lender
in this Agreement shall for the duration of the sublicense no longer be
applicable to that portion of the Collateral licensed to the third-party, and
Lender shall have a first and continuing security interest in and to the
sublicense and all proceeds of the sublicense received or to be received by the
Borrower (including without limitation all royalty payments and milestone
payments), and in and to any other sublicenses, and the proceeds of any other
sublicenses, granted subsequently with respect to that portion of the
Collateral, such that upon an Event of Default (as defined in Section 8.1 of
this Agreement), Lender shall be entitled to such proceeds, until such time as
all principal and interest amounts due to the Lender under the Note are paid;
and

                  (b) be permitted to incur indebtedness to any bank or
institutional lender which would constitute Senior Indebtedness, as defined
herein, which Senior Indebtedness shall be senior to the payment obligations of
Borrower to Lender hereunder and pursuant to the Note, and in connection with
such Senior Indebtedness Borrower may pledge, assign or permit a security
interest to attach to the Collateral. For purposes of this subsection (b),
Senior Indebtedness shall mean (i) all principal of and interest and other
obligations arising on or with respect to debt of the Borrower to any bank or
other institutional lender, including but not limited to all renewals,
extensions, restructurings and guarantees, from time to time, of the foregoing.

         3.3 TAXES AND LIENS. Borrower shall immediately notify Lender in the
event there ever arises against any of the Collateral any lien, assessment or
tax or other liability, whether or not entitled to priority over Lender's
security interest hereunder. In any such event, whether or not such notice is
given Lender shall (unless such lien, assessment, tax or other liability is the
subject of an appeal by Borrower and an appropriate bond has been posted to stay
the effect of any resulting lien) have the right (but shall be under no
obligation) to pay any tax or other liability of Borrower deemed by Lender in
good faith to affect Lender's interests hereunder. Borrower shall repay to
Lender on demand all sums which Lender shall have paid under this section in
respect of taxes or other liabilities of Borrower, with interest thereon at the
Loan Rate, and Borrower's liability to Lender for such repayment with interest
shall be included in the Obligations. Lender shall be subrogated to the extent
of any such payment by it to all the rights and liens of the lienholder against
Borrower's assets.


                                       4

<PAGE>


         3.4 LOCATIONS. Borrower agrees to notify Lender promptly in the event
of a change in the location of any place of business or the establishment of any
additional place of business of Borrower.

         3.5 FURTHER ASSURANCES. Borrower shall execute and deliver to Lender
from time to time all such other agreements, instruments and other documents
(including without limitation all requested financing and continuation
statements) and do all such other further acts and things as Lender may
reasonably request in order to further evidence or carry out the intent of this
Agreement or to perfect the liens and security interest created hereby or
intended so to be.

         3.6 POWER OF ATTORNEY. Borrower hereby irrevocably appoints any
officer, employee or agent of Lender as Borrower's true and lawful
attorney-in-fact with power, upon the occurrence of an Event of Default and
failure to cure such Event of Default within a five (5) day period, to (i)
endorse Borrower's name upon any notes, checks, drafts, money orders, or other
instruments of payment that may come into Lender's possession and which
constitute Collateral or proceeds of any Collateral; (ii) sign and endorse
Borrower's name upon any documents of title, invoices, freight or express bills,
assignments, verifications and notices in connection with any of the Collateral,
and any instruments or documents relating thereto or to Borrower's rights
therein; and (iii) execute in Borrower's name and file one or more financing
statements covering the Collateral. Any such attorney of Borrower shall have
full power to do any and all things necessary to be done with respect to the
above transactions as fully and effectually as Borrower might do, and Borrower
hereby ratifies all that said attorney shall lawfully do or cause to be done by
virtue hereof.


                                   ARTICLE IV

                           CONDITIONS TO DISBURSEMENTS

         4.1 CONDITIONS TO INITIAL DISBURSEMENT. Lender's obligation hereunder
to advance funds with respect to the Initial Disbursement to Borrower is
conditioned upon Borrower's delivery to Lender of each of the following, in such
form and substance as is satisfactory to Lender in its sole discretion:

                  (a) A duly executed Note and all other Loan Documents as may
be reasonably required by Lender;

                  (b) Evidence satisfactory to Lender that Borrower is organized
and in good standing in the State of Delaware and is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
where the nature of its business requires such qualification;

                  (c) Copies of Borrower's Organic Documents certified by the
Secretary of Borrower as true and correct as of the date of the execution of
this Agreement by Lender;

                  (d) Certificates of the Secretary of Borrower, dated as of the
date of this Agreement, as to incumbency and signatures of the officers of
Borrower executing this Agreement, any of the other Loan Documents and any other
certificates or other document to be


                                       5

<PAGE>


delivered pursuant hereto or thereto, together with evidence of the incumbency
of such Secretary;

                  (e) Resolutions of Borrower's board of directors, certified by
the Secretary of Borrower, duly adopted and in full force and effect on the date
of this Agreement, authorizing (i) the execution, delivery and performance of
this Agreement and all other Loan Documents, (ii) the borrowings hereunder and
the performance by Borrower of all actions contemplated by this Agreement and
the other Loan Documents, (iii) the granting of the Liens provided for in this
Agreement, and (iv) specific officers to execute and deliver this Agreement, the
other Loan Documents and all other related documents and instruments; and

                  (f) Acknowledgment copies of properly filed UCC financing
statements (Form UCC-l), dated a date reasonably near to the date of the Note,
or such other evidence of filing as may be acceptable to Lender, naming Borrower
as the debtor and Lender as the secured party, or other similar instruments or
documents, filed under the UCC of all jurisdictions as may be necessary or, in
the opinion of Lender, desirable to perfect the security interest of Lender
pursuant to this Agreement.

         4.2 CONDITIONS TO ALL DISBURSEMENTS. Lender's obligation hereunder to
advance funds with respect to the Initial Disbursement and any subsequent
Disbursements, is conditioned upon Borrower's satisfaction of each of the
following conditions precedent upon each such Disbursement:

                  (a) No Event of Default and no event which, upon the lapse of
time or the giving of notice or both, would become an Event of Default shall
have occurred and be continuing;

                  (b) The representations and warranties contained in this
Agreement, the Note and all other Loan Documents shall be true and correct;

                  (c) With respect to the license agreement between Borrower and
Siemens, Borrower shall not agree to any material amendments that affect the
Collateral without the prior approval of Lender, which approval may not be
unreasonably withheld; and

                  (d) Borrower shall have delivered to Lender a certificate
executed by an Authorized Officer of Borrower confirming the statements made in
subsections (a), (b) and (c) above.


                                    ARTICLE V

                         REPRESENTATIONS AND WARRANTIES

         In order to induce Lender to enter into this Agreement and to make
Disbursements hereunder, Borrower represents and warrants unto Lender as set
forth in this Article V, as of the date hereof and the date of each
Disbursement.

         5.1 ORGANIZATION, ETC. Borrower is a corporation validly organized and
existing and in good standing under the laws of the State of Delaware, is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction where the nature of


                                       6

<PAGE>


its business requires such qualification, and has full power and authority and
holds all requisite governmental licenses, permits and other approvals to enter
into and perform its Obligations under each Loan Document, to obtain loans, to
own and hold under lease its property and to conduct its business substantially
as currently conducted by it.

         5.2 DUE AUTHORIZATION, NON-CONTRAVENTION, ETC. The execution, delivery
and performance by Borrower of each Loan Document executed or to be executed by
it is within Borrower's corporate powers, have been duly authorized by all
necessary corporate action and do not:

                  (a) contravene Borrower's Organic Documents;

                  (b) contravene any contractual restriction, law or
governmental regulation or court decree or order binding on or affecting
Borrower; or

                  (c) result in, or require the creation or imposition of, any
Lien on Borrower's properties.

         5.3 GOVERNMENT APPROVAL, REGULATION, ETC. No authorization or approval
or other action by, and no notice to or filing with, any governmental authority
or regulatory body or other Person is required for the due execution, delivery
or performance by Borrower of any Loan Document.

         5.4 VALIDITY, ETC. This Agreement constitutes, and each other Loan
Document executed by Borrower shall, on the due execution and delivery thereof,
constitute, the legal, valid and binding obligation of Borrower enforceable in
accordance with its respective terms.

         5.5 COMPLIANCE WITH APPLICABLE LAWS. Borrower is in compliance with the
requirements of all applicable laws, rules, regulations and orders of all
governmental authorities, a breach of which would materially and adversely
affect Borrower's business, credit, operations, financial condition or
prospects.

         5.6 REGULATIONS U AND X. Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock, and no
proceeds of the Loan will be used for a purpose which violates, or would be
inconsistent with, Federal Reserve Board Regulation U or X.

         5.7 ACCURACY OF INFORMATION. All factual information heretofore or
contemporaneously furnished by or on behalf of Borrower in writing to Lender for
purposes of or in connection with this Agreement or any transaction contemplated
hereby is, and all other such factual information hereafter furnished by or on
behalf of Borrower to Lender shall be, true and accurate in every material
respect on the date as of which such information is dated or certified and as of
the date of execution and delivery of this Agreement by Lender, and such
information is not, or shall not be, as the case may be, incomplete by omitting
to state any material fact necessary to make such information not misleading.


                                       7

<PAGE>


                                   ARTICLE VI

                                    COVENANTS

         6.1 AFFIRMATIVE COVENANTS. Borrower agrees with Lender that, until all
Obligations incurred by Borrower in relation to the Loan have been finally paid
and performed in full, Borrower shall perform the obligations set forth in this
Section 6.1.

                  (a) MAINTENANCE OF PROPERTIES. Borrower shall maintain,
preserve, protect and keep its properties in good repair, working order and
condition, and make necessary and proper repairs, renewals and replacements so
that its business carried on in connection therewith may be properly conducted
at all times unless Borrower determines in good faith that the continued
maintenance of any of its properties is no longer economically desirable.
Nothing in this Agreement shall be construed as obligating Borrower to file any
patent or trademark applications, to continue the prosecution of any patent or
trademark application or to maintain any issued patent or registered trademark.

                  (b) BOOKS AND RECORDS. Borrower shall keep books and records
which accurately reflect all of its business affairs and transactions and permit
Lender or any of its representatives, twice a year (a) to visit all of its
offices, (b) to discuss its financial matters with its officers and independent
public accountants (and Borrower hereby authorizes such independent public
accountants to discuss Borrower's financial matters with Lender or its
representatives whether or not any representative of Borrower is present) and
(c) to examine any of its books or other corporate records.

         6.2 NEGATIVE COVENANTS. Borrower agrees with Lender that, until all
Obligations incurred by Borrower in relation to the Loan have been finally paid
and performed in full, Borrower shall perform the obligations set forth in this
Section 6.2.

                  (a) DIVIDENDS. Borrower shall not declare or pay any dividend
or other distribution to its stockholders other than dividends payable in shares
of preferred stock of Borrower.

                  (b) MERGER. Borrower shall not, without prior written consent
of Lender, consolidate with, merge into or with, or sell all or substantially
all of its assets to any other corporation or other entity, unless such
surviving or acquiring entity (i) shall assume the Obligations of Borrower
hereunder and pursuant to the Note or (ii) Borrower or such surviving or
acquiring entity shall pay all sums due under the Note prior to or
contemporaneous with the closing of such consolidation, sale or merger.


                                   ARTICLE VII

                                      TERM

         7.1 SURVIVAL OF OBLIGATIONS UPON TERMINATION OF FINANCING ARRANGEMENT.
No termination or cancellation (regardless of cause or procedure) of the
financing under this Agreement shall in any way affect or impair the powers,
obligations, duties, rights and liabilities of Borrower or the rights of Lender
relating to any transaction or event occurring prior to such termination. All
undertakings, agreements, covenants, warranties and


                                       8

<PAGE>


representations contained in this Agreement shall survive such termination or
cancellation and shall continue in full force and effect until such time as all
of the Obligations have been paid in full in accordance with the terms of the
agreements creating such Obligations, at which time the same shall terminate.


                                  ARTICLE VIII

                                EVENTS OF DEFAULT

         8.1 LISTING OF EVENTS OF DEFAULT. Each of the following events or
occurrences described in this Section 8.1 shall constitute an "Event of
Default":

                  (a) Borrower fails to make any payment of principal, interest
or other amount when due under this Agreement, the Note or any other Loan
Document.

                  (b) Borrower fails to observe and perform any of the covenants
or agreements on its part to be observed or performed under this Agreement, the
Note, any other Loan Document or any other agreement between Borrower and
Lender, including without limitation the Sublicense Agreement.

                  (c) Any representation or warranty of Borrower under this
Agreement, the Note or any other Loan Document shall be untrue in any material
respect.

                  (d) Borrower (i) applies for or consents to the appointment of
a receiver, trustee or liquidator of itself or any of its property, (ii) admits
in writing its inability to pay debts as they mature, (iii) makes a general
assignment for the benefit of creditors, (iv) is adjudicated bankrupt or
insolvent, (v) files a voluntary petition in bankruptcy or a petition or an
answer seeking reorganization or an arrangement with creditors or to take
advantage of any bankruptcy, reorganization, insolvency, readjustment of debt,
dissolution or liquidation law or statute, or an answer admitting the material
allegations of a petition filed against it in any proceeding under any such law,
or (vi) takes any action for the purpose of effecting any of the foregoing.

                  (e) Any order, judgment or decree is entered by any court of
competent jurisdiction (i) approving a petition seeking reorganization of
Borrower or all or a substantial part of the assets of Borrower, or (ii)
appointing a receiver, sequester, trustee or liquidator of Borrower or any of
its property, and such order, judgment or decree continues unstayed and in
effect for a period of sixty (60) days or more.

                  (f) The occurrence of any event which would constitute an
event of default under any other Loan Document.

         8.2 REMEDIES UPON DEFAULT. If any Event of Default shall occur for any
reason, whether voluntary or involuntary, Lender may declare all unpaid
Obligations of Borrower hereunder and under the Note and/or any other Loan
Document immediately due and payable, and Obligations which shall be so declared
due and payable shall be and become immediately due and payable, without further
notice, demand or presentment, and Lender may at its option exercise from time
to time any and all rights and remedies available to it under the


                                       9

<PAGE>


Uniform Commercial Code or otherwise, including the right to collect, assemble,
receipt for, adjust, modify, repair, refurnish or refurbish (but without any
obligation to do so) or foreclose or otherwise realize upon any of the
Collateral and to dispose of any of the Collateral at one or more public or
private sales or other proceedings, and Borrower agrees that Lender or its
nominee may become the purchaser at any such sale or sales. Borrower agrees that
l0 days shall be reasonable prior notice of the date of any public sale or other
disposition of all or any part of the Collateral, or of the date on or after
which any private sale or other disposition of the same may be made. All rights
and remedies granted Lender hereunder or under any other agreement between
Lender and Borrower shall be deemed concurrent and cumulative and not
alternative, and Lender may proceed with any number of remedies at the same time
or at different times until all the Obligations are fully satisfied. The
exercise of any one right or remedy shall not be deemed a waiver or release of
or an election against any other right or remedy. Borrower shall pay to Lender
on demand any and all expenses (including reasonable attorneys' fees and legal
expenses) which may have been incurred by Lender with interest at the Default
Rate (i) in the prosecution or defense of any action growing out of or connected
with the subject matter of this Agreement, the Obligations, the Collateral or
any of Lender's rights therein or thereto; or (ii) in connection with the
custody, preservation, use, operation, preparation for sale or sale of any of
the Collateral, the incurring of all of which are hereby authorized to the
extent Lender deems the same advisable. Borrower's liability to Lender for any
such payment with interest shall be included in the Obligations.


                                   ARTICLE IX

                            MISCELLANEOUS PROVISIONS

         9.1 WAIVERS, AMENDMENTS, ETC. The provisions of this Agreement, the
Note and of each other Loan Document may from time to time be amended, modified
or waived, only if such amendment, modification or waiver is in a writing signed
by Borrower and Lender. No failure or delay on the part of Lender or the holder
of the Note in exercising any power or right under this Agreement or any other
Loan Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power or right preclude any other or further exercise
thereof or the exercise of any other power or right. No notice to or demand on
Borrower in any case shall entitle it to any notice or demand in similar or
other circumstances. No waiver or approval by Lender or the holder of the Note
under this Agreement or any other Loan Document shall, except as may be
otherwise stated in such waiver or approval, be applicable to subsequent
transactions. No waiver or approval hereunder shall require any similar or
dissimilar waiver or approval thereafter to be granted hereunder.

         9.2 NOTICES. All notices and other communications required or permitted
to be given under or in connection with this Agreement, the Note or any other
Loan Document shall be in writing and shall be deemed given if delivered
personally or by facsimile transmission (receipt verified), express courier
service (signature required), telexed, or mailed by registered or certified mail
(return receipt requested), postage prepaid, to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice; provided, that notices of a change of address shall be effective only
upon receipt thereof):


                                       10

<PAGE>


         If to Lender:

                  Inpharzam International, S.A.
                  Via Industria 1
                  6814 Cadempino, Switzerland
                  Attn:  Managing Director
                  Fax: 011-4191966351

                  with copies to:

                  Zambon Group, SPA
                  20091 Bresso
                  Via Lillo del Duca, 10
                  Milan, Italy
                  Attn:  Chairman

                  Spencer W. Franck, Jr., Esq.
                  Saul Ewing LLP
                  1200 Liberty Ridge Drive, Suite 200
                  Wayne, PA  19087-5055
                  Fax: 610 408-4405

         If to Borrower:

                  Sheffield Pharmaceuticals
                  14528 South Outer Forty Road, Suite 205
                  St. Louis, MO  63017-5785
                  Attn:  Chairman
                  Fax:  314-579-9799

                  with a copy to:

                  Adolfo R. Garcia, P.C
                  McDermott, Will & Emery
                  28 State Street
                  Boston, MA 02109-1775
                  Fax: 617-535-3800

         9.3 COSTS. Borrower agrees to pay, and to save Lender harmless from all
liability for, any stamp, documentary or other taxes which may be payable in
connection with the execution or delivery of this Agreement and/or any other
Loan Document, the borrowings hereunder or the issuance of the Note. Borrower
also agrees to reimburse Lender upon demand for all reasonable out-of-pocket
expenses (including attorneys' fees and legal expenses) incurred by Lender in
connection with the enforcement of any Obligations.

         9.4 ASSIGNMENT. Except with the prior written approval of Lender,
Borrower may not assign any of its rights or obligations under this Agreement or
any of the Loan Documents. Lender may assign all of its rights and obligations
under this Agreement or any of


                                       11

<PAGE>


the Loan Documents to any Person, its successors and assigns. Any attempted
assignment in violation of this Section 9.4 shall be null and void.

         9.5 SURVIVAL. The representations and warranties made by Borrower in
this Agreement and in each other Loan Document shall survive the execution and
delivery of this Agreement and each such other Loan Document.

         9.6 SEVERABILITY. Any provision of this Agreement or any other Loan
Document which is prohibited or unenforceable in any jurisdiction shall, as to
such provision and such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Agreement or such Loan Document or affecting the validity or enforceability
of such provision in any other jurisdiction.

         9.7 HEADINGS. The various headings of this Agreement and of each other
Loan Document are inserted for convenience only and shall not affect the meaning
or interpretation of this Agreement or such other Loan Document or any
provisions hereof or thereof.

         9.8 EXECUTION IN COUNTERPARTS, EFFECTIVENESS, ETC. This Agreement may
be executed by the parties hereto in several counterparts, each of which shall
be deemed to be an original and all of which shall constitute together but one
and the same agreement.

         9.9 GOVERNING LAW; ENTIRE AGREEMENT. This Agreement, the Note and each
other Loan Document shall each be deemed to be a contract made under and
governed by the internal laws of the State of New York, U.S. without giving
effect to it principles of conflicts of law. This Agreement, the Note and the
other Loan Documents constitute the entire understanding among the parties
hereto with respect to the subject matter hereof and supersede any prior
agreements, written or oral, with respect thereto. The parties hereto
specifically agree to waive all rights to rely on or enforce any oral statements
made prior to or subsequent to the execution of this Agreement.

         9.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.

         9.11 JURISDICTION. Each party hereby consent that it shall be subject
to jurisdiction in the State of New York, U.S. in any legal proceeding or
equitable action that relates in any way to this Agreement, the Note or any
other Loan Document, and further consents to venue for any such proceeding or
action in the state courts of the State of New York and/or the United States
District Court for the Southern District of New York.

         [The remainder of this page has been intentionally left blank]


                                       12

<PAGE>


         IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.

[CORPORATE SEAL]

                                            SHEFFIELD PHARMACEUTICALS, INC.

Attest:

By:                                         By /s/ Thomas M. Fitzgerald
    ---------------------------------       ------------------------------------
Name:                                       Name:  Thomas M. Fitzgerald
      -------------------------------       Title: Chairman
Title:
       ------------------------------


[CORPORATE SEAL]

                                            INPHARZAM INTERNATIONAL, S.A.

Attest:

By:                                         By /s/ Roberto Rettani
    ---------------------------------       ------------------------------------
Name:                                       Name:  Roberto Rettani
      -------------------------------       Title: Vice President
Title:
       ------------------------------


                                       13

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.34
<SEQUENCE>5
<FILENAME>c66107ex10-34.txt
<DESCRIPTION>PROMISSORY NOTE DATED SEPTEMBER 29, 2001
<TEXT>
<PAGE>


                                                                   EXHIBIT 10.34


                                 PROMISSORY NOTE

$2,500,000                                            New York, New York, U.S.A.
                                                          September 28, 2001


          FOR VALUE RECEIVED, SHEFFIELD PHARMACEUTICALS, INC., a Delaware
corporation (the "Payor"), intending to be legally bound hereby, promises to pay
to the order of INPHARZAM INTERNATIONAL, S.A., a Swiss corporation ("Payee"), at
such place as Payee may designate from time to time in writing, the principal
sum of Two Million Five Hundred Thousand Dollars ($2,500,000), in lawful money
of the United States, together with interest thereon from the date hereof at the
rates hereinafter provided, and both payable as hereinafter provided.

     1.   PURPOSE OF NOTE. This Promissory Note ("Note") is made and delivered
by Payor in favor of Payee pursuant to that certain Loan and Security Agreement
between Payor and Payee of even date herewith (the "Loan Agreement"). All
capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Loan Agreement.

     2.   INTEREST RATE. Interest on the unpaid principal amount of this Note
shall accrue from the date hereof at a rate equal to 2% per annum (the "Interest
Rate"); provided, however, that from and after the occurrence of any Event of
Default and failure to cure such Event of Default within a five (5) day period,
the rate of interest on this Note shall automatically increase to 15% for so
long as such Event of Default continues. Notwithstanding anything to the
contrary herein, the liability of Payor for payment of interest shall not exceed
the maximum amount permitted by law, and if any payment by Payor includes
interest in excess of such maximum amount, Payee shall apply such excess to the
reduction of principal or, if none is due, such excess shall be refunded to
Payor. Interest shall be computed on the basis of a 360-day year.

     3.   PAYMENTS OF PRINCIPAL AND INTEREST. One-third of the principal balance
under this Note, together with interest, shall be payable by Payor to Payee upon
Payor's execution of a written agreement with one or more third parties to
develop, co-promote and/or sell Licensed Products, as such term is defined in
that certain Sublicense and Development Agreement, dated June 15, 1998, between
Payor and Payee, as amended, in North America. Notwithstanding the foregoing,
all unpaid principal and accrued interest shall be due and payable by Payor to
Payee, subject to the terms of Section 4, upon the earlier of (a) December 31,
2005, or (b) Approval of the second of the Licensed Products to be Approved. For
purposes of subsection (b) hereof, "Approval" shall mean approval for marketing
by any health agency or regulating authority in and throughout the world
authorized to grant marketing approval for the Licensed Products.

     4.   SUBORDINATION.

          a.   PAYMENT, SENIOR INDEBTEDNESS. Notwithstanding the foregoing or
anything else to the contrary contained herein, each of Payee, for itself, its
successors and assigns, and Payor covenants and agrees, and each successor
holder of this Note by such holder's acceptance hereof likewise covenants and
agrees, that, notwithstanding any provision


<PAGE>

of this Note to the contrary, the payment of the principal of and interest on
this Note shall be subordinated in right of payment, to the extent and in the
manner hereinafter set forth, to the prior payment in full of any Senior
Indebtedness as defined in the Loan Agreement. The provisions of this Section 4
shall constitute a continuing representation to all persons who, in reliance
upon such provisions, become the holders of or continue to hold the Senior
Indebtedness, and such provisions are made for the benefit of the holder of the
Senior Indebtedness, and such holder is hereby made obligee hereunder the same
as if its name was written herein as such, and it may proceed to enforce such
provisions against Payor or against the Payee without the necessity of joining
Payor as a party.

          b.   PAYMENT OF THE SENIOR INDEBTEDNESS. In the event of any
insolvency or bankruptcy proceedings, or any receivership, liquidation,
reorganization or other similar proceedings in connection therewith, relative to
Payor or to its property, or, in the event of any proceedings for voluntary
liquidation, dissolution or other winding up of Payor, distribution or
marshalling of its assets or any composition with creditors of Payor, whether or
not involving insolvency or bankruptcy, the Senior Indebtedness shall be paid in
full before any payment or distribution of any character, whether in cash,
securities or other property, shall be made on account of this Note; and any
such payment or distribution shall be paid or delivered directly to the holder
of the Senior Indebtedness (or its duly authorized representative), until the
Senior Indebtedness shall have been paid in full, and every holder of this Note
by becoming a holder hereof shall have designated and appointed the holder of
the Senior Indebtedness (and its duly authorized representative) as his, her or
its agent and attorney-in-fact to demand, sue for, collect and receive such
Senior Indebtedness holder's ratable share of all such payments and
distributions and to file any necessary proof of claim therefor and to take all
such other action (including the right to vote such Senior Indebtedness holder's
ratable share of this Note), in the name of the Holder of this Note or
otherwise, as such Senior Indebtedness holder (or its duly authorized
representative) may determine to be necessary or appropriate for the enforcement
of this Section 4. Payee and each successor holder of this Note, by his, her, or
its acceptance hereof, agrees to execute, at the request of Payor, a separate
agreement with any holder of the Senior Indebtedness on or substantially on the
terms set forth in this Section 4, and to take all such other action as such
holder of the Senior Indebtedness (or its duly authorized) representative may
request in writing in order to enable such holder of Senior Indebtedness to
enforce all claims upon or in respect of such holder's ratable share of this
Note. Nothing contained in this Section 4 or elsewhere in this Note is intended
to or shall impair, as between Payor and its creditors other than the holder of
the Senior Indebtedness, the obligation of Payor, which is unconditional and
absolute, to pay to Payee the principal of and interest on the Note as and when
the same shall become due and payable in accordance with the terms hereof, or to
affect the relative rights of Payee under this Note and creditors of Payee other
than the holder of the Senior Indebtedness, or to benefit any other creditors of
Payor other than the holder of the Senior Indebtedness, nor shall anything
herein or therein prevent Payee from accepting any payment with respect to this
Note or exercising all remedies otherwise permitted by applicable law upon
default under this Note, subject to the rights, if any, under this Section 4 of
the holder of the Senior Indebtedness in respect of cash, property or securities
of Payor.

          c.   NO PAYMENT ON NOTE UNDER CERTAIN CONDITIONS. In the event that
any default occurs in the payment of the principal of or interest on the Senior
Indebtedness (whether as a result of acceleration thereof by the holder of such
Senior Indebtedness or otherwise) and



                                       2
<PAGE>

during the continuance of such default for a period (the "Standstill Period") up
to one hundred and eighty (180) days and thereafter, if judicial or arbitral
proceedings shall have been instituted with respect to such defaulted payment
and shall be diligently pursued, or (if a shorter period) until such payment has
been made or such default has been cured or waived in writing by such holder of
the Senior Indebtedness, then and during the continuance of such event no
payment of principal or interest on this Note shall be made by Payor or accepted
by any holder of this Note who has received notice from Payor or from a holder
of the Senior Indebtedness of such event. Notwithstanding the foregoing the
maximum amount of time that the holder of this Note may be subject to a
Standstill Period in any period of 360 days shall be 180 days plus such period
of time as the holder of Senior Indebtedness shall have commenced and be
diligently pursuing a judicial or arbitral proceeding with respect to such
defaulted payment.

          d.   PAYMENTS HELD IN TRUST. In case any payment or distribution shall
be paid or delivered to any holder of this Note before the Senior Indebtedness
shall have been paid in full, despite or in violation or contravention of the
express terms of this Section 4, such payment or distribution shall be held in
trust for and paid and delivered ratably to the holders of the Senior
Indebtedness (or its duly authorized representative), until the Senior
Indebtedness shall have been paid in full.

          e.   SUBROGATION. Subject to the payment in full of the Senior
Indebtedness and until this Note shall be paid in full, Payee shall be
subrogated to the rights of the holders of the Senior Indebtedness (to the
extent of payments or distributions previously made to such holder of the Senior
Indebtedness pursuant to the provisions of subsections (a) and (c) of this
Section 4) to receive payments or distributions of assets of Payor applicable to
the Senior Indebtedness. No such payments or distributions applicable to the
Senior Indebtedness shall, as between Payor and its creditors, other than the
holder of the Senior Indebtedness, be deemed to be a payment by the Payor; and
for the purposes of such subrogation, no payments or distributions to the holder
of the Senior Indebtedness to which Payee would be entitled except for the
provisions of this Section 4 shall, as between Payor and its creditors, other
than the holder of the Senior Indebtedness, be deemed to be a payment by Payor
to or on account of the Senior Indebtedness.

          f.   SURVIVAL OF RIGHTS. The right of any present or future holder of
the Senior Indebtedness to enforce subordination of this Note pursuant to the
provisions of this Section 4 shall not at any time be prejudiced or impaired by
any act or failure to act on the part of Payor or any such holder of the Senior
Indebtedness, including, without limitation, any forbearance, waiver, consent,
compromise, amendment, extension, renewal or by noncompliance by Payor with the
terms of such subordination regardless of any knowledge thereof the holder may
have or otherwise be charged with.

          g.   AMENDMENT OR WAIVER. The provisions of this Section 4 may not be
amended or waived in any manner which is detrimental to the Senior Indebtedness
without the consent of the holder of such Senior Indebtedness.

     5.   PREPAYMENT. Payor, at its option, may prepay the principal amount and
accrued interest hereunder at any time in whole or in part without premium or
penalty. All amounts paid by Payor to Payee shall first be applied to any
outstanding taxes, fees, penalties, charges and assessments due Payee, then to
interest accrued but unpaid and then to principal.


                                       3
<PAGE>



     6.   EVENTS OF DEFAULT; REMEDIES. This Note is subject to the "Events of
Default" provisions and remedies (including without limitation acceleration
provisions) in the Loan Agreement, which are incorporated herein in their
entirety.

     7.   WAIVER. Payor, for itself, its successors and assigns, hereby waives
presentment, demand, notice of nonpayment, protest, notice of protest or other
notice of dishonor, and any and all other notices in connection with any default
in the payment of, or any enforcement of the payment of, all amounts due
hereunder. To the extent permitted by law, Payor waives the right to and stay of
execution and the benefit of all exemption laws now or hereafter in effect.

     8.   COSTS AND EXPENSES. Following the occurrence of any Event of Default,
Payor shall pay upon demand all reasonable costs and expenses (including all
reasonable amounts paid to attorneys, accountants, and other advisors employed
by Payee), incurred by Payee in the exercise of any of its rights, remedies or
powers under this Note with respect to such Event of Default, and any amount
thereof not paid promptly following demand therefor shall be added to the
principal sum hereunder and shall bear interest at the Default Rate from the
date of such demand until paid in full.

     9.   MISCELLANEOUS.

          a.   WAIVERS, AMENDMENTS, ETC. The provisions of this Note may from
time to time be amended, modified or waived, only if such amendment,
modification or waiver is in a writing signed by Payor and Payee. No failure or
delay on the part of Payee or the holder of this Note in exercising any power or
right under this Note shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power or right preclude any other or further
exercise thereof or the exercise of any other power or right. No notice to or
demand on Payor in any case shall entitle it to any notice or demand in similar
or other circumstances. No waiver or approval by Payee or the holder of this
Note under this Note shall, except as may be otherwise stated in such waiver or
approval, be applicable to subsequent transactions. No waiver or approval
hereunder shall require any similar or dissimilar waiver or approval thereafter
to be granted hereunder.

          b.   NOTICES. All notices and other communications required or
permitted to be given under or in connection with this Note shall be given in
accordance with the notice provisions in Section 9.2 of the Loan Agreement.

          c.   ASSIGNMENT. Except with the prior written approval of Payee which
consent may not be unreasonably withheld, Payor may not assign any of its rights
or obligations under this Note. Payee may assign any of its rights and
obligations under this Note to any Person, its successors and assigns. Any
attempted assignment in violation of this Section 8.c. shall be null and void.

          d.   SEVERABILITY. Any provision of this Note which is prohibited or
unenforceable in any jurisdiction shall, as to such provision and such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Note or
affecting the validity or enforceability of such provision in any other
jurisdiction.



                                       4
<PAGE>


          e.   HEADINGS. The various headings of this Note are inserted for
convenience only and shall not affect the meaning or interpretation of this Note
or any provisions hereof.

          f.   GOVERNING LAW. This Note shall be governed by the internal laws
of the State of New York without giving effect to it principles of conflicts of
law.

          g.   SUCCESSORS AND ASSIGNS. This Note shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.

          h.   JURISDICTION. Payor hereby consents to jurisdiction in the State
of New York in any legal proceeding or equitable action that relates in any way
to this Note, and further consents to venue for any such proceeding or action in
the state courts of the State of New York and/or the United States District
Court for the Southern District of New York.




                            [Signature Page Follows]


                                       5
<PAGE>



          IN WITNESS WHEREOF, Payor has executed this Note as of the day and
year first above written.

                                          PAYOR:

[CORPORATE SEAL]

Attest:                                   SHEFFIELD PHARMACEUTICALS, INC.


By:                                       By:  /s/ Thomas M. Fitzgerald
    ---------------------------------         ----------------------------------

Its:                                      Its:     Chairman
     --------------------------------          ---------------------------------


                                       6

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.35
<SEQUENCE>6
<FILENAME>c66107ex10-35.txt
<DESCRIPTION>NOTE PURCHASE AGREEMENT
<TEXT>
<PAGE>
                                                                   EXHIBIT 10.35

                                     *** TEXT OMITTED AND FILED SEPARATELY
                                         CONFIDENTIAL TREATMENT REQUESTED
                                         UNDER 17 C.F.R. SECTIONS 200.80 (B)(4),
                                         200.83 AND 240.24b-2

                             NOTE PURCHASE AGREEMENT

                  NOTE PURCHASE AGREEMENT (the "Agreement"), dated as of August
14, 2001, between SHEFFIELD PHARMACEUTICALS, INC., a Delaware corporation (the
"Company"), and ELAN PHARMA INTERNATIONAL LIMITED, an Irish limited company
("EPIL").

                                 R E C I T A L :

                  The parties hereto (or in the case of EPIL, one of its
affiliates), are parties to a Securities Purchase Agreement dated as of October
15, 1999 (as amended at any time, the "Purchase Agreement"), pursuant to which,
among other things, the Company issued and sold to EPIL and EPIL acquired from
the Company certain securities. The parties desire that, in accordance with the
provisions hereof, the Company will issue to EPIL and EPIL will acquire from the
Company, a promissory note (as amended at any time, the "Note"), in the original
principal amount of $4 million, of which $2 million shall be funded on the date
hereof and up to the remaining $2 million may be funded in accordance with the
terms hereof and thereof (references herein to "dollars" or "$" refer to United
States dollars and capitalized terms not defined herein have the meanings
ascribed to them in the Purchase Agreement).

                               A G R E E M E N T :

     The parties agree as follows:

     SECTION 1. Closings. (a) Time and Place. The closing of the transactions
contemplated hereby (the "Closing") shall occur as of the date hereof at the
offices of New York counsel of EPIL or at such other place as the parties may
agree.

     (b) Issuance of Note; Etc. At the Closing, the Company and EPIL shall
execute and deliver to EPIL the Note and EPIL shall fund to an account
designated by the Company $2 million, which is the initial principal amount
provided to be funded hereunder. In the event that (x) the company shall have
failed [text omitted] on or propr to the date that is 60 days after the date
hereof, and (y) there shall be no default or breach by the Company hereunder,
under the Note or under the Purchase Agreement or other Transaction Documents
and all of the Company's representations herein and therein shall be true and
accurate, then, in such events, the Company shall have the right to request
from EPIL (which request shall be in writing within 15 days of the expiration
of the 60-day period referred to in clause (x) above, and which writing shall
confirm the conditions described in clauses (x) and (y) above) that up to an
additional $2 million principal amount be funded thereunder (the "Second
Funding"), which EPIL shall have the right, in its sole discretion, to elect to
fund, to fund in part (up to the requested amount) or not to fund. In the


<PAGE>

event that EPIL elects to fund all or a portion of the Second Funding, the
parties shall thereafter agree on a time and place for such funding and the
amount thereof (up to $2 million), EPIL shall fund such amount on such date and
an appropriate written notation in respect thereof shall be made by EPIL on the
reverse of the Note. There shall be only one funding of the Second Funding and
if the entire $2 million is not funded, such unfunded portion shall not be
subsequently funded.

     (c) Exemption from Registration. The Note will be issued under an exemption
or exemptions from registration under the Securities Act of 1933, as amended
(the "Securities Act"); accordingly, the Note shall, upon issuance, contain the
following legend:

         THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
         AMENDED (THE "ACT"), AND MAY NOT UNDER ANY CIRCUMSTANCES BE TRANSFERRED
         WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR THIS NOTE UNDER THE ACT
         OF AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
         REASOANABLY SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
         REQUIRED UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAWS.

     SECTION 2. (a) Representations of the Company. Except for representations
made as of a specified date not amended hereby, and except as set forth on
Schedule 2(a) hereto, the Company incorporates herein and restates, mutatis
mutandis, each of the representations made by the Company and set forth in
Section 2 of the Purchase Agreement, except that the dates in Sections 2(f) and
2(g) are amended from "December 31, 1998" and "June 30, 1999" to "December 31,
2000" and "June 30, 2001," respectively. In addition, Sections 2(c), 2(d) and
2(e) are amended to include the Note within the definitions of Securities and
Transaction Documents, as used therein.

     (b) Representations of EPIL. Except as set forth on Schedule 2(b) hereto,
EPIL incorporates herein and restates, mutatis mutandis, each of the
representations made by EPIL and set forth in Section 3 of the Purchase
Agreement, as if EPIL were the party making such representations.

     (c) The representations of the parties hereunder shall survive for a period
of 15 months following the date hereof or, if the Second Funding shall have
occurred, 15 months following the Second Funding.

     SECTION 3. Covenants. (a) Use of Proceeds. The Company shall use the
disbursements under the Note for general corporate purposes.

     (b) Further Assurances. From and after the date hereof, each of the parties
hereto agree to do or cause to be done such further acts and things and deliver
or cause to be delivered to each other such additional assignments, agreements,
powers and instruments, as



                                       2
<PAGE>

each may reasonably require or deem advisable to carry into effect the purposes
of this Agreement and the Note.

     (c) Non-disclosure. From and after the date hereof, neither the Company nor
EPIL shall disclose to any person or entity (other than its directors, officers
and agents who need to know such information in connection with the transactions
described herein and the Note, each of whom shall be informed of this
confidentiality provision and in respect of whose breaches the Company shall be
responsible) the content of this Agreement and the Note or the substance of the
transactions described herein, without the prior written consent of the other
party (which consent shall not be unreasonably withheld or delayed), except to
the extent required by applicable laws, regulations or administrative or
judicial processes in respect of press releases, periodic reports or other
public disclosure prepared in good faith by the Company or EPIL; provided, that
EPIL and the Company shall each provide the other with a reasonable opportunity
to review such releases or reports prior to release. This Section 3(c) shall not
be construed to prohibit disclosure of any information which has not been
previously determined to be confidential by EPIL or the Company, or which shall
have become publicly disclosed (other than by breach obligations of the Company
or EPIL hereunder).

     SECTION 4. Notices. All notices, demands and requests of any kind to be
delivered to any party in connection with this Agreement shall be in writing and
shall be deemed to have been duly given if personally or hand delivered or if
sent by an internationally-recognized overnight courier or by registered or
certified airmail, return receipt requested and postage prepaid, or by facsimile
transmission addressed as follows:

                                    (i) if to the Company, to:

                                    Sheffield Pharmaceuticals, Inc.
                                    South Winton Court
                                    3136 Winton Road South
                                    Suite 306
                                    Rochester, New York 14623
                                    Attention: Chairman
                                    Facsimile: 716-292-0522

                                    and

                                    Sheffield Pharmaceuticals, Inc.
                                    1428 South Outer Forty Road, Suite 205
                                    St. Louis, Missouri 63017-5785
                                    Attention: Chief Executive Officer
                                    Facsimile: 314-579-9799

                                    with a copy to:

                                    McDermott Will & Emery
                                    28 State Street


                                       3
<PAGE>

                                    Boston, Massachusetts 02109-1775
                                    Attention: Adolfo Garcia
                                    Facsimile: 617-535-3800

                                    (ii) if to EPIL, to:

                                    Elan Pharma International Limited
                                    Wil House
                                    Shannon Business Park
                                    Shannon, Co. Clare
                                    Ireland
                                    Facsimile: 353-61-362097

                                    with a copy to:

                                    Reitler Brown LLC
                                    800 Third Avenue, 21st Floor
                                    New York, New York 10022
                                    Attention: David Robbins
                                    Facsimile: 212-371-5500

or to such other address as the party to whom notice is to be given may have
furnished to the other party hereto in writing in accordance with provisions of
this Section 4. Any such notice or communication shall be deemed to have been
effectively given (i) in the case of personal or hand delivery, on the date of
such delivery, (ii) in the case of an internationally-recognized overnight
delivery courier, on the second business day after the date when sent, (iii) in
the case of mailing, on the fifth business day following that day on which the
piece of mail containing such communication is posted, and (iv) in the case of
facsimile transmission, the date of telephone confirmation of receipt. Notice
hereunder may be given on behalf of the parties by their respective attorneys.

     SECTION 5. Amendments. This Agreement may not be modified or amended, or
any of the provisions hereof waived, except by written agreement of the Company
and EPIL.

     SECTION 6. Counterparts and Facsimile. This Agreement may be executed in
any number of counterparts, and each such counterpart hereof shall be deemed to
be an original instrument, but all such counterparts together shall constitute
one agreement. Each of this Agreement and the Note may be signed and delivered
to the other party by facsimile transmission; such transmission shall be deemed
a valid signature.

     SECTION 7. Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of the Agreement.


                                       4
<PAGE>

     SECTION 8. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
the principles thereof relating to conflicts of laws.

     SECTION 9. Expenses. Each of the parties shall be responsible for its own
costs and expenses incurred in connection with the transactions contemplated
hereby.

     SECTION 10. Assignments. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. This Agreement and the Note may be
transferred by EPIL to affiliates and subsidiaries and to special purpose
financing and similar vehicles, in each case, without restriction (so long as
EPIL acts as agent or nominee for determinations hereunder); provided, however,
that EPIL shall remain liable for its obligations hereunder after any such
assignment. Other than as set forth above, no party shall transfer or assign
this Agreement or the Note or any interest therein without the prior written
consent of the other party.


                                       5
<PAGE>

                  IN WITNESS WHEREOF, each of the undersigned has duly executed
this Agreement as of the date first written above.

                             SHEFFIELD PHARMACEUTICALS, INC.

                             By:      /s/ Loren G. Peterson
                                -----------------------------------------------
                                     Name: Loren G. Peterson
                                     Title: President & Chief Executive Officer


                             ELAN PHARMA INTERNATIONAL LIMITED

                             By:  /s/ Kevin Insley
                                 ----------------------------------------------
                                     Name: Kevin Insley
                                     Title:



                                       6


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.36
<SEQUENCE>7
<FILENAME>c66107ex10-36.txt
<DESCRIPTION>PROMISSORY NOTE DATED AUGUST 14, 2001
<TEXT>
<PAGE>
                                                                   EXHIBIT 10.36

                                     *** TEXT OMITTED AND FILED SEPARATELY
                                         CONFIDENTIAL TREATMENT REQUESTED
                                         UNDER 17 C.F.R. SECTIONS 200.80 (B)(4),
                                         200.83 AND 240.24b-2


                         SHEFFIELD PHARMACEUTICALS, INC.
                                 PROMISSORY NOTE


MAXIMUM PRINCIPAL AMOUNT                                      NEW YORK, NEW YORK
OF U.S.$4,000,000 (excluding capitalized interest)               AUGUST 14, 2001


                  The undersigned, SHEFFIELD PHARMACEUTICALS, INC., a Delaware
corporation, with offices at 425 South Woodsmill Road, St. Louis, Missouri
63017-3441 (the "Company"), unconditionally promises to pay to ELAN PHARMA
INTERNATIONAL LIMITED, an Irish limited company ("EPIL"), or its permitted
assigns, transferees and successors as provided herein (the "Holder"), on the
earlier of (x) date that is 360 days after the date hereof and (y) [text
omitted]; provided, that if the Second Funding shall have occurred, then, in
such event, the date described in clause (x) shall be the date that is 360 days
after the date of the Second Funding (such earlier date in clauses (x) and (y)
above, the "Maturity Date"), at such place that may be designated by the Holder
to the Company, the principal amount outstanding hereunder (not to exceed
U.S.$4,000,000 (excluding capitalized interest)), together with interest
thereon accrued at a rate per annum equal to 10%, from and after the date of
the initial disbursement of funds hereunder (the "Original Issue Date"),
compounded on a semi-annual basis, the initial such compounding to commence on
the date that is 180 days from and after the Original Issue Date and thereafter
on each 180-day anniversary (each such date, a "Compounding Date"). Interest
shall be computed on a 360-day year of twelve 30-day months.

                  SECTION 1.  SECURITIES PURCHASE AGREEMENT; SECURITY.

                  This Note is issued pursuant to a Note Purchase Agreement
dated as of the date hereof, by and between the Company and EPIL (as amended at
any time, the "Note Purchase Agreement"), and the Holder hereof is intended to
be afforded the benefits thereof, including the representations and warranties
set forth therein. An amount equal to U.S.$2,000,000 shall be funded on the date
hereof and up to an additional U.S.$2,000,000 may be funded in accordance with
Section 1(b) of the Purchase Agreement. The Company shall use the proceeds of
the issuance and sale of this Note solely in accordance with the provisions set
forth therein. Capitalized terms used but not otherwise defined herein shall,
unless otherwise indicated, have the meanings given such terms in the Note
Purchase Agreement (including the meanings of defined terms incorporated
therein).

                  SECTION 2.  PAYMENTS OF PRINCIPAL AND INTEREST.

                  Unless repaid in accordance with the terms hereof, the entire
outstanding principal amount of this Note (including capitalized interest, if
any), together with any accrued interest thereon, shall be due and payable on
the Maturity Date. Accrued interest hereon shall not be paid in cash, but shall
be capitalized and added to the principal amount outstanding hereunder on each

<PAGE>

Compounding Date. This Note may be prepaid at any time at the option of the
Company without penalty or premium on at least five business days' prior written
notice to the Holder.


                  SECTION 3.  EVENTS OF DEFAULT.

                  The occurrence of any of the following events shall constitute
an event of default (an "Event of Default"):

                  (a) a default in the payment of the principal amount of this
Note, when and as the same shall become due and payable, continuing five
business days after notice thereof;

                  (b) a default in the payment of any accrued and unpaid
interest on this Note, when and as the same shall become due and payable,
continuing five business days after notice thereof;

                  (c) a breach by the Company of its obligations hereunder or
under the Note Purchase Agreement or under any of the Transaction Documents,
which breach remains uncured at the conclusion of the cure period specified
within the relevant documents after written notice thereof by EPIL or EIS;

                  (d) a distress, execution, sequestration or other process is
levied or enforced upon the Company or sued out against a material part of its
property which is not discharged or challenged within 60 days;

                  (e) the Company is unable to pay its debts in the normal
course of business;

                  (f) the Company ceases wholly or substantially to carry on its
business (other than as a result of the merger or consolidation of the Company
with another entity), without the prior written consent of the Holder (such
consent not to be unreasonably withheld);

                  (g) the Company shall make an assignment for the benefit of
creditors, or admit in writing its inability to pay or generally fail to pay its
debts as they mature or become due, or shall petition or apply for the
appointment of a trustee or other custodian, liquidator or receiver of the
Company or of any substantial part of the assets of the Company or shall
commence any case or other proceeding relating to the Company under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation or similar law of any jurisdiction, now or hereafter
in effect, or shall take any action to authorize or in furtherance of any of the
foregoing, or if any such petition or application shall be filed or any such
case or other proceeding shall be commenced against the Company by any third
party which is not withdrawn or discharged within 60 days;

                  (h) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating the Company bankrupt or
insolvent, or approving a petition in any such case or other proceeding, or a
decree or order for relief is entered in respect of the Company in an
involuntary case under federal bankruptcy laws as now or hereafter constituted;
and/or



                                       2
<PAGE>

                  (i) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than 45 days, whether or not consecutive, any final judgment
against the Company that, with other outstanding and undischarged final
judgments against the Company exceeds in the aggregate U.S.$250,000.

                  SECTION 4.  REMEDIES IN THE EVENT OF DEFAULT.

                  (a) In the case of any Event of Default by the Company, the
Holder may in its sole discretion demand that the aggregate amount of funds
advanced to the Company under this Note and outstanding hereunder and accrued
and unpaid interest thereon shall, in addition to all other rights and remedies
of the Holder hereunder and under applicable law, be and become immediately due
and payable upon written notice delivered by the Holder to the Company;
provided, that in the event of any Event of Default specified in Section 3(g) or
3(h), all such amounts shall become immediately due and payable automatically
and without any requirement of demand from or by the Holder. Notwithstanding the
preceding sentence, the rights of the Holder as set forth in Section 3 and 4
hereunder shall survive any such acceleration and payment.

                  (b) The Company hereby waives demand and presentment for
payment, notice of nonpayment, protest and notice of protest, diligence, filing
suit, and all other notice and promises to pay the Holder its reasonable costs
of collection of all amounts due hereunder, including reasonable attorneys'
fees.

                  (c) In the case of any Event of Default under this Note by the
Company, this Note shall continue to bear interest after such default at the
interest rate otherwise in effect hereunder plus 3% per annum (but in any event
not in excess of the maximum rate of interest permitted by applicable law).

                  SECTION 5.  VOTING RIGHTS.

                  This Note shall not entitle the holder hereof to any voting
rights or other rights as a stockholder of the Company.

                  SECTION 6.  COVENANTS OF THE COMPANY.

                  (a) The Company shall not use the funds advanced by the Holder
to the Company as evidenced by this Note for any use other than as provided in
the Note Purchase Agreement.

                  (b) The Company shall not incur any indebtedness for money
borrowed which shall rank senior to this Note as to priority of payment and the
Company shall not grant, or permit to occur any security interest, lien or other
encumbrance against any of its assets other than purchase money security
interests not to exceed in the aggregate $100,000, without the prior written
consent of the Holder.




                                       3
<PAGE>

                  SECTION 7. MISCELLANEOUS.

                  (a)      This Note and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. All or any part of this Note may be assigned
or transferred by EPIL to its affiliates and subsidiaries, as well as any
special purpose financing or similar vehicle established by EPIL or any of its
affiliates or subsidiaries. Other than as set forth above, no party shall assign
or transfer all or any part of this Note, or any interest therein, without the
prior written consent of the other party.

                  (b)      All notices, demands and requests of any kind to be
delivered to any party in connection with this Note shall be in writing and
shall be deemed to have been duly given if personally or hand delivered or if
sent by an internationally-recognized overnight delivery courier or by
registered or certified mail, return receipt requested and postage prepaid, or
by facsimile transmission addressed as follows:

                  (i)      if to the Company, to:

                           Sheffield Pharmaceuticals, Inc.
                           South Winton Court
                           3136 Winton Road South
                           Suite 306
                           Rochester, New York 14623
                           Attention:  Chairman
                           Facsimile: 716-292-0522

                           and

                           Sheffield Pharmaceuticals, Inc.
                           14528 South Outer Forty Road, Suite 205
                           St. Louis, Missouri 63017-5785
                           Attention: Chief Executive Officer
                           Facsimile: 314-579-9799

                           with a copy to:

                           McDermott Will & Emery
                           28 State Street
                           Boston, Massachusetts 02109-1775
                           Attention: Adolfo Garcia
                           Facsimile: 617-535-3800

                  (ii)     if to EPIL, to:

                           Elan Pharma International Limited
                           Wil House
                           Shannon Business Park
                           Shannon, Co. Clare


                                       4
<PAGE>

                           Ireland
                           Facsimile: 353-61-362097

                           with a copy to:

                           Reitler Brown LLC
                           800 Third Avenue, 21st Floor
                           New York, New York 10022
                           Attention:   David Robbins
                           Facsimile:  212-371-5500

or to such other address as the party to whom notice is to be given may have
furnished to the other party hereto in writing in accordance with provisions of
this Section 7. Any such notice or communication shall be deemed to have been
effectively given (i) in the case of personal or hand delivery, on the date of
such delivery, (ii) in the case of an internationally-recognized overnight
delivery courier, on the second business day after the date when sent, (iii) in
the case of mailing, on the fifth business day following that day on which the
piece of mail containing such communication is posted and (iv) in the case of
facsimile transmission, the date of telephone confirmation of receipt. Notice
hereunder may be given on behalf of the parties by their respective attorneys.

                  (c)      This Note may not be modified or amended, or any of
the provisions hereof waived, except by written agreement of the Company and the
Holder dated after the date hereof.

                  (d)      This Note shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to principles of conflicts of laws. Any dispute under this Note that is
not settled by mutual consent shall be finally adjudicated by any federal or
state court sitting in the City, County and State of New York, and the Company
consents to the exclusive jurisdiction of such Courts (or any appellate court
therefrom) over any such dispute.

                  (e)      This Note may be executed and delivered to the Holder
by a facsimile transmission; such transmission shall be deemed a valid
signature.

                            [Signature page follows]






                                       5
<PAGE>
                  IN WITNESS WHEREOF, the Company has executed and delivered
this Note on the date first above written.



                        SHEFFIELD PHARMACEUTICALS, INC.





                        By:  /s/ Loren G. Peterson
                             -----------------------------------------
                             Name: Loren G. Peterson
                             Title: President & Chief Executive Officer




<PAGE>
                                                                       EXHIBIT A

                               Outstanding Amount


Date     Amount Funded      Amount Repaid    Outstanding Amount    Notation By









</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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