<PAGE>

                                                                  EXHIBIT 13.1


[INSIDE FRONT COVER AND FIRST PAGE]


Maxim is developing advanced drugs and vaccines for cancer and infectious
diseases.  Global awareness of our lead drug MAXAMINE-TM- continues to grow as
the immuno-modulator is now in three Phase III cancer trials in 12 countries
around the world.



1998 MILESTONES - MOVING TOWARD GLOBAL COMMERCIALIZATION

-    Commenced an international Phase III clinical trial of MAXAMINE THERAPY-TM-
     for the treatment of advanced malignant melanoma in Europe, Australia and
     Canada.

-    Commenced a Phase III clinical trial of MAXAMINE THERAPy in acute
     myelogenous leukemia (AML) in the United States, Europe, Australia, Canada
     and Israel.

-    Expanded the body of human data highlighting the potential benefits of
     MAXAMINE THERAPY, including updated Phase II AML clinical results
     suggesting substantial increases in leukemia-free remission times.

-    Completed our first three corporate collaborations with Chiron Corporation,
     Amgen Inc., and BioNative AB.

-    Commenced a Phase II trial of MAXAMINE THERAPY in the treatment of advanced
     renal cell carcinoma, and released pilot study data suggesting that
     MAXAMINE has the potential to improve the treatment of renal cell patients.

-    Completed a Phase I trial of MAXAMINE THERAPY in the treatment of hepatitis
     C patients, demonstrating safety and suggesting that MAXAMINE has the
     potential to benefit the treatment of this wide-spread disease.

-    Completed a $35 million secondary offering, and expanded our shareholder
     base with a listing in Europe on the Stockholm Stock Exchange (SSE) to
     complement our United States AMEX listing.

-    Expanded our product pipeline by advancing the development of MAXDERM-TM-
     for dermatological and other topical applications.

-    Developed prototype vaccines candidates with our MAXVAX-TM- technology, and
     published two studies highlighting its feasibility as a carrier.


Note:  MAXAMINE, MAXAMINE THERAPY, MAXDERM, MAXVAX and the Maxim logo are
trademarks of Maxim Pharmaceuticals, Inc.


                                      1


<PAGE>

TO OUR SHAREHOLDERS, COLLABORATORS AND ASSOCIATES:


We began Fiscal 1998 with one Phase III cancer trial of MAXAMINE underway and 
with the goal of rapidly advancing the global commercialization of this 
important drug candidate.  Now, in December 1998, clinicians in 12 countries 
are treating patients with MAXAMINE in three Phase III cancer trials.  During 
the last year we also completed three corporate collaborations to assist with 
our development efforts.  We believe that these results and other 
accomplishments during the year clearly achieved our goal of moving closer to 
a potential global launch of MAXAMINE.  It is apparent from our discussions 
with doctors, nurses and patients that there is a vital need for this 
prospective treatment for cancer and infectious diseases such as hepatitis C. 

During 1998 we also expanded our product pipeline, including the advancement 
of the MAXDERM technology for dermatological and other topical therapies.  We 
also moved the MAXVAX technology closer to the clinic as we work toward the 
development of a new class of vaccines.

MAXAMINE PROGRESSES TOWARD GLOBAL LAUNCH

In February 1998 we commenced our third Phase III clinical trial of MAXAMINE,
initiating an international study in Acute Myelogenous Leukemia on three
continents.  This trial complements the two ongoing Phase III trials in advanced
malignant melanoma initiated previously.  Each of these trials are designed to
independently support regulatory submissions for approval to market MAXAMINE. 
We believe that conducting three concurrent Phase III cancer trials of MAXAMINE
THERAPY around the world increases the prospects the commercial success of
MAXAMINE.

In November 1998 clinicians presented updated clinical results from our Phase 
II study of MAXAMINE as a remission therapy in patients with AML at a large 
international hematology meeting.  In a disease where only 20-25% of the 
patients would be expected to be alive after two years, more than half the 
patients treated with MAXAMINE remain leukemia-free.  The number of clinical 
sites -- more than 100 -- that have approached Maxim and agreed to 
participate in this trial has greatly exceeded our expectations.  We believe 
that this interest results from the combination of the promising data we have 
seen in the Phase II trial, and the fact that this population of patients has 
limited options for therapy today. 

PROMISING RESULTS AND EXPANDED TESTING IN CANCER

Those of you who have followed Maxim know that MAXAMINE THERAPY has shown 
great promise in extending survival and disease-free remission times in a 
series of Phase II trials in patients with advanced-stage malignant melanoma 
and AML. Although these indications represent the initial disease targets for 
MAXAMINE, they are not the only potential uses for the drug.

In November 1998 we initiated a Phase II clinical trial of MAXAMINE THERAPY 
in the treatment of patients with advanced renal cell carcinoma (RCC).  A 
small pilot study of MAXAMINE THERAPY in the treatment of RCC suggested that 
patients treated with MAXAMINE survived longer than patients treated with the 
standard of care.  We are excited to further test MAXAMINE THERAPY in this 
patient group as conventional therapies have not improved overall survival 
for this patient group.


                                       2

<PAGE>


A 1998 publication of research in the BRITISH JOURNAL OF CANCER suggests that 
MAXAMINE potentiates the anti-tumor efficacy of interleukin-2 in treating 
established prostate adenocarcinoma in rats.  In the report, a team of 
researchers at the Department of Oncology, University of Umea, Sweden, showed 
that MAXAMINE may also enhance the benefit of radiotherapy of prostate cancer 
tumors.  Based on these results, new approaches to treating advanced prostate 
cancer may be possible.

This new clinical and preclinical data adds to a growing body of research 
that supports the potentially broad applicability of the immuno-modulating 
attributes of MAXAMINE.  We expect to continue the expansion of our clinical 
development program into other cancers, most likely in collaboration with our 
marketing partners and other corporate collaborators.  We also expect to 
advance this basic immuno-enhancing technology further into infectious 
diseases, including an area of great need, hepatitis C.

HEPATITIS C

In June 1998 we released the results of our Phase I trial in hepatitis C 
(HCV). The study indicated that the combination of MAXAMINE with 
interferon-alpha (IFN-[ALPHA]) is safe in the treatment of HCV patients, and 
that MAXAMINE may enhance the efficacy of IFN-[ALPHA] in patients who were 
previously nonresponsive to IFN-[ALPHA] therapy.  These results further support 
the underlying mechanism of action of MAXAMINE as a potential immuno-modulator 
for biotherapeutic treatment of viral infections.  

These data encourage us to continue our clinical development of MAXAMINE for 
use in the treatment of hepatitis C and possibly other viral infections.  
With at least 60 million people infected with HCV world wide, and existing 
therapies that are ineffective in the majority of patients, a critical need 
exists for a tremendous number of patients.  We expect to start a Phase II 
trial in hepatitis C in 1999. 

CORPORATE COLLABORATIONS AND PREPARATION FOR MARKET LAUNCH

As we move closer to the potential market launch of MAXAMINE, we are 
undertaking the activities required to prepare for launch, including market 
evaluations, reimbursement analysis and selection of potential marketing 
partners.  During 1999 we expect to complete and announce our selection of 
marketing partners in key regions of the world.  In the United States we are 
preparing for the direct launch of the product ourselves.

Our corporate collaboration activities in 1998 highlight our belief that 
MAXAMINE, a combination therapy, is complementary rather than competitive 
with many drugs and may be key to successful biotherapy.  During 1998 we 
entered into clinical collaborations with Chiron Corporation, Amgen Inc. and 
BioNative AB. Each of these companies have cytokines whose efficacy may be 
enhanced by using them in combination with MAXAMINE.  Under each of these 
agreements, we received economic and other support for important clinical 
trials without giving up any marketing or other future rights to MAXAMINE.


                                      3


<PAGE>

EXPANDING OUR PRODUCT PIPELINE

During the year we acquired and developed technologies that we believe will 
allow for the development of MAXDERM, a MAXAMINE-related technology for 
dermatological and other topical treatments.  A study in patients with herpes 
labialis (cold sores) that showed that MAXDERM resolved lesions more 
effectively than a placebo control.  We believe that other potential 
applications for MAXDERM include oral mucositis, shingles, burns and other 
dermatological applications.

During 1988 we have also advanced the preclinical development of our MAXVAX 
mucosal vaccine carrier/adjuvant technology.  Two 1998 publications in 
INFECTION AND IMMUNITY described a human study and a preclinical study, both 
of which support the feasibility and potential benefits of using MAXVAX as a 
carrier for a new class of needle-free vaccines.
                                       
                              *   *   *   *   *

In last year's report we highlighted our goal of building a company whose 
products EXTEND LIFE...WITH QUALITY.  During the past year we expanded the 
breadth of our development efforts while moving closer to potential market 
launch. During 1999 we hope to maintain and build upon this momentum and 
prepare for the worldwide commercialization of MAXAMINE.  We thank our 
long-standing shareholders, collaborators, healthcare providers, patients and 
associates for their continued loyalty, interest and support, and 
enthusiastically look forward to 1999.

Sincerely,



Larry G. Stambaugh
Chairman and Chief Executive Officer


                                      4

<PAGE>

MAXAMINE THERAPY:  KEY TO BIOTHERAPY
          
THE RESULTS FROM AN EXTENSIVE SERIES OF CLINICAL TRIALS OF MAXAMINE THERAPY 
IN CANCER PATIENTS SUGGEST A SUBSTANTIAL IMPROVEMENT IN PATIENT SURVIVAL AND 
REMISSION TIMES WHILE MAINTAINING QUALITY OF LIFE DURING THERAPY. 

Maxim's lead drug, the immuno-modulator MAXAMINE, is designed to offer a 
safer treatment that extends life for seriously ill patients.  MAXAMINE may 
be key to biotherapy -- the use of the body's immune system to fight cancer 
and infectious diseases.  

The results of an extensive series of clinical trials of MAXAMINE in the 
treatment of malignant melanoma and acute myelogenous leukemia suggest a more 
than doubling of survival and remission times in patients treated with 
MAXAMINE. Earlier-stage clinical studies have also suggested promise for the 
use of MAXAMINE in treating renal cell carcinoma and hepatitis C.  Because 
MAXAMINE THERAPY capitalizes upon and enhances the patient's own immune 
capabilities, it has the potential to be used in a wide range of cancers and 
infectious or other diseases that can be recognized by the immune system.

MAXAMINE CURRENT CLINICAL TRIAL STATUS
                                       
                                    [GRAPH]


The potential broad use of MAXAMINE is further expanded by the fact that the 
drug may be complementary to many other biotherapeutic agents.  MAXAMINE 
THERAPY combines the administration of MAXAMINE, which PROTECTS critical 
immune cells, with the administration of biotherapeutic agents designed to 
STIMULATE these immune cells.  Accordingly, MAXAMINE and these biotherapeutic 
agents are not


                                      5

<PAGE>

competitive but play complementary and synergistic roles in enhancing the immune
system as combination therapies.  

There are a number of biotherapeutic agents currently available or under 
development, but many have achieved only modest effectiveness in most cancers 
or infectious diseases as single-agent therapies.  The results of a series of 
clinical trials conducted to date highlight the potential of combination 
therapies using MAXAMINE to improve the efficacy of certain biotherapeutic 
agents.  Because MAXAMINE'S basic mechanism may benefit many complementary 
drugs, we believe that continuing improvements in the field of biotherapy, 
such as the development of sustained-release cytokines or tumor vaccines, may 
result in greatly expanded opportunities for the use of MAXAMINE. 

PATIENT QUALITY OF LIFE

THE ABILITY TO PROVIDE REMISSION THERAPY ON AN OUTPATIENT, AT-HOME BASIS IS 
ESSENTIAL TO ALLOW THE PATIENTS TO MAINTAIN AS CLOSELY AS POSSIBLE THEIR 
NORMAL LIFESTYLE.

In addition to extending survival, maintaining the quality of the patient's 
life during treatment is an important objective of MAXAMINE THERAPY.  Cancer 
and chronic infectious diseases afflict millions of people worldwide, yet 
available treatments can be ineffective, harsh and costly.  MAXAMINE THERAPY 
is designed to allow self-administered treatment by patients in their own 
home, and is believed to reduce toxic side effects of cytokines and other 
biotherapeutic agents.

In a Phase II study of MAXAMINE in the treatment of AML, 39 patients 
administered more than 8,000 doses of MAXAMINE at home.  The majority, 75%, 
of the evaluable patients returned to work while taking MAXAMINE THERAPY.  
"Quality of life is very important for AML patients during remission," said 
Dr. Mats Brune, Department of Hematology, Sahlgrenska University Hospital, 
Goteborg, Sweden, principal investigator in the Phase II study.  "The ability 
to provide remission therapy on an outpatient, at-home basis is essential to 
allow the patients to maintain as closely as possible their normal lifestyle."


                                      6

<PAGE>

HOW MAXAMINE THERAPY WORKS 

MAXAMINE, an immuno-modulator, is based on a naturally occurring molecule.  
Its usefulness in biotherapy was discovered by Maxim's collaborative 
scientists at the University of Goteborg, Sweden.  Two kinds of immune cells, 
natural killer-cells (NK Cells) and cytotoxic T Cells, possess an ability to 
kill and support the killing of cancer cells and virally infected cells.  
Cytokines, such as interleukin-2 (IL-2) and interferon-alpha (IFN-[ALPHA]), are 
potent stimulators of NK Cells and T Cells, yet they are often rendered 
ineffective in the treatment of patients as the NK Cells and T Cells are 
suppressed by phagocytes, another component of the body's immune system.  
MAXAMINE is designed to modulate the immune system to protect NK Cells and T 
Cells, making biotherapy more effective.

[Insert Most Current Mechanism Illustration - "Programmed Cell Death of NK Cells
Without Maxamine"]



THE RELEASE OF FREE RADICALS BY PHAGOCYTES RESULTS IN APOPTOSIS (PROGRAMMED CELL
DEATH) OF NK CELLS AND T CELLS, THEREBY DESTROYING THEIR KILLING (CYTOTOXIC)
CAPABILITY AND RENDERING THE IMMUNE RESPONSE AGAINST THE TUMOR OR VIRALLY
INFECTED CELL LARGELY INEFFECTIVE.  THESE PHAGOCYTES, A CLASS OF WHITE BLOOD
CELLS, ARE FOUND IN ABUNDANT QUANTITIES AT THE SITE OF TUMORS OR VIRAL
INFECTIONS. 



[Insert Most Current Mechanism Illustration - "Maxamine Immuno-Modulator
Technology"]



MAXAMINE, A NATURALLY OCCURRING MOLECULE, ATTACHES TO PHAGOCYTES AND PREVENTS
THE PRODUCTION AND RELEASE OF FREE RADICALS, THEREBY ALLOWING IMMUNE-ACTIVATING
AGENTS, SUCH AS IL-2 AND IFN-[ALPHA], TO MORE EFFECTIVELY ACTIVATE NK CELLS AND
T CELLS TO ENHANCE THE KILLING OF TUMOR CELLS OR VIRALLY INFECTED CELLS.

Because MAXAMINE has been shown to increase the effectiveness of cytokines,
lower doses of cytokines such as IL-2 and IFN-[ALPHA] can potentially be used in
MAXAMINE THERAPY without compromising therapeutic effectiveness, thereby
reducing serious side effects associated with the cytokines.  Among the benefits
of MAXAMINE THERAPY is the utilization and enhancement of the body's immune
capabilities, thereby making the treatment potentially applicable to a broad
range of cancers and infectious diseases recognizable by the immune system.


                                       7

<PAGE>

GROWING BODY OF CLINICAL TRIAL RESULTS FOR MAXAMINE THERAPY

For several years we have seen survival benefits in the series of Phase II 
clinical trials we conducted with MAXAMINE in malignant melanoma and acute 
myelogenous leukemia.  One of our goals for 1998, however, was to further 
expand the body of data supporting the potential benefit of MAXAMINE into 
other diseases.  During 1998 clinical results were released showing the 
potential benefit of MAXAMINE in renal cell carcinoma and hepatitis C, as was 
preclinical data suggesting the potential for use in prostate adenocarcinoma.

MALIGNANT MELANOMA

Malignant melanoma is one of most rapidly increasing cancers in the developed 
world, with more than 300,000 cases in the United States, Europe and 
Australia. In two completed Phase II trials using MAXAMINE THERAPY in the 
treatment of advanced malignant melanoma, overall survival times more than 
doubled compared to conventional therapies.  Specifically, the median 
survival time for patients treated with MAXAMINE THERAPY in the two studies 
exceeded 13 and 15 months, respectively, compared to reported median survival 
times of six to seven months for conventional treatments.

Retaining the patient's quality of life was also an important outcome from the
second study.  In that study, the doses of the cytokines IL-2 and IFN-[ALPHA]
were lowered substantially, resulting in reduced side effects and making it 
possible for patients to self-administer MAXAMINE THERAPY in their home.

                                       
                                    [GRAPH]


Another very encouraging outcome of these two melanoma clinical trials was 
the improved survival seen in patients with liver metastases.  Malignant 
melanoma frequently metastasizes (spreads) to the liver in advanced-stage 
patients. Prognosis in these cases is poor, and the predicted survival time 
for malignant melanoma patients with liver metastasis is four months or less. 
 No therapy to date has reported significant improvements in this patient 
population. Remarkably, the median survival times of the seven patients with 
liver metastases treated with MAXAMINE THERAPY in the first two trials 
exceeded 19 months, more than four times longer than the predicted survival 
time for these patients.


                                      8

<PAGE>


ACUTE MYELOGENOUS 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 15,000 deaths caused by AML each year in 
the United States, Europe and Australia.  

Once diagnosed with AML, patients are typically treated with chemotherapy, and
the majority achieve complete remission ("CR").  Unfortunately 75-80% of
patients who achieve their first CR ("CR1") will relapse, and the median time in
remission before relapse is only 12 months with current treatments.  Relapsed
patients are typically treated again with chemotherapy, and many of these
patients die during chemotherapy.  Among those relapsed patients who do survive
treatment and achieve a second complete remission ("CR2"), these subsequent
remissions normally have a shorter duration than the prior CR (a median of only
6 months in the case of CR2 patients). 
 
The objective of MAXAMINE THERAPY is to treat AML patients in remission with a
combination of MAXAMINE and low doses of IL-2 to prevent relapse and prolong
leukemia-free survival while maintaining the quality of life for the patients
during treatment.  The intent is to augment the body's ability to scavenge and
attack residual leukemic cells.

In a Phase II study, patients treated in their first remission with MAXAMINE
THERAPY have experienced a substantial increase in leukemia-free survival,
highlighted by the following updated clinical results as of September 1, 1998:

-    58% (15 of 26) of all CR1 patients treated with MAXAMINE remained in
     leukemia-free remission.  A prior study of AML patients suggest that only
     20-25% of patients would be expected to be alive after two years.

-    65% (13 of 20) of AML patients without concurrent disease or antecedent
     illnesses treated with MAXAMINE remain in leukemia-free remission.

-    After a median of 24 months of follow up, the median time to relapse has
     not been reached in this study as more than 50% of the MAXAMINE-treated CR1
     patients remain leukemia-free.  By contrast, under the normal course for
     AML, the median time to relapse would be expected to be reached after only
     12 months.

These results were achieved despite the fact that the patients treated with
MAXAMINE were a relatively older group of patients and more than half (15 of 26)
of the patients were categorized as high risk for relapse.

Patients treated in their second or subsequent remission ("CR2+") historically
have a poor prognosis, with only about 5% achieving long-term survival.  The 13
CR2+ patients treated with MAXAMINE THERAPY in the Phase II study have
experienced a substantial increase in remission duration, and the median time to
relapse for the CR2+ patients was 21 months, more than three times the six-month
historic median.


                                      9

<PAGE>

                                    [GRAPH]

RENAL CELL CARCINOMA

There are currently approximately 150,000 cases of renal cell carcinoma 
(RCC), cancer of the kidneys, in the United States and Europe combined.  
Metastatic RCC often is resistant to radiation therapy and chemotherapy, and 
the disease results in more than 20,000 deaths each year in the United States 
and Europe. Market research conducted with oncologists suggests that RCC is a 
logical application for MAXAMINE THERAPY.  In addition, a pilot study of six 
RCC patients was conducted at the Sahlgrenska Hospital in Goteborg.  In the 
small study, three patients who were treated with MAXAMINE and cytokines 
(interferon-alpha and IL-2) achieved a mean survival of 29 months, while 
another three patients who were treated with the cytokines alone achieved a 
mean survival of only four months.  A Phase II RCC trial was initiated in 
late 1998.  

HEPATITIS C

Hepatitis C ("HCV"), a viral infection, is estimated to afflict 4 million people
in the United States and at least 60 million people worldwide.  It is a leading
cause of liver cirrhosis and liver cancer, and the primary reason for liver
transplantation.  IFN-[ALPHA] is the primary treatment for HCV, but even with 
recent advances in the use of IFN-[ALPHA] in combination with anti-viral drugs 
or in sustained release formulations, the majority of patients do not 
effectively respond to current therapy.

In June 1998 we reported results from a Phase I feasibility study in HCV
patients using MAXAMINE THERAPY.  The study indicated that the combination of
MAXAMINE with IFN-[ALPHA] is safe in the treatment of HCV patients, and that 
MAXAMINE may enhance the efficacy of IFN-[ALPHA] in patients who were previously
nonresponsive to IFN-[ALPHA] therapy.  In the study, 10 patients who were 
characterized as nonresponders to previous IFN-[ALPHA] treatment were put back 
on treatment with the same dose of IFN-[ALPHA] PLUS MAXAMINE.  Eight of the 10 
patients had a decrease in liver enzyme (ALT) levels, and two patients achieved
a complete normalization of ALT.  Patients treated with MAXAMINE plus IFN-
[ALPHA] also demonstrated statistically significant decreases of viral load and
ALT.  Based on these results and other support for the potential benefit of 
MAXAMINE in HCV, we plan to commence a Phase II trial in Hepatitis C in 1999.


                                       10

<PAGE>

THREE PHASE III CLINICAL TRIALS ADVANCE MAXAMINE 
TOWARD GLOBAL MARKET LAUNCH

THE PARTICIPATION OF MORE THAN 150 CLINICAL TRIAL SITES IN 12 COUNTRIES
HIGHLIGHTS THE INCREASING ACCEPTANCE OF THE POTENTIAL OF MAXAMINE.

Building on the success of the body of human data generated in the Phase II 
clinical trials, Maxim has initiated an aggressive clinical development 
program encompassing three concurrent Phase III clinical trials of MAXAMINE 
THERAPY for the treatment of cancer.  Each of these trials is designed to 
independently support regulatory submissions for approval to market MAXAMINE. 
 

Two Phase III malignant melanoma trials complement each other by addressing 
separate clinical and marketing issues.  The United States pivotal trial is 
designed to demonstrate that MAXAMINE THERAPY using IL-2 is better at 
extending patient survival than the administration of IL-2 alone.  We have 
achieved the original enrollment target for the trial and expect to cease 
enrollment in early 1999.  The second pivotal trial, centered in Europe, 
Australia and Canada, is designed to demonstrate that MAXAMINE THERAPY is 
better at extending patient survival than dacarbazine (DTIC), the most 
commonly used chemotherapeutic agent for the treatment of advanced malignant 
melanoma.  A secondary endpoint of both trials is to evaluate patient quality 
of life while on MAXAMINE THERAPY.

A Phase III AML clinical trial is underway in the United States, Europe, 
Australia, Canada and Israel.  The trial is designed to demonstrate that 
MAXAMINE THERAPY as a remission therapy can prevent relapse and prolong 
leukemia-free remission time in AML patients compared to the current standard 
of care, which is no therapy during remission.

The encouraging Phase II clinical trial data have facilitated our recruitment 
of leading cancer investigators on three continents to assist with these 
Phase III clinical trials.  The Company expects that a total of more than 900 
patients will be enrolled in these three trials combined.  Maxim is hopeful 
that these trials will lead to an international commercial launch of 
MAXAMINE, and help define a new focus in patient care characterized by the 
extension of patients' lives...with quality.

MAXAMINE THERAPY - PHASE III CLINICAL TRIALS

<TABLE>
<CAPTION>
                                                                   PROTOCOL
                                                           -------------------------                                 Approximate
    Disease                                  Date          MAXAMINE          Control                     Primary        Number
   Indication             Location        Initiated        THERAPY            Group        Duration     Endpoints    of Patients
   ----------             --------        ---------        --------          -------       --------     ---------    -----------
<S>                  <C>                  <C>          <C>                   <C>           <C>        <C>            <C>
                                                                                              (a)          (c)
Malignant Melanoma      United States      2nd Half        MAXAMINE           IL - 2        12 mos.     Survival,        300
                                             1997            +IL-2                                    QOL & Tumor
                                                                                                        Response

Malignant Melanoma       5 Countries       2nd Half        MAXAMINE            DTIC         12 mos.     Survival,        240
                     (Europe, Australia      1997     +IL-2 & IFN-[ALPHA]                             QOL & Tumor
                          & Canada)                                                                     Response

Acute Myelogenous       12 Countries       1st Half        MAXAMINE           SOC(d)        18/24     Leukemia-Free      400
Leukemia               (United States,       1998            +IL-2                         mos.(b)      Survival
                      Europe, Australia,                                                                   QOL
                      Canada & Israel)
</TABLE>

(a)  Expected duration of trial after completion of patient enrollment.
(b)  Up to 18 months for patients in CR2+ group, up to 24 months for patients in
     CR1 group.
(c)  QOL = quality of life.
(d)  SOC = standard of care.


                                      11

<PAGE>

ACHIEVING THE FULL POTENTIAL OF MAXAMINE THERAPY -- ADDITIONAL TARGET
INDICATIONS

Our Phase III trials target advanced-stage malignant melanoma and AML.  We
believe that these are only the first of a number of potential uses for the
drug.

In December 1998 we initiated a Phase II clinical trial of MAXAMINE THERAPY in
the treatment of patients with advanced renal cell carcinoma (RCC).  The trial
is designed to evaluate MAXAMINE THERAPY, consisting in this trial of the
combination of MAXAMINE, the natural cytokine Interferon Alfanative-Registered
Trademark- and IL-2, in the treatment of late-stage RCC patients.  Under the
trial design, approximately 40 patients are expected to be enrolled and treated
for a period of up to 9 months.  Conventional therapies have not improved
overall survival for patients with advanced renal cell carcinoma.
    
The favorable data from the feasibility study in hepatitis C (HCV) encourages us
to continue our clinical development of MAXAMINE for use in the treatment of
hepatitis C and other possible viral infections.  We expect to start a Phase II
trial in hepatitis C in 1999. 

A 1998 publication of research in the BRITISH JOURNAL OF CANCER suggests that
MAXAMINE potentiates the anti-tumor efficacy of interleukin-2 (IL-2) in treating
established prostate adenocarcinoma in rats.  In the report, a team of
researchers at the Department of Oncology, University of Umea, Sweden, showed
that MAXAMINE also may enhance the benefit of radiotherapy of prostate cancer
tumors.  Based on these results, new approaches to treating advanced prostate
cancer may be possible, and we will assess the merits of a clinical trial in
this disease.

We expect to continue the expansion of our clinical development program into
other cancers and infectious diseases, most likely in collaboration with our
marketing partners and other corporate collaborators.


                                       12

<PAGE>

CORPORATE COLLABORATIONS AND PREPARATION FOR GLOBAL MARKET LAUNCH

As we move closer to the potential market launch of MAXAMINE we are 
undertaking the activities required to prepare for launch, including the 
selection of corporate partners in key international markets.  Our strategy 
for the commercialization and global market launch of MAXAMINE has three 
primary components:

DEVELOPMENT COLLABORATIONS

During 1998 we entered into clinical collaborations with Chiron Corporation, 
Amgen Inc. and BioNative AB.  Each of these companies have cytokines that 
have the potential to benefit from use in combination with MAXAMINE, and 
under each of these agreements we receive economic and other support for 
important clinical trials without giving up any marketing or other future 
rights to MAXAMINE.  For example, Chiron is providing the IL-2 requirements 
and other assistance related to Maxim's Phase III AML clinical trial.  These 
collaborations highlight our belief that MAXAMINE, a combination therapy, is 
complementary rather than competitive with many existing and future drugs, 
and may be the key to successful immunotherapy or biotherapy.  We expect to 
pursue additional collaborations to further the expanded use and development 
of MAXAMINE.  

DIRECT MARKETING IN THE UNITED STATES  

The Company is preparing for the possibility of marketing MAXAMINE directly 
in the United States.  Our objective is to retain the full revenue stream 
from sales in this important market, and we are building a core marketing 
group experienced in planning and managing successful United States launches 
of pharmaceutical products.  We will defer the build-up of a major marketing 
infrastructure until assured of the timing of regulatory approval for 
MAXAMINE. As we move closer to the potential market launch of MAXAMINE, we 
are undertaking the activities required to prepare for launch including 
market evaluations, reimbursement analysis, and building awareness of the 
drug among leading clinicians.

MARKETING PARTNERSHIPS

Outside of the United States we are actively evaluating and selecting 
marketing partners for major geographic regions, including Europe and the 
Pacific Rim.  We believe that we have built significant value around MAXAMINE 
through our clinical development activities over the past several years, 
including the completion of multiple Phase II trials and the commencement of 
three Phase III trials.  By seeking marketing partners at this later stage of 
development, we believe that we may have a better opportunity to maximize our 
share of the revenue stream from the sales of MAXAMINE.  Our goal is to 
complete our selection of the first marketing partners for major regions of 
the world during 1999.


                                      13

<PAGE>

EXPANDING OUR PRODUCT PIPELINE

MAXDERM - DERMATOLOGICAL AND TOPICAL THERAPY

MAXDERM was developed to allow for topical delivery of the active ingredient 
in MAXAMINE.  The novel technology underlying MAXDERM is designed to modulate 
the patient's immune system  and inflammatory response to treat certain 
dermatological conditions and other topical applications.  MAXDERM 
encompasses certain acquired and internally developed technologies that 
include three patents and a number of patent applications covering certain 
material compositions and uses.  

A total of more than 75 patients have been treated in randomized, 
double-blinded, placebo-controlled pilot studies of MAXDERM.  A pilot study 
in patients with herpes labialis (cold sores) suggested that MAXDERM resolved 
cold sores more effectively than a placebo control.   Small pilot studies 
were also conducted in patients with oral mucositis, canker sores, pressure 
sores and shingles.  No safety concerns were noted in any of the patients, 
and in each of the studies suggested that MAXDERM promoted healing better 
than the placebo control. 

We believe that the MAXDERM technology gives us the opportunity to expand our 
product pipeline into therapies for a number of key medical conditions for 
which a topical delivery is preferred.  There are unmet needs in the 
treatment of herpes, oral mucositis, shingles and other dermatological 
ailments for which topical treatment is appropriate, and our plan is to 
evaluate MAXDERM in further clinical studies.

MAXVAX MUCOSAL VACCINE CARRIER

The Company's MAXVAX technology, currently in preclinical development, is 
designed to facilitate a new class of needle-free vaccines for major 
respiratory infections, sexually transmitted diseases and gastrointestinal 
tract diseases and other infectious diseases.  Most of today's vaccines are 
administered by injection and stimulate a protective immune response in the 
systemic immune system.  However, it is the mucosal membranes lining the 
nose, mouth, eyes, ears, lungs, intestinal and urogenital tracts where nearly 
85 percent of infectious diseases enter the body.  It is hoped that mucosal 
vaccines, using the MAXVAX carrier, can provide immune protection at these 
mucosal surfaces. 

(Insert illustration from last year's annual report showing (i) cholera toxin,
(ii) CTB, and (iii) the MaxVax system.) 

THE MAXVAX CARRIER/ADJUVANT IS BASED ON A RECOMBINANT FORM OF THE CHOLERA 
TOXIN B-SUBUNIT (RCTB).  CHOLERA TOXIN IS COMPRISED OF TWO SUBUNITS; THE 
A-SUBUNIT, WHICH IS THE KNOWN TOXIC PORTION OF THE MOLECULE, AND CTB, WHICH 
IS NON-TOXIC AND BINDS SPECIFICALLY TO THE GM-1 GANGLIOSIDE MOLECULE ON THE 
TARGET M-CELL OF THE MUCOSAE.  WE ARE DEVELOPING THE MAXVAX SYSTEM TO LINK 
TARGET ANTIGENS TO CTB. THE CTB-ANTIGEN CONJUGATE THEN BINDS SPECIFICALLY TO 
M-CELLS FOR PROCESSING AND PRESENTATION TO THE APPROPRIATE IMMUNE SYSTEM 
CELLS.


                                       14

<PAGE>

Two studies published in INFECTION AND IMMUNITY in 1998 highlighted the 
potential of MAXVAX.  The first was a human vaccination study that 
demonstrated mucosal antibody responses in female volunteers after nasal and 
oral application of rCTB, the technology underlying MAXVAX.  The results were 
important as they confirmed in humans the results of earlier animal studies 
in which rCTB has been shown to stimulate strong mucosal immune responses.  
The results also support the potential effectiveness of oral and nasal 
administration, the two most attractive routes for the delivery of mucosal 
vaccines.  Also published was a preclinical study that demonstrated the 
induction of specific mucosal immunity within the female reproductive tract.  
The study's vaccination regimen was a prototype for mucosal vaccination 
against human sexually transmitted diseases.  

Prototype MAXVAX-based vaccines are currently being tested in our 
laboratories. Our objective is to align ourselves with corporate 
collaborators possessing antigens for specific diseases that can be coupled 
to the MAXVAX carrier, and to develop vaccine candidates in collaboration 
with these partners.


                                      15

<PAGE>

OUR GOAL: NOVEL APPROACHES TO PATIENT CARE

We value the quality of patients' lives.  Too often the treatments for cancer
and some infectious diseases are as harsh as the illnesses themselves, forcing
patients to make a difficult choice of whether to continue their therapy.  By
focusing on safety and well-being as well as effectiveness of therapy, we are
developing treatments designed to extend survival and maintain the patient's
quality of life.  

Our lead drug MAXAMINE has shown substantial promise in Phase II trials and 
is currently in three international Phase III trials for cancer patients.  In 
completed and ongoing Phase II trials, patients have lived longer without 
debilitating side effects.  We are pleased that healthcare providers in 12 
countries throughout the world are currently treating their clinical patients 
with MAXAMINE.

We also believe that our other product candidates and technologies comprising 
our expanding pipeline have the potential to benefit patients with 
significant unmet medical needs.  We continue to believe that, by developing 
a portfolio of therapies that may redefine the future of patient care, we are 
strengthening Maxim's value for our shareholders.  

We hope to continue to build upon our growing momentum and prepare for the 
potential worldwide commercialization of MAXAMINE and our other product 
candidates.   


                                      16
<PAGE>

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

MAXIM PHARMACEUTICALS, INC. (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 STATEMENTS 
REGARDING CASH REQUIREMENTS AND YEAR 2000 ISSUES. 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 RISKS ASSOCIATED WITH 
CLINICAL TRIALS AND PRODUCT DEVELOPMENT, REGULATORY APPROVAL AND GOVERNMENT 
REGULATION OF THE COMPANY'S PRODUCTS, 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 ANNUAL 
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998.

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 MAXAMINE(TM) and MAXVAX(TM) product development programs. 
The Company conducts its research and product development efforts through a 
combination of internal and collaborative programs. For MAXAMINE, in addition 
to internal management and staff, the Company relies upon arrangements with 
universities, other clinical research sites and contract research 
organizations for a significant portion of its product development efforts. 
The majority of the basic research and development efforts related to MAXVAX 
were transferred to the Company's internal facilities during 1997, and prior 
to that time the Company conducted this research primarily through university 
laboratories. Oversight of all external and collaborative programs is 
conducted by the Company's executive officers and other staff from its 
headquarters located in San Diego, California.

Maxim's products are in the development stage and the Company does not expect 
revenue from product sales in the near future. The Company expects to 
continue to incur losses as it expands its research and development 
activities, particularly those relating to ongoing and planned Phase III and 
Phase II clinical trials using MAXAMINE THERAPY. The Company expects that 
losses will fluctuate from quarter to quarter and that 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, 1998, 1997 AND 1996

RESEARCH REVENUE - Research revenue consisting of collaborative support 
related to the Company's MAXAMINE clinical trials totaled $181,000 for the 
year ended September 30, 1998. There were no such revenues earned in the 
years ended September 30, 1997 or 1996.

RESEARCH AND DEVELOPMENT EXPENSES - For the year ended September 30, 1998, 
research and development expenses were $20,147,000, an increase of 
$14,793,000, or 276%, over the prior year. This increase was primarily 
attributable to increased activity related to late-stage cancer clinical 
trials of MAXAMINE, including clinical trial site and contract research 
organization costs, hiring additional clinical and development personnel, and 
other clinical costs. These clinical trials include a Phase III clinical 
trial in malignant melanoma commenced in the United States in July 1997, an 
international Phase III malignant melanoma clinical trial commenced in 
November 1997, and an international Phase III clinical trial in acute 
myelogenous leukemia commenced in February 1998. For the year ended September 
30, 1997, research and development expenses were $5,353,000, an increase of 
$3,744,000, or 233%, over the prior year, primarily due to increased activity 
in cancer clinical trials of MAXAMINE and an expansion of preclinical efforts 
for the MAXVAX mucosal vaccine technology.

BUSINESS DEVELOPMENT AND MARKETING AND GENERAL AND ADMINISTRATIVE EXPENSES -
Business development and marketing expenses for the year ended September 30,
1998 were $1,313,000, an increase of $929,000, or 242%, over the same period of
the prior year. This increase was due to additional personnel and other
resources devoted to 

                                       17

<PAGE>

preparation for the potential market launch of MAXAMINE, including corporate 
partnering efforts, market evaluations and third-party reimbursement 
evaluations. For the year ended September 30, 1998, general and 
administrative expenses were $2,660,000, an increase of $667,000, or 33%, 
over the prior year. This increase was in large part due to the increased 
personnel costs and general expenses associated with the Company's expanded 
operations. Business development and marketing expenses for the year ended 
September 30, 1997 were $384,000, an increase of $271,000, or 241%, over the 
prior year. General and administrative expenses for the year ended September 
30, 1997 totaled $1,993,000, an increase of $750,000, or 60%, over the prior 
year. Both of these increases resulted from the expanded activities described 
above.

OTHER INCOME (EXPENSE) - Investment income was $2,248,000 for the year ended 
September 30, 1998, an increase of $1,321,000 over the prior year, primarily 
resulting from income on the proceeds of the Company's follow-on public 
offering completed in October 1997. Investment income for the year ended 
September 30, 1997 totaled $927,000, an increase of $667,000 over the prior 
year, as a result of a full year of income on the proceeds of the Company's 
initial public offering completed in July 1996. Interest expense for the year 
ended September 30, 1998 was consistent with that of the prior year and 
totaled $89,000. Interest expense for the year ended September 30, 1997 
decreased $119,000, or 61%, to $78,000 compared to the prior year due to the 
repayment of $2,853,000 of notes payable and long-term debt subsequent to 
December 31, 1995. During the year ended September 30, 1996 the Company 
recorded a gain of $2,288,000 from the sale of a subsidiary of the Company.

NET LOSS - Net loss for the year ended September 30, 1998 totaled 
$21,855,000, an increase of $14,959,000 over the prior year. The increase was 
due to the expansion of research and development and general corporate 
activities described above, partially offset by the current year increase in 
investment income. Net loss for the year ended September 30, 1997 totaled 
$6,895,000, an increase of $6,062,000 over the prior year. Net loss per share 
of common stock for the year ended September 30, 1998 was $2.37, an increase 
of $1.34 over the prior year, due to the increase in net loss for the year 
offset partially by an increase in the number of shares of common stock 
outstanding. Net loss per share of common stock for the year ended September 
30, 1997 was $1.03, an increase of $.83 from the prior year, due to the 
increase in net loss for the year offset by an increase in the number of 
shares of common stock outstanding.

LIQUIDITY AND CAPITAL RESOURCES

The Company, as a development stage enterprise, anticipates incurring 
substantial additional losses over at least the next several years due to, 
among other factors, the need to expend substantial amounts on its ongoing 
and planned clinical trials, other research and development activities, and 
business development and general corporate expenses associated with these 
activities. The Company has financed its operations primarily through the 
sale of its equity securities, including an initial public offering in July 
1996 and an international follow-on public offering in October 1997 which 
provided net proceeds to the Company of approximately $18.2 million and $34.7 
million, respectively.

As of September 30, 1998, the Company had cash, cash equivalents and 
investments totaling approximately $35.8 million. For the years ended 
September 30, 1998, 1997 and 1996, net cash used in the Company's operating 
activities was approximately $14.8 million, $5.9 million and $2.7 million, 
respectively. The Company expects its cash requirements to increase 
significantly 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 the activities that are expected to result in an increase in cash 
requirements are three Phase III cancer clinical trials of MAXAMINE currently 
underway.

The Company's cash requirements may vary materially from those now planned 
because of the results and scope of clinical trials and other research and 
development activities, the time required to obtain regulatory approvals, the 
cost of filing, prosecuting, defending and enforcing patent claims and other 
intellectual property rights, the ability of the Company to establish 
marketing alliances and collaborative arrangements and the costs of the 
Company's internal marketing activities. As a result of these factors, it 
is difficult to predict accurately the timing and amount of the Company's cash
requirements. In order to successfully commercialize any of its products, the 
Company expects that it will ultimately be required to seek additional funds 
through public or private financings or collaborative arrangements with 
corporate 

                                       18

<PAGE>

partners. The issuance of additional equity securities 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 its capital requirements would have a material 
adverse effect on the Company's business, financial condition and results of 
operations. The Company has never paid a cash dividend and does not 
contemplate the payment of cash dividends in the foreseeable future.

IMPACT OF THE YEAR 2000 ISSUE

The Year 2000 issue is related to computer software utilizing two digits 
rather than four to define the appropriate year. As a result, any of the 
Company's computer programs or any of the Company's suppliers or vendors that 
have date sensitive software may incur system failures or generate incorrect 
data if "00" is recognized as 1900 rather than 2000.

The Company has determined that the computer systems utilized internally in 
its daily operations are Year 2000 compliant. The Company is in the process 
of verifying whether its major suppliers, service providers and financial 
institutions are Year 2000 compliant and expects to complete this review by 
March 31, 1999. The total cost of this process is expected to be less than 
$50,000. Although the Company has no material systems that interface directly 
with third party systems, there can be no assurance that the systems and 
networks of its key suppliers and service providers will not be affected by 
the Year 2000 issues, which could have an adverse effect on the Company's 
business, operating results and financial condition. In particular, the 
Company has engaged several third parties to retain and maintain all of the 
clinical, statistical and other information related to the Company's clinical 
trials. These third parties have indicated that they are aggressively working 
to identify and remediate any Year 2000 issues they may have, and that they 
expect to have any necessary remediation completed by December 1999. However, 
in the event these third parties' Year 2000 compliance efforts are 
unsuccessful, data relating to the Company's clinical trials could be 
destroyed or corrupted, which could have a material adverse effect on the 
Company's business, operating results and financial condition. In an effort 
to minimize the potential risks of the failure of such third parties' Year 
2000 efforts, the Company intends to archive data, both in electronic and 
paper formats, through December 1999, after which paper backup will be used. 
The Company's archival records will be updated on a monthly basis

NEW ACCOUNTING STANDARDS

In June 1997 the Financial Accounting Standards Board ("FASB") issued SFAS 
No. 130, "REPORTING COMPREHENSIVE INCOME." This statement established 
standards for reporting and display of comprehensive income and its 
components (revenues, expenses, gains and losses) in a full set of 
general-purpose financial statements. This statement is effective for fiscal 
years beginning after December 15, 1997. Reclassification of financial 
statements for earlier periods provided for comparative purposes is required. 
This statement, requiring only additional informational disclosures, is 
effective for the Company's fiscal year ending September 30, 1999. In June 
1997 the FASB issued SFAS No. 131, "DISCLOSURES ABOUT SEGMENTS OF AN 
ENTERPRISE AND RELATED INFORMATION." This statement established standards for 
the way that public business enterprises report information about operating 
segments in annual financial statements and requires that enterprises report 
selected information about operating segments in interim financial reports 
issued to stockholders. This statement is also effective for fiscal years 
beginning after December 15, 1997. In the initial year of application, 
comparative information for earlier years is to be restated. This statement, 
requiring only additional informational disclosures, is effective for the 
Company's fiscal year ending September 30, 1999. In February 1998 the FASB 
issued SFAS No. 132, "EMPLOYER'S DISCLOSURES ABOUT PENSIONS AND OTHER POST 
RETIREMENT BENEFITS." This statement specifies information to be disclosed by 
employers for defined benefit plans or defined benefit post retirement plans. 
This statement is effective for financial statement periods beginning after 
December 15, 1997. As of September 30, 1998 the Company has no defined 
benefit plans or defined benefit post retirement plans. In June 1998 the FASB 
issued SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING 
ACTIVITIES." This statement addresses hedging activities relating to changes 
in foreign exchange rates and other futures contracts. As of September 30, 
1998 the Company has no investments in derivatives.

IMPACT OF INFLATION

                                       19

<PAGE>

The impact of inflation on the operations of the Company for the years ended 
September 30, 1998, 1997 and 1996 was not material.








                                      20

<PAGE>

BALANCE SHEETS

MAXIM PHARMACEUTICALS, INC.  (A DEVELOPMENT STAGE COMPANY)

<TABLE>
<CAPTION>
                                                                                         As of September 30
                                                                             -------------------------------------------
                                                                                    1998                    1997
                                                                                    ----                    ----
<S>                                                                          <C>                     <C>
ASSETS
CURRENT ASSETS:
    Cash and cash equivalents                                                  $     11,217,429        $        447,523
    Short-term investments in marketable securities                                  21,031,568               9,389,690
    Accrued interest and other current assets                                         2,491,308                 576,836
                                                                             -------------------     -------------------
         Total current assets                                                        34,740,305              10,414,049

Investments in marketable securities                                                  3,519,554               2,322,398
Patents and licenses, net                                                             1,839,167               1,815,428
Property and equipment, net                                                           1,693,402                 718,988
Deposits and other assets                                                               229,157                 586,893
                                                                             -------------------     -------------------
         Total assets                                                          $     42,021,585        $     15,857,756
                                                                             -------------------     -------------------
                                                                             -------------------     -------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
    Accounts payable                                                           $      9,014,831        $      1,082,038
    Accrued expenses                                                                    374,652                 597,388
    Note payable                                                                        176,784                 102,161
    Current portion of long-term debt                                                   361,675                 127,712
                                                                             -------------------     -------------------
      Total current liabilities                                                       9,927,942               1,909,299

    Long-term debt, less current portion                                                977,213                 555,229

STOCKHOLDERS' EQUITY:
    Preferred stock, $.001 par value, 5,000,000 shares authorized:                            -                       -
      none issued or outstanding.
    Common stock, $.001 par value, 20,000,000 shares authorized; 9,885,576 and
      6,678,631 shares issued and outstanding at
      September 30, 1998 and 1997, respectively.                                          9,886                   6,679
    Additional paid-in capital                                                       73,807,327              34,269,514
    Deficit accumulated during the development stage                                (42,686,624)            (20,832,052)
    Deferred compensation                                                               (14,159)                (50,913)
                                                                             -------------------     -------------------
      Total stockholders' equity                                                     31,116,430              13,393,228
                                                                             -------------------     -------------------
         Total liabilities and stockholders' equity                            $     42,021,585        $     15,857,756
                                                                             -------------------     -------------------
                                                                             -------------------     -------------------
</TABLE>


SEE NOTES TO FINANCIAL STATEMENTS

                                       21
<PAGE>

STATEMENTS OF OPERATIONS

MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)

<TABLE>
<CAPTION>
                                                                                                        From Inception
                                                                                                       (October 23, 1989)
                                                          Year Ended September 30                           Through
                                         -----------------------------------------------------------     September 30,
                                               1998                1997                 1996                 1998
                                         -----------------   ------------------   ------------------   ------------------
<S>                                      <C>                 <C>                  <C>                  <C>
Research revenue                           $      180,750      $             -      $             -      $     3,126,751

Operating expenses:
    Research and development                   20,146,649            5,353,165            1,608,931           35,501,072
    Business development
      and marketing                             1,313,019              383,667              112,454            1,926,109
    General and administrative                  2,659,930            1,992,629            1,242,743           12,010,943
                                         -----------------   ------------------   ------------------   ------------------
      Total operating expenses                 24,119,598            7,729,461            2,964,128           49,438,124

Other income (expense):
    Investment income                           2,247,577              927,050              259,625            3,462,357
    Interest expense                              (89,101)             (77,562)            (197,028)          (2,070,472)
    Other expense                                 (74,200)             (15,176)            (220,431)            (191,164)
    Gain on sale of subsidiary                          -                    -            2,288,474            2,288,474
                                         -----------------   ------------------   ------------------   ------------------
      Total other income (expense)              2,084,276              834,312            2,130,640            3,489,195
                                         -----------------   ------------------   ------------------   ------------------

Loss from continuing operations               (21,854,572)          (6,895,149)            (833,488)         (42,822,178)

Discontinued operations:
    Loss from operations of discontinued
      diagnostic division                               -                    -                    -             (347,608)
    Gain on sale of diagnostic division                 -                    -                    -              483,162
                                         -----------------   ------------------   ------------------   ------------------

Net loss                                   $  (21,854,572)     $    (6,895,149)     $      (833,488)     $   (42,686,624)
                                         -----------------   ------------------   ------------------   ------------------



Net loss per share of common stock         $        (2.37)     $         (1.03)     $         (0.20)
                                         -----------------   ------------------   ------------------

Weighted average shares outstanding             9,215,416            6,671,237            4,074,961
                                         -----------------   ------------------   ------------------
</TABLE>


SEE NOTES TO FINANCIAL STATEMENTS

                                       22
<PAGE>

STATEMENTS OF STOCKHOLDERS' EQUITY

MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)

<TABLE>
<CAPTION>
                                                                      Preferred Stock                                             
                                                                 -------------------------               Common Stock             
                                                                     Shares        Amount         Shares              Amount      
                                                                 --------------- ------------------------------ ------------------
<S>                                                              <C>             <C>       <C>                  <C>               
Balance at October 23, 1989 (inception)                                       -    $    -                    -    $             - 
Issuance of common stock at $.001                                             -         -                1,000              8,029 
Net income                                                                    -         -                    -                  - 
                                                                 --------------- --------- -------------------- ------------------
Balance at December 31, 1989                                                  -         -                1,000              8,029 
Net income                                                                    -         -                    -                  - 
                                                                 --------------- --------- -------------------- ------------------
Balance at December 31, 1990                                                  -         -                1,000              8,029 
Net income                                                                    -         -                    -                  - 
                                                                 --------------- --------- -------------------- ------------------
Balance at December 31, 1991                                                  -         -                1,000              8,029 
Additional funding                                                            -         -                   42                  - 
Net loss                                                                      -         -                    -                  - 
                                                                 --------------- --------- -------------------- ------------------
Balance at December 31, 1992                                                  -         -                1,042              8,029 
Net effect of reorganization and issuance of common
   stock to account for reverse acquisition                                   -         -              181,371             (7,847)
Net loss                                                                      -         -                    -                  - 
                                                                 --------------- --------- -------------------- ------------------
Balance at September 30, 1993                                                 -         -              182,413                182 
Issuance of common stock at $60 per share
   for consulting and professional services                                   -         -                1,098                  1 
Issuance of Series A preferred stock
   for cash at $3.00 per share                                          250,000       250                    -                  - 
Issuance of common stock to convert bridge debt
   financing at prices from $52.50 to $75 per share                           -         -              112,440                113 
Net loss                                                                      -         -                    -                  - 
                                                                 --------------- --------- -------------------- ------------------
Balance at September 30, 1994                                           250,000       250              295,951                296 
Issuance of common stock at $3.00 per share
   upon conversion of debt                                                    -         -              553,254                553 
Issuance of common stock pursuant to anti-dilutive
   provisions in previous bridge debt financing                               -         -            1,137,343              1,137 
Issuance of common stock at $3.00 per
   share for subscription receivable                                          -         -              103,667                104 
Net loss                                                                      -         -                    -                  - 
                                                                 --------------- --------- -------------------- ------------------
Balance at September 30, 1995                                           250,000       250            2,090,215              2,090 

<CAPTION>

                                                                       Additional                                   
                                                                        Paid-In                   Accumulated       
                                                                        Capital                     Deficit         
                                                               --------------------------  -------------------------
<S>                                                            <C>                         <C>                      
Balance at October 23, 1989 (inception)                          $                     -     $                    - 
Issuance of common stock at $.001                                                      -                          - 
Net income                                                                             -                         44 
                                                               --------------------------  -------------------------
Balance at December 31, 1989                                                           -                         44 
Net income                                                                             -                        751 
                                                               --------------------------  -------------------------
Balance at December 31, 1990                                                           -                        795 
Net income                                                                             -                        272 
                                                               --------------------------  -------------------------
Balance at December 31, 1991                                                           -                      1,067 
Additional funding                                                             1,259,249                          - 
Net loss                                                                               -                 (2,445,184)
                                                               --------------------------  -------------------------
Balance at December 31, 1992                                                   1,259,249                 (2,444,117)
Net effect of reorganization and issuance of common                                                                 
   stock to account for reverse acquisition                                       53,002                 (1,197,822)
Net loss                                                                               -                 (4,238,731)
                                                               --------------------------  -------------------------
Balance at September 30, 1993                                                  1,312,251                 (7,880,670)
Issuance of common stock at $60 per share                                                                           
   for consulting and professional services                                       65,999                          - 
Issuance of Series A preferred stock                                                                                
   for cash at $3.00 per share                                                   487,250                          - 
Issuance of common stock to convert bridge debt                                                                     
   financing at prices from $52.50 to $75 per share                            5,933,894                          - 
Net loss                                                                               -                 (2,432,623)
                                                               --------------------------  -------------------------
Balance at September 30, 1994                                                  7,799,394                (10,313,293)
Issuance of common stock at $3.00 per share                                                                         
   upon conversion of debt                                                     1,659,210                          - 
Issuance of common stock pursuant to anti-dilutive                                                                  
   provisions in previous bridge debt financing                                   (1,137)                         - 
Issuance of common stock at $3.00 per                                                                               
   share for subscription receivable                                             310,896                          - 
Net loss                                                                               -                 (2,790,122)
                                                               --------------------------  -------------------------
Balance at September 30, 1995                                                  9,768,363                (13,103,415)

<CAPTION>

                                                                   Subscription                                 
                                                                   Receivable /                                 
                                                                     Deferred                                   
                                                                   Compensation               Total             
                                                                ------------------- --------------------------  
<S>                                                             <C>                 <C>                         
Balance at October 23, 1989 (inception)                           $              -    $                     -   
Issuance of common stock at $.001                                                -                      8,029   
Net income                                                                       -                         44   
                                                                ------------------- --------------------------  
Balance at December 31, 1989                                                     -                      8,073   
Net income                                                                       -                        751   
                                                                ------------------- --------------------------  
Balance at December 31, 1990                                                     -                      8,824   
Net income                                                                       -                        272   
                                                                ------------------- --------------------------  
Balance at December 31, 1991                                                     -                      9,096   
Additional funding                                                               -                  1,259,249   
Net loss                                                                         -                 (2,445,184)  
                                                                ------------------- --------------------------  
Balance at December 31, 1992                                                     -                 (1,176,839)  
Net effect of reorganization and issuance of common                                                             
   stock to account for reverse acquisition                                      -                 (1,152,667)  
Net loss                                                                         -                 (4,238,731)  
                                                                ------------------- --------------------------  
Balance at September 30, 1993                                                    -                 (6,568,237)  
Issuance of common stock at $60 per share                                                                       
   for consulting and professional services                                      -                     66,000   
Issuance of Series A preferred stock                                                                            
   for cash at $3.00 per share                                                   -                    487,500   
Issuance of common stock to convert bridge debt                                                                 
   financing at prices from $52.50 to $75 per share                              -                  5,934,007   
Net loss                                                                         -                 (2,432,623)  
                                                                ------------------- --------------------------  
Balance at September 30, 1994                                                    -                 (2,513,353)  
Issuance of common stock at $3.00 per share                                                                     
   upon conversion of debt                                                       -                  1,659,763   
Issuance of common stock pursuant to anti-dilutive                                                              
   provisions in previous bridge debt financing                                  -                          -   
Issuance of common stock at $3.00 per                                                                           
   share for subscription receivable                                      (311,000)                         -   
Net loss                                                                         -                 (2,790,122)  
                                                                ------------------- --------------------------  
Balance at September 30, 1995                                             (311,000)                (3,643,712)  
</TABLE>



                                       23
<PAGE>

STATEMENTS OF STOCKHOLDERS' EQUITY

MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)


<TABLE>
<CAPTION>
                                                                      Preferred Stock                                             
                                                                 -------------------------               Common Stock             
                                                                     Shares        Amount         Shares              Amount      
                                                                 --------------- ------------------------------ ------------------
<S>                                                              <C>             <C>       <C>                  <C>               
Issuance of common stock at $3.00 per share in
   exchange for repayment of note payable to bank                             -         -              744,646                745 
Receipt of subscription receivable                                            -         -                    -                  - 
Issuance of common stock and warrants
   at $3.75 per unit for cash                                                 -         -              465,504                465 
Issuance of common stock at $4.50 per share for cash                          -         -              400,000                400 
Exercise of common stock options                                              -         -                  400                  1 
Issuance of common stock at $7.50 per share and
   warrants at $.10 per warrant in initial public offering                    -         -            2,875,000              2,875 
Conversion of preferred stock to common stock                          (250,000)     (250)             102,866                103 
Options granted to employees                                                  -         -                    -                  - 
Amortization of deferred compensation                                         -         -                    -                  - 
Net loss                                                                      -         -                    -                  - 
                                                                 --------------- --------- -------------------- ------------------
Balance at September 30, 1996                                                 -         -            6,678,631              6,679 
Option granted to consultant                                                  -         -                    -                  - 
Amortization of deferred compensation                                         -         -                    -                  - 
Net loss                                                                      -         -                    -                  - 
                                                                 --------------- --------- -------------------- ------------------
Balance at September 30, 1997                                                 -         -            6,678,631              6,679 
Issuance of common stock at $15.25 per share
   in follow-on offering                                                      -         -            2,500,000              2,500 
Exercise of common stock purchase warrants                                                             392,000                392 
Exercise of stock options and warrants                                        -         -              313,304                314 
Option granted to consultants                                                 -         -                    -                  - 
Contribution to 401(k) plan                                                   -         -                1,641                  1 
Amortization of deferred compensation                                         -         -                    -                  - 
Net loss                                                                      -         -                    -                  - 
                                                                 --------------- --------- -------------------- ------------------
Balance at September 30, 1998                                                 -    $    -            9,885,576    $         9,886 
                                                                 --------------- --------- -------------------- ------------------
                                                                 --------------- --------- -------------------- ------------------

<CAPTION>

                                                                       Additional                                   
                                                                        Paid-In                   Accumulated       
                                                                        Capital                     Deficit         
                                                               --------------------------  -------------------------
<S>                                                            <C>                         <C>                      
Issuance of common stock at $3.00 per share in                                                                      
   exchange for repayment of note payable to bank                              2,249,255                          - 
Receipt of subscription receivable                                                     -                          - 
Issuance of common stock and warrants                                                                               
   at $3.75 per unit for cash                                                  1,740,033                          - 
Issuance of common stock at $4.50 per share for cash                           1,799,600                          - 
Exercise of common stock options                                                   2,999                          - 
Issuance of common stock at $7.50 per share and                                                                     
   warrants at $.10 per warrant in initial public offering                    18,217,215                          - 
Conversion of preferred stock to common stock                                        147                          - 
Options granted to employees                                                     394,999                          - 
Amortization of deferred compensation                                                  -                          - 
Net loss                                                                               -                   (833,488)
                                                               --------------------------  -------------------------
Balance at September 30, 1996                                                 34,172,611                (13,936,903)
Option granted to consultant                                                      96,903                          - 
Amortization of deferred compensation                                                  -                          - 
Net loss                                                                               -                 (6,895,149)
                                                               --------------------------  -------------------------
Balance at September 30, 1997                                                 34,269,514                (20,832,052)
Issuance of common stock at $15.25 per share                                                                        
   in follow-on offering                                                      34,710,939                          - 
Exercise of common stock purchase warrants                                     4,115,608                          - 
Exercise of stock options and warrants                                           634,222                            
Option granted to consultants                                                     50,438                          - 
Contribution to 401(k) plan                                                       26,606                          - 
Amortization of deferred compensation                                                  -                          - 
Net loss                                                                               -                (21,854,572)
                                                               --------------------------  -------------------------
Balance at September 30, 1998                                    $            73,807,327     $          (42,686,624)
                                                               --------------------------  -------------------------
                                                               --------------------------  -------------------------

<CAPTION>

                                                                   Subscription                                 
                                                                   Receivable /                                 
                                                                     Deferred                                   
                                                                   Compensation               Total             
                                                                ------------------- --------------------------  
<S>                                                             <C>                 <C>                         
Issuance of common stock at $3.00 per share in                                                                  
   exchange for repayment of note payable to bank                                -                  2,250,000   
Receipt of subscription receivable                                         311,000                    311,000   
Issuance of common stock and warrants                                                                           
   at $3.75 per unit for cash                                                    -                  1,740,498   
Issuance of common stock at $4.50 per share for cash                             -                  1,800,000   
Exercise of common stock options                                                 -                      3,000   
Issuance of common stock at $7.50 per share and                                                                 
   warrants at $.10 per warrant in initial public offering                       -                 18,220,090   
Conversion of preferred stock to common stock                                    -                          -   
Options granted to employees                                              (163,124)                   231,875   
Amortization of deferred compensation                                       44,385                     44,385   
Net loss                                                                         -                   (833,488)  
                                                                ------------------- --------------------------  
Balance at September 30, 1996                                             (118,739)                20,123,648   
Option granted to consultant                                                     -                     96,903   
Amortization of deferred compensation                                       67,826                     67,826   
Net loss                                                                         -                 (6,895,149)  
                                                                ------------------- --------------------------  
Balance at September 30, 1997                                              (50,913)                13,393,228   
Issuance of common stock at $15.25 per share                                                                    
   in follow-on offering                                                         -                 34,713,439   
Exercise of common stock purchase warrants                                       -                  4,116,000   
Exercise of stock options and warrants                                                                634,536   
Option granted to consultants                                                    -                     50,438   
Contribution to 401(k) plan                                                      -                     26,607   
Amortization of deferred compensation                                       36,754                     36,754   
Net loss                                                                         -                (21,854,572)  
                                                                ------------------- --------------------------  
Balance at September 30, 1998                                     $        (14,159)   $            31,116,430   
                                                                ------------------- --------------------------  
                                                                ------------------- --------------------------  
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS


                                       24
<PAGE>

STATEMENTS OF CASH FLOWS

MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)

<TABLE>
<CAPTION>
                                                                       Year Ended September 30                  October 23, 1989
                                                           -------------------------------------------------     (inception) to
                                                                1998             1997            1996          September 30, 1998
                                                           ---------------  --------------- ----------------    ----------------
<S>                                                        <C>              <C>             <C>                <C>
OPERATING ACTIVITIES:
 Net loss                                                   $ (21,854,572)    $ (6,895,149)   $    (833,488)      $ (42,686,624)
 Adjustments to reconcile net loss to net cash
 used in operating activities:
     Depreciation and amortization                                407,525          262,784          128,719           1,451,453
     Amortization of premium on investments                       129,603          156,342                -             285,945
     Stock options issued as compensation                          87,193          164,729          276,260             528,182
     Stock contributions to 401(k) plan                            26,607                -                -              26,607
     Loss on disposal of property and equipment                    74,681            4,435          128,248             207,364
     Loss on write-off of patents                                  20,050           53,144          189,068             262,262
     Gain on sale of subsidiary                                         -                -       (2,288,474)         (2,288,474)
     Loss on write-off of  receivable from related party                -                -          147,803             147,803
     Other                                                              -                -           27,032              51,701
     Gain on sale of diagnostic division                                -                -                -            (483,162)
     Loss on write-off of purchased research
        and development                                                 -                -                -           2,646,166
     Cumulative effect of reorganization                                -                -                -           1,152,667
     Changes in operating assets and liabilities:
        Accrued interest and other current assets              (1,721,985)         132,449         (695,609)         (2,298,821)
        Other assets and deposits                                 357,736         (583,496)          14,214            (376,960)
        Accounts payable                                        7,932,792          676,278           70,204           9,014,830
        Accrued expenses                                         (222,736)         118,765          150,629             395,862
                                                           ---------------  --------------- ----------------    ----------------
           Net cash used in operating activities              (14,763,106)      (5,909,719)      (2,685,394)        (31,963,199)

 INVESTING ACTIVITIES:
 Purchases of marketable securities                           (35,572,687)     (10,835,442)     (15,073,988)        (61,482,117)
 Maturities of marketable securities                           22,604,050       14,041,000                -          36,645,050
 Additions to patents and licenses                               (212,947)        (652,053)        (213,196)         (2,707,787)
 Purchases of property and equipment                           (1,098,586)        (804,454)         (23,524)         (2,711,281)
 Cash acquired in acquisition of business                               -                -                -             985,356
 Proceeds from sale of diagnostic division                              -                -                -             496,555
                                                           ---------------  --------------- ----------------    ----------------
     Net cash provided (used) by investing activities         (14,280,170)       1,749,051      (15,310,708)        (28,774,224)

 FINANCING ACTIVITIES:
 Net proceeds from issuance of common stock
     and warrants                                              39,463,974                -       24,324,588          65,121,840
 Proceeds from issuance of notes payable and
     long-term debt                                               596,840          814,380           81,675           5,987,643
 Payments on notes payable and long-term debt                    (247,632)        (276,278)      (2,603,000)         (3,294,415)
 Proceeds from issuance of notes payable to
     related parties                                                    -                -                -           4,982,169
 Payments on notes payable to related parties                           -                -         (250,000)         (1,329,885)
 Net proceeds from issuance of preferred stock                          -                -                -             487,500
                                                           ---------------  --------------- ----------------    ----------------
     Net cash provided by financing activities                 39,813,182          538,102       21,553,263          71,954,852
                                                           ---------------  --------------- ----------------    ----------------
 Net increase (decrease) in cash and cash equivalents          10,769,906       (3,622,566)       3,557,161          11,217,429

 Cash and cash equivalents at beginning of period                 447,523        4,070,089          512,928                   -
                                                           ---------------  --------------- ----------------    ----------------

 Cash and cash equivalents at end of period                  $ 11,217,429      $   447,523    $   4,070,089       $  11,217,429
                                                           ---------------  --------------- ----------------    ----------------
                                                           ---------------  --------------- ----------------    ----------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

                                       25

<PAGE>


NOTES TO FINANCIAL STATEMENTS

MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)


1.     NATURE OF OPERATIONS AND BASIS FOR PRESENTATION

Maxim Pharmaceuticals, Inc. (the "Company") was incorporated in Delaware in 
1954 under the name "Wilco Oil & Minerals, Corp." and has existed under 
various names since then. From 1987 to 1993, the Company operated as a 
medical diagnostics products company under the name "General Biometrics, 
Inc." In 1993, the Company merged with Syntello Vaccine Development AB 
("SVD"), a Swedish biopharmaceutical company, in an exchange of stock 
accounted for as a reverse acquisition (the "Reorganization"). Upon 
completion of the Reorganization, the Company changed its name to "Syntello, 
Inc." and commenced its operations as a biopharmaceutical company. The 
Company's proprietary technologies, which provide the basis for certain drugs 
and vaccines for cancer and infectious disease, were acquired during and 
following the Reorganization. The Company sold its medical diagnostic 
division in 1994 and sold SVD in July 1996. Since December 1995, the Company 
has operated under the name "Maxim Pharmaceuticals, Inc." The statements of 
operations' inception-to-date information reflects the cumulative operations 
of SVD from the date of its inception (October 23, 1989). The statement of 
stockholders' equity (deficit) for the periods from inception to the date of 
the Reorganization reflects the equity activity of SVD.

Since the Reorganization, the Company has devoted substantially all of its
resources to its MAXAMINE(TM) and MAXVAX(TM) product development programs. The
Company conducts its research and other product development efforts through a
combination of internal and collaborative programs. For MAXAMINE, in addition to
internal management and staff, the Company relies upon arrangements with
universities, other clinical research sites and contract research organizations
for a significant portion of its product development efforts. The majority of
the basic research and development efforts related to MAXVAX were transferred to
the Company's internal facilities during 1997. Oversight of all external and
collaborative programs is conducted by the Company's executive officers and
other staff from its headquarters located in San Diego, California.

The Company expects to incur substantial losses as it expands its research and
development activity and sponsorship of clinical trials. The future success of
the Company is likely to be dependent on its ability to obtain additional
capital to develop and commercialize its proposed products and, ultimately, upon
its ability to attain future profitable operations. There can be no assurance
that the Company will be successful in obtaining such financing, or that it will
attain positive cash flow from operations.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DEVELOPMENT STAGE - The Company has not earned significant revenues from planned
principal operations. Accordingly, the Company's activities have been accounted
for as those of a "Development Stage Enterprise" as set forth in Financial
Accounting Standards Board Statement No. 7 ("SFAS 7"). Among the disclosures
required by SFAS 7 are that the Company's financial statements be identified as
those of a development stage company, and that the statements of operations,
stockholders' equity (deficit) and cash flows disclose activity since the date
of the Company's inception.

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 corporations with strong credit ratings. The Company has
established guidelines relative to diversification and maturities to safely
maintain an adequate level of liquidity.

CASH EQUIVALENTS AND INVESTMENTS IN MARKETABLE SECURITIES - Investments with
original maturities of less than 90 days are considered cash equivalents, and
all other investments which mature within one year are classified as short-term
investments. All investments are classified and recorded as held to maturity.
Investments are carried at cost, which approximates market. The investments
mature at various dates through May, 2000.

PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation on property and equipment is calculated on the straight-line method
over the estimated useful lives of the assets.


                                      26
<PAGE>

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.

CAPITAL STOCK - On January 5, 1996, the Company effected a 1-for-2000 reverse
stock split and changed the par value of the common stock from $.0001 per share
to $.001 per share and changed the par value of the preferred stock from $.01
per share to $.001 per share. On May 9, 1996, the Company effected a 100-for-1
stock split. On July 10, 1996, upon the effective date of its initial public
offering (Note 8), the Company effected a 2-for-3 reverse stock split of its
common stock. All common and preferred stock share amounts, par values and the
additional paid-in capital amounts have been restated to reflect the above
transactions.

LOSS PER SHARE OF COMMON STOCK - Effective October 1, 1997, the Company 
adopted Financial Accounting Standards Board Statement No. 128, "Earnings per 
Share" (SFAS 128). Net loss per share of common stock is computed by dividing 
the net loss by the weighted average number of shares of common stock 
outstanding during the period. Dilutive loss per share, calculated by 
including the additional common shares issuable upon exercise of outstanding 
options and warrants in the weighted average share calculation, is not 
presented as these securities are antidilutive. In accordance with Securities 
and Exchange Commission Staff Accounting Bulletin No. 83, for periods 
preceding the effective date of the initial public offering, all common and 
common equivalent shares issued during the twelve-month period prior to the 
effective date have been included in the calculation as if they were 
outstanding for all such periods, using the treasury stock method and the 
public offering price of common stock.

FOREIGN CURRENCY TRANSLATION - The Company accounts for translation of foreign
currency in accordance with Statement of Financial Accounting Standards No. 52
"Foreign Currency Translation." During the periods in which the Company owned
SVD, the U.S. dollar was considered the functional currency of this Swedish
subsidiary. Monetary assets and liabilities were translated using the exchange
rate in effect at the balance sheet date, and non-monetary assets and
liabilities were translated at historical rates. Revenues and expenses were
translated at the average rates in effect during the year. All translation
adjustments and transaction gains and losses were recognized in operations as
other income or expense.

FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount of cash, cash
equivalents, investments in marketable securities, 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 notes payable and long-term debt are reasonable estimates of fair
value as the loans bear interest based on market rates currently available for
debt with similar terms.

USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the 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' financial statements
have been reclassified to conform with current year classifications.


                                      27
<PAGE>

3.     PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                         September 30
                                                       1998           1997
                                                       ----           ----
<S>                                              <C>            <C>
Laboratory equipment                                $548,433       $454,115
Office equipment and furniture                     1,203,565        365,239
Leasehold improvements                               263,097         25,963
                                                   ---------       --------
                                                   2,015,095        845,317
Less accumulated depreciation and amortization      (321,693)      (126,329)
                                                    ---------      ---------
                                                  $1,693,402       $718,988
                                                   ---------       --------
                                                   ---------       --------
</TABLE>

At September 30, 1998, property and equipment included equipment under capital
leases of $251,283 with related amortization of $2,094. For the year ended
September 30, 1997, property and equipment included equipment under capital
leases of $23,059 with related amortization of $1,601.

4.     SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                  Year Ended September 30             From Inception
                                                          ---------------------------------------         Through
                                                              1998          1997          1996       September 30,1998
                                                          -----------   -----------   -----------    -----------------
<S>                                                       <C>           <C>           <C>            <C>
Noncash investing and financing activities:
  Fixed assets acquired via capital lease                   $ 220,199     $             $              $    220,199
  Other asset acquired via note payable                       192,487                                       192,487
     Issuance of common stock
       to convert debt                                              -             -             -         7,593,770
     Sale of subsidiary:
       Net patents sold                                             -             -       154,296           154,296
       Other liabilities transferred                                -             -      (121,210)         (121,210)
       Note payable transferred                                     -             -    (2,421,560)       (2,421,560)
       Other accruals                                               -             -       100,000           100,000
Acquisition of subsidiary:
       Assets acquired                                              -             -             -         4,917,359
       Liabilities assumed                                          -             -             -        (5,911,481)
       Net equity effect of acquisition                             -             -             -          (994,122)
Supplemental disclosure of cash flow information:
     Cash paid for interest                                    84,260        83,167       341,126         1,560,551
</TABLE>

5.     ACCRUED INTEREST AND OTHER CURRENT ASSETS

Accrued interest and other current assets consist of the following:

<TABLE>
<CAPTION>
                                                          September 30
                                                     1998                1997
                                                     ----                ----
         <S>                                    <C>                  <C>
         Prepaid clinical trial costs           $1,590,800           $       -
         Accrued interest                          583,070             384,816
         Prepaid insurance                         214,761             128,707
         Consultant fees                            29,333              29,333
         Other                                      73,344              33,980
                                                ----------            --------
                                                $2,491,308           $ 576,836
                                                ----------            --------
                                                ----------            --------
</TABLE>

                                      28
<PAGE>



6.       ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                          September 30
                                                     1998                1997
                                                     ----                ----
         <S>                                      <C>                 <C>
         Compensation                             $316,942            $185,848
         Professional fees                          17,985             167,985
         Collaborator fees                               -             130,000
         Other                                      39,725             113,555
                                                   -------            --------
                                                  $374,652            $597,388
                                                  --------            --------
                                                  --------            --------
</TABLE>

7.       LINE OF CREDIT AGREEMENT AND LONG-TERM DEBT

In March 1997 the Company entered into a line of credit agreement with a bank.
Under the agreement the Company was permitted to borrow up to $900,000 during
1997 to fund qualified equipment purchases. At January 1, 1998, $718,620 in
outstanding advances under the line of credit converted to a term loan payable
in equal installments over 48 months, including interest at prime plus 0.5%. In
1998 the line of credit agreement was amended to permit the Company to borrow up
to an additional $1,000,000 during 1998. On January 1, 1999, any outstanding
advances under the amended line of credit will convert to a term loan payable in
48 equal installments, including interest at prime plus 0.25%. At September 30,
1998, advances under the line of credit totaled $539,184. The term loan and
borrowings under the amended line of credit are both secured by all assets of
the Company.

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                            September 30
                                                                     1998                 1997
                                                                     ----                 ----
         <S>                                                    <C>                    <C>
         Credit agreement with bank, secured
           by all assets of the Company                         $ 1,138,034            $  660,965
         Capital lease agreement, secured by
           certain equipment                                        200,854                21,976
                                                                  ---------            ----------
                                                                  1,338,888               682,941
         Less current portion                                      (361,675)             (127,712)
                                                                   --------              --------
                                                                $   977,213            $  555,229
                                                                    -------             ---------
                                                                    -------             ---------
</TABLE>

8.     STOCKHOLDERS' EQUITY


OCTOBER 1997 FOLLOW-ON PUBLIC OFFERING - During October 1997 the Company 
completed a follow-on public offering in which it sold 2,500,000 shares of 
common stock at a price of $15.25 per share. The Company received net 
proceeds of approximately $34,713,439 after underwriting discounts and other 
issuance costs of $1,124,061.

JULY 1996 INITIAL PUBLIC OFFERING - During July 1996 the Company completed an
initial public offering in which it sold 2,875,000 shares of common stock and
2,875,000 detachable warrants to purchase common stock ("Redeemable Warrants").
The Company received net proceeds of $18,220,090 after underwriting discounts
and other issuance costs of $3,629,910.

WARRANTS - At September 30, 1998, warrants to purchase 2,847,181 shares of the
Company's common stock at a weighted average exercise price of $9.88 per share
are outstanding, of which warrants to purchase 2,760,515 shares are exercisable.

Included in the above total warrants outstanding are 2,483,000 Redeemable
Warrants issued in connection with the initial public offering. Each Redeemable
Warrant allows the holder thereof to purchase one share of common stock at an
exercise price of $10.50. The Redeemable Warrants may be exercised at any time
during the period commencing July 10, 1997 and terminating July 10, 2001. The
Company may redeem the Redeemable Warrants at


                                      29
<PAGE>

$0.01 per warrant upon 30 days prior written notice to the holders (i) if the 
average closing bid price of the common stock equals or exceeds $12.00 per 
share for any 20 trading days within a period of 30 consecutive trading days 
ending on the fifth trading day prior to the date of the notice of 
redemption, and (ii) the holder fails to exercise the warrant within the 
30-day notice period. In connection with the initial public offering the 
Company also issued warrants to the underwriter under which the underwriter 
and/or its designees had the right to purchase up to 250,000 shares of common 
stock at a price of $9.00 per share and up to 250,000 shares of common stock 
at a price of $12.50 per share. At September 30, 1998, warrants to purchase 
13,601 shares at $9.00 per share and warrants to purchase 92,225 shares at 
$12.50 per share are outstanding.

The Company has also issued warrants to purchase common stock to certain
consultants of the Company and in connection with private placements of equity
securities. These warrants generally have terms ranging from five to seven
years, and some include vesting provisions. Such warrants to purchase 258,355
shares of the Company's common stock at an exercise price of $3.00 per share are
outstanding at September 30, 1998, of which warrants to purchase 171,689 shares
were exercisable.

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 1,300,000 shares of common
stock; options that are granted generally vest over four years and have a
maximum term of ten years.

The Company applies the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123). As allowed under the provisions of SFAS No. 123, the Company applies
Accounting Principals Board Opinion No. 25 and related interpretation in
accounting for its stock option plans. In May 1996, the Company issued options
to purchase 526,665 shares of common stock under the 1993 Plan at an exercise
price of $3.75 per share to members of management, directors and consultants.
Concurrently, the Company also canceled previously issued options held by
certain of these persons. Of the options issued, 305,833 were immediately
exercisable with the remaining options vesting over a period of two to five
years. In accordance with Accounting Principles Board Opinion No. 25, as a
result of the issuance the Company expects to record compensation expense of
approximately $395,000 over the vesting period of the options. Such compensation
expense recorded during the fiscal years ended September 30, 1998, 1997 and 1996
totaled $36,755, $67,826 and $276,260, respectively.

The following table summarizes stock option activity under the Plan:

<TABLE>
<CAPTION>
                                                                Number                Exercise Price
                                                               of Shares                Per Share
                                                               ---------                ---------
     <S>                                                       <C>                   <C>
     Outstanding September 30, 1995                              36,867                    $7.50
         Granted                                                527,334                    $3.75
         Exercised                                                 (400)                   $7.50
         Canceled                                               (53,134)               $3.75 - $7.50
                                                                -------
     Outstanding September 30, 1996                              510,667                   $3.75
         Granted                                                271,665               $7.00 - $14.50
         Exercised                                                    -                      -
         Canceled                                                     -                      -
                                                                -------
     Outstanding September 30, 1997                             782,332               $3.75 - $14.50
         Granted                                                193,834              $14.375 - $20.25
         Exercised                                              (91,957)              $3.75 - $10.125
         Canceled                                               (16,893)             $3.75 - $18.3125
                                                                -------
     Outstanding September 30, 1998                             867,316
                                                                -------
                                                                -------
</TABLE>


                                      30
<PAGE>

At September 30, 1998, options for 551,542 shares of common stock are
exercisable and the remaining 315,774 become exercisable at various dates
through August 20, 2002. The options expire at various dates through August 20,
2005. The following table summarizes information concerning outstanding and
exercisable options as of September 30, 1998.

<TABLE>
<CAPTION>
                                   Options Outstanding                         Options Exercisable
                     ------------------------------------------------    ---------------------------------
                                                           Weighted-
                                         Weighted-           Average                            Weighted-
                                           Average         Remaining                              Average
Price Range             Shares      Exercise Price  Contractual Life         Shares        Exercise Price
----------------------------------------------------------------------------------------------------------
<S>                  <C>            <C>             <C>                  <C>               <C>
$3.75                     451,666          $  3.75        4.59 years            415,332           $  3.75
$7.00 - $9.99             197,066          $  8.91        5.42 years             78,151           $  8.94
$10.00 - $14.99           139,084           $14.15        6.10 years             29,059            $13.99
$15.00 - $20.25            79,500           $16.41        6.55 years             29,000            $15.74
</TABLE>

If the Company had elected to account for its stock options under the fair 
value method prescribed by SFAS 123, the net losses for the years ended 
September 30, 1998, 1997 and 1996 would have been increased by $1,082,000 
($0.12 per share), $742,000 ($0.12 per share) and $839,000 ($0.21 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 1998, 1997 and 1996, respectively: risk-free 
interest rates of 4.20%, 5.80% and 5.76%; dividend yield of 0%; volatility 
factors of the expected market price of the Company's common stock of 64%, 
73% and 73%; and an expected life of the option of five years. These 
assumptions resulted in weighted-average fair values of $7.50, $5.00 and 
$2.51 per share for stock options granted in the fiscal years ended September 
30, 1998, 1997 and 1996, respectively.

401(K) PLAN - In July 1997 the Company established 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, 1998,
1997 and 1996 were $38,194, $5,031 and $0, respectively.

9.     INCOME TAXES

The Company has deferred income taxes which have been fully reserved as follows:

<TABLE>
<CAPTION>
                                                                           September 30
                                                                     1998                  1997
                                                                     ----                  ----
         <S>                                                     <C>                  <C>
         Deferred tax assets:
             Net operating loss carryforwards                   $19,262,000           $10,665,000
             General business credit carryforwards                1,240,000               453,000
             Other                                                   88,000               149,000
                                                                  ---------            ----------
                Total net deferred tax assets                    20,590,000            11,267,000
         Valuation allowance for deferred tax assets            (20,590,000)          (11,267,000)
                                                                -----------           -----------
                Net deferred tax assets                         $         -           $         -
                                                                 ----------            ----------
                                                                 ----------            ----------
</TABLE>

At September 30, 1998, the Company has federal and California tax net operating
loss carryforwards of approximately $50,096,000 and $25,217,000, respectively.
The federal tax loss carryforwards will begin expiring


                                      31
<PAGE>

in fiscal 1999 unless previously utilized. The California tax loss carryforwards
began expiring in the current fiscal year.

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 are subject to an annual limitation in future periods. As a
result of the annual limitation, a portion of these carryforwards may expire
before ultimately becoming available to reduce future taxable income.

10.    COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS - In July 1998 the Company entered into a five-year 
operating lease commencing in September 1998 for approximately 25,400 square 
feet of office facilities located in San Diego, California. The Company also 
leases laboratory facilities under a five-year operating lease agreement that 
commenced in December 1996. Future minimum lease commitments for all building
leases approximate the following for each of the five years ending September 
30, 2003, and thereafter: 1999 - $921,000; 2000 - $984,000; 2001 - 
$1,024,000; 2002 -$786,000; 2003 - $762,000; and $64,000 thereafter. Total 
rent expense for the fiscal years ended September 30, 1998, 1997 and 1996 was 
$519,376, $281,150 and $87,456, respectively.

In June 1998 the Company entered into a two-year sublease agreement, whereby the
Company sublet approximately 4,800 square feet of its laboratory facilities.
Future minimum lease income approximates the following for each of the two years
ending September 30, 2000: 1999 - $244,000; 2000 - $169,000. Total rent revenue
for the fiscal year ended September 30, 1998 was $32,899.


11.    LICENSES AND COLLABORATIVE AGREEMENTS

The Company's strategy for development of its technologies includes the
acquisition and the in-licensing of technologies, and the establishment of
collaborative relationships with university, governmental and other entities.
Material licensing and collaborative agreements are described below.

In 1993, the Company entered into a technology transfer agreement with a 
Liechtenstein corporation pursuant to which the Company purchased 
intellectual property and patent rights related to its MAXAMINE cancer and 
infectious disease technology. The total purchase price under the agreement 
was $700,000, of which $600,000 was paid pursuant to a promissory note issued 
by the Company and secured by the purchased technology. At September 30, 
1997, all obligations under the promissory note have been satisfied. The 
technology transfer agreement also requires that the Company pay certain 
royalty obligations to an inventor of the technology.

In 1993, the Company entered into an agreement with two Swedish companies, Vitec
AB and SBL Vaccin AB ("SBL"), pursuant to which the Company obtained an
exclusive, worldwide license to certain vaccine carrier technology, including
two patent applications, for the treatment of chlamydia. Under the agreement,
the Company is required to use its best efforts to engage SBL to manufacture any
products which result from the application of the licensed technology. The
Company has made payments of $150,000 to Vitec AB under this agreement, and has
agreed to make royalty payments on the net sales of products using the licensed
technology and to make additional license and milestone payments to Vitec AB
upon the execution of any sublicenses.

In 1994, the Company entered into a second license agreement with Vitec AB and
SBL for an exclusive, worldwide license to rights related to the carrier
technology for all infectious diseases with the exception of (i) chlamydia
(governed by the agreement discussed above), (ii) HIV (governed by a sublicense
agreement held by the Company) and (iii) cholera and bacterial-related
diarrheas. Under the agreement, the Company has agreed to use its best efforts
to engage SBL to manufacture any products which result from the application of
licensed technology, and both Vitec AB and the Company shall receive a
percentage of any profits that SBL derives from manufacturing such products. The
Company paid an initial license fee of $100,000, and in 1996 paid a minimum
milestone payment of $400,000 under the agreement. The agreement also requires
the Company to make royalty payments based on net sales of products which
utilize the licensed technology.


                                      32
<PAGE>

12.    RELATED PARTY TRANSACTIONS

In February 1996, the Company entered into an agreement with a business 
consulting firm to provide strategic planning and advisory services for 
$10,000 per month for three years, and warrants to purchase up to 173,333 
shares of common stock at an exercise price of $3.00 per share vesting over 
36 months. In April 1996, the chief executive officer of this firm was 
elected as a director of the Company. Effective August 1998 the Company 
terminated the above referenced consulting agreement. The Company made 
payments totaling $30,000, $120,000 and $80,000 in connection with the 
consulting agreement during the years ended September 30, 1998, 1997 and 
1996, respectively.

In September 1996 the Company repaid a $250,000 note payable, and paid interest
in the amount of $39,056, to a shareholder of the Company.

On July 5, 1996, the Company sold its ownership interest in its Swedish
subsidiary, SVD, to a former Swedish collaborating scientist and former director
and shareholder of the Company for $1.00. The Company recorded a gain on the
disposal of SVD of $2,288,474, representing the excess of SVD's liabilities over
its assets as of the date of sale. SVD's primary liability at the date of sale
was a $2,421,560 Swedish Industrial Fund loan from the Swedish government. SVD's
assets consisted primarily of capitalized patent costs. The sale transferred
certain technology rights related to certain peptides for use in vaccination and
induction of neutralizing antibodies against HIV. In connection with the sale,
the Company received a non-exclusive sublicense to the MAXVAX mucosal vaccine
carrier for development of vaccines for the treatment of HIV infection.

As part of its program of research and development, the Company has retained
certain scientists and other consultants to consult with the Company and perform
research and development services. Certain of these consultants were considered
related parties as they were holders of the Company's common stock (or warrants,
or options, to purchase common stock), and one such consultant was formerly a
director of the Company.


13.    QUARTERLY RESULTS (UNAUDITED)

Summarized quarterly results of operations for the years ended September 30,
1998 and 1997 were as follows (in thousands except per share amounts):

<TABLE>
<CAPTION>
                                                           Year ended September 30, 1998
                                                  -------------------------------------------------
                                                      First       Second       Third       Fourth
                                                      -----       ------       -----       ------
<S>                                               <C>          <C>         <C>         <C>
Research and development expenses                  $2,909,584   $3,493,278  $6,075,063  $7,668,724
Net loss                                           (3,150,306)  (3,768,447) (6,709,516) (8,226,303)
Net loss per share of common stock                     $(0.37)      $(0.41)     $(0.72)     $(0.85)

<CAPTION>

                                                           Year ended September 30, 1997
                                                  -------------------------------------------------
                                                      First       Second       Third       Fourth
                                                      -----       ------       -----       ------
<S>                                               <C>          <C>         <C>         <C>
Research and development expenses                    $539,592   $1,215,456  $1,538,480  $2,059,637
Net income (loss)                                    (764,560)  (1,596,618) (1,953,443) (2,580,528)
Net income (loss) per share of common stock            $(0.11)      $(0.24)     $(0.29)     $(0.39)
</TABLE>


                                      33
<PAGE>

14.  PRICE RANGE OF COMMON STOCK (UNAUDITED)

     The Company's common stock currently trades on both the American Stock 
Exchange ("AMEX") and the Stockholm Stock Exchange ("SSE"). Concurrent with 
the Company's initial public offering, the Company's common stock began 
trading on the AMEX under the symbol "MMP" on July 10, 1996. Prior to date 
there was no established public trading for the common stock. On October 24, 
1997, concurrent with the completion of a follow-on public offering, the 
Company's common stock commenced trading on the SSE under the symbol "MAXM." 
The following table shows the high and low sales price for the common stock 
by quarter, as reported by the AMEX, for the periods indicated:

<TABLE>
<CAPTION>
                                                          Price Range
                          Period                      High              Low
                          ------                      ----              ---
     <S>                                           <C>              <C>
     Fiscal Year Ending September 30, 1997
         First Quarter                             $10-5/8               $7
         Second Quarter                             11-1/4            6-3/4
         Third Quarter                               9-3/4            7-7/8
         Fourth Quarter                             16-1/2            8-1/2
     Fiscal Year Ending September 30, 1998
         First Quarter                             $19-1/4          $12-1/4
         Second Quarter                             16-5/8           13-3/4
         Third Quarter                                  23           14-1/8
         Fourth Quarter                             20-1/2               14
</TABLE>


     On December 28, 1998 the last reported sales price of the Common Stock, 
as reported by the AMEX, was $15.375 per share. As of such date, there were 
approximately 5,000 holders of record of the Common Stock. The Company has 
not paid cash dividends and has no intention to do so in the foreseeable 
future. The Company has entered into a Loan and Security Agreement with 
Silicon Valley Bank which restricts the payment of dividends by the Company.

                                       34

<PAGE>

15.  SELECTED FINANCIAL DATA (UNAUDITED)

     Selected financial data in thousands except per share data.

<TABLE>
<CAPTION>

                                                                                    Year Ended September 30
                                                                       ------------------------------------------------
                                                                       1998       1997       1996       1995       1994
                                                                       ----       ----       ----       ----       ----
<S>                                                                  <C>         <C>       <C>        <C>        <C>
SELECTED STATEMENT OF OPERATIONS DATA:
    Research and development expenses                                $20,147     $5,353     $1,609        $985      $999
    Net loss                                                         (21,855)    (6,895)      (833)     (2,790)   (2,433)
    Net loss per share                                                $(2.37)    $(1.03)    $(0.20)     $(0.87)   $(0.82)
    Weighted average shares outstanding                                9,215      6,671      4,075       3,209     2,961
</TABLE>

<TABLE>
<CAPTION>
                                                                                      As of September 30
                                                                       ------------------------------------------------
                                                                        1998      1997       1996       1995       1994
                                                                        ----      ----       ----       ----       ----
<S>                                                                 <C>         <C>        <C>        <C>       <C>
SELECTED BALANCE SHEET DATA:
    Cash, cash equivalents and investments                           $35,769    $12,160    $19,144       $513      $119
    Total assets                                                      42,022     15,858     21,255      2,454     1,878
    Long-term debt, less current portion                                 977        555          -        247       640
    Deficit accumulated during the development stage                 (42,687)   (20,832)   (13,937)   (13,103)  (10,313)
    Stockholders' equity (deficit)                                    31,116     13,393     20,124     (3,644)   (2,513)
</TABLE>


                                      35
<PAGE>

INDEPENDENT AUDITORS' REPORT


Board of Directors
Maxim Pharmaceuticals, Inc.:

We have audited the accompanying balance sheets of Maxim Pharmaceuticals, Inc.
(a development stage company) as of September 30, 1998 and 1997, and the related
statements of operations, stockholders' equity (deficit), and cash flows for
each of the years in the three-year period ended September 30, 1998 and for the
period from inception (October 23, 1989) through September 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Maxim Pharmaceuticals, Inc. (a
development stage company) as of September 30, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 1998 and for the period from inception (October 23,
1989) through September 30, 1998, in conformity with generally accepted
accounting principles.


/s/ KPMG PEAT MARWICK LLP

San Diego, California
November 5, 1998

                                       36

<PAGE>

CORPORATE INFORMATION

EXECUTIVE OFFICERS       
Larry G. Stambaugh            
CHAIRMAN OF THE BOARD, 
PRESIDENT AND CHIEF EXECUTIVE OFFICER
                                          
Kurt R. Gehlsen, Ph.D.
VICE PRESIDENT, DEVELOPMENT AND
CHIEF TECHNICAL OFFICER
               
Dale A. Sander
VICE PRESIDENT, FINANCE,           
CHIEF FINANCIAL OFFICER            
AND CORPORATE SECRETARY            

Geoffrey B. Altman
VICE PRESIDENT, 
MARKETING AND SALES      
     
DIRECTORS                
Larry G. Stambaugh            
CHAIRMAN OF THE BOARD, 
PRESIDENT AND CHIEF EXECUTIVE OFFICER

Colin B. Bier, Ph.D.          
MANAGING DIRECTOR             
ABA BIORESEARCH                    
          
Per-Olof Martensson      
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KARO BIO AB
                    
F. Duwaine Townsen            
MANAGING PARTNER              
VENTANA GROWTH FUNDS               

               


CORPORATE HEADQUARTERS
8899 University Center Lane, Suite 400
San Diego, California  92122
tel. 619-453-4040
fax 619-453-5005

10-K AVAILABILITY
A copy of the Company's annual report to the Securities and Exchange Commission
on Form 10-K for the fiscal year ended September 30, 1998, without exhibits,
will be made available to any stockholder upon written request to:
Maxim Pharmaceuticals, Inc.
8899 University Center Lane, Suite 400
San Diego, California  92122

STOCK LISTING
The shares of the Company's common stock is traded on the American Stock
Exchange under the symbol "MMP", and on the Stockholm Stock Exchange under the
symbol "MAXM".  The Company's redeemable common stock purchase warrants are
traded on the American Stock Exchange under the symbol "MMP.WS".

TRANSFER AGENT
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005

CORPORATE COUNSEL
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, California 92121

INDEPENDENT AUDITORS
KMPG Peat Marwick LLP
750 B Street, Suite 3000
San Diego, California  92101


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 
THE OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1998, 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 CLINICAL TRIALS WILL NOT 
COMMENCE WHEN PLANNED, THE RISK THAT WE WILL NOT OBTAIN APPROVAL TO MARKET 
OUR PRODUCTS, THE NEED FOR ADDITIONAL FINANCING, AND THE DEPENDENCE UPON 
COLLABORATIVE PARTNERS.

                                       37