Exhibit 13.1  2002 Annual Report  Our mission is todevelop
and commercialize safe and effective drugs that extend the survival and
maintain the quality of life for patients with life-threatening cancers,
hepatitis C and other chronic liver diseases.We have attracted an experienced international management group and a
team of employees dedicated to commercializing life-enhancing drugcandidates.  Joining this motivated team in its mission are world-leading
scientific and clinical investigators and major pharmaceutical development
partners.   MAXIM PHARMACEUTICALS PROFILE Specializing in cancer and liver disease  Late-stage pipeline with two indications in Phase 3
clinical trials  Drug candidates that target critical medical needs
in multi-billion-dollar markets  Target diseases include hepatitis C,a $2 billion market projected to reach up to
$7 billion by 2011  Efficacy and safety demonstrated for lead drug
candidate CepleneÔin 17 completed or ongoing clinical trials in
19 countries  Seasoned, experienced pharmaceutical management  Leading clinical investigators and scientific
advisors  Clinical
data and research published in prestigious peer-reviewed scientific journals  Extensive
patent estate  Pharmaceutical company collaborations  Substantial cash resources   1 
   2002 Highlights  A Year of
Execution and Focus  Three-year
follow-up results from Phase 3 Ceplene trial in advanced metastatic melanoma
demonstrate statistically significant long-term survival benefit  Ceplene
Phase 3 malignant melanoma results published in the Journal of Clinical Oncology
(JCO) and in the JCO Classic
Papers and Current Comments  Commenced
confirming Phase 3 clinical trial of Ceplene in advanced metastatic melanoma,
designed to be the final trial to support U.S. marketing approval  Results from Ceplene Phase 2
trial in treatment-naïve hepatitis C patients published in Journal of Viral Hepatitis  Commenced
Phase 2 trial of Ceplene in hepatitis C nonresponder patients in collaboration
with Schering-Plough Corporation  Expanded
research collaboration with Celera Genomics to discover novel drug candidates
for cancer  Commenced
clinical trials of MX8899 topical gel in oral mucositis and radiation dermatitis  Added
key pharmaceutical management in the areas of drug development, regulatory
affairs, clinical operations, and project management   2 
   DRUG DEVELOPMENT PIPELINE TARGETS
CRITICAL MEDICAL NEEDS  Maxim is a global biopharmaceutical company
with a diverse pipeline of therapeutic candidates for life-threatening cancers
and liver diseases.Our efforts to improve the care of cancer
patients range from our Phase 3 clinical trials of Ceplene in malignant
melanoma and leukemia to preclinical programs with our apoptosis inducer
candidates in multiple cancers.  We are
also developing our MX8899 topical therapy in cancer supportive care, designed
tohelp patient overcome the painful and debilitating conditions
associated with the toxic side effects of certain cancer therapies.  Our clinical development program in hepatitis
C is designed to improve patient care by using Ceplene to enhance the efficacy
of the current standard of care, pegylated interferon and ribavirin.  The common element among each of these
programs is our goal of developing and commercializing drugs that cure
life-threatening diseases and extend survival while maintaining the patients
quality of life.     3 
   GLOBAL
CLINICAL DEVELOPMENT  In addition to developing a pipeline that
targets critical medical needs, we have developed a global awareness of Ceplene
and other drug candidates by conducting our clinical development in most of the
major developed world markets.  In
addition to conditioning key markets for future market launches, this approach
has allowed us to collaborate withleading renowned scientific and clinical
investigatorsat approximately 300 universities and other centers
of excellence throughout the world.   4 
   CEPLENE  More than 1,600 patients have participated in clinical trials of Ceplene,
our most advanced drug candidate. 
Research suggests that treatment with Ceplene has the potential to
protect critical immune cells and to prevent cellular damage associated with
oxygen free radicals.Because Ceplene
impacts basic immune functions, it has the potential to be used in a broad
range of diseases.  Phase 3 clinical
trials are currently underway in advanced metastatic melanoma, the deadliest
form of skin cancer, and acute myeloid leukemia, the most common acute adult
leukemia.  Phase 2 clinical trials are
underway in hepatitis C, the most common blood-borne virus in the United States,  and renal cell carcinoma, a serious cancer
of the kidneys. Ceplene is an investigational drug and has not been approved by
the U.S. Food and Drug Administration (FDA) or any international regulatory
agency.   Ceplene Highlights Novel treatment for life-threatening cancers and
hepatitis C Late-stage drug candidate currently being tested in
Phase 3 clinical trials First-line breakthrough therapy Targeting critical patient needs in multi-billion
dollar markets Tested in 17 ongoing and completed clinical trials
in 19 countries Clinical and research results presented at more than
80 scientific meetings and in more than 300 publications Proprietary technology  16 U.S. patents issued  5 
   CEPLENE FOR ADVANCED METASTATIC MELANOMA  Critical Need for More Effective Therapies  Ceplene for
advanced metastatic melanoma represents our most advanced program with seven
clinical trials in more than 1,000 patients completed or underway.  The first Phase 3 trial demonstrated a
significant increase in survival for patients treated with Ceplene, and the
drug candidate is now being tested in the final Phase 3 trial designed to
support registration for marketing approval. 
We currently expect to amend our New Drug Application (NDA) for U.S.
approval to market Ceplene in 2005.  Advanced metastatic melanoma is the most
deadly form of skin cancerand one ofthe fastest-growing
cancers in the developed world, with noestablished or proven
standard of care.  Melanoma is one of
the few cancers that will spread to virtually any organ within the body, and
the outlook is particularly dismal for patients when their disease spreads to
the liver.   Malignant
Melanoma Facts  The most deadly form of skincancer 2002 market size (prevalence)1 United States
  230,000Europe
  150,000 Incidence more than tripled among
Caucasians between 1980 and 2002 Fastest growing among all cancers Rapid spread to most organs Patients with liver metastases typically
live less than 5 months No approved or experimental treatment
improves survival No standard of care  1Decision Resources  Because of the rising
incidence, eventually we will all know people afflicted with melanoma, said
Dr. Alexander M.M. Eggermont, Department of Surgical Oncology, University
Hospital Rotterdam - Den Hoed Cancer Center. 
We should also realize that this cancer impacts a relatively young
population.  Advanced metastatic
melanoma represents a very important unmet medical need as no treatment has shown a survival benefit.  Ceplene represents truly an innovative
approach as it relies upon a unique mechanism and may be useful in breaking the
resistance this disease has exhibited against traditional treatments.   6 
   First Phase 3 Trial Demonstrates Improved Patient Survival  The largest study of Ceplene completed to
date is the 305-patient U.S. Phase 3 trial (the M01 trial) for the treatment
of advanced metastatic melanoma.  In
this randomized, controlled, multi-center Phase 3 trial, advanced metastatic
melanoma patients were treated with a combination of Ceplene and interleukin-2
(IL-2), an immunotherapeutic agent already approved for the treatment of
advanced metastatic melanoma.  Patients
in the control group were treated with the same dose of IL-2 alone.  The primary endpoint was survival duration
analyzed using the unadjusted Log-Rank Test to compare  Kaplan Meier survival distribution curves.  In October 2002, Sanjiv S. Agarwala, M.D., a
principal investigator and Associate Medical Director of the Melanoma Center at
the University of Pittsburgh Cancer Institute, presented the 36-month follow-up
results for the M01 Phase 3 trial. The 36-month results demonstrated that the
intent-to-treat population of all 305 patients randomized into the trial
demonstrated a statistically significant improvement in survival for patients
treated with the combination of Ceplene and IL-2 (p=0.037) compared to the
control patients treated with IL-2 alone.  Also noteworthy was that the 36-month data
demonstrated that the Ceplene/IL-2 combination significantly increased survival
in the population of advanced metastatic melanoma patients with liver
metastases (p=0.003).  Melanoma  7  
   patients
with liver metastases have a very poor prognosis for survival with a median
survival of less than 5 months.  In the
M01 trial, the percentage of liver metastases patients that lived three or more
years was six times larger in the group treated with the Ceplene/IL-2
combination than in the group treated with IL-2 alone.  The
improvements in longer-term survival seen in the Ceplene trial, particularly in
the poor-prognosis group with liver metastases, represent a significant benefit
to a patient population that has few available therapeutic options, said Dr.
Agarwala.  The combination of Ceplene
and IL-2 is safe and well-tolerated by patients, and I look forward to the
results of the confirming Phase 3 clinical study.  Safety and Quality of Life  In addition to the survival benefit suggested
by the study results, another notable outcome of the M01 Phase 3 trial was the
fact that this survival benefit was achieved without additional clinically
significant degradation in patient quality of life or toxicity.  Also notable, for the first time in any
large study, advanced-stage malignant melanoma patients were allowed to
self-administer treatment at home.  Researchers reported at the 38th
meeting of the American Society of Clinical Oncology (ASCO) in May 2002 that
the addition of Ceplene to IL-2 treatment improved median quality-adjusted
survival duration and did not adversely affect quality of life of patients
participating in the study. 
Importantly, this benefit was achieved with a regimen that produced less
toxicity than typically seen with IL-2, and was self-administered at home.   8 
    Combination therapy using Ceplene plus subcutaneous IL-2, based on the
Phase 3 data and my personal clinical experience, is safe and significantly
improves the survival of metastatic melanoma patients without added toxicity or
a decrease in quality of life, saidDr. Eric Whitman of the
Melanoma Center of St. Louis, an investigator in the M01 Phase 3 trial.  Well-Defined Regulatory Approval Path  In 2000 we submitted a New Drug Application
(NDA) to the FDA requesting approval to market Ceplene based on the 12-month
results of the M01 Phase 3 trial.  In
January 2001 the FDA informed us that the single M01 study would not support
approval on its own and that an additional Phase 3 trial would be
required.  The delay experienced in the
NDA approval process has generated a certain amount of confusion and
misconceptions in the public regarding the interpretations of the results from
the M01 Phase 3 trial and the remaining path for approval.  As described in the preceding section, the
36-month results highlight the success of the M01 Phase 3 trial, however, the
NDA approval process requires a second Phase 3 trial to confirm the results
reported and published from the first trial.  The combination of Ceplene and IL-2 is
currently being tested in a confirming Phase 3 trial (the M0104 trial)
designed to support, in combination with the results of the M01 trial, approval
in the U.S. and other countries.  The
FDA has reviewed and accepted the protocol for the M0104 Phase 3 trial under
its Special Protocol Assessment procedures, confirming that the trial will be
an adequate and well-controlled study when conducted in accordance with the
approved protocol.  The approval process for our NDA is now well
defined, and we are pleased that we are progressing with what is designed to be
the final Phase 3 trial expected to support approval of Ceplene for the
treatment of melanoma.  We currently expect
to complete the second trial in early 2005 and plan to amend our existing NDA
at that time.  We will consider the
possibility of filing for approval of Ceplene for the treatment of melanoma in
Europe in 2003 based upon the results of our six completed clinical trials.   9 
   Ceplene Scientific Presentations 
and Publications  Research and clinical results related to
Ceplene have been the subject of more than80 presentations at major scientific and clinical
meetings, and have been published in more than 300 scientific and clinical
articles.  Results from the M01 Phase 3
trial were the subject of two key scientific articles published during 2002.  The 12-month data from the M01 trial were published in the January 2002
edition of the Journal of Clinical Oncology (JCO).  These results,
and an update of the 24-month results, were published in September 2002 in the JCO Classic
Papers and Current Comments compilation of the major articles
related to melanoma research published in JCO
over the last 20 years.  Ceplene was also selected for presentation at
a number of key oncology conferences. 
Key presentations included:  Dr. Theresa Whiteside,  University of Pittsburgh Cancer Institute, Pittsburgh, and colleagues
reported the results of a multi-center, Phase 2 advanced metastatic melanoma
clinical study at the17th Annual Society for
Biological Therapy (SBT) meetingin November 2002.  The Phase 2 results demonstrated that
combination therapy with Ceplene and IL-2 induced significant and measurable
increases in the number and function of key activated immune cells that are
known to target cancer cells.  In June 2002, more than 20
years of research and clinical testing of Ceplene was the subject of a series
of six scientific articles included in the Seminars
in Oncology supplement entitled New Applications of Cancer
Immunotherapy.  The supplement is
comprised of ten articles discussing current trends and innovations in the use
of immunotherapy, a treatment approach designed to enhance and exploit the immune systems ability to combat cancer and
infectious diseases.  The large number of scientific, peer-reviewed
conferences reflects the growing awareness of the potential benefit Ceplene has
demonstrated in clinical trials and other research.   10 
   CEPLENE IN OTHER CANCERS  Acute Myeloid Leukemia Phase 3 Trial Fully Enrolled  Acute
Myeloid Leukemia (AML) is the most common form of acute leukemia in adults, and
prospects for long-term survival are poor for the majority of patients.  There are approximately 20,000 new cases and
14,000 deaths caused by AML each year in the United States and Europe.Once diagnosed with AML, patients are typically
treated with chemotherapy, and the majority of them achieve complete
remission.  Unfortunately 75-80% of
patients who achieve their first complete remission will relapse, and less than
5% of patients who relapse survive long term.  In
a Phase 2 study of 39 patients, patients treated in their first remission with
the Ceplene/IL-2 combination experienced median leukemia-free survival of 20
months compared to published reports suggesting a median time to relapse of 12
months.  In
September 2000, we completed enrollment of a Phase 3 AML clinical trial in
320 patients based in 12 countries.  The
trial is designed as a remission therapy to demonstrate that the combination of
Ceplene and IL-2 can prolong leukemia-free survival time and prevent relapse in
AML patients compared to the current standard of care, which is no therapy
during remission.  Patients in the study
will be evaluated for up to 48 months, and the trial is expected to be
completed in 2004.  Renal Cell Carcinoma (Phase 2)  There are approximately 60,000 new cases
annually of renal cell carcinoma (RCC), a deadly cancer of the kidneys, in the
United States and Europe.  Metastatic
RCC often is resistant to radiation therapy and chemotherapy, and the disease
results in more than 24,000 deaths each year. 
Expanding the clinical testing of Ceplene into RCC was logical as IL-2,
the drug with which Ceplene has been tested in melanoma, is also approved for
the treatment of advanced RCC.  One Phase 2 study has been completed and two
studies are in follow-up.  Researchers
reported at the ASCO meeting in May 2002 the results from a 41-patient
randomized, controlled Phase 2 study. 
In the Phase 2 study, advanced metastatic renal cell carcinoma patients
were treated with a combination of Ceplene and IL-2, while patients in the
control group were treated with the same dose of IL-2 alone.  For the group of patients treated with the
Ceplene/IL-2 combination, 42% achieved a partial response or disease
stabilization compared to 26% for the group treated with IL-2 alone.  Analysis of the survival data for the final
two Phase 2 studies is expected to be completed in 2003.    11 
   CEPLENE IN
HEPATITIS C  The Leading
Blood-Borne Virus in the United States  Maxims clinical development program for
Ceplene in hepatitis C is designed to eliminate this virus in patients by
treating them with a triple-drug combination of Ceplene, pegylated interferon
and ribavirin.  Accordingly, Ceplene is
designed to complement rather than compete with the current standard of care
for treating hepatitis C.  It is reported that there are more than 4 million people in the United
States infected with the hepatitis C virus, and more that 200 million people
infected world wide.  Deaths in U.S.
from hepatitis C are expected to surpass those from AIDS in the near
future.  The market for treating
hepatitis C is currently $2 billion and projected to reach up to $7 billion by
2011.  Hepatitis C
Virus Facts  200 million peopleinfectedworld wide1 Large population remains
undiagnosed Leading cause of liver
cancer Deaths in U.S. will exceed
those from AIDS Market $2 billion and
growing to up to $7 billion by 2011 50% of patients treated
with  standard of care do not achieve a
sustained response  1Decision Rescources: Infectious
Disease Study  Hepatitis C; May 2002.   12 
   Completed Phase 2 Study Highlights Benefit of Ceplene in HCV  In 2001 we completed a Phase 2 clinical trial
(the M0405 trial) of the combination of Ceplene and interferon-alpha (IFN-a) in the
treatment of treatment-naïve chronic hepatitis C patients (patients who had not
previously received treatment for hepatitis C).  As of the 72-week end-of-trial evaluation date, 35% of all
patients (intent-to-treat basis) treated with Ceplene and IFN-aachieved a
complete sustained viral response. 
Published reports suggest that only approximately 13% of hepatitis C
patients attain a sustained viral response from treatment with IFN-aalone.  In addition to the overall results, response
rates achieved for the higher-risk patients treated with the Ceplene/IFN-acombination
were substantially better than those typically expected for treatment with IFN-aalone.  Despite the poor prognosis for successful
treatment, 28% of all patients (intent-to-treat basis) with the genotype-1
variant of the hepatitis C virus treated with Ceplene and IFN-aachieved a
sustained complete viral response. 
Published reports suggest that approximately 7% of genotype-1 patients
attain a sustained response when treated with IFN-aalone.   13 
   Ceplene Scientific Presentations 
and Publications in Hepatitis C  In September 2002,
the results from the M0405 Phase 2 trial of Ceplene in hepatitis C were
published in the Journal of Viral Hepatitis.   The researchers' conclusion from the study
was thatthese data indicate that the addition of Ceplene as a combination
therapy with IFN-afor patients
with chronic hepatitis C is safe, potentially efficacious and should progress
to advanced clinical testing.  Independent researchers also made three presentations related to
Ceplene at the 52nd meeting of the American Association for the Study of Liver
Diseases (AASLD) in Dallas, Texas. 
Among these were the 72-week results from the completed pilot study
evaluating Ceplene in triple-drug combination with IFN-aand ribavirin
in the treatment of chronic hepatitis C patients who were nonresponsive to
previous therapy.  After 72 weeks of
follow up, sustained complete viral response was observed in 28% (5/18) of
patients who entered the study, and in 38% (5/13) of evaluable patients
(patients who completed at least four weeks of therapy).  No serious adverse events and no unexpected
or irreversible side effects were reported in this Ceplene study.   14 
   This study met its objective by
demonstrating that Ceplene can be safely administered in this triple-drug
combination, and clearly shows that this triple-drug therapy is feasible in nonresponder
patients, said Yoav Lurie, M.D., principal investigator in the study and Head,
Hepatitis Clinic, Liver Unit, Institute of Gastroenterology and Hepatology, Tel
Aviv Souraski Medical Center, Israel. 
The end-of-study results are promising and I look forward to more
advanced studies.  The results from the two completed studies
described above provide the foundation for the more advanced clinical testing
of Ceplene in hepatitis C described below.  Ceplene Development in Hepatitis C Advances
in STAHRT Phase 2 Study  In December 2001, we commenced a randomized, controlled Phase
2 study of a Ceplene triple-drug combination for the treatment of hepatitis C
nonresponder patients.  The randomized,
controlled Phase 2 study is designed to compare the treatment of nonresponder
hepatitis C patients with a triple-drug combination of Ceplene, Peg-IntronÒ(pegylated interferon) and RebetolÒ(ribavirin) versus treatment with Peg-Intron and Rebetol
combination therapy alone.  The study
will include up to 282 patients who failed to respond to prior therapy with the
combination of IFN-aand ribavirin.  Patients that have
failed prior therapy for hepatitis C represent a substantial population in need
of more effective treatments.  In
August 2002, Ceplene passed an important milestone when the Data Safety
Monitoring Board responsible for reviewing the study reported to Maxim that it
had reviewed the safety data through 12 weeks of treatment for the first 41
patients enrolled in the trial, and concluded that there have been no safety
concerns and that the trial should proceed under itsapprovedprotocol. 
The DSMB includes world-leading clinicians experienced in the treatment
of hepatitis C who review the safety data from this Phase 2 clinical trial on
an ongoing basis.  The report from the DSMB is an important step in
the development of Ceplene as this study represents the first time that Ceplene
has been administered in humans in combination with Peg-Intron and Rebetol for
the treatment of hepatitis C.  We are conducting the Phase 2 trial under an
agreement whereby Schering Corporation, a division of Schering-Plough
Corporation, is contributing two of its products, Peg-Intron and Rebetol, and
performing the viral testing for the study.   15 
   CEPLENE IN OTHER CHRONIC LIVER DISEASES  Ceplene has shown the potential to prevent or
inhibit oxidative stress, a condition associated with most acute and chronic
liver diseases.  Based upon the basic
mechanism of action of Ceplene, and the results we have seen in clinical
testing, including hepatitis C and melanoma with liver metastases, preclinical
testing of Ceplene has now been expanded to include non-viral chronic liver
diseases.  In the United States alone, approximately
25 million peopleone in every tenhave been afflicted with chronic liver,
bile duct or gallbladder diseases.  More
specifically, liver cirrhosis resulting from alcohol abuse is one of the ten
leading causes of death in the United States.  In November 2002, researchers reported the
results from preclinical studies suggesting that Ceplene accelerated recovery
from alcohol-induced liver damage in an animal model of alcoholic liver disease
(ALD)(1).  Liver injury was induced in
the study through the administration of a single dose of ethanol once per day
for four weeks in rats.  After four
weeks, alcohol administration was discontinued and animals were treated with
either histamine (0.5 mg/kg) or a vehicle control by subcutaneous injection
twice a day for one week.  Liver damage
was assessed through measurement of the liver enzymes ALT and AST, markers that
are elevated when there is damage to the liver.  Animals that were treated with histamine achieved normalization
of ALT and AST levels in approximately one-half of the time experienced by the
control animals.  In addition, researchers presented the
results of the three studies suggesting that Ceplene protected against
alcohol-induced liver injury in animal models at the Digestive Disease Week
(DDW) conference in May 2002, and the European Association for the Study of the
Liver (EASL) conference in April 2002.  Based on the results from these multiple
preclinical studies we will likely expand the testing of Ceplene in the future
to investigate the protective mechanism of the drug candidate as a potential
therapy for certain non-viral chronic liver diseases such as nonalcoholic
steatohepatitis (NASH) and/or ALD.  
 1      Hornyak, Little, Radi,
Gehlsen and Haaparanta in Histamine Accelerates Recovery Time of Early
Alcohol-induced Liver Injury in the Intragastric Gavage Rat Model (American
Association for the Study of Liver Diseases).   16 
   MX8899 TOPICAL GEL  CANCER SUPPORTIVE CARE  Our
MX8899 topical gel is being testedintwo clinical
studies in an attempt to help patients who suffer from oral mucositis and
radiation dermatitis, both of which are significant side effects of certain
cancer therapies.  Histamine dihydrochloride, the active agent in the MX8899
gel, has been shown in preclinical work to reduce inflammation by preventing
the production and release of oxygen free radicals and proinflamatory cytokines
such as TNF-alpha and IL-1b, thereby reducing oxidative stress.  In addition, it has been reported that
histamine may improve blood circulation and assist in wound healing.  Accordingly, histamine-related gels have the
potential to facilitate the healing processes 
in situations where free-radical damage and excessive inflammation are
involved.  Maxims
topical gel has been tested by investigators in small pilot, randomized,
blinded, placebo-controlled trials conducted by independent researchers in more
than 75 patients with oral mucositis, herpes labialis (cold sores), burns
(thermal and sun),decubitusulcers, shingles,
and conjunctivitis.  Patients
experienced improved healing times when treated with topical histamine gels
compared to placebo controls.  17 
   MX8899 for
Oral Mucositis  Oral mucositis is a common, painful and
debilitating toxicity suffered by cancer patients treated with certain
chemotherapeutic agents and radiation therapy. 
Symptoms of oral mucositis include the formation of canker sore-like
lesions within the mouth that may extend to the tongue, throat and
gastrointestinal tract, with mild to severe discomfort and difficulty eating
and drinking.  The lesions may last two
to three weeks, and in severe cases patients require hospitalization, pain
medication, and limitations or interruptions in their cancer therapy.  Currently, there is no effective therapy for
the prevention or treatment of oral mucositis.  In a small pilot human study nine patients
with oral mucositis were randomized and treated with one of two doses of our
gel or a placebo.  The patients treated
with our gel experienced complete healing of lesions in a mean time of three to
four days, depending upon the dosage. 
Patients treated with the placebo experienced no reduction in lesions
during the treatment period.  Patients
treated with our gel also reported a reduction in the discomfort associated
with eating and drinking.  A clinical trial of MX8899 in oral mucositis
was commenced in 2002.  A total of 60
patients will be enrolled in the trial, each of whom is to receive chemotherapy
with or without total body irradiation in preparation for either allogeneic or
autologous hematopoietic stem cell transplantation.  In the blinded, controlled trial, half of the patients in the
study will be randomized to receive the MX8899   18 
   gel, the other half will receive a placebo
control.  The objectives of this study
are to evaluate the safety, tolerability, and biological activity of the
histamine gel for the treatment of oral mucositis.  Efficacy will be measured by the assessment of severity of oral
mucositis as measured through two validated scoring scales that assess oral
pain, swallowing and function as well as degree of ulceration and erythema
(inflammation) in the oral cavity.  MX8899 is also
being tested in radiation dermatitis, a serious
side effect of head and neck radiation therapy suffered by up to 600,000
patients per year in the U.S.In addition to
causing patient discomfort, the burns and severe irritation associated with
radiation dermatitis are sometimes severe enough that patients are forced to
take breaks in their radiation treatment. 
Currently, there are no standard preventative or therapeutic treatments
for radiation-induced dermatitis.  Up to 30 patients will be enrolled in the
trial, each receiving bilateral neck radiotherapy for head and neck squamous
cell carcinoma.  The objectives of this
study are to evaluate the safety, tolerability, and biological activity of the
MX8899 gel for the treatment of radiation-induced dermatitis in patients with
squamous cell carcinoma of the head and neck.   19 
    APOPTOSIS INDUCER DRUG CANDIDATES  We have developed and are employing a
proprietary high-throughput screening system that is targeted to the identification
of compounds that can modulate programmed cell death, or apoptosis.  Compounds that modulate apoptosis fall into
two primary categories:        Compounds that induce apoptosis may
serve as new drugs for cancer; and        Compounds that inhibit apoptosis may
form the basis for new drugs for a wide variety of disease targets, such as
myocardial infarction, stroke, liver failure, sepsis, and other degenerative
diseases.  Our high-throughput screening technology has
generated a pipeline of compounds that have the potential to modulate
apoptosis, including several drug candidates that have undergone extensive in vitro
and in
vivo testing.  Apoptosis Highlights 15 novel cancercandidatesidentified to date Targeting majorcancers(breast, lung, prostate, and colorectal) Novel mechanisms of action Proprietary high-throughputscreening technology: Approximately
one million compounds screened to date Ongoing
discovery capability Pharmaceuticalcompanycollaborations   20


NOVEL DRUGS FOR BREAST, LUNG, PROSTATE AND COLORECTAL
CANCER  Our researchers have identified a series of
novel cancer drug candidates that are potent inducers of apoptosis.  The compounds were identified through our
proprietary, high-throughput screening technology that uses a unique live cell
screening assay.  We have screened
approximately one million compounds using our screening technology and have
identified drug candidates with unique mechanisms of actions that target major
cancers such as breast, lung, prostate, and colorectal.  Maxims proprietary, high-throughput screening technology
uses a unique live cell screening assay. 
The assay is based upon a proprietary caspase substrate and
high-throughput cancer drug screening technology that identifies small-molecule
compounds that are activators of the signaling pathway of the apoptotic
process.  The assay allows for the rapid
identification of drug candidates that are potent killers of cancer cells,
including compounds with novel mechanisms of action.  The assay has been extensively validated with anti-cancer
compounds in clinical use.  Two of our lead cancer drug candidates
identified with our high-throughput screening technology are highlighted below.  MX2167:Potent,
fast and broad-spectrum inducer of apoptosis that acts on the cell surface and
has demonstrated potency against breast, prostate, non-small cell lung cancer,
small cell lung cancer and leukemia. 
This compound has demonstrated efficacy in multiple single-agent
preclinical xenograft cancer models and has a novel mechanism of action.  MX126374:Part of a
family of compounds that shows selectivity for breast and colorectal tumor cell
lines, but does not appear to be active in killing normal cells.  MX126374 has demonstrated efficacy in multiple
preclinical xenograft cancer models and has a novel mechanism of action.   21 
   Apoptosis
Collaborations and Commercialization Strategy  In March 2002, we announced that we had
expanded the scope of our Collaborative Research and License Agreement with Celera
Genomics.  The objective of the
collaboration is to identify and develop novel small-molecule compounds that
have the potential to be commercialized as new therapies for certain
cancers.  As part of the expanded
collaboration, we have used our proprietary screening assay to evaluate up to
700,000 compounds from Celeras proprietary libraries for the purpose of
identifying compounds that can induce apoptosis in certain cancer cells.  The agreement provides Maxim the option of
electing to jointly participate with Celera in the clinical development and
commercialization of compounds identified through the collaboration.  In 2000 we licensed to Shire BioChem our
MX2105 family of anti-cancer compounds.The collaboration calls for Shire BioChemto pay us up
to $55 million in licensing and milestone payments, as wellas a royalty on product sales.  Our
drug discovery efforts have identified a series of novel compounds that may
serve as drug candidates for cancer. 
One of our primary commercialization objectives for 2003 is to complete
a broad discovery partnership to advance multiple drug candidates into clinical
trials and to undertake the development costs associated with this program.    22 
   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS  Maxim Pharmaceuticals, Inc. and Subsidiaries (A
Development Stage Company)  This
Managements Discussion and Analysis of Financial Condition and Results of
Operations contains certain forward-looking statements that involve risks and
uncertainties. Such forward-looking statements include but are not limited to
statements regarding plans for the development and commercialization of the Companys
drug candidates and future cash requirements. Such statements are only
predictions and the Companys actual results could differ materially from those
anticipated or projected in such forward-looking statements.Factors that could cause or
contribute to differences include the risk that the Company will not obtain
approval to market its products, the risk that products that appeared promising
in early research and clinical trials do not demonstrate efficacy in
larger-scale clinical trials, the risk that clinical trials may not commence
when planned, the need for additional funds and the uncertainty of additional
funding, and dependence on collaborative partners. These factors and others are
more fully described in the Companys Form 10-K for the fiscal year ended
September 30, 2002.  OVERVIEW  During the periods
encompassed by this Annual Report, Maxim Pharmaceuticals, Inc. (Maxim or the
Company) has devoted substantially all of its resources to its Ceplene
(histamine dihydrochloride), topical histamine and apoptosis inducer product
development programs. In June 2000, the Company acquired Cytovia, Inc.
(Cytovia) for $77.6 million in common stock and commenced at that time
research and development efforts relating to apoptosis modulator drug candidates.
The Company conducts its research and other product development efforts through
a combination of internal efforts and collaborative programs with universities,
other clinical research sites, contract research organizations and
pharmaceutical companies. Oversight of all external and collaborative programs
is conducted by the Companys executive officers and other staff located
primarily at its headquarters in San Diego, California.  Maxims drug
candidates are in the development stage, and the generation of revenue from
product sales is dependent upon approval by the U.S. Food and Drug
Administration (FDA) and foreign regulatory agencies. The Company expects to
continue to incur losses at least over the next several years as it continues
its research and development activities, particularly those relating to Phase 3
and Phase 2 clinical trials of Ceplene, and earlier-stage clinical trials and
other research related to the apoptosis modulator and topical histamine
technologies. Losses may fluctuate from quarter to quarter, and such
fluctuations may be substantial as a result of, among other factors, the number
and timing of clinical trials conducted, the funding, if any, provided as a
result of corporate collaborations, the results of clinical testing, and the
timing of FDA or international regulatory approvals. There can be no assurance
that the Company will successfully develop, commercialize, manufacture or
market its products or ever achieve or sustain product revenues or
profitability.   RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER
30, 2002, 2001 AND 2000  Collaboration and Research RevenueFor the year ended September
30, 2002, collaboration and research revenue totaled $2,153,000, a decrease of
$1,094,000 or 34% compared to the same period in the prior year.  This decrease is primarily attributable to
the completion of contract research performed, primarily in prior years, under
an agreement with Shire BioChem.  For
the year ended September 30,  23 
   2001, collaboration and research revenue
totaled $3,247,000, an increase of $1,862,000 from the same period in the prior
year. The increase for the year ended September 30, 2001 was primarily the
result of an increase in license fees and research revenues associated with the
licensing of the Companys MX2105 series of apoptosis inducer anti-cancer
compounds to Shire BioChem.  Research and Development ExpensesFor the year ended September 30, 2002, research and
development expenses were $32,015,000, which were relatively consistent with
the research and development expenses in the prior year. For the year ended
September 30, 2001, research and development expenses were $32,642,000, a
decrease of $3,813,000 or 10% from the prior year. This decrease was primarily
due to the completion of several large clinical trials of Ceplene in 2001,
including a Phase 3 trial in advanced metastatic melanoma and a Phase 2 trial
in hepatitis C. Two other Phase 3 Ceplene cancer trials reached a follow-up
stage in fiscal year 2001 where ongoing costs were less than in prior periods.
The decrease in clinical trial costs in fiscal year 2001 was partially offset
by an increase in research costs related to the apoptosis modulator technology
platform.  Marketing
and Business Development ExpensesMarketing and business development expenses for the
year ended September 30, 2002 were $3,211,000, a decrease of $5,187,000 or 62%
over the same period in the prior year. 
This decrease was due to a decrease in marketing and sales management
personnel and other premarketing activities associated with the potential U.S.
market launch of Ceplene. The market launch of Ceplene was originally
anticipated for the first half of 2001. The potential launch was delayed after
the FDA declined to approve the use of Ceplene for its most advanced
development program, the treatment of patients with advanced metastatic
melanoma that have liver metastases. 
The Company is currently conducting a confirming Phase 3 trial, designed
to support market approval of Ceplene for the treatment of patients with
advanced metastatic melanoma that have liver metastates.  Marketing and business development expenses
for the year ended September 30, 2001 were $8,398,000, an increase of
$3,339,000 or 66% over the same period in the prior year.  This increase was due to an increase in
marketing and sales management personnel and other premarketing activities
associated with the planned market launch of Ceplene. General and Administrative ExpensesFor the year ended September
30, 2002, general and administrative expenses were $6,287,000, a decrease of
$646,000 or 9% over the same period in the prior year.  This decrease was primarily the result of a
decrease in legal fees associated with shareholder litigation and compensation
expense.  For the year ended September
30, 2001, general and administrative expenses were $6,933,000, an increase of
$2,454,000 or 55% over the same period in the prior year. This increase was
primarily due to the increase in payroll and related costs associated with
additional personnel to support our expanded operations and increased legal and
other costs related to the shareholder litigation.  Amortization of Goodwill and Other AcquisitionRelated
Intangible AssetsThis
amortization expense relates to the goodwill and other intangible assets
recorded as a result of the June 2000 acquisition of Cytovia.  There was no amortization of goodwill and
other acquisition related intangible assets for the year ended September 30,
2002 due to the implementation ofStatement of Financial
Accounting Standard (SFAS) No. 142, Goodwill and Other IntangibleAssets,
which resulted in the complete write down of these assets on October 1, 2002.  For the year ended September 30, 2001,
amortization of goodwill and other acquisition related intangible asset
expenses was $2,211,000, an increase of $1,466,000 from the year ended
September 30, 2000.  This increase was a
result of the recognition of a full year of amortization during the year ended
September 30, 2001, compared to only a partial year of amortization for the
year ended September 30, 2000.  Purchased In-Process TechnologyPurchased in-process technology of
$42,300,000 for the year ended September 30, 2000 resulted from the acquisition
of Cytovia. There was no such expense for the   24 
   years ended September 30, 2001 and 2002.
Purchased in-process technology was expensed upon acquisition because, for
certain Cytovia technology, technological feasibility had not been established,
and no alternative uses existed. The value of in-process technology was
calculated by identifying research projects in areas for which technological
feasibility had not been established, estimating the costs to develop the
purchased in-process technology into commercially viable products, estimating
the resulting net cash flows from such products, discounting the net cash flows
to present value, and applying the reduced percentage completion of the
projects thereto.  Provision for note receivable and loan guarantee
to/for officers For the year
ended September 30, 2002, the Company recorded expenses of $700,000 and
$900,000 for an allowance on a note receivable from an officer of the Company
and a reserve on a loan guarantee made on behalf of an officer,
respectively.  During the fourth quarter
of fiscal year 2002, the Company determined the officers did not have the
ability to fully meet these obligations. 
Accordingly, the Company expensed amounts considered impaired as of
September 30, 2002.  Investment IncomeInvestment income was $4,991,000 for the year ended
September 30, 2002, a decrease of $4,802,000 or 49% from the prior year.  This decrease is a result of the decrease in
our cash and short-term investment portfolio as well as a decrease in the rate
of interest earned on these investments. 
For the year ended September 30, 2001, investment income was $9,794,000,
an increase of $1,708,000 or 21% over the same period in the prior year. This
increase was primarily a result of interest earned on the proceeds of the
follow-on public offering completed in February 2000.  Gain on Sale of AssetsIn April 2000, the Company sold all assets, including the patent,
license and other intellectual property rights, underlying its MaxVax mucosal
vaccine technology for $3 million. The Company recorded a gain on the
transaction of approximately $2.1 million in the year ended
September 30, 2000.  There were no
similar charges for the years ended September 30, 2001 and 2002.  Cumulative
Effect of Accounting ChangeOn October, 1, 2002, the Company adopted the provisions of SFAS
No. 142, Accounting for Goodwill and Other Intangible Assets, and as a result
of the transitional impairment test, wrote off all goodwill, which totaled $28,179,000.  LIQUIDITY
AND CAPITAL RESOURCES  The
Company has financed its operations primarily through the sale of its equity
securities, including an initial public offering in 1996, an international
follow-on public offering in 1997, private offerings of preferred stock in July
and November 1999 and a follow-on public offering in February 2000, that
provided total net proceeds of approximately $294 million.  Until
required for operations, the Companys policy under established guidelines is
to keep its cash reserves in bank deposits, corporate debt securities, United
States government instruments and other readily marketable debt instruments,
all of which are investment-grade quality. 
As of September 30, 2002, the Company had cash, cash equivalents and investments
totaling approximately $111.5 million compared with $146.6 million at September
30, 2001.  As of September 30, 2002, the
Company had working capital of approximately $104.8 million compared with
$138.8 million at September 30, 2001. 
The decrease in the Companys cash, cash equivalents and short-term
investments, and working capital was primarily due to day-to-day operating
expenses relating to research and development activities.  In December 2000,
the Company entered into a secured revolving promissory note with an officer of
the Company. The purpose of the agreement was to allow the repayment of margin
loans associated with the exercise of stock options, the payment of income
taxes associated with such exercises and the  25 
   purchase of a residence.  The
Board determined that it was in the Companys best interest to provide the loan
to the officer to avoid the necessity of selling personal holdings of the
Companys securities during a period of depressed market prices.  The note, as amended, bears interest at an
annual rate of 4.0% and is secured by the officers outstanding options and
shares of common stock. At September 30, 2002, $2,850,000 in principal and
$259,000 in interest were outstanding under the note. The note came due on
December 8, 2002.  As of the date the
note came due, the officer did not have the liquid assets necessary
to fully repay the loan.  The Company
recorded an allowance of $700,000 on the loan during the fourth quarter of 2002,
based on managements estimate of the collectibility of the loans as of
September 30, 2002.  On December 6,
2002, the Company collected interest accrued in 2002 under the note and is
reviewing its options and alternatives and intends to collect the outstanding
principal and interest owed under the loan.  The Company is
a guarantor on $1,800,000 in loans made by a bank to two officers and one
former officer of the Company. Under the guarantor agreement, the Company
granted the bank a security interest in a $1,800,000 certificate of deposit as
collateral for the loans the bank made to the officers. The purpose of the
agreement was to allow for the payment of income taxes associated with the
exercise of stock options.  The Board
determined that it was in the Companys best interest to provide the guarantee
to avoid the necessity of the officers selling personal holdings of the
Companys securities during a period of depressed market prices.  These loans are due in July 2004.  No assets are held as collateral for the
guarantees; however, in a case of default the Company would pursue collection
from the officers or former officer. 
During the fourth quarter of fiscal year 2002, the Company determined
that it was probable that one of the officers would not have the ability to
repay his loan.  Therefore, the Company
has recorded a liability in the amount of 
$900,000.  The Company intends to
collect from the officer any amounts that may ultimately be paid by the Company
to the bank as a result of the guarantee on behalf of the officer.  The Company has
term loans with a bank totaling $2,444,000 at September 30, 2002, the proceeds
of which were used to finance capital expenditures.  The loans require the Company to maintain a minimum aggregate
balance of $3,500,000 at the institution, including the $1,800,000 certificate
of deposit held under the loan guarantees, as described above.  The
following table summarizes our contractual obligations as of September 30,
2002:  Payments
  due by Period (in thousands)Total
  
  1 Year or
  Less
  
  2 Years
  
  3 Years
  
  4-5 YearsCONTRACTUAL OBLIGATIONSDebt
  
  $
  2,721
  
  $
  1,089
  
  $
  824
  
  $
  714
  
  $
  94Guarantee on Officer Loan
  
  900
  
  
  
  900
  
  
  
  Capital Lease Obligations
  
  330
  
  279
  
  51
  
  
  
  Operating Lease Obligations
  
  6,266
  
  2,094
  
  1,376
  
  1,322
  
  1,474  The Company, as a development stage enterprise, anticipates incurring
substantial additional losses at least in the near future as it continues to
expend substantial amounts on its ongoing and planned clinical trials and its
expanded efforts related to its other research and development efforts,
including the apoptosis modulator program acquired as part of the Cytovia
purchase.  In addition, the Companys
cash requirements may fluctuate in future periods as it conducts additional
research and development activities including clinical trials, other research
and development activities, and efforts associated with the commercial launch
of any products that are approved for sale by government regulatory bodies.  Among  26 
   the activities that may result in an increase in cash requirements are
the scope and timing of the Phase 3 and Phase 2 Ceplene cancer and hepatitis C
clinical trials currently underway, and earlier-stage clinical trials and other
research related to liver disease and the apoptosis modulator and topical
histamine technologies. Other factors that may impact the Companys cash
requirements include the results of clinical trials, the scope of other
research and development activities, the time required to obtain regulatory
approvals, costs associated with defending certain lawsuits currently pending
against the Company, the costs of filing, prosecuting, defending and enforcing
patent claims and other intellectual property rights, and the ability to
establish marketing alliances and collaborative arrangements. As a result of
these factors, it is difficult to predict accurately the timing and amount of
future cash requirements.  The Company may pursue the issuance of additional equity securities and
corporate collaborative agreements, as required, to meet its cash requirements.
The Company is currently pursuing a pharmaceutical collaboration regarding the
marketing of Ceplene and is pursuing the out-licensing of its apoptosis
modulator technology.  There can be no
assurance that the Company will be able to enter into agreements on acceptable
terms, if at all.  The issuance of
additional equity securities, if any, could result in substantial dilution to
the Companys stockholders. There can be no assurance that additional funding
will be available on terms acceptable to the Company, if at all. The failure to
fund the Companys capital requirements would have a material adverse effect on
its business, financial condition and results of operations.  We believe that our available cash, cash equivalents and short-term
investments at September 30, 2002 will be sufficient to satisfy our funding
needs for at least the next 24 months.  The Company has never paid a cash dividend on its common stock and such
payments are prohibited by the terms of the Company's bank loan. The Company
does not contemplate the payment of cash dividends on its common stock in the
foreseeable future.  IMPACT OF INFLATION  The impact of
inflation on the operations of the Company for the years ended September 30,
2002, 2001, and 2000 was not material.  RECENT ACCOUNTING PRONOUNCEMENTS  In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
for the associated asset retirement costs. The standard applies to tangible
long-lived assets that have a legal obligation associated with their retirement
that results from the acquisition, construction or development or normal use of
the asset. SFAS No. 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The fair value of the
liability is added to the carrying amount of the associated asset and this
additional carrying amount is depreciated over the remaining life of the asset.
The liability is accreted at the end of each period through charges to
operating expense. This Statement is effective for financial statements issued
for fiscal years beginning after June 15, 2002. The adoption of this statement
is not expected to have a material impact on the Companys consolidated
financial statements.  In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it retains many
of the fundamental provisions of SFAS No. 121, including the recognition and
measurement of the impairment of long-lived  27 
   assets to be held and used, and the measurement of long-lived assets to
be disposed of by sale. SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001. The adoption of this statement will have no impact on
the Companys historical consolidated financial statements.  In April 2002, FASB issued SFAS No. 145 Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 rescinds FASB Statement No. 4, Reporting Gains and
Losses from Extinguishment of Debt, and an amendment of that Statement, SFAS
No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements,  and SFAS No. 44,
Accounting for Intangible Assets of Motor Carriers. It also amends SFAS No.
13, Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002. The adoption of this statement is not expected to
have a material impact on the Companys consolidated financial statements.  In
June 2002, FASB issued SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities. SFAS No. 146 provides guidance on the recognition and
measurement of liabilities associated with exit and disposal activities. Under
SFAS No. 146, liabilities for costs associated with exit or disposal activities
should be recognized when the liabilities are incurred rather than at the date
of commitment to an exit or disposal plan. This statement is effective
prospectively for exit or disposal activities initiated after December 31,
2002. The adoption of this statement is not expected to have a material impact
on the Companys consolidated financial statements.   CRITICAL ACCOUNTING POLICIES  The preparation
of condensed consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses as well as related disclosure of
contingent assets and liabilities. These estimates include useful lives for
fixed assets, useful lives for intellectual propertys, estimated lives for
license agreements, revenue recognition, allowance for note receivable, reserve
related to loan guarantees, valuation of intellectual property, assumptions for
valuing stock options, and estimates for clinical trial expenses incurred but
not yet billed.  On an on-going basis,
the Company evaluates its estimates. The Company bases its estimates on historical
experience and various other assumptions that are believed to be reasonable
under the circumstances. Under different assumptions or conditions these
estimates may vary significantly. In addition, actual results may differ
materially from these estimates.  The Company believes the following critical accounting policies affect
its more significant judgments and estimates used in the preparation of its
condensed consolidated financial statements.  Revenue
Recognition.The
Securities and Exchange Commissions Staff Accounting Bulletin No. 101, Revenue Recognition (SAB No. 101) provides
guidance on the application of generally accepted accounting principles to
selected revenue recognition issues. The Company believes that its revenue
recognition policy is appropriate and in accordance with generally accepted
accounting principles and SAB No. 101, as noted below.  The Companys collaborative development agreements generally contain
specific payments for specific activities or elements of the agreements. Up-front
technology access fees are recognized over the term of the agreement or ongoing
research period, as applicable, unless the Company has no further continuing
performance obligations related to the fees. Research funding is recognized
over the applicable  28 
  research period as research activities are
performed. Milestone payments are recognized when earned, as the milestone
events are substantive and their achievability is not reasonably assured at the
inception of the agreement. Amounts received but unearned are recorded as
deferred revenue.  Certain collaborative
agreements provide the Company donated materials and services which are
recorded when used at the fair market value of the material received or the
service provided.  Clinical
trial expenses.The Company
accounts for certain study drug, clinical trial site and other clinical trial
costs by estimating the services incurred but not reported for each patient
enrolled in each trial. These costs and estimates vary based on the type of
clinical trial, the site of the clinical trial, the length of treatment period
for each patient and the length of time required to receive formal
documentation of the actual expenses incurred. As actual costs become known,
the Company may need to revise its estimated accrual, which could also
materially affect its results of operations.  Valuation
of Intellectual Property.The
Company evaluates its patents and licenses for impairment on an annual basis
and whenever indicators of impairment exist. During this process, the Company
reviews its portfolio of pending domestic and international patent
applications, domestic and international issued patents, and licenses the
Company has acquired from other parties. To determine if any impairment is
present, the Company considers challenges or potential challenges to its
existing patents, the likelihood of applications being issued, the scope of its
issued patents and its experience. In the event that it is determined that an
impairment exists where the Company had previously determined that one did not
exist, it may result in a material adjustment to the Companys financial
statements.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  The Companys exposure to market
risk is principally confined to its cash equivalents and investments that have
maturities of less than three years. The Company maintains a non-trading
investment portfolio of investment grade, liquid debt securities that limits
the amount of credit exposure to any one issue, issuer or type of instrument.
The securities in its investment portfolio are not leveraged, are classified as
available-for-sale and are therefore subject to interest rate risk. The Company
currently does not hedge interest rate exposure. A hypothetical 10 percent
change in interest rates during the year ended September 30, 2002 would
have resulted in approximately a $506,000 change in net loss.  CONTROLS AND PROCEDURES  Within
the 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Companys
management, including the Companys President and Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of
the Companys disclosure controls and procedures, as defined in Exchange Act
Rule 15d-14(c).  Based upon that
evaluation, the Companys President and Chief Executive Officer and Chief
Financial Officer concluded that the Companys disclosure controls and
procedures are effective in enabling the Company to record, process, summarize
and report information required to be included in the Companys periodic SEC
filings within the required time period. 
There have been no significant changes in the Companys internal controls
or in other factors that could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.  29 
   SELECTED FINANCIAL DATA  Selected financial data in thousands except
per share data  Year
  ended September 302002
  
  2001
  
  2000
  
  1999
  
  1998(In
  thousands, except per share data)SELECTED STATEMENTS OF OPERATIONS DATA:Research and development expenses
  
  $
  32,015
  
  $
  32,642
  
  $
  36,456
  
  $
  36,638
  
  $
  20,147Net loss applicable to common stock
  
  (64,323
  )
  (37,323
  )
  (82,502
  )
  (39,709
  )
  (21,855
  )Net loss per share of common stock
  
  (2.76
  )
  (1.61
  )
  (4.58
  )
  (3.94
  )
  (2.37
  )Weighted average shares outstanding
  
  23,274
  
  23,220
  
  18,018
  
  10,079
  
  9,215  As
  of  September 302002
  
  2001
  
  2000
  
  1999
  
  1998(In
  thousands)SELECTED BALANCE SHEET DATA:Cash, cash equivalents and investments
  
  $
  111,491
  
  $
  146,560
  
  $
  190,365
  
  $
  17,942
  
  $
  35,769Total assets
  
  125,644
  
  190,756
  
  232,994
  
  24,515
  
  42,022Long-term debt and long-term capital lease obligations
  
  1,684
  
  1,760
  
  698
  
  908
  
  977Deficit accumulated during the development stage
  
  (261,048
  )
  (196,725
  )
  (159,402
  )
  (81,913
  )
  (42,687
  )Stockholders equity
  
  116,733
  
  180,647
  
  215,949
  
  10,843
  
  31,116   30 
   CONSOLIDATED BALANCE SHEETS  Maxim Pharmaceuticals, Inc. and
Subsidiaries  (A Development Stage
Company)  As of September 302002
  
  2001ASSETSCurrent
  Assets:Cash and cash
  equivalents
  
  $
  24,775,043
  
  $
  20,438,726Short-term
  investments in marketable securities, available for sale
  
  83,216,192
  
  122,121,280Accrued interest
  and other current assets
  
  3,109,414
  
  4,602,335Total current
  assets
  
  111,100,649
  
  147,162,341Restricted cash
  and cash equivalents
  
  3,500,000
  
  4,000,000Property and
  equipment, net
  
  5,577,287
  
  6,071,664Patents and
  licenses, net
  
  2,892,757
  
  1,957,502Note receivable
  from officer, net of allowance of $700,000 and $0at September 30, 2002 and 2001, respectively
  
  2,408,922
  
  3,011,709Goodwill and
  intangible assets, net
  
  
  
  28,179,466Deposits and
  other assets
  
  163,987
  
  373,656Total assets
  
  $
  125,643,602
  
  $
  190,756,338LIABILITIES
  AND STOCKHOLDERS EQUITYCurrent
  Liabilities:Accounts payable
  
  $
  1,856,587
  
  $
  2,726,643Accrued expenses
  
  2,648,326
  
  3,781,078Notes payable
  
  277,444
  
  214,008Current
  installments of obligations under capital leases
  
  258,488
  
  389,127Current portion
  of long-term debt
  
  811,082
  
  395,464Deferred revenue
  
  475,000
  
  843,750Total current
  liabilities
  
  6,326,927
  
  8,350,070Long-term debt,
  excluding current portion
  
  1,632,821
  
  1,450,036Obligations
  under capital leases, excluding current installments
  
  50,877
  
  309,631Provision for
  loan guarantee for officer
  
  900,000
  
  Commitments and
  contingenciesStockholders
  Equity:Convertible
  preferred stock, $.001 par value, 5,000,000 shares authorized; no shares
  issued and outstanding at September 30, 2002 and September 30, 2001
  
  Common stock,
  $.001 par value,  40,000,000 shares
  authorized; 23,311,191 and 23,252,457 shares issued and outstanding at
  September 30, 2002 and September 30, 2001, respectively23,311
  
  23,253Additional
  paid-in capital
  
  376,666,711
  
  376,410,576Deficit
  accumulated during the development stage
  
  (261,048,253
  )
  (196,725,305
  )Accumulated
  other comprehensive income
  
  1,091,208
  
  938,077Total
  stockholders equity
  
  116,732,977
  
  180,646,601Total
  liabilities and stockholders equity
  
  $
  125,643,602
  
  $
  190,756,338  See Accompanying Notes to
Consolidated Financial Statements   31 
   CONSOLIDATED STATEMENTS OF OPERATIONS  Maxim Pharmaceuticals, Inc. and
Subsidiaries (A Development Stage Company)  From Inception
  (October 23, 1989)
  Through
  September 30, 2002Year Ended September 302002
  
  2001
  
  2000Collaboration
  and research revenue
  
  $
  2,152,713
  
  $
  3,246,620
  
  $
  1,384,617
  
  $
  10,988,501Operating
  expenses:Research and
  development
  
  32,015,050
  
  32,642,367
  
  36,455,769
  
  173,183,354Marketing and
  business development
  
  3,211,000
  
  8,397,707
  
  5,058,312
  
  20,344,410General and
  administrative
  
  6,286,962
  
  6,932,768
  
  4,478,665
  
  32,589,985Amortization of
  goodwill and other acquisition-related intangible assets
  
  
  
  2,210,865
  
  744,570
  
  2,955,435Purchased
  in-process technology
  
  
  
  
  
  42,300,000
  
  42,300,000Provisions for
  note receivable and loan guarantee to/for officers
  
  1,600,000
  
  
  
  
  
  1,600,000Total operating
  expenses
  
  43,113,012
  
  50,183,707
  
  89,037,316
  
  272,973,184Loss from
  operations
  
  (40,960,299
  )
  (46,937,087
  )
  (87,652,699
  )
  (261,984,683
  )Other income
  (expense):Investment
  income
  
  4,991,341
  
  9,793,782
  
  8,085,836
  
  27,356,329Gain on sale of
  assets
  
  
  
  
  
  2,146,502
  
  4,434,976Interest expense
  
  (186,308
  )
  (177,007
  )
  (91,615
  )
  (2,671,458
  )Other income
  (expense)
  
  11,784
  
  (2,973
  )
  22,930
  
  (3,951
  )Total other
  income
  
  4,816,817
  
  9,613,802
  
  10,163,653
  
  29,115,896Loss before
  cumulative effect of accounting change and preferred stock dividends
  
  (36,143,482
  
  (37,323,285
  
  (77,489,046
  
  (232,868,787)
  )
  )
  )Cumulative effect of accounting change
  
  (28,179,466
  )
  
  
  
  
  (28,179,466
  )Net loss before
  preferred stock dividends
  
  (64,322,948
  )
  (37,323,285
  )
  (77,489,046
  )
  (261,048,253
  )Dividends on
  preferred stock
  
  
  
  
  
  5,012,839
  
  5,495,683Net loss
  applicable to common stock
  
  $
  (64,322,948
  )
  $
  (37,323,285
  )
  $
  (82,501,885
  )
  $
  (266,543,936
  )Basic and
  diluted net loss per share of common stockExcluding
  cumulative effect of accounting change
  
  $
  (1.55
  
  $
  (1.61
  
  $
  (4.58)
  )
  )Cumulative
  effect of accounting change
  
  (1.21
  )
  
  
  Basic and
  diluted net loss per share of common stock
  
  $
  (2.76
  
  $
  (1.61
  
  $
  (4.58)
  )
  )Weighted average
  shares outstanding
  
  23,273,621
  
  23,219,564
  
  18,018,317  See Accompanying Notes to
Consolidated Financial Statements   32 
   CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY  Maxim Pharmaceuticals, Inc.and
Subsidiaries (A Development Stage Company)  Preferred
  Stock
  
  Common
  Stock
  
  
  
  
  
  Subscription
  Receivable/
  
  Other
  ComprehensiveShares
  
  Amount
  
  Shares
  
  Amount
  
  Additional
  Paid-In Capital
  
  Accumulated
  Deficit
  
  Deferred
  Compensation
  
  Income
  (Loss)
  
  TotalBalance at October 23, 1989 (inception)
  
  
  
  $
  
  
  
  
  $
  
  
  $
  
  
  $
  
  
  $
  
  
  $
  
  
  $
  Issuance of common stock at $.001
  
  
  
  
  
  1,000
  
  8,029
  
  
  
  
  
  
  
  
  
  8,029Net income
  
  
  
  
  
  
  
  
  
  
  
  44
  
  
  
  
  
  44Balance at December 31, 1989
  
  
  
  
  
  1,000
  
  8,029
  
  
  
  44
  
  
  
  
  
  8,073Net income
  
  
  
  
  
  
  
  
  
  
  
  751
  
  
  
  
  
  751Balance at December 31, 1990
  
  
  
  
  
  1,000
  
  8,029
  
  
  
  795
  
  
  
  
  
  8,824Net income
  
  
  
  
  
  
  
  
  
  
  
  272
  
  
  
  
  
  272Balance at December 31, 1991
  
  
  
  
  
  1,000
  
  8,029
  
  
  
  1,067
  
  
  
  
  
  9,096Additional funding
  
  
  
  
  
  42
  
  
  
  1,259,249
  
  
  
  
  
  
  
  1,259,249Net loss
  
  
  
  
  
  
  
  
  
  
  
  (2,445,184
  )
  
  
  
  
  (2,445,184
  )Balance at December 31, 1992
  
  
  
  
  
  1,042
  
  8,029
  
  1,259,249
  
  (2,444,117
  )
  
  
  
  
  
  (1,176,839
  )Net effect of reorganization and issuance of common stock to account
  for reverse acquisition
  
  
  
  
  
  181,371
  
  (7,847
  
  53,002
  
  (1,197,822
  
  
  
  
  
  (1,152,667)
  
  )
  
  
  )Net loss
  
  
  
  
  
  
  
  
  
  
  
  (4,238,731
  )
  
  
  
  
  (4,238,731
  )Balance at September 30, 1993
  
  
  
  
  
  182,413
  
  182
  
  1,312,251
  
  (7,880,670
  )
  
  
  
  
  (6,568,237
  )Issuance of common stock at $60 per share for consulting and
  professional services
  
  
  
  
  
  1,098
  
  1
  
  65,999
  
  
  
  
  
  
  
  66,000Issuance of Series A preferred stock for cash at $3.00 per share
  
  250,000
  
  250
  
  
  
  
  
  487,250
  
  
  
  
  
  
  
  487,500Issuance of common stock to convert bridge debt financing at prices
  from $52.50 to $75 per share
  
  
  
  
  
  112,440
  
  113
  
  5,933,894
  
  
  
  
  
  
  
  5,934,007Net loss
  
  
  
  
  
  
  
  
  
  
  
  (2,432,623
  )
  
  
  
  
  (2,432,623
  )Balance at September 30, 1994
  
  250,000
  
  250
  
  295,951
  
  296
  
  7,799,394
  
  (10,313,293
  )
  
  
  
  
  (2,513,353
  )  33 
   Preferred
  Stock
  
  Common
  Stock
  
  
  
  
  
  Subscription
  Receivable/
  
  Other
  ComprehensiveShares
  
  Amount
  
  Shares
  
  Amount
  
  Additional
  Paid-In Capital
  
  Accumulated
  Deficit
  
  Deferred
  Compensation
  
  Income
  (Loss)
  
  TotalIssuance of common stock at $3.00 per share upon conversion of debt
  
  
  
  
  
  
  553,254
  
  
  553
  
  
  1,659,210
  
  
  
  
  
  
  
  
  
  
  
  1,659,763Issuance of common stock pursuant to anti-dilutive provisions in
  previous bridge debt financing
  
  
  
  
  
  1,137,343
  
  1,137
  
  (1,137
  )
  
  
  
  
  
  
  Issuance of common stock at $3.00 per share for subscription
  receivable
  
  
  
  
  
  103,667
  
  104
  
  310,896
  
  
  
  (311,000
  )
  
  
  Net loss
  
  
  
  
  
  
  
  
  
  
  
  (2,790,122
  )
  
  
  
  
  (2,790,122
  )Balance at September 30, 1995
  
  250,000
  
  250
  
  2,090,215
  
  2,090
  
  9,768,363
  
  (13,103,415
  )
  (311,000
  )
  
  
  (3,643,712
  )Issuance of common stock at $3.00 per share in exchange for repayment
  of note payable to bank
  
  
  
  
  
  744,646
  
  745
  
  2,249,255
  
  
  
  
  
  
  
  2,250,000Receipt of subscription receivable
  
  
  
  
  
  
  
  
  
  
  
  
  
  311,000
  
  
  
  311,000Issuance of common stock and warrants at $3.75 per unit for cash
  
  
  
  
  
  465,504
  
  465
  
  1,740,033
  
  
  
  
  
  
  
  1,740,498Issuance of common stock at $4.50 per share for cash
  
  
  
  
  
  400,000
  
  400
  
  1,799,600
  
  
  
  
  
  
  
  1,800,000Exercise of common stock options
  
  
  
  
  
  400
  
  1
  
  2,999
  
  
  
  
  
  
  
  3,000Issuance of common stock at $7.50 per share and warrants at $.10 per
  warrant in initial public offering
  
  
  
  
  
  2,875,000
  
  2,875
  
  18,217,215
  
  
  
  
  
  
  
  18,220,090Conversion of preferred stock to common stock
  
  (250,000
  )
  (250
  )
  102,866
  
  103
  
  147
  
  
  
  
  
  
  
  Options granted to employees
  
  
  
  
  
  
  
  
  
  394,999
  
  
  
  (163,124
  )
  
  
  231,875Amortization of deferred compensation
  
  
  
  
  
  
  
  
  
  
  
  
  
  44,385
  
  
  
  44,385Net loss
  
  
  
  
  
  
  
  
  
  
  
  (833,488
  )
  
  
  
  
  (833,488
  )Balance at September 30, 1996
  
  
  
  
  
  6,678,631
  
  6,679
  
  34,172,611
  
  (13,936,903
  )
  (118,739
  )
  
  
  20,123,648  34 
   Preferred
  Stock
  
  Common
  Stock
  
  
  
  
  
  Subscription
  Receivable/
  
  Other
  ComprehensiveShares
  
  Amount
  
  Shares
  
  Amount
  
  Additional
  Paid-In Capital
  
  Accumulated
  Deficit
  
  Deferred
  Compensation
  
  Income
  (Loss)
  
  TotalOption granted to consultant
  
  
  
  
  
  
  
  
  
  96,903
  
  
  
  
  
  
  
  96,903Amortization of deferred compensation
  
  
  
  
  
  
  
  
  
  
  
  
  
  67,826
  
  
  
  67,826Net loss
  
  
  
  
  
  
  
  
  
  
  
  (6,895,149
  )
  
  
  
  
  (6,895,149
  )Balance at September 30, 1997
  
  
  
  
  
  6,678,631
  
  6,679
  
  34,269,514
  
  (20,832,052
  )
  (50,913
  )
  
  
  13,393,228Issuance of common stock at $15.25 per share in public follow-on
  offering
  
  
  
  
  
  2,500,000
  
  2,500
  
  34,710,939
  
  
  
  
  
  
  
  34,713,439Exercise of common stock purchase warrants
  
  
  
  
  
  392,000
  
  392
  
  4,115,608
  
  
  
  
  
  
  
  4,116,000Exercise of stock options and warrants
  
  
  
  
  
  313,304
  
  314
  
  634,222
  
  
  
  
  
  
  
  634,536Options granted to consultants
  
  
  
  
  
  
  
  
  
  50,438
  
  
  
  
  
  
  
  50,438Contribution to 401(k) plan
  
  
  
  
  
  1,641
  
  1
  
  26,606
  
  
  
  
  
  
  
  26,607Amortization of deferred compensation
  
  
  
  
  
  
  
  
  
  
  
  
  
  36,754
  
  
  
  36,754Net loss
  
  
  
  
  
  
  
  
  
  
  
  (21,854,572
  )
  
  
  
  
  (21,854,572
  )Balance at September 30, 1998
  
  
  
  
  
  9,885,576
  
  9,886
  
  73,807,327
  
  (42,686,624
  )
  (14,159
  )
  
  
  31,116,430Issuance of Series A preferred stock cash, net of issuance costs
  
  206,874
  
  207
  
  
  
  
  
  18,258,794
  
  
  
  
  
  
  
  18,259,001Exercise of stock options and warrants
  
  
  
  
  
  313,671
  
  314
  
  1,082,568
  
  
  
  
  
  
  
  1,082,882Options granted to consultants
  
  
  
  
  
  
  
  
  
  79,727
  
  
  
  
  
  
  
  79,727Contribution to 401(k) plan
  
  
  
  
  
  6,450
  
  6
  
  72,478
  
  
  
  
  
  
  
  72,484Dividends on Series A preferred stock
  
  
  
  
  
  
  
  
  
  (482,844
  )
  
  
  
  
  
  
  (482,844
  )Unrealized loss on investments available for sale
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (69,336
  )
  (69,336
  )Amortization of deferred compensation
  
  
  
  
  
  
  
  
  
  
  
  
  
  11,216
  
  
  
  11,216Net loss
  
  
  
  
  
  
  
  
  
  
  
  (39,226,350
  )
  
  
  
  
  (39,226,350
  )Balance at September 30, 1999
  
  206,874
  
  207
  
  10,205,697
  
  10,206
  
  92,818,050
  
  (81,912,974
  )
  (2,943
  )
  (69,336
  )
  10,843,210  35 
   Preferred
  Stock
  
  Common
  Stock
  
  
  
  
  
  Subscription
  Receivable/
  
  Other
  ComprehensiveShares
  
  Amount
  
  Shares
  
  Amount
  
  Additional
  Paid-In Capital
  
  Accumulated
  Deficit
  
  Deferred
  Compensation
  
  Income
  (Loss)
  
  TotalIssuance of common stock at $55.00 per share in public follow-on
  offering, net of issuance costs
  
  
  
  
  
  3,205,000
  
  3,205
  
  164,825,626
  
  
  
  
  
  
  
  164,828,831Issuance of common stock at $42.125 per share and assumption of stock
  options in acquisition, net of estimated costs
  
  
  
  
  
  1,533,486
  
  1,533
  
  72,897,642
  
  
  
  
  
  
  
  72,899,175Issuance of Series B preferred stock for cash, net of issuance costs
  
  267,664
  
  267
  
  
  
  
  
  22,551,240
  
  
  
  
  
  
  
  22,551,507Dividends on Series A and Series B preferred stock
  
  
  
  
  
  
  
  
  
  (5,012,839
  )
  
  
  
  
  
  
  (5,012,839
  )Issuance of Series A and Series B preferred stock in payment of
  dividends
  
  56,162
  
  57
  
  
  
  
  
  5,193,266
  
  
  
  
  
  
  
  5,193,323Conversion of preferred stock to common stock
  
  (530,700
  )
  (531
  )
  5,307,000
  
  5,307
  
  (4,776
  )
  
  
  
  
  
  
  Exercise of stock options and warrants
  
  
  
  
  
  2,838,738
  
  2,839
  
  21,684,263
  
  
  
  
  
  
  
  21,687,102Options granted to consultants
  
  
  
  
  
  
  
  
  
  222,874
  
  
  
  
  
  
  
  222,874Common stock issued as payment for technology rights
  
  
  
  
  
  23,021
  
  23
  
  199,220
  
  
  
  
  
  
  
  199,243Contribution to 401(k) plan
  
  
  
  
  
  2,807
  
  3
  
  100,875
  
  
  
  
  
  
  
  100,878Unrealized loss on investments available for sale
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (77,710
  )
  (77,710
  )Amortization of deferred compensation
  
  
  
  
  
  
  
  
  
  
  
  
  
  2,943
  
  
  
  2,943Net loss
  
  
  
  
  
  
  
  
  
  
  
  (77,489,046
  )
  
  
  
  
  (77,489,046
  )Balance at September 30, 2000
  
  
  
  
  
  23,115,749
  
  23,116
  
  375,475,441
  
  (159,402,020
  )
  
  
  (147,046
  )
  215,949,491Exercise of stock options and warrants
  
  
  
  
  
  105,097
  
  105
  
  511,617
  
  
  
  
  
  
  
  511,722Options granted to consultants
  
  
  
  
  
  
  
  
  
  149,169
  
  
  
  
  
  
  
  149,169Contribution to 401(k) plan
  
  
  
  
  
  31,611
  
  32
  
  195,016
  
  
  
  
  
  
  
  195,048Unrealized gain on investments available for sale
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  1,085,061
  
  1,085,061Stock based compensation for modifications in stock option agreements
  
  
  
  
  
  
  
  
  
  79,333
  
  
  
  
  
  
  
  79,333Net loss
  
  
  
  
  
  
  
  
  
  
  
  (37,323,285
  )
  
  
  
  
  (37,323,285
  )  36 
   Preferred
  Stock
  
  Common
  Stock
  
  
  
  
  
  Subscription
  Receivable/
  
  Other
  ComprehensiveShares
  
  Amount
  
  Shares
  
  Amount
  
  Additional
  Paid-In Capital
  
  Accumulated
  Deficit
  
  Deferred
  Compensation
  
  Income
  (Loss)
  
  TotalForeign currency translation adjustment
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  62
  
  62Balance at September 30, 2001
  
  
  
  
  
  23,252,457
  
  23,253
  
  376,410,576
  
  (196,725,305
  )
  
  
  938,077
  
  180,646,601Exercise of stock options and warrants
  
  
  
  
  
  11,033
  
  11
  
  53,198
  
  
  
  
  
  
  
  53,209Warrants granted to consultants
  
  
  
  
  
  
  
  
  
  964
  
  
  
  
  
  
  
  964Contribution to 401(k) plan
  
  
  
  
  
  47,701
  
  47
  
  201,973
  
  
  
  
  
  
  
  202,020Unrealized gain on investments available for sale
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  156,946
  
  156,946Net loss
  
  
  
  
  
  
  
  
  
  
  
  (64,322,948
  )
  
  
  
  
  (64,322,948
  )Foreign currency translation adjustment
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (3,815
  )
  (3,815
  )Balance at September 30, 2002
  
  
  
  $
  
  
  23,311,191
  
  $
  23,311
  
  $
  376,666,711
  
  $
  (261,048,253
  )
  $
  
  
  $
  1,091,208
  
  $
  116,732,977  See
Accompanying Notes to Consolidated Financial Statements   37


CONSOLIDATED STATEMENTS OF CASH FLOWS  Maxim
Pharmaceuticals, Inc. and Subsidiaries (A Development Stage Company)   From Inception
  (October 23, 1989)
  Through
  September 30, 2002Year Ended September 302002
  
  2001
  
  2000OPERATING ACTIVITIES:Net loss
  
  $
  (64,322,948)
  
  $
  (37,323,285)
  
  $
  (77,489,046)
  
  $
  (261,048,253
  )Adjustments to reconcile net loss to net cashused in operating activities:Depreciation and amortization
  
  2,272,936
  
  4,191,337
  
  1,629,374
  
  10,224,008Stock contributions to 401(k) plan
  
  202,020
  
  195,048
  
  100,878
  
  597,038Cumulative effect of accounting change
  
  28,179,466
  
  
  
  
  
  28,179,466Stock-based compensation
  
  964
  
  228,502
  
  425,060
  
  1,273,651Loss (gain) on disposal of property and equipment
  
  (2,211
  )
  66,222
  
  6,895
  
  281,192Provisions for note receivable and loan guarantees to/for officers
  
  1,600,000
  
  
  
  
  
  1,600,000Purchased in-process technology
  
  
  
  
  
  42,300,000
  
  44,946,166Gain on sale of assets
  
  
  
  
  
  (2,146,502
  )
  (2,146,502
  )Loss on write-off of patents
  
  
  
  
  
  37,661
  
  444,241Amortization of premium on investments
  
  
  
  
  
  
  
  535,285Cumulative effect of reorganization
  
  
  
  
  
  
  
  1,152,667Gain on sale of subsidiary
  
  
  
  
  
  
  
  (2,288,474
  )Other
  
  
  
  
  
  
  
  (283,658
  )Changes in operating assets and liabilities:Accrued interest and other current assets
  
  1,848,548
  
  868,136
  
  (2,017,064
  )
  (1,513,504
  )Deposits and other assets
  
  209,669
  
  14,779
  
  (45,488
  )
  (660,077
  )Accounts payable
  
  (870,056
  )
  (4,239,046
  )
  (2,216,386
  )
  765,343Accrued expenses
  
  (1,132,752
  )
  (1,336,751
  )
  168,526
  
  1,350,539Deferred revenue
  
  (368,750
  )
  (1,541,667
  )
  2,385,417
  
  475,000Net cash used in operating activities
  
  (32,383,114
  )
  (38,876,725
  )
  (36,860,675
  )
  (176,115,872
  )INVESTING ACTIVITIES:Purchases of marketable securities
  
  (66,537,907
  )
  (105,945,477
  )
  (133,809,087
  )
  (388,531,505
  )Sales and maturities of marketable securities
  
  105,600,000
  
  102,647,000
  
  28,429,901
  
  306,912,951Purchases of property and equipment
  
  (1,590,234
  )
  (3,917,903
  )
  (1,577,963
  )
  (10,049,941
  )Additions to patents and licenses
  
  (1,121,366
  )
  (738,627
  )
  (430,559
  )
  (5,515,514
  )Net proceeds from sale of assets
  
  
  
  
  
  2,955,000
  
  3,451,555Cash acquired in acquisition of business
  
  
  
  
  
  135,941
  
  1,121,297Net cash provided by (used in) investing activities
  
  36,350,493
  
  (7,955,007
  )
  (104,296,767
  )
  (92,611,157
  )FINANCING ACTIVITIES:Net proceeds from issuance of common stock and exercise of stock
  options and warrants
  
  53,209
  
  511,722
  
  186,515,933
  
  253,285,585Net proceeds from issuance of preferred stock
  
  
  
  
  
  22,551,507
  
  41,298,008Payment of preferred stock dividends
  
  
  
  
  
  (302,361
  )
  (302,361
  )Proceeds from issuance of notes payable and long-term debt
  
  1,040,403
  
  1,845,500
  
  
  
  9,317,981Restricted cash
  
  500,000
  
  (4,000,000
  )
  
  
  (3,500,000
  )Payments on notes payable, long-term debt, and capital lease
  obligations
  
  (1,123,584
  )
  (702,206
  )
  (1,524,525
  )
  (7,136,688
  )Proceeds from issuance of notes payable to related parties
  
  
  
  
  
  
  
  4,982,169Payments on notes payable to related parties
  
  
  
  
  
  
  
  (1,329,885
  )Loan to officer
  
  (97,213
  )
  (3,011,709
  )
  
  
  (3,108,922
  )Net cash provided by (used in) financing activities
  
  372,815
  
  (5,356,693
  )
  207,240,554
  
  293,505,887Effect of exchange rate changes on cash
  
  (3,877
  )
  62
  
  
  
  (3,815
  )Net increase (decrease) in cash and cash equivalents
  
  4,336,317
  
  (52,188,363
  )
  66,083,112
  
  24,775,043Cash and cash equivalents at beginning of period
  
  20,438,726
  
  72,627,089
  
  6,543,977
  
  Cash and cash equivalents at end of period
  
  $
  24,775,043
  
  $
  20,438,726
  
  $
  72,627,089
  
  $
  24,775,043  See
Accompanying Notes to Consolidated Financial Statements.   38 
   NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS  MAXIM
PHARMACEUTICALS, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY)  1.  NATURE OF OPERATIONS AND BASIS FOR
PRESENTATION  Maxim Pharmaceuticals, Inc. (the Company)
was incorporated in Delaware and merged in 1993 with Syntello Vaccine
Development AB (SVD), a Swedish biopharmaceutical company, in an exchange of
stock accounted for as a reverse acquisition (the Reorganization). The
Companys proprietary technologies, which provide the basis for drug candidates
for life-threatening cancers and liver diseases, were acquired during and
following the Reorganization. The statements of operations inception-to-date
information reflect the cumulative operations of SVD from the date of its
inception (October 23, 1989). The statements of stockholders equity for the
periods from inception to the date of the Reorganization reflect the equity
activity of SVD. The Company sold SVD in July 1996. In June 2000, the Company
acquired Cytovia, Inc., and in September 2000, the Company incorporated Maxim
Pharmaceuticals Europe Limited, both of which operate as wholly owned subsidiaries.  Since the Reorganization, the Company has
devoted substantially all of its resources to its Ceplene (histamine
dihydrochloride) and topical gel product development programs. As a result of
the June 2000 acquisition of Cytovia, Inc., the Company also has undertaken
research and development efforts relating to apoptosis modulator drug
candidates. The Company conducts its research and other product development
efforts through a combination of internal efforts and collaborative programs
with universities, other clinical research sites, contract research
organizations and pharmaceutical companies. Oversight of all external and
collaborative programs is conducted by the Companys executive officers and
other staff primarily located at its headquarters in San Diego, California.  For the
period from commencement of operations to date, the Company has been a
development stage enterprise, and accordingly, the Companys operations have
been directed primarily toward developing its proprietary technologies. The
Company has experienced net losses since its inception and as of September 30,
2002, had an accumulated deficit of $261,048,253. Such losses and accumulated
deficit resulted from the Companys absence of significant revenue and
significant costs incurred in the development of the Companys proprietary
technologies.  The Company expects to incur substantial
losses as it continues its research and development activities, particularly
the conduct of clinical trials of its drug candidates. The future success of
the Company is likely to be dependent on its ability to obtain additional
capital required to develop and commercialize its drug candidates and upon its
ability to attain future profitable operations. There can be no assurance that
the Company will be successful in obtaining such financing, if required, or
that it will attain positive cash flow from operations.   39


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  PRINCIPLES OF CONSOLIDATIONThe consolidated
financial statements include the financial statements of Maxim Pharmaceuticals,
Inc. and its wholly owned subsidiaries, Cytovia, Inc. and Maxim Pharmaceuticals
Europe Limited. All significant intercompany balances and transactions have
been eliminated in consolidation.  CASH EQUIVALENTS AND INVESTMENTS IN
MARKETABLE SECURITIESInvestments with original maturities of less than 90 days
at the date of purchase are considered to be cash equivalents. All other
investments are classified as short-term investments which are deemed by
management to be available-for-sale and are reported at fair value with net
unrealized gains or losses reported within other comprehensive loss in the
statement of stockholders equity. Realized gains and losses, and declines in
value judged to be other than temporary, are included in investment income or
interest expense. The cost of securities sold is computed using the specific
identification method.  CONCENTRATION OF CREDIT RISKThe Company
invests its excess cash in U.S. government securities and other highly liquid
debt instruments of financial institutions and U.S. and foreign corporations
with strong credit ratings. These instruments are held at various institutions.
The Company has established guidelines which these institutions must follow
relative to diversification and maturities to safely maintain an adequate level
of liquidity and safety. Cash and cash equivalents held at an individual
institution may exceed the F.D.I.C. limits.  PROPERTY AND EQUIPMENTProperty and equipment
are recorded at cost, net of accumulated depreciation and amortization.
Depreciation on property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets, which range from three to
seven years. Amortization of leasehold improvements is calculated using the
straight-line method over the shorter of the lease term or the estimated useful
lives of the assets.  PATENTS AND LICENSESThe Company capitalizes
certain legal costs and acquisition costs related to patents and licenses.
Accumulated costs are amortized over the lesser of the legal lives or the
estimated economic lives of the proprietary rights, generally seven to ten years,
using the straight-line method and commencing at the time the patents are
issued or the license is acquired.  GOODWILL AND INTANGIBLE ASSETSGoodwill
represents the difference between the purchase price of acquired businesses and
the fair value of their net assets. Intangible assets represent identified
intangible assets in acquisitions. Goodwill and intangible assets are amortized
over 15 years and five years, respectively, their estimated period of benefit,
on a straight-line basis. Effective October 1, 2001, the Company adopted the
provisions of Statement of Financial Accounting Standard (SFAS) No. 142,
Goodwill and Other IntangibleAssets and ceased the amortization of
goodwill and indefinite live intangible assets.The transitional impairment analysis performed under
SFAS No. 142 on October 1, 2001, resulted in an implied fair value of the
goodwill of zero. Therefore, a non-cash charge of $28,179,466 was recorded
during the quarter ended December 31, 2001, reflecting the cumulative effect of
change in accounting principle resulting from the adoption of SFAS No. 142 and
the related write down of goodwill and intangible assets.  IMPAIRMENT
OF LONG-LIVED ASSETSThe Company reviews long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is  40 
   measured
by the amount by which the carrying amount of the assets exceeds the fair value
of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.  FAIR VALUE OF FINANCIAL INSTRUMENTSThe carrying amount of cash and
cash equivalents, short-term investments, accrued interest and other current
assets, accounts payable and accrued expenses are considered to be
representative of their respective fair values because of the short-term nature
of these financial instruments. The carrying amount of the note payable and
long-term debt are reasonable estimates of their fair value as these amounts
bear interest based on market rates currently available for notes with similar
terms.  The carrying amount of the note
receivable from an officer approximates its fair value due to the allowance
recorded against the note.  REVENUE RECOGNITIONRevenue consists of up-front technology access
fees, research fees and milestone payments. Revenue from these fees is recorded
over the term of the arrangement.Up-front technology access
fees are recognized over the term of the agreement or ongoing research period,
as applicable, unless the Company has no further continuing performance
obligations related to the fees. Research funding is recognized over the
applicable research period as research activities are performed. Milestone
payments are recognized when earned, as the milestone events are substantive
and their achievability is not reasonably assured at the inception of the
agreement. Amounts received but unearned are recorded as deferred revenue.  Certain collaborative agreements provide the
Company donated materials and services which are recorded when used at the fair
market value of the material received or the service provided.  RESEARCH AND DEVELOPMENTAll research and
development expenses, including purchased research and development, are
expensed as incurred.  INCOME
TAXESIncome taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.  NET LOSS PER SHARENet loss per share is
calculated in accordance with Statement of Financial Accounting Standards No.
128 Earnings per Share. Basic net loss per share of common stock is computed
by dividing the net loss after deduction of dividends on preferred stock by the
weighted average number of shares of common stock outstanding during the
period. Diluted loss per share is calculated by including the additional common
shares issuable upon exercise of outstanding convertible preferred stock, options
and warrants in the basic weighted average share calculation, unless the effect
of their inclusion is antidilutive. For the years ended September 30, 2002,
2001 and 2000, outstanding options and warrants totaled 3,783,212, 2,954,047,
and 2,873,862, respectively. As these securities were antidilutive for the
years then ended, diluted loss per share equaled the basic loss per share in
each respective year.  STOCK OPTION PLANSThe Company applies the
intrinsic value-based method of accounting prescribed by Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations, in accounting for its stock option plans. As such,
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. Statement of
Financial Accounting Standard (SFAS) No. 123, Accounting for Stock-Based
Compensation, established accounting and disclosure requirements using a fair
value-based method of accounting for stock-based employee compensation plans.
As allowed by SFAS No.  41 
   123, the Company has elected to continue to
apply the intrinsic value-based method of accounting described above related to
employees and has adopted the disclosure requirements of SFAS No. 123.  TRANSLATION
OF FOREIGN CURRENCY FINANCIAL STATEMENTSAssets and liabilities of foreign
operations where the functional currency is other than the U.S. dollar are
translated at fiscal year-end rates of exchange, and the related revenue and
expense amounts are translated at the average rates of exchange during the
fiscal year. Gains or losses resulting from translating foreign currency
financial statements resulted in an immaterial impact to the financial
statements for the years ended September 30, 2002, 2001 and 2000.  USE OF ESTIMATESThe preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of expenses during the reporting period. Actual
results could differ from these estimates.  RECLASSIFICATIONSCertain amounts in the
prior years consolidated financial statements have been reclassified to
conform with current year classifications.  3.  ACQUISITION
AND ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTGOODWILL AND OTHER INTANGIBLE
ASSETS  On June 16, 2000, the Company acquired all of the outstanding capital
stock of Cytovia, Inc. ("Cytovia") and assumed the outstanding stock
options of Cytovia. Cytovia was a privately held biopharmaceutical research
company focused on the discovery and development of apoptosis inhibitors and
activators, novel drugs that modulate programmed cell death. The transaction
was accounted for using the purchase method and the results of operations of
Cytovia have been included in the Company's results of operations since the
date of acquisition. The total purchase price including assumed liabilities was
$77,623,933, representing the value of the 1,533,486 shares of stock of the
Company issued to effect the purchase of $64,598,098, the value of the vested
and unvested options and warrants assumed at the closing date of $8,451,077,
estimated transaction costs of $150,000, and assumed liabilities of $4,424,758.
The allocation of the purchase price, based on the estimated fair values of the
acquired assets and assumed liabilities and an independent appraisal of
intangible assets, consists of the following:  Goodwill
  
  $
  30,385,900Assembled workforce
  
  749,000In-process technology
  
  42,300,000Total allocated to intangibles
  
  $
  73,434,900  Purchased in-process technology was expensed upon acquisition because
technological feasibility had not been established and no further alternative
uses existed. The value of in-process technology was calculated by identifying
research projects in areas for which technological feasibility had not been
established, estimating the costs to develop the purchased in-process
technology into commercially viable products, estimating the resulting net cash
flows from such products, discounting the net cash flows to present value, and
applying the reduced percentage completion of the projects thereto. The
discount rate used in the analysis was 40% and was based on the risk profile of
the acquired assets. At September 30, 2001 the Company's recorded goodwill and
other intangible assets resulting from the Cytovia acquisition had an
unamortized book value of $28,179,466. Through September 30, 2001, goodwill and
other intangible assets were being amortized over 15 years and five years,
respectively.  Effective October 1, 2001, the Company adopted the provisions of
Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and
Other Intangible Assets. SFAS No. 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead be
tested for impairment at least annually. SFAS No. 142 also requires that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values and reviewed for
impairment in accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of.  As a result of the adoption of SFAS No. 142, the Company ceased
amortizing goodwill on October 1, 2001, and performed the transitional
impairment assessment of the goodwill related to the Cytovia acquisition for
impairment as of October 1, 2001. Although the goodwill arose from purchase
accounting applied to the acquisition of a specific entity, SFAS No. 142
requires that this test be applied to the relevant reporting unit which may
differ from the specific entity acquired. Due to the integrated nature of the
Companys operations, the entire Company was determined to be one single
reporting unit. Under the provisions of SFAS No. 142, the Company was required
to identify potential impairment of goodwill by comparing the fair value of the
Company, with the Companys fair value based on the market price of the
Companys common stock, to the carrying value of the Companys assets, including
goodwill. As this analysis indicated an impairment of goodwill, the Company was
required to measure the amount of impairment by comparing the implied fair
value of the goodwill to its carrying amount. The analyses performed under SFAS
No. 142 resulted in an implied fair value of the goodwill of zero.  42 
   Therefore, a non-cash charge of $28,179,466 was recorded during the
quarter ended December 31, 2001, reflecting the cumulative effect of change in
accounting principle resulting from the adoption of SFAS No. 142 and the
related write down of goodwill and intangible assets.  Had the Company accounted for its goodwill under the provisions of SFAS
No. 142 beginning October 1, 2000, the Companys net loss applicable to common
stock and net loss per share would have been as follows for the years ended
September 30, 2001 and 2000:  Year Ended
  September 30,2001
  
  2000Reported net loss applicable to common stock
  
  $
  (37,323,285
  )
  $
  (82,501,885
  )Goodwill amortization
  
  2,210,865
  
  744,570Adjusted net loss applicable to common stock
  
  $
  (35,112,420
  )
  $
  (81,757,315
  )Basic and diluted net loss per share of common stock:Reported net loss per share of common stock
  
  $
  (1.61
  )
  $
  (4.58
  )Goodwill amortization
  
  0.10
  
  0.04Adjusted basic and diluted net loss per share of common stock
  
  $
  (1.51
  )
  $
  (4.54
  )   43 
   4.  SHORT-TERM INVESTMENTS IN MARKETABLE
SECURITIES  The following is a summary of the Companysinvestmentsecurities,
all of which are classified as available-for-sale. Determination of estimated
fair value is based upon quoted market prices.  September
  30, 2002Gross
  amortized
  cost
  
  Gross
  unrealized
  gains
  
  Gross
  unrealized
  losses
  
  Market
  ValueAsset-backed securities
  
  $
  8,342,490
  
  $
  217,662
  
  $
  
  
  $
  8,560,152Corporate debt securities
  
  67,741,972
  
  836,103
  
  
  
  68,578,075Other securities
  
  2,000,000
  
  
  
  
  
  2,000,000U.S. securities & other government obligations
  
  4,036,707
  
  41,258
  
  
  
  4,077,965$
  82,121,169
  
  $
  1,095,023
  
  $
  
  
  $
  83,216,192  September 30, 2001Gross
  amortized
  cost
  
  Gross
  unrealized
  gains
  
  Gross
  unrealized
  losses
  
  Market
  ValueAsset-backed securities
  
  $
  13,816,871
  
  $
  80,259
  
  $
  (155,242
  )
  $
  13,741,888Corporate debt securities
  
  85,833,349
  
  1,013,860
  
  (49,357
  )
  86,797,852Other securities
  
  7,500,000
  
  
  
  
  
  7,500,000U.S. securities & other government obligations
  
  14,033,045
  
  48,495
  
  
  
  14,081,540$
  121,183,265
  
  $
  1,142,614
  
  $
  (204,599
  )
  $
  122,121,280  The amortized cost and estimated fair value
of securities available-for-sale at September 30, 2002, by contractual
maturity, are as follows:   Amortized
  Cost
  
  Estimated
  Fair ValueDue in one year or less
  
  $
  43,335,080
  
  $
  43,756,607Due after one year through three years
  
  38,786,089
  
  39,459,585$
  82,121,169
  
  $
  83,216,192   44 
   5.  PROPERTY AND EQUIPMENT  Property and equipment consists of the following:  September
  302002
  
  2001Laboratory equipment
  
  $
  3,177,267
  
  $
  2,132,683Office equipment and furniture
  
  4,312,640
  
  4,155,130Leasehold improvements
  
  2,984,373
  
  2,935,38410,474,280
  
  9,223,197Less accumulated depreciation and amortization
  
  (4,896,993
  )
  (3,151,533
  )$
  5,577,287
  
  $
  6,071,664  At September 30, 2002 and 2001, property and
equipment included equipment under capital leases of $1,344,268 and $1,657,063,
with related accumulated amortization of $507,583 and $526,796, respectively.  6.  ACCRUED INTEREST AND OTHER CURRENT ASSETS  Accrued interest and other current assets consist of the following:  September
  302002
  
  2001Accrued interest
  
  $
  1,319,796
  
  $
  2,409,588Prepaid insurance
  
  353,200
  
  432,547Prepaid clinical trial costs
  
  126,618
  
  884,983Other
  
  1,309,800
  
  875,217$
  3,109,414
  
  $
  4,602,335   7.  RELATED PARTY TRANSACTIONS  In December 2000, the Company entered into a
secured revolving promissory note with an officer of the Company. The purpose
of the agreement was to allow the repayment of margin loans associated with the
exercise of stock options, the payment of income taxes associated with such
exercises and the purchase of a residence. 
The Board determined that it was in the Companys best interest to
provide the loan to the officer to avoid the necessity of selling personal
holdings of the Companys securities during a period of depressed market prices.  The note, as amended, bears interest at an
annual rate of 4.0% and is secured by the officers outstanding options and
shares of common stock. At September 30, 2002, $2,850,000 in principal and
$259,000 in interest were outstanding under the note. In the fourth quarter of
2002, the Company determined that the note to the officer had become impaired
because the Company determined that the officer did not have the ability to
repay the loan in full when due.  Accordingly,
the Company recorded an allowance on this note in the amount of $700,000.  The entire outstanding balance of principal
and interest came due December 8, 2002. 
For additional information regarding the maturity of this asset, see
Note 17 Subsequent Event.  45 
    During the year ended September 30, 2001, the Company became a
guarantor on $1,600,000 in loans made by a bank to three officers of the
Company. Under the guarantor agreement, the Company granted the bank a security
interest in a $1,600,000 certificate of deposit as collateral for the loans the
bank made to the officers. The purpose of the guarantees was to allow the
payment of income taxes associated with the exercise of stock options.  The Board determined that it was in the
Companys best interest to provide the guarantee to avoid the necessity of the
officers selling personal holdings of the Companys securities during a period
of depressed market prices.  In July
2002, the loans from the bank to the two officers and one then former officer
were amended, which resulted in the Company increasing its guarantee and
corresponding certificate of deposit to $1,800,000.  These loans are due in July 2004.  No assets are held as collateral for the guarantees; however, in
a case of default the Company would pursue collection from the
individuals.  During the fourth quarter
of fiscal year 2002, the Company determined that it was probable that one of
the officers would not have the ability to repay his loan. Therefore, the
Company has recorded a liability in the amount of $900,000.  The Company intends to collect from the
officer any amounts that may ultimately be paid by the Company to the bank as a
result of the guarantee on behalf of the officer.  8.  ACCRUED EXPENSES  Accrued expenses consist of
the following:  September
  302002
  
  2001Clinical trial costs
  
  $
  1,488,153
  
  $
  2,636,246Compensation
  
  678,865
  
  725,327Deferred rent
  
  246,167
  
  222,484Other
  
  235,141
  
  197,021$
  2,648,326
  
  $
  3,781,078  9.  NOTES PAYABLE AND LONG TERM DEBT  The Company had a credit agreement with a bank that provided for a
$3,200,000 committed line of credit which it was able to access for equipment
and other capital assets.On July 29, 2002, the Company amended the
credit agreement, which increased the Companys available line of credit to
$3,800,000. The Company was able to access the line for equipment and other
capital assets purchased from the date of the amendment through September 30,
2002, after which time the line became a term loan.  The agreement contains customary affirmative and negative
covenants, including financial covenants requiring the maintenance of specified
liquidity terms and minimum tangible net worth.  The Company is required to maintain its principal depository and
operating accounts with the bank.  In
addition, theCompanyhas the choice to either
maintain a minimum aggregate balance of $3,500,000 at the institution or pay to
the bank a quarterly fee of $2,500.  Under the terms of the original agreement, the Company was required to
maintain a minimum aggregate balance of $4,000,000 at the institution; however,
the bank reduced this balance to $3,500,000 when the agreement was amended in
July 2002.   46 
   Notes payable and long-term debt consist of
the following:  September
  302002
  
  2001Bank term loan payable in monthly installments commencing
  January 1, 2002  through
  April 1, 2006, at an interest rate of prime plus .75% (4.75% at
  September 30, 2002)
  
  $
  2,443,903
  
  $
  1,845,5003.68% promissory note payable, payable in monthly installments
  through June 30, 2003
  
  277,444
  
  8.35% promissory note payable, payable in monthly installments
  through June 30, 2002
  
  
  
  214,008Total notes payable and long-term debt
  
  2,721,347
  
  2,059,508Less current portion of notes payable and long-term debt
  
  (1,088,526
  )
  (609,472
  )Total long-term portion of notes payable and long-term debt
  
  $
  1,632,821
  
  $
  1,450,036  The aggregate amounts of debt outstanding at
September 30, 2002 which will become due in 2003, 2004, 2005 and 2006 are:
$1,088,526, $824,544, $714,044, and $94,233, respectively.  10.  LEASES  The Company leases office and laboratory
facilities under five-year and ten-year noncancelable operating leases with
expiration dates ranging from September 2003 to October 2008. Rent expense
approximated $2,059,000, $2,238,000, and $1,276,000 for the years ended
September 30, 2002, 2001, and 2000, respectively. The Company entered into agreements
to sublease certain of its facilities. Total sublease income for the years
ended September 30, 2002, 2001 and 2000 was $277,000, $554,000, and $244,000,
respectively. In addition, the Company is obligated under several capital
leases for equipment.  47 
   Future commitments under noncancelable
operating leases for the next five years, net of sublease commitments is
$1,992,303 in 2003, and future minimum lease payments due under capital lease
agreements as of September 30, 2002, are as follows:  Year Ended
  September 30
  
  
  Operating
  Leases
  
  Capital
  Leases2003
  
  $
  2,093,624
  
  $
  278,9382004
  
  1,375,751
  
  50,8772005
  
  1,322,375
  
  2006
  
  807,440
  
  2007
  
  666,419
  
  Total
  
  $
  6,265,609
  
  329,815Less amount representing interest
  
  
  
  (20,450
  )Present value of future minimum lease payments
  
  
  
  309,365Less current portion of obligations under capital leases
  
  
  
  (258,488
  )Obligations under capital leases, excluding current portion
  
  
  
  $
  50,877   48 
   11.  SUPPLEMENTAL CASH FLOW INFORMATION  Year Ended
  September 302002
  
  2001
  
  2000
  
  From
  Inception
  Through
  September 30, 2002Noncash investing and financing activities:Dividends on preferred stock
  
  $
  
  
  $
  
  
  $
  5,012,839
  
  $
  5,495,683Issuance of preferred stock in payment of dividend
  
  
  
  
  
  (4,890,962
  )
  (4,890,962
  )Unrealized gain (loss) on investments available for sale
  
  156,946
  
  1,085,061
  
  (77,710
  )
  1,094,961Other assets acquired under note payable
  
  355,627
  
  273,829
  
  317,500
  
  1,170,614Property and equipment acquired under capital leases
  
  
  
  
  
  
  
  220,199Acquisition of subsidiary:Assets acquired
  
  
  
  
  
  2,954,536
  
  7,871,895Liabilities assumed
  
  
  
  
  
  (4,424,758
  )
  (10,336,239
  )Net equity effect of acquisition
  
  
  
  
  
  (72,899,175
  )
  (72,899,175
  )Issuance of common stock to convert debt
  
  
  
  
  
  
  
  7,593,770Issuance of common stock/warrants for services
  
  964
  
  
  
  
  
  66,964Sale of subsidiary:Net patents sold
  
  
  
  
  
  
  
  154,296Other liabilities transferred
  
  
  
  
  
  
  
  (121,210
  )Note payable transferred
  
  
  
  
  
  
  
  (2,421,560
  )Other accruals
  
  
  
  
  
  
  
  100,000Supplemental disclosure of cash flow information  cash paid for
  interest
  
  177,682
  
  166,190
  
  95,004
  
  1,987,590   12.  GAIN ON
SALE OF ASSETS  In April 2000, the Company sold all assets, including the patent,
license and other intellectual property rights, underlying its MaxVax mucosal
vaccine technology for $3 million. The Company recorded a gain on the
transaction of approximately $2.1 million in the year ended September 30, 2000.  49 
   13.  STOCKHOLDERS EQUITY  WARRANTSOn September 1, 2002, the Company
issued 15,000 warrants at an exercise price of $2.75 to non-employees.  Compensation expense related to the 15,000
warrants during the year ended September 30, 2002 totaled $964.  As of September 30, 2002, warrants to
purchase 58,787 shares of the Companys common stock at a weighted average
exercise price of $11.44 per share are outstanding. Warrants to purchase 43,787
shares are exercisable as of September 30, 2002, and the remainder vest monthly
through September 2004.  The warrants
were granted to certain consultants primarily in connection with certain
financing transactions and investor communication activities.  These warrants have terms expiring in 2004
through 2009. On July 10, 2001, the Companys publicly traded redeemable
warrants expired at the close of trading in accordance with the terms of the
warrant securities. The warrants were issued in conjunction with the Companys
initial public offering in 1996, and prior to expiration each warrant was exercisable
for the purchase of one share of common stock at $10.50 per share. At the time
of expiration, 1,063,821 warrants were outstanding. During the year ended
September 30, 2002, there were no warrants which were exercised.  STOCK OPTIONSIn 1993, the Company
established a stock option plan (the 1993 Plan) under which incentive and
nonqualified stock options have been granted to key employees, directors and
consultants of the Company. Under the 1993 Plan, as amended, options may be
granted to purchase up to 1,800,000 shares of common stock; options that are
granted generally vest over four to five years and have a maximum term of ten
years. In August 2000, the Company adopted a non-statutory stock option plan
(the 2000 Plan) under which nonqualified stock options may be granted to
employees, consultants, officers and directors of the Company. Under the 2000
Plan, options may be granted to purchase up to 750,000 shares of common stock,
of which total grants to officers and directors must be less than half of the
authorized shares; options that are granted generally vest over four years and
have a maximum term of ten years. In 2001, the Company established a stock
option plan (the 2001 Incentive Plan) under which incentive and nonqualified
stock options have been granted to key employees, directors and consultants of
the Company. Under the 2001 Plan, options may be granted to purchase up to
750,000 shares of common stock; options that are granted generally vest over
four years and have a maximum term of ten years.  The Company also grants options to
non-employees in connection with their execution of consulting agreements with
the Company. The fair value of the options granted to non-employees is
estimated using the Black-Scholes method for option pricing, and the expense
is recorded over the period services are performed.  Compensation expense related to option grants recorded during the
years ended September 30, 2002, 2001, and 2000 totaled $0, $149,169, and $222,874,
respectively. The Company also recorded $79,333 in compensation expense in 2001
related to the modification of stock options.   50 
   The following table
summarizes the Companys stock option activity:   Number
  of Shares
  
  Weighted
  Average
  Exercise Price
  Per ShareOutstanding September 30, 1999
  
  856,691
  
  $
  9.93Granted
  
  1,094,644
  
  $
  36.01Options assumed under Cytovia, Inc. acquisition
  
  187,128
  
  $
  1.47Exercised
  
  (357,508
  )
  $
  6.95Canceled
  
  (43,351
  )
  $
  27.83Outstanding September 30, 2000
  
  1,737,604
  
  $
  25.60Granted
  
  1,952,851
  
  $
  14.89Exercised
  
  (76,447
  )
  $
  2.43Canceled
  
  (703,748
  )
  $
  47.07Outstanding September 30, 2001
  
  2,910,260
  
  $
  13.83Granted
  
  1,186,935
  
  $
  3.59Exercised
  
  (11,033
  )
  $
  4.82Canceled
  
  (361,737
  )
  $
  8.42Outstanding September 30, 2002
  
  3,724,425
  
  $
  11.12  At September 30, 2002, options for 2,030,505
shares of common stock are exercisable and the remaining 1,693,920 become
exercisable at various dates through September 30, 2006. The options expire at
various dates through September 30, 2012.  The following table summarizes information
concerning outstanding and exercisable options as of September 30, 2002.  Options
  Outstanding
  
  Options
  ExercisablePrice
  Range
  
  Shares
  
  Weighted-Average
  Exercise Price
  
  Weighted-Average
  Remaining
  Contractual Life
  
  Shares
  
  Weighted-Average
  Exercise Price$0.66-$2.13
  
  698,814
  
  $
  2.10
  
  9.86
  years
  
  356,030
  
  $
  2.07$2.14-$5.73
  
  987,663
  
  $
  4.93
  
  8.71
  years
  
  505,740
  
  $
  5.11$5.74-$8.00
  
  1,064,482
  
  $
  7.10
  
  6.66
  years
  
  500,344
  
  $
  7.51$8.01-$14.50
  
  410,066
  
  $
  11.40
  
  4.36
  years
  
  397,491
  
  $
  11.47$14.51-$72.50
  
  563,400
  
  $
  40.53
  
  5.86
  years
  
  270,900
  
  $
  43.03$0.66-$72.50
  
  3,724,425
  
  $
  11.12
  
  7.43
  years
  
  2,030,505
  
  $
  11.47  If the Company had elected to account for its
stock options under a fair value method, the net loss applicable to common
stock for the years ended September 30, 2002, 2001 and, 2000 would have been
increased by $4,997,000 ($0.21 per share), 
$5,418,000 ($0.23 per share), and $7,132,000 ($0.40 per share),
respectively. The fair value of these options was estimated at the date of
grant using the Black-Scholes method for option pricing and the following
weighted-average assumptions for 2002, 2001, and 2000, respectively: risk-free
interest rates of 2.4%, 4.0%, and 6.4%; dividend yield of 0%; volatility
factors of 86%, 99%, and 73%; and an expected life of six years, five years and
five years. These   51 
   assumptions resulted in a weighted-average
fair value of $2.09, $9.49, and $19.17 per share for stock options granted
during the years ended September 30, 2002, 2001, and 2000, respectively.  STOCKHOLDER RIGHTS PLANIn June 2000, the Board
of Directors of the Company declared a dividend distribution of one preferred
stock purchase right (a Right) for each outstanding share of common stock of
Maxim held of record at the close of business on June 22, 2000. The Rights will
initially trade with, and will be inseparable from Maxims common stock. The
Rights will be exercisable only if a person or group acquires 15% or more of
Maxims outstanding common stock, or announces a tender offer which, if
successful, would result in ownership by a person or group of 15% or more of
Maxims common stock. Each Right will entitle stockholders, other than the 15%
or more acquirer, to buy one one-hundredth of a share of Maxims series A
junior participating preferred stock at an exercise price of $325. If a person
or group acquires 15% or more of Maxims common stock, each Right will entitle
its holder, other than such person or member of such group, to purchase a
number of Maxims common shares having a market value of $650. If Maxim were to
be acquired in a merger or other business combination transaction after a
person has acquired 15% or more of Maxims common stock, each Right will
entitle its holder other than the acquiring person, to purchase a number of the
acquiring companys common shares having a market value of $650. The Rights
Plan also includes an exchange option. In general, after the rights become
exercisable, the Maxim Board may, at its option, effect an exchange of part or
all of the Rights, other than Rights that have become void, for shares of Maxim
common stock. Under this option, Maxim would issue one share of common stock
for each right, subject to adjustment in certain circumstances. The Rights
expire on June 22, 2010, unless redeemed by the Companys Board of Directors.
The Rights can be redeemed by the Board at a price of $0.01 per Right at any
time before the Rights become exercisable.  14.  401(K) PLAN  The Company has a 401(k) retirement
plan (the 401(k) Plan) under which employees meeting eligibility requirements
may elect to participate and contribute to the 401(k) Plan. The 401(k) Plan
provides for matching contributions by the Company in an amount equal to the
lesser of 50% of the employees deferral or 3% of the employees qualifying
compensation. The Company contribution may be made in the form of either the
common stock of the Company or cash at the discretion of the Companys Board of
Directors. Company contributions to the 401(k) plan for the fiscal years ended
September 30, 2002, 2001, and 2000 were $202,020, $196,227, and $106,099,
respectively, primarily in the form of Company common stock.    52 
   15.  INCOME TAXES  Income taxes for the years ended September
30, 2002, 2001 and 2000 differed from the amounts expected by applying the U.S.
federal income tax rate of 34% to loss before taxes as follows:   2002
  
  2001
  
  2000Computed income benefit
  
  $
  (21,868,000
  )
  $
  (12,689,000
  )
  $
  (26,344,394
  )State taxes, net of federal benefit
  
  3,000
  
  1,000
  
  1,055Purchased research and development
  
  
  
  
  
  14,382,000Goodwill amortization
  
  9,581,000
  
  752,000
  
  253,154Change in federal valuation allowance
  
  12,553,000
  
  14,343,000
  
  11,750,531General business credit, net
  
  (753,000
  )
  (635,000
  )
  (494,201
  )Foreign losses
  
  (190,000
  )
  156,000
  
  Expiration of net operating losses
  
  603,000
  
  (2,164,000
  )
  Other permanent differences, net
  
  71,000
  
  236,000
  
  451,855$
  
  
  $
  
  
  $
    The components that comprise deferred tax
assets and liabilities at September 30, 2002 and 2001 are as follows:  2002
  
  2001Deferred tax assets:Net operating loss carryforwards
  
  $
  86,486,000
  
  $
  67,159,000General business credit carryforwards
  
  6,434,000
  
  4,713,000Other
  
  3,922,000
  
  3,392,000Total gross deferred tax assets
  
  96,842,000
  
  75,264,000Less valuation allowance
  
  (96,842,000
  )
  (75,264,000
  )Net deferred tax asset
  
  $
  
  
  $
    The net change in the valuation
allowance for the year ended September 30, 2002 was an increase of $21,578,000.
The valuation allowance of $96,842,000 at September 30, 2002 represents
deferred tax assets that more likely than not will not be realized through the
reversal of future taxable temporary differences or taxable income. In
assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. At September 30, 2002
and 2001, we had a valuation allowance equal to our deferred tax assets since
we have not established a pattern of profitable operations for income tax
reporting purposes.  At September 30, 2002, the Company has
federal and California tax net operating loss carryforwards of approximately
$210,120,000 and $170,183,000, respectively. The federal tax loss carryforwards
began   53 
   expiring in fiscal 1999 and expire through
2021. The California tax loss carryforwards began expiring in fiscal 1998 and
continue to expire through 2011.  As a result of the change in ownership
provisions of the Tax Reform Act of 1986, utilization of the Companys tax net
operating loss carryforwards and tax credit carryforwards may be subject to an
annual limitation in future periods. As a result of an annual limitation, a
portion of these carryforwards may expire before ultimately becoming available
to reduce future taxable income.  16.  LICENSES AND COLLABORATIVE AGREEMENTS  The Companys strategy for development of its
technologies includes, in some cases, the acquisition and the in-licensing of
technologies, and the establishment of collaborative relationships with
universities, governmental and other entities. In 1993, the Company entered into
a technology transfer agreement with a European corporation pursuant to which
the Company purchased intellectual property and patent rights related to its
Ceplene technology. The agreement included payments by the Company totaling
$700,000 and required that the Company pay certain royalty obligations to an
inventor of the technology based upon Company product revenues. In October
1999, the Company and the inventor entered a new royalty agreement under which
the Company agreed to pay $1,000,000 over three years in exchange for a reduced
royalty rate.  During each year ended
September 30, 2002 and 2001, the Company paid the inventor $200,000 in
cash.  During the year ended September
30, 2000, the inventor was paid $200,000 in cash and $200,000 in common stock
under the agreement. The remaining $200,000 is payable in fiscal year 2003.  In July 2000, the Company entered into an
agreement with Shire BioChem under which the Company licensed its MX2105 series
of caspase-inducer anti-cancer compounds to Shire BioChem. The agreement
requires that Shire BioChem make licensing, research and milestone payments to
the Company totaling up to $55 million assuming the successful
commercialization of the compound for the treatment of two cancer indications,
as well as pay a royalty on product sales. During the years ended September 30,
2002 and 2001, the Company recognized $1,312,499 and $2,406,250 in
collaboration revenue for license payments and research funding. During the
year ended September 30, 2000, the Company received license payments and
research funding totaling approximately $2.6 million from Shire BioChem, of
which $626,000 was recognized as collaboration and research revenue.  In August 2001, the Company entered into a
Material Transfer Agreement with Schering Corporation (Schering) for the
Companys ongoing Phase 2 hepatitis C trial. 
Under the terms of the agreement, Schering will contribute the study
drug and perform the viral testing for the study. At September 30, 2002, the
Company had recognized revenue and the corresponding expense of $493,000 in
contributed product and $49,000 in contributed services from Schering. There
were no similar contributions for the years ended September 30, 2001 and 2000.  17.  COMMITMENTS AND CONTINGENCIES  On December 14, 2000 plaintiff, Blake Martin, on behalf of himself and
purportedly on behalf of a class of others similarly situated, filed a
complaint in the United States District Court for the Southern District of
California against the Company and two officers of the Company, alleging
violations of federal securities laws related to declines in the Companys
stock price in connection with various statements and alleged omissions to the
public and to the securities markets, and seeking damages therefore.
Thereafter, approximately thirteen similar complaints were filed in the
Southern District.  The Southern
District complaints have been consolidated into a single action.  No discovery has been conducted.  The Company successfully brought a motion to
dismiss the consolidated complaint, and plaintiff was given leave to file   54 
   a second amended complaint.  The
Company filed a motion to dismiss the second amended complaint, which is
currently under submission with the court. 
The complaints have been tendered to the Companys insurance carrier.  In October 2001 and May 2002, certain former shareholders of Cytovia
filed complaints in California Superior Court in San Diego against the Company
and two of its officers based on similar facts and circumstances, alleging
fraud and negligent misrepresentation in connection with the Companys
acquisition of Cytovia. The Superior Court subsequently issued an order
compelling the first lawsuit to an arbitration forum, and the second lawsuit
has been stayed pending resolution of the arbitration proceeding.An arbitration
proceeding with the American Arbitration Association has been initiated, but
the arbitration has not yet been scheduled.  The Company believes that the claims set forth in each of these
complaints are without merit, and it intends to engage in a rigorous defense
against such claim.No
assurances can be made that the Company will be successful in its defense of
these claims.  If the Company is not
successful in its defense of such claims, the Company could be forced to make
significant payments to its stockholders and the plaintiff and defense lawyers,
and such payments could have a material adverse effect on the Company's
business, financial condition, and results of operations if not covered by the
Company's insurance carrier.  Even if
the Company's defense against such claims is successful, the litigation could
result in substantial costs and divert management's attention and resources,
which could adversely affect the Company's business.No assurances
can be made that the Company will be successful in its defense of these
claims.  If the Company is not
successful in its defense of such claims, the Company could be forced to make
significant payments to its stockholders and the plaintiff and defense lawyers,
and such payments could have a material adverse effect on the Company's
business, financial condition and results of operations if not covered by the
Company's insurance carrier. Even if the Company's defense against such claims
is successful, the litigation could result in substantial costs and divert
management's attention and resources, which could adversely affect the
Company's business.  The Company is a guarantor on $1,800,000 in loans made by a bank to two
officers and one former officer of the Company. These loans are due in July
2004.  No assets are held as collateral
for the guarantees; however, in a case of default the Company would pursue
collection from the individuals.  During
the fourth quarter of fiscal year 2002, the Company determined that it was
probable that one of the officers would not have the ability to repay his
loan.  Therefore, the Company has
recorded a liability in the amount of $900,000.  It is the Companys intent to fully collect from the officer any
amounts paid by the Company to the bank as a result of the guarantee on behalf
of the officer.  18.  SUBSEQUENT EVENT  The note receivable from an officer of the Company came due on December
8, 2002.  As of the date the note came
due, the officer did not have the liquid assets necessary to fully repay the
loan.  The Company has recorded an
allowance of $700,000 on the loan.  On
December 6, 2002, the Company collected interest accrued in 2002 under the note
and is reviewing its options and alternatives and intends to collect from the
officer the outstanding principal and interest under the loan.   55 
   19.  QUARTERLY RESULTS (UNAUDITED)  Summarized quarterly results of operations
for the years ended September 30, 2002 and 2001 are as follows:   Year ended September 30, 2002First
  
  Second
  
  Third
  
  FourthResearch and development expenses
  
  $
  7,457,242
  
  $
  8,412,611
  
  $
  7,631,218
  
  $
  8,513,979Net loss applicable to common stock
  
  (36,004,386
  )(1)
  (9,062,636
  )
  (8,156,207
  )
  (11,099,719
  )Net loss per share of common stock
  
  (1.55
  )
  (0.39
  )
  (0.35
  )
  (0.48
  )  Year ended
  September 30, 2001First
  
  Second
  
  Third
  
  FourthResearch and development expenses
  
  $
  10,883,398
  
  $
  8,417,102
  
  $
  6,129,592
  
  $
  7,212,275Net loss applicable to common stock
  
  (12,967,093
  )
  (9,758,062
  )
  (6,429,238
  )
  (8,168,892
  )Net loss per share of common stock
  
  (0.56
  )
  (0.42
  )
  (0.28
  )
  (0.35
  )   (1) The net loss applicable to common stock
in the first quarter of the year ended September 30, 2002 included a non-cash
expense of $28,179,466 as a result of the Companys adoption of the provisions
ofStatement of Financial Accounting Standard (SFAS) No. 142, Goodwill
and Other Intangible Assets. See Note 2 Summary of Significant Accounting
Policies for further information.  PRICE RANGE OF COMMON STOCK (UNAUDITED)  The Companys common stock currently trades
on both the Nasdaq National Market (Nasdaq) under the symbol MAXM and the
OM Stockholm Exchange under the symbol MAXM.ST. The following table shows the
high and low sales price for the common stock by quarter, as reported by the
Nasdaq for the periods indicated:   56 
    Price
  RangePeriod
  
  High
  
  LowFiscal Year Ended September 30, 2002First Quarter
  
  $
  7.50
  
  $
  3.88Second Quarter
  
  7.04
  
  5.24Third Quarter
  
  5.60
  
  3.19Fourth Quarter
  
  3.40
  
  2.13Fiscal Year Ended September 30, 2001First Quarter
  
  $
  60.44
  
  $
  5.16Second Quarter
  
  9.19
  
  5.00Third Quarter
  
  9.34
  
  6.17Fourth Quarter
  
  6.42
  
  3.83  On December 5, 2002, the last reported sales
price of the Common Stock, as reported by the Nasdaq, was $3.56 per share. As
of such date, there were approximately 228 holders of record of the Common
Stock. The Company has not paid cash dividends on its common stock and has no
intention to do so in the foreseeable future.   57 
   INDEPENDENT AUDITORS REPORT  The
Board of Directors Maxim
Pharmaceuticals, Inc.:  We have audited the accompanying consolidated balance
sheets of Maxim Pharmaceuticals, Inc. and subsidiaries (a development stage
company) as of September 30, 2002 and 2001, and the related consolidated
statements of operations, stockholders equity, and cash flows for each of the
years in the three-year period ended September 30, 2002 and for the period from
inception (October 23, 1989) through September 30, 2002. These consolidated
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.  We
conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.  In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Maxim Pharmaceuticals,
Inc. and subsidiaries (a development stage company) as of September 30, 2002
and 2001, and the results of their operations and their cash flows for each of
the years in the three-year period ended September 30, 2002 and for the period
from inception (October 23, 1989) through September 30, 2002, in conformity
with accounting principles generally accepted in the United States of America.  As
discussed in Note 3 to the consolidated financial statements, in 2002 the
Company has adopted the provisions of SFAS No. 142 "Accounting for
Goodwill and Other Intangible Assets" and accordingly has changed it
method of accounting for goodwill.  /s/
KPMG LLP  San
Diego, California November 15, 2002, except
for note 18 which is as of 
December 8, 2002    58 
   LETTER TO SHAREHOLDERS  To Our Shareholders, Collaborators and Associates:  During this year we have built our late-stage clinical
program as we move toward the first commercialization of Ceplene.  Key among the many milestones achieved was
the commencement in January 2002 of the confirming Phase 3 clinical trial
designed to support approval of Ceplene for the treatment of metastatic
melanoma.  Our first Phase 3 trial in
advanced metastatic melanoma demonstrated a significant improvement in survival
as highlighted in two publications this year in the prestigious Journal of Clinical Oncology.  Our efforts to improve patient care in the
multi-billion-dollar hepatitis C market also passed a key milestone in October
2002 when theData Safety Monitoring Board
responsible for reviewing our Phase 2 trial of Ceplene hepatitis C nonresponder
patients concluded that there were no safety concerns associated with the
study.  During the
year we also commenced two clinical studies of our MX8899 topical gel for the
treatment of side effects of certain cancer therapies, oral mucositis and
radiation dermatitis.  Ceplene - Clear Path to
Approval in Melanoma  The approval process for Ceplene in advanced
metastatic melanoma is well defined, and we are pleased that we are progressing
with what is designed to be the final Phase 3 trial expected to support
approval of Ceplene for the treatment of melanoma.  The combination of Ceplene and IL-2 is currently being tested in
a confirming Phase 3 trial designed to support (in combination with the results
from our first Phase 3 trial) approval in the U.S. and other countries.  The FDA reviewed and accepted the protocol
for the current Phase 3 trial under its Special Protocol Assessment
procedures and gives us a higher level of assurance that the trial will be an
adequate and well-controlled study when conducted in accordance with the
approved protocol.  These
advancements on the regulatory front are complemented by the growing
appreciation for the strength of the clinical data from the first Phase 3 trial
of Ceplene in melanoma.  In November
2002, during the 27th European Society of Clinical Oncology (ESMO)
conference in Nice, France, researchers presented updated results from our U.S.
Phase 3 trial of Ceplene in combination with IL-2 for the treatment of advanced
metastatic melanoma patients.  The
36-month results demonstrated that the intent-to-treat population of all 305
patients randomized into the trial demonstrated a statistically significant improvement
in survival for patients treated with the combination of Ceplene and IL-2
(p=0.037) compared to the control patients treated with IL-2.  The 36-month data also demonstrated that the
Ceplene/IL-2 combination significantly increased survival in the population of
advanced metastatic melanoma patients with liver metastases   59 
   (p=0.003).  The results fromthe Phase 3 trial were the subject of two publications
this year in the Journal of Clinical Oncology.  Hepatitis
C Triple-Drug Trial Passes First Hurdle  Hepatitis C is a global medical problem, and
reports suggest that the market for drugs to fight this disease will grow from
$2 billion to as high as $7 billion by 2011. 
At the beginning of this fiscal year we advanced our hepatitis C
development program by commencing a Phase 2 trial of Ceplene in triple-drug
combination therapy with Peg-Intron and Rebetol for the treatment of
nonresponder hepatitis C patients.  We
also entered into an agreement under which Schering Corporation will supply
Peg-Intron and Rebetol product and perform the viral testing for the Phase 2
study at no cost to Maxim.  In September 2002 the Data Safety Monitoring Board
(DSMB) responsible for reviewing our Phase 2 trial concluded that there have
been no safety concerns associated with the triple-drug combination of Ceplene,
Peg-Intron and Rebetol, and that the trial should proceed under its approved
protocol.  This report from the DSMB is an important step in the development of Ceplene
as this study represents the first time that Ceplene has been administered in
humans in combination with Peg-Intron and Rebetol for the treatment of
hepatitis C.  We are pleased that
initial results from this Phase 2 study support the feasibility of adding
Ceplene to the current standard of care in an attempt to improve the treatment
of hepatitis C patients who have failed prior treatments.  In September 2002,
the results from our first Phase 2 trial of Ceplene in treatment-naïve
hepatitis C patients were published in the Journal
of Viral Hepatitis. The researchers concluded thatthe addition of
Ceplene as a combination therapy with interferon for patients with chronic
hepatitis C is safe, feasible, and deserves more advanced clinical development.  Cancer
Supportive Care  During the second half of 2002, we commenced
two clinical trials of our MX8899 topical gel in patients who suffer from oral
mucositis and radiation dermatitis, both of which are side effects of certain
cancer therapies.  An
effective treatment for oral mucositis and radiation dermatitis would address a
large unmet medical need in a substantial commercial market.  A product that would assist patients with
these painful conditions fits well with our mission of maintaining the quality
of patients lives during therapy, and would fit strategically with our
proposed commercialization plans for Ceplene in oncology.  Experienced
Pharmaceutical Management Team  We believe that
our strong financial resources and experienced management team provide a solid
foundation for commercializing multiple products.During 2002 weattracted additional key
pharmaceutical  management in the areas
of drug   60 
   development, clinical operations, regulatory
affairs and project management. 
Included among these new additions are:  Dr. Philippe Prokocimer, M.D.,
Vice President, Drug Development, who is heading up our extensive product
development activities.  Prior to
joining us, Dr. Prokocimer served as Vice President, Clinical Development,
Regulatory Affairs and Operations for Aventis Pharmaceuticals.  Anthony Altig has joined the Company as Vice President, Finance and Chief Financial Officer, and is responsible for the overall management of our financial activities, including financing strategy, financial reporting, investor relations, budgeting, treasury, tax planning and risk management.  Mr. Altig brings to Maxim over 20 years of experience with biotech and high technology companies.  Richard Lowenthal, Senior Director, Worldwide Regulatory Affairs, has assumed responsibility for the development and implementation of regulatory strategies to intended to accelerate development and approval of our drug candidates throughout the world.  Mr. Lowenthal served as a Global Director of Regulatory Affairs for Janssen Research Foundation, a Johnson & Johnson, Inc. company, and New Drug Review Chemist with the U.S. Food and Drug Administration.  Furthermore, as highlighted by the breadth of
scientific presentations illustrated throughout this report,our motivated
team is assisted by a group of world-renowned scientific and clinical
investigators.  Corporate
Governance  In light of recent media coverage of corporate failures and expanded
securities regulations, I wanted to provide you an update regarding the
corporate governance practices of Maxim and our Board of Directors.  Personally, I have beenactive for more
than a decade in this area and participated in leading an organization
dedicated to improving the functionality of corporate boards and the promotion
of good corporate governance.  We are
proud of the fact that Maxim had already implemented a number of good corporate
governance practices well in advance of the recent external pressure to do
so.  Maxims corporate governance
practices include: All directors other than the Chief Executive Officer are independent of
management Board committees are comprised solely of independent directors Independent directors meet separately from management with a lead
director Committees may use their own independent consultants Ethical standards and culture are established from the top of our
organization Annual
director education is supported   61 
   Key Objectives for 2003  We have established a well-defined set of six goals
for Maxim to ensure the advancement of our key, high-value programs while
operating at a prudent level of resource allocations.  The majority of our objectives relate to accelerating the
development and approval of Ceplene for the treatment of advanced metastatic
melanoma and hepatitis C.  Key 2003
objectives designed to achieve these product approvals are as follows:  Complete enrollment of the
Ceplene M0104 confirming Phase 3 advanced metastatic melanoma trial.  Complete
enrollment of the Ceplene M0406 Phase 2 hepatitis C nonresponder trial.  Evaluate the
potential filing of an application in the European Union for approval to market
Ceplene for advanced metastatic melanoma.  Advance
development of oral delivery formulation of histamine.  We also have two important goals related to
the commercialization of our technologies.  Initiate a
corporate partnering to assist with the development and marketing of Ceplene.  Initiate a corporate partnering
for the apoptosis modulator technology platform.  Retaining
a substantial value from the marketing rights for Ceplene remains a cornerstone
of our commercialization strategy.  We
believe that the development of Ceplene has reached the stage were we can
initiate a pharmaceutical partnership that will provide resources and other
support in our development efforts while allowing us to retain substantial
value from of the commercial rights.  *              *              *              *              *  Our efforts bring
us into extensive contact with doctors, nurses, and patients who highlight for
us the critical need for improved drugs and the importance of our drug
development programs.  We look forward
to reporting to you throughout 2003 our progress toward meeting our key
corporate objectives.We thank our
shareholders, collaborators, healthcare providers, patients and associates for
your continued loyalty, interest and support as we move into the future.  Sincerely,  Larry G. Stambaugh Chairman and Chief Executive Officer  62 
   CORPORATE INFORMATION
  OFFICERSLarry G. Stambaugh Chairman
  of the Board,  President
  and Chief Executive Officer
  Kurt
  R. Gehlsen, Ph.D.Senior
  Vice President andChief
  Scientific Officer
  Anthony
  E. AltigVice President, Finance Chief Financial Officerand Corporate Secretary
  Philippe
  G. Prokocimer, M.D.Vice
  President,Drug
  Development
  Pam
  G. Gleason Vice
  President, Human Resources
  Karl-Hermann
  BremeyerVice
  President,European
  Operations
  Dale
  A. SanderVice
  President, Corporate Development
  DIRECTORSLarry G. StambaughChairman
  of the Board,President
  and Chief Executive Officer
  Gary
  E. FrashierFormer
  ChairmanOSI
  Pharmaceuticals, Inc.
  Theodor
  H. HeinrichsFormer
  General Partner,Hambrecht
  & Quist Life Science Venture
  Per-Olof
  MårtenssonChairman,Karo
  Bio AB
  F.
  Duwaine TownsenManaging
  PartnerEndpoint
  Late-Stage Ventures andVentana
  Growth Funds
  
  CORPORATE HEADQUARTERS8899 University Center Lane, Suite 400
  San Diego, California  92122
  tel. 858-453-4040
  fax 858-453-5005www.maxim.com
  10-K AVAILABILITYA copy of the Companys annual report to the Securities and Exchange
  Commission on Form 10-K for the fiscal year ended September 30, 2002, without
  exhibits, will be made available free of charge to any stockholder upon
  written request to:
  Corporate Secretary
  Maxim Pharmaceuticals, Inc.
  8899 University Center Lane, Suite 400
  San Diego, California  92122
  STOCK LISTINGThe shares of the Companys common stock are traded on the Nasdaq National
  Market under the symbol MAXM, and on the OM Stockholm Exchange under the
  symbol MAXM.ST.
  TRANSFER AGENTAmerican Stock Transfer & Trust Company
  40 Wall Street
  New York, New York 10005
  CORPORATE COUNSELCooley Godward LLP
  4401 Eastgate Mall
  San Diego, California 92121-1909
  Arnold
  & Porter555 Twelfth Street, NW
  Washington, DC 20004-1206
  INDEPENDENT AUDITORSKPMG LLP
  750 B Street, Suite 1500
  San Diego, California  92101   63 
   THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING
STATEMENTS INCLUDE STATEMENTS REGARDING THE RESULTS OF PRODUCT DEVELOPMENT
EFFORTS AND CLINICAL TRIALS, AND THE SCOPE AND SUCCESS OF FUTURE OPERATIONS.
SUCH STATEMENTS ARE ONLY PREDICTIONS AND OUR ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS
THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED UNDER RISK FACTORS AND ELSEWHERE IN OUR ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED SEPTEMBER 30, 2002, AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, INCLUDING THE UNCERTAINTIES ASSOCIATED WITH PRODUCT
DEVELOPMENT, THE RISK THAT PRODUCTS THAT APPEARED PROMISING IN EARLY CLINICAL
TRIALS DO NOT DEMONSTRATE EFFICACY IN LARGER-SCALE CLINICAL TRIALS, THE RISK
THAT WE WILL NOT OBTAIN APPROVAL TO MARKET OUR PRODUCTS, THE RISK THAT PLANNED
CLINICAL TRIALS WILL NOT COMMENCE ON A TIMELY BASIS, IF AT ALL, THE NEED FOR
ADDITIONAL FINANCING, AND THE DEPENDENCE UPON COLLABORATIVE PARTNERS.    64