<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-Q



(Mark One)

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

         For the quarterly period ended        September 30, 1997
                                       ---------------------------------

                                      or

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

           For the transition period from              to
                                          ------------    ------------

         Commission File Number:             0-19651
                                ------------------------------------------------

                         MAGAININ PHARMACEUTICALS INC.
            (Exact name of registrant as specified in its charter)


          Delaware                                    13-3445668
(State or other jurisdiction of                   (I.R.S. Employer 
incorporation of organization)                   Identification No.)

           5110 Campus Drive, Plymouth Meeting, Pennsylvania, 19462
             (Address of principal executive offices and Zip Code)

                                (610)-941-4020
             (Registrant's telephone number, including area code)


       ----------------------------------------------------------------
             (Former name, former address and former fiscal year, 
                         if changed since last report)

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

    Common Stock,  $.002 Par Value - 19,389,657 Shares (October 17, 1997)
<PAGE>
 
                         MAGAININ PHARMACEUTICALS INC.


                                     INDEX

<TABLE> 
<CAPTION> 

                                                                                    Page
Part I -   Financial Information
<S>                                                                                <C> 
   Item 1.   Financial Statements

             Balance Sheets as of September 30, 1997 (unaudited) and
             December 31, 1996....................................................... 1

             Unaudited Statements of Operations for the three and nine months
             ended September 30, 1997 and 1996....................................... 2

             Unaudited Statements of Cash Flows for the nine months ended
             September 30, 1997 and 1996............................................. 3

             Notes to Unaudited Financial Statements................................. 4


   Item 2.   Management's Discussion and Analysis of Financial Condition
             and Results of Operations............................................... 7



Part II -  Other Information........................................................ 14

Signatures   ....................................................................... 15
</TABLE> 
<PAGE>
 
PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                         MAGAININ PHARMACEUTICALS INC.

                                BALANCE SHEETS


                   (In thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                          September 30,      December 31,
                                                                              1997               1996
                                                                           ---------          ---------
                                                                          (unaudited)
               ASSETS
<S>                                                                       <C>                <C>      
Current assets:
   Cash and cash equivalents .....................................         $     365          $   2,072
   Short-term investments ........................................            24,764             31,268
   Prepaid expenses and other current assets .....................               437                454
                                                                           ---------          ---------
         Total current assets ....................................            25,566             33,794
Fixed assets, net ................................................             3,003              2,506
Other assets .....................................................                71                 76
                                                                           ---------          ---------
         Total assets ............................................         $  28,640          $  36,376
                                                                           =========          =========

         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable and accrued expenses .........................         $   4,973          $   5,145
   Note payable - current ........................................               500                250
   Equipment lease obligations - current .........................                64                123
                                                                           ---------          ---------
         Total current liabilities ...............................             5,537              5,518
Note payable - long term .........................................             1,000                750
Equipment lease obligations - long term ..........................              --                   38
Deferred rent ....................................................               104                127
                                                                           ---------          ---------
         Total liabilities .......................................             6,641              6,433
                                                                           ---------          ---------

Commitments, contingencies and other matters Stockholders' equity:
   Preferred stock -- $.001 par value; shares authorized
      - 9,211, none issued .......................................              --                 --
   Common stock -- $.002 par value; shares authorized
   - 45,000;  shares issued and outstanding
   - 19,380 and 19,364 ...........................................                39                 39
   Additional paid-in capital ....................................           125,209            125,134
   Unrealized gain on investments ................................                17                 13
   Accumulated deficit ...........................................          (103,266)           (95,243)
                                                                           ---------          ---------
               Total stockholders' equity ........................            21,999             29,943
                                                                           ---------          ---------

               Total liabilities and stockholders' equity ........         $  28,640          $  36,376
                                                                           =========          =========
</TABLE>

See accompanying notes to unaudited financial statements.

                                       1
<PAGE>
 
                         MAGAININ PHARMACEUTICALS INC.


                           STATEMENTS OF OPERATIONS
                                  (unaudited)

                   (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                            Three Months Ended                Nine Months Ended
                                               September 30,                    September 30,
                                           1997           1996              1997             1996
                                         --------       --------          --------        --------
<S>                                      <C>            <C>               <C>             <C>   
Revenues:
   Related party contract ......         $     --       $     --          $     --        $     --
   Contract and government grant               13             37            10,088             112
                                         --------       --------          --------        --------

                                               13             37            10,088             112
                                         --------       --------          --------        --------
Costs and expenses:
   Research and development ....            6,327          5,788            16,864          17,870
   General and administrative ..              826            789             2,475           2,378
   Charge for stock issuance
     relating to royalty buy out               --          7,080                --           7,080
                                         --------       --------          --------        --------
                                            7,153         13,657            19,339          27,328
                                         --------       --------          --------        --------

Loss from operations ...........           (7,140)       (13,620)           (9,251)        (27,216)

Interest income ................              431            546             1,301           1,648
Interest expense ...............              (29)            (8)              (73)            (18)
                                         --------       --------          --------        --------

Net loss .......................         $ (6,738)      $(13,082)         $ (8,023)       $(25,586)
                                         ========       ========          ========        ========

Net loss per share .............         $   (.35)      $   (.72)         $   (.41)       $  (1.47)
                                         ========       ========          ========        ========

Weighted average
  shares outstanding ...........           19,369         18,209            19,366          17,459
</TABLE>

See accompanying notes to unaudited financial statements.

                                       2
<PAGE>
 
                         MAGAININ PHARMACEUTICALS INC.


                           STATEMENTS OF CASH FLOWS
                                  (unaudited)

                                (In thousands)

<TABLE>
<CAPTION>

                                                                           Nine Months
                                                                              Ended
                                                                           September 30,
                                                                   ----------------------------
                                                                     1997                 1996
                                                                   --------            --------
<S>                                                                <C>                 <C>      
Cash flows from operating activities:
   Net loss ..................................................     $ (8,023)           $(25,586)
   Adjustments to reconcile net loss to
     net cash used in operating activities:
         Fair value of stock, options and warrants
              issued .........................................           --               7,080
         Depreciation and amortization .......................          709                 428
         Deferred rent .......................................          (23)                (12)
         Decrease in prepaid expenses and other assets .......           22                  34
         Increase (decrease) in accounts payable
          and accrued expenses ...............................         (172)              2,941
                                                                   --------            --------

             Net cash used in operating activities ...........       (7,487)            (15,115)
                                                                   --------            --------

Cash flows from investing activities:
   Purchases of investments ..................................      (37,426)            (24,883)
   Proceeds from maturities and sales of investments .........       43,934              27,933
   Capital expenditures ......................................       (1,206)             (1,253)
                                                                   --------            --------

             Net cash provided by investing activities .......        5,302               1,797
                                                                   --------            --------

Cash flows from financing activities:
   Proceeds from borrowings on notes payable .................          625                 500
   Payments on notes payable .................................         (125)                 --
   Payments on capitalized equipment leases ..................          (97)               (115)
   Proceeds from sale of securities and
     exercise of options and warrants ........................           75              12,419
                                                                   --------            --------

             Net cash provided by financing activities .......          478              12,804
                                                                   --------            --------

Net (decrease) in cash and cash equivalents ..................       (1,707)               (514)

Cash and cash equivalents at beginning of period .............        2,072               1,880
                                                                   --------            --------

Cash and cash equivalents at end of period ...................     $    365            $  1,366
                                                                   ========            ========
</TABLE>

See accompanying notes to unaudited financial statements.

                                       3
<PAGE>
 
                         MAGAININ PHARMACEUTICALS INC.


                         NOTES TO FINANCIAL STATEMENTS
                                  (unaudited)



A) Basis of Presentation

      The accompanying condensed financial statements do not include all of the
   information and footnote disclosures normally included in financial
   statements prepared in accordance with generally accepted accounting
   principles, but in the opinion of management, contain all adjustments (which
   consist of only normal recurring adjustments) necessary for a fair
   presentation of such financial information. Results of operations for interim
   periods are not necessarily indicative of those to be achieved for full
   fiscal years.

      The condensed financial statements should be read in conjunction with the
   audited financial statements as of December 31, 1996 and for the year then
   ended, included in the Company's 1996 Annual Report on Form 10-K, filed with
   the Securities and Exchange Commission.

      As a result of revenues earned during the nine months ended September 30, 
   1997, the Company is no longer in the development stage.

B) Accounts Payable and Accrued Expenses

      Accounts payable and accrued expenses consist of the following (in
   thousands):

<TABLE> 
<CAPTION> 

                                                September 30,  December 31,
                                                   1997           1996
                                                  ------         ------
      <S>                                       <C>            <C> 
      Accounts payable                            $  209         $  176
      Clinical trial costs                           726            720
      Manufacturing development costs              2,273          3,426
      Preclinical costs                              357            269
      Regulatory costs                               577             --
      Professional fees                              163            200
      Accrued compensation and benefits              612              4
      Other                                           56            350
                                                  ------         ------
                                                  $4,973         $5,145
</TABLE> 

                                       4
<PAGE>
 
C) Note Payable

   The Company entered into a credit arrangement in 1996 with a commercial bank
under which up to $1,000,000 may be borrowed to finance the acquisition of
equipment and the costs of improvements to the Company's leased facilities.
Borrowings under this credit facility bear interest at a rate of 8.5% for the
three year term of the loan. The loan provides for monthly interest payments,
with principal payments made in quarterly installments in the second and third
year after borrowings. Under this credit arrangement, any amounts outstanding
shall become immediately due and payable under certain circumstances, including
the failure of the Company to maintain certain minimum cash and investments
balance, and financial ratios.

   As of September 30, 1997, the Company has borrowed $875,000 under this
facility.

   The Company entered into an additional credit arrangement in 1997 under which
up to $1,500,000 may be borrowed. Borrowings under this credit facility bear
interest at the prime rate minus one quarter percent, to be established at the
time of borrowing. The loan provides for monthly interest payments, with all
principal due on April 1999. Under this credit arrangement, any amounts
outstanding shall become immediately due and payable under certain
circumstances, including the failure of the Company to maintain certain minimum
cash and investments balance, and financial ratios.

   As of September 30, 1997, the Company has borrowed $625,000 under this
facility.

D) Collaborative Agreements

         In February 1997, the Company entered into a development, supply and
distribution agreement (the "Agreement") in North America with SmithKline
Beecham ("SB") for Cytolex(TM). SB has paid the Company $10.0 million under this
Agreement, and may make additional payments to Magainin of up to $22.5 million,
upon the occurrence of certain product milestones. SB will also fund a
percentage of any development expenses for any additional indications for
Cytolex(TM). Upon the commencement of commercial sales by SB, Magainin will be
responsible for the supply of Cytolex(TM) and SB will be responsible for the
marketing and sales of Cytolex(TM). Magainin will receive certain percentages of
SB sales revenues under agreed upon terms. The Agreement also gives SB the right
to negotiate for rights to another Magainin product development candidate, under
certain terms and conditions.

E) New Accounting Pronouncements

   In February 1997, the Financial Accounting Standards Board issued FAS No.
128, "Earnings per Share," which is effective for financial statements for
fiscal years ending after December 15, 1997. This statement simplifies the
standards for computing earnings per 

                                       5
<PAGE>
 
share previously found in APB Opinion No. 15, making such standards comparable
to international EPS standards. The Company intends to adopt FAS No. 128 for its
fiscal year ending December 31, 1997; early adoption is not permitted. The
Company does not expect that the effect of adopting FAS No. 128 will be
material.

                                       6
<PAGE>
 
ITEM 2.

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS




      This report contains, in addition to historical information, statements by
      the Company with regard to its expectations as to financial results and
      other aspects of its business that involve risks and uncertainties and may
      constitute forward looking statements within the meaning of the Private
      Securities Litigation Reform Act of 1995. Such statements reflect
      management's current views and are based on certain assumptions. Actual
      results could differ materially from those currently anticipated as a
      result of a number of factors, including, but not limited to, the risks
      and uncertainties discussed under "Management's Discussion and Analysis of
      Financial Condition and Results of Operations" contained herein, under
      Item 1 of the Company's Annual Report on Form 10-K for the fiscal year
      ended December 31, 1996 as filed with the Securities and Exchange
      Commission, and under "Risk Factors" in the Company's Registration
      Statement on Form S-3 filed with the Securities and Exchange Commission on
      October 20, 1997.

General

     The Company is a biopharmaceutical company engaged in the development of
medicines for serious diseases. The Company has completed two pivotal Phase III
clinical trials for its lead product development candidate, Cytolex, a topical
cream antibiotic intended for the treatment of infection in diabetic foot
ulcers. The Company is also conducting preclinical research on an aminosterol
class of compounds. One such compound, squalamine, is being evaluated in cancer.
The Company's newest research efforts are in the genomics of asthma.

     Since commencing operations in 1988, the Company has not generated any
sales revenue. The Company has funded operations primarily from the proceeds of
public and private placements of securities. The Company has incurred net losses
in each year since its inception, and expects to incur substantial additional
losses for the next several years. The Company expects that losses will
fluctuate from quarter to quarter, and that such fluctuations may be
substantial. At September 30, 1997, the Company's accumulated deficit was
approximately $103,266,000.

                                       7
<PAGE>
 
Revenues
--------

     The Company has received no revenue from product sales. Revenues recorded
to date have consisted principally of revenues recognized under collaborations
with corporate partners.

     For the nine month period ended September 30, 1997, the Company recorded
revenues of $10,000,000 reflecting the receipt of payments under the
development, supply and distribution agreement entered into in February, 1997
with SmithKline Beecham (SB) for Cytolex. The Company also recorded revenues of
$88,000 and $112,000 in the nine month periods ended September 30, 1997 and 1996
respectively, in connection with a collaborative arrangement with Abbott
Laboratories (Abbott) in the nutritional field.

     The Company does not expect to realize additional milestone revenues from
its arrangement with SB until FDA approval of Cytolex. However, there can be no
assurance that Cytolex will be approved by the FDA. The Company has no other
currently existing collaborations which will result in the realization of
research and development revenues.

Research and Development Expenses
---------------------------------

     Research and development expenses increased in the three month period ended
September 30, 1997 as compared to the same period a year ago, due principally to
increased preclinical activities associated with squalamine. Research and
development expenses decreased in the nine month period ended September 30, 1997
as compared to the same period a year ago, due principally to the completion of
clinical testing of Cytolex in early 1997, partially offset by an increase in
preclinical development activities.

     Significant development work is necessary to scale-up the manufacturing
process for the Company's products to those levels necessary for a profitable
commercial product. The Company contracts with third parties for these
manufacturing development activities, and for the procurement of material for
clinical and preclinical testing, and such expenses, including those for
Cytolex, amounted to $2,523,000, and $6,720,000 for the three and nine month
periods ended September 30, 1997 as compared to $2,246,000 and $6,470,000 for
the same periods a year ago.

     The Company is working with Abbott with regard to the manufacture of bulk
drug substance for Cytolex. The Company's current arrangement with Abbott
provides for the development by Abbott of a solution phase chemical process to
manufacture bulk drug substance for Cytolex on a commercial scale, for the
production of bulk drug substance for Cytolex for development purposes, and for
Abbott to perform those activities necessary to submit a Drug Master File to the
FDA
                                       8
<PAGE>
 
in support of any filing for marketing approval of Cytolex. This arrangement
provides for cash payments by the Company to Abbott through early 1998
aggregating approximately $17,180,000, as well as the issuance by the Company to
Abbott of up to 500,000 shares of its common stock and the obligation to pay a
royalty on future sales of Cytolex. Through September 30, 1997, the Company has
paid Abbott approximately $14,130,000 under this arrangement. Stock issuances by
the Company to Abbott will result in a charge to earnings, representing the fair
value of the shares when issued. The Company issued 125,000 shares of common
stock to Abbott in October 1995, resulting in a charge to earnings of $1,250,000
in 1995. Future stock issuances are related to the achievement by Abbott of
contractual performance milestones, which could begin to occur in 1997.

     In September 1996, the Company announced results of its initial pivotal
trial of Cytolex for the treatment of infection in diabetic foot ulcers, and in
March 1997 the Company reported results from a second such pivotal trial. The
clinical trials conducted for Cytolex yielded substantial data. Such data
includes information relating to the primary endpoint for the studies (clinical
cure or improvement of infection), as well as additional data relating to
microbiological results, patient subgroup analysis, wound healing and side
effects. Although the Company believes the two pivotal trials of Cytolex yielded
successful results, there can be no assurance that the FDA will concur with the
Company's analysis in this regard.

     There can be no assurance that Cytolex will receive FDA approval on a 
timely basis, if at all. The failure of the Company to obtain FDA approval for 
Cytolex, any significant delay in obtaining such approval, or the imposition of 
highly restrictive conditions on such approval, would have a material adverse 
effect on the Company.

     The level of research and development expenses in future periods will
depend upon the success of the Cytolex development program, and the progress of
other research programs at the Company. Expenses relating to the development of
Cytolex are expected to continue to be significant in future periods principally
as a result of the Company's ongoing manufacturing development program,
partially offset by a decline in clinical trial costs related to Cytolex. The
Company also expects, in future periods, increased development expenses relating
to its aminosterol and asthma genomics programs.

General and Administrative Expenses
-----------------------------------

     General and administrative expenses have consisted principally of personnel
costs and professional fees, and have increased in the three and nine month
periods ended September 30, 1997 as compared to the same periods a year ago, due
largely to 

                                       9
<PAGE>
 
increases in professional fees expense. The Company expects general and
administrative expenses to increase in future periods as the Company's level of
activities increases.

Other Expenses/Income
---------------------

     The Company recorded in the three months ended September 30, 1996 a
non-cash charge to earnings of $7,080,000 million, representing the fair value
of 550,000 shares of Common Stock issued by the Company in a buyout of royalties
which the Company would otherwise have owed on any sales of Cytolex.

     The decrease in interest income in the three and nine month periods ended
September 30, 1997 as compared to the same periods a year ago is principally due
to decreased investment balances.

     Interest expense consists primarily of interest under the Company's credit
facilities, and the interest component of capital equipment leases. In late 1996
and early 1997, the Company borrowed $1,500,000 under its credit facilities
resulting in increased interest expense in the three and nine month periods
ended September 30, 1997 as compared to the same periods a year ago.

Net Loss
--------

     The Company expects to conduct, over the next several years, significant
research, preclinical development, clinical testing and manufacturing
development activities which, together with projected general and administrative
expenses, are expected to result in continued losses, particularly due to the
extended time period before the Company expects to commercialize any products.

Financial Condition, Liquidity and Capital Resources

     Cash and investments were approximately $25,129,000 at September 30, 1997
as compared to $33,340,000 at December 31, 1996. The primary use of cash was to
finance the Company's operations. Cash used in operating activities was
$7,487,000 and $15,115,000 for the nine months ended September 30, 1997 and
1996, respectively.

     Since inception, the Company has funded its operations primarily from the
proceeds of public and private placements of securities, including $17,080,000
raised from its initial public offering in December 1991, $21,469,000 raised
from a public offering completed in February 1993, $18,023,000 raised from a
private placement completed in October 1993, $32,627,000 raised from a public
offering completed in August 1995, and $11,932,000 raised from a private
placement completed in August 1996, as well as contract and grant revenues,
interest income and lease and debt financing.

                                       10
<PAGE>
 
     Capital expenditures were $1,206,000 in the nine months ended September 30,
1997, principally reflecting equipment purchases.

     Accounts payable and accrued expenses decreased to $4,973,000 at September
30, 1997 as compared to $5,145,000 at December 31, 1996, due principally to
payments made under certain manufacturing development arrangements, partially
offset by increases in accrued regulatory costs and compensation costs. The
Company expects a decrease in accounts payable and accrued expenses in future
periods as certain of these liabilities are satisfied.

     In February 1997, the Company entered into a development, supply and
distribution agreement (the "Agreement") in North America with SB for Cytolex.
SB has paid the Company $10.0 million under this Agreement, and may make
additional payments to Magainin of up to $22.5 million upon the occurrence of
certain product milestones. SB will also fund a percentage of any development
expenses for any additional indications for Cytolex. Upon the commencement of
commercial sales by SB, Magainin will be responsible for the supply of Cytolex
and SB will be responsible for the marketing and sales of Cytolex. Magainin will
receive certain percentages of SB sales revenues under agreed upon terms. The
Agreement also gives SB the right to negotiate for rights to another Magainin
product development candidate, under certain terms and conditions.

     The Company believes that its existing capital resources will enable it to
meet operating needs into 1998. However, the Company's capital requirements may
change due to numerous factors, including the progress of the Company's research
and development programs, regulatory approvals, competitive and technological
advances, the commercial viability of the Company's products, the terms of
collaborative arrangements, if any, entered into by the Company, and other
factors, many of which are beyond the Company's control. The Company will
require substantial additional funds to continue its research and development
programs and to commercialize potential products. The Company intends to seek
such funds through a combination of future offerings of securities and
collaborative arrangements with third parties, and regularly explores
alternatives in this regard. There can be no assurance that future funding will
be available to the Company or, if available, will be obtainable on terms
favorable to the Company. The receipt of funding, if any, from corporate
partners, including SB, will depend largely on the progress of research and
development programs. If the Company does not enter into appropriate
collaborations, receive additional funds under its current arrangement, or
raise sufficient funds from the periodic sale of securities, the Company will be
required to delay or eliminate expenditures for potential products, including
Cytolex, or to enter into collaborations with third parties to commercialize
potential products or technologies that the Company would otherwise seek to
develop itself, or seek other arrangements.

     The Company's capital expenditure requirements will depend upon numerous
factors, including the success of Cytolex and the progress of the Company's
other research and 

                                       11
<PAGE>
 
development programs, the time and cost required to obtain regulatory approvals,
the ability of the Company to enter into additional collaborative arrangements,
the demand for products based on the Company's technology, if and when such
products are approved, and possible acquisitions of products, technologies and
companies. The Company had no significant capital commitments as of September
30, 1997.

     The Company does not have the resources, facilities or capabilities to
manufacture any of its proposed products. The Company has no current plans to
establish a manufacturing facility. The Company expects that it will be
dependent to a significant extent on contract manufacturers for commercial scale
manufacturing of its proposed products in accordance with regulatory standards.
The Company's dependence on third parties for manufacturing may adversely affect
operating results as well as the Company's ability to develop and deliver
products on a timely and competitive basis. Production of peptides (such as
Cytolex and other magainins) is expensive relative to production of traditional
antibiotics. Additionally, there are a limited number of companies which are
currently able to produce bulk peptides on the scale which the Company expects
to require to commercialize Cytolex. There can be no assurance that qualified
outside contractors will be available to manufacture materials for the Company,
or do so at costs which are affordable by the Company.

     The Company and Abbott have agreed that upon completion of Abbott's
development activities, they will negotiate in good faith a supply agreement for
the Company's worldwide supply needs of bulk drug substance for Cytolex. Early
stage discussions as to supply cost have occurred with Abbott, and, based on
these discussion, the Company believes that further progress in scale-up and
manufacturing development efforts, as well as increases in projected volumes,
will be required to enable the Company to manufacture and sell Cytolex on a
profitable basis. This may require substantial additional funds. No assurance
can be given that a cost-effective manufacturing process can be developed, or
that any such process would be approved by the FDA, or that the Company, Abbott,
or others will be able to manufacture Cytolex on a commercially viable basis.

     The Company is currently dependent upon Abbott for the production of bulk
drug substance for Cytolex. In the event that bulk drug substance for Cytolex is
not manufactured at Abbott, the Company will need to secure other manufacturing
arrangements. The process developed by Abbott is proprietary, and in the event
the Company desires to utilize, or have another party utilize such technology,
the Company will be required to make license payments to Abbott. The Company has
certain efforts under way with respect to alternative manufacturing sources,
including recombinant manufacturing, however, these programs are at an early
stage, and significant expenditures over an extended period of time will be
required to develop a commercially viable process, and there can be no assurance
that such efforts will be successful.

                                       12
<PAGE>
 
     The Company also expects to conduct significant manufacturing development
activities for its other products under development. The Company is currently
working with outside contractors for the chemical production of squalamine. The
Company expects to expend significant resources in the production of squalamine
and any other compounds under development, and there can be no assurance that
these efforts will be successful.

     The Company's business is subject to a number of substantial risks and
uncertainties. In addition to the information set forth above, see the
information set forth under "Risk Factors" in the Company's Registration
Statement on Form S-3 filed with the Securities and Exchange Commission on
October 20, 1997.

                                       13
<PAGE>
 
                                    PART II

                               OTHER INFORMATION



ITEM 6.   Exhibits and Reports on Form 8-K

                 None

                                       14
<PAGE>
 
                                  SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                         Magainin Pharmaceuticals Inc.
                                         (Registrant)





Date:  October 20, 1997                  /s/ Jay Moorin
                                         -------------------------------
                                         Jay Moorin
                                         Chairman, President &
                                         Chief Executive Officer



                                         /s/ Michael R. Dougherty
                                         -------------------------------
                                         Michael R. Dougherty
                                         Executive Vice President and
                                         Chief Financial Officer

                                       15