<PAGE>
                                                                   EXHIBIT 13.1

MAXIM PHARMACEUTICALS

EXTENDING LIFE WITH QUALITY

1997 ANNUAL REPORT


Maxim values the quality of patients' lives.  By focusing on safety and well-
being as well as effectiveness of therapy, Maxim is developing treatments
designed to extend survival while maintaining a good quality of life.  Maxim's
lead drug MAXAMINE has shown substantial promise in Phase II trials and is
currently in international Phase III trials for cancer patients.


1997 - SETTING THE STAGE FOR THE FIRST COMMERCIAL PRODUCT

-    Commenced two Phase III clinical trials of MAXAMINE THERAPY for the
     treatment of advanced-stage malignant melanoma, one based in the United 
     States and a second international trial centered in Sweden and Australia.

-    Prepared for a third Phase III clinical trial of MAXAMINE THERAPy, an
     international trial in the treatment of acute myelogenous leukemia to 
     commence in early 1998.

-    Advanced the ongoing Phase II trials of MAXAMINE THERAPY which continue to
     indicate a more than doubling of survival and disease-free remission 
     intervals while maintaining a good quality of life for our cancer patients.

-    Expanded shareholder base and added the resources necessary for the
     commercialization of MAXAMINE with the completion of a $35 million 
     secondary offering.

-    Listed common stock for trading in Europe on the Stockholm Stock Exchange
     (SSE) to complement our United States AMEX listing.

-    Added seasoned, experienced management and staff, collaborators and
     clinical investigators to Maxim's team.

Note:  MAXAMINE, MAXAMINE THERAPY, MAXVAX and the Maxim logo are trademarks of
the Company.


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TO OUR SHAREHOLDERS, COLLABORATORS AND ASSOCIATES:

We entered fiscal year 1997 with the objective of rapidly advancing the
commercialization of MAXAMINE, our immunotherapeutic drug for the treatment of
cancer and infectious diseases.  Maxim clearly achieved this goal during our
first full year as a public company.

Based on positive Phase II trial results, Maxim launched two Phase III clinical
trials of MAXAMINE THERAPY in 1997 and will begin a third Phase III trial in
the first quarter of 1998.  The first two Phase III studies examine MAXAMINE
THERAPY as a treatment for patients with advanced malignant melanoma, a rapidly
growing serious form of skin cancer.  The third phase III trial will
investigate the use of MAXAMINE THERAPY for patients with acute myelogenous
leukemia (AML), the most common adult leukemia.

In October 1996 we reported interim results of the second Phase II trial of
MAXAMINE THERAPY in the treatment of advanced malignant melanoma.  These
results indicated that MAXAMINE THERAPY more than doubled the length of
survival in these late-stage patients compared to conventional therapies,
confirming the results from the initial trial.  In November 1997, a paper
published in LEUKEMIA AND LYMPHOMA reported that Phase II trials of MAXAMINE
THERAPY indicated substantially improved disease-free survival in AML patients.
These Phase II trials highlight the potential of MAXAMINE THERAPY to improve
survival outcomes while maintaining a quality of life - in short, EXTENDING
LIFE...WITH QUALITY for our patients.

COMMENCEMENT OF PHASE III TRIALS -MOVING TOWARD FIRST PRODUCT APPROVAL

A cornerstone of our strategy for the commercialization of MAXAMINE is an
aggressive clinical development program encompassing three concurrent Phase III
clinical trials of MAXAMINE THERAPY for the treatment of cancer.  In mid 1997
we commenced a 200-patient Phase III clinical trial of MAXAMINE THERAPY for
advanced malignant melanoma in the United States.  A second Phase III advanced
malignant melanoma trial was commenced in late 1997 in Sweden and Australia.
Next, we plan to commence a Phase III clinical trial for AML in the United
States, Europe and Australia in early 1998.  We expect that a total of more
than 800 patients will be enrolled in these three trials.

We believe that conducting three trials concurrently, in two different diseases
indications, increases the likelihood of successful commercialization -- each
of these trials is designed to independently support regulatory submissions for
approval to market MAXAMINE.  In addition, we believe that conducting clinical
trials simultaneously on three continents has the added benefit of building the
worldwide market awareness key to the successful commercial launch of MAXAMINE.

The potential for MAXAMINE THERAPY is demonstrated by the breadth of the
ongoing and planned cancer clinical studies, including, among others, multiple
myeloma, renal cell carcinoma and prostate adenocarcinoma.  Infectious diseases
are also an important target;


<PAGE>

Maxim began a Phase I trial of MAXAMINE THERAPY in 1997 as a treatment for 
patients chronically infected with hepatitis C.

STRATEGIES FOR MARKET LAUNCH OF MAXAMINE

As the Phase III trials of MAXAMINE THERAPY progress during the upcoming year
and the product moves closer to commercialization, we will begin to implement
our marketing strategy.  A key component of the market launch strategy will be
the evaluation and appointment of pharmaceutical marketing partners in key
regions around the world, coupled with preparation for co-promotion by Maxim in
certain markets.  Our objective is to select partners with the ability to
maximize the market penetration of MAXAMINE, and to structure collaborations
which maximize the revenue flow to Maxim and provide the resources to
accelerate the expansion of MAXAMINE THERAPY into additional disease
indications.

LOOKING FORWARD - EXPANDING OUR PRODUCT PIPELINE

Building on the success of the MAXAMINE, Maxim plans to pursue additional
development opportunities to fill our product pipeline.  Currently in
preclinical development is MAXVAX, a platform which may be key to the
commercialization of mucosal vaccines.  The mucosal membranes are the sites
where most infectious agents enter the body, and mucosal vaccines have been
long sought by the healthcare industry.  During 1997 we have advanced important
preclinical work regarding MAXVAX, including a vaccine against diphtheria,
which infects millions of people globally.

During fiscal 1997 we established research and development facilities at our
headquarters in San Diego and internalized the majority of our basic research
and development activities.  These facilities will allow us to continue the
preclinical development of MAXVAX and other new opportunities.  Maxim also has
continued to enhance its proprietary position and received two additional
United States patents, and a number of corresponding international patents,
during the year.  We continue to file additional patents as new features and
uses of our technologies are identified.

INCREASED MANAGEMENT AND FINANCIAL STRENGTH

To sustain our success and prepare for the future, we added seasoned,
experienced management and staff, collaborators and clinical investigators to
Maxim's team in 1997.  These newest members at Maxim include accomplished
executives with proven track records in international clinical trials,
marketing and manufacturing management.  The strong data relating to the Phase
II clinical trials of the MAXAMINE THERAPY have had the added benefit of
facilitating our recruitment of leading cancer investigators on three
continents to assist with the Phase III clinical trials and other development
efforts.

We also added the resources necessary for the commercialization of MAXAMINE
with the completion in October 1997 of a secondary public offering, raising an
additional $35 million in net proceeds.  Together with our existing cash
reserves, these funds should

<PAGE>

allow us to complete the Phase III clinical trials of MAXAMINE and prepare for 
the commercial launch of the product.

Concurrent with the secondary offering, we listed our common stock for trading
on the Stockholm Stock Exchange.  Many of our shareholders are based in Europe,
in large part due to the interest generated by the results from the clinical
trials of MAXAMINE THERAPY conducted in Sweden.  Our European listing provides
a regional market for investors wishing to trade in Europe, and allows certain
institutions and other investors previously unable to invest in a U.S.-traded
company to join our shareholders.

                               *   *   *   *   *

We expect that Maxim's program for the rapid development of MAXAMINE, combined
with our management team, commercialization strategies and resource base, will
continue to build a company whose products EXTEND LIFE...WITH QUALITY.  By
developing a portfolio of therapies that may define the future of patient care,
we are strengthening Maxim's value for our shareholders.  We welcome our new
shareholders, thank our long-standing shareholders for their continued loyalty,
interest and support, and enthusiastically look forward to Maxim's upcoming
year.


Sincerely,

/s/ LARRY G. STAMBAUGH

Larry G. Stambaugh
Chairman and Chief Executive Officer

<PAGE>

MAXAMINE THERAPY:  EXTENDING LIFE WITH QUALITY

MAXAMINE CAN BE SAFELY AND EFFECTIVELY SELF-ADMINISTERED BY PATIENTS IN THEIR
OWN HOME...CLINICAL TRIALS USING MAXAMINE THERAPY  IN CANCER PATIENTS INDICATE
SUBSTANTIAL IMPROVEMENT IN SURVIVAL AND REMISSION TIMES WHILE MAINTAINING THEIR
QUALITY OF LIFE DURING THERAPY.

Cancer and chronic infectious diseases afflict millions of people worldwide,
yet available treatments can be ineffective, harsh and costly.  For many
patients, particularly those with late-stage cancer, treatments such as
chemotherapy, other medications, and radiation have high levels of toxicity and
other side effects that can make therapy intolerable.  In addition, many of
these treatments are effective only in terms of short-term tumor response,
without improvement in overall patient survival.

Maxim's lead drug, MAXAMINE, is designed to offer a safer treatment that
EXTENDS LIFE for seriously ill patients.  In many patients with cancer and
chronic infectious diseases, the capacity of the patient's immune system to
detect and destroy diseased cells is compromised.  MAXAMINE THERAPY combines
the administration of MAXAMINE, which protects critical immune cells, with the
administration of certain agents which stimulate these immune cells.  This
elegant and safe method of action is based on a natural defense system and
allows MAXAMINE THERAPY to improve the immune system's ability to identify,
disable and destroy malignant or infected cells.

MAXAMINE THERAPY has shown promise in a series of pre-clinical studies and
Phase II clinical trials as a treatment for patients with advanced malignant
melanoma and AML.  Specifically, the studies suggest that MAXAMINE THERAPY has
resulted in a more than doubling of survival and disease-free remission
intervals while maintaining the quality of life for these seriously ill
patients.  These results have led many clinicians around the world to believe
that MAXAMINE THERAPY may be integral to the growing trend toward combination
therapy for certain cancers and infectious diseases, and may offer a number of
important clinical and commercial advantages relative to current therapies or
approaches.


POTENTIAL ADVANTAGES OF MAXAMINE THERAPY

- Extends life
- Reduces toxic side effects of cytokines and other
  biological response modifiers
- Maintains the patient's quality of life during therapy
- Allows for self-administration at home
- Provides cost-effective therapy


The potential broad applicability of its novel mechanism of action may make
MAXAMINE THERAPY applicable to a number of cancers and infectious diseases.  In
addition to

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malignant melanoma and AML, clinical trials currently underway or
planned include multiple myeloma, renal cell carcinoma, prostate adenocarcinoma
and viral diseases, notably hepatitis C.  The current clinical trial status for
MAXAMINE THERAPY is summarized below.

                                  [GRAPHIC]


*Note:  Research and preclinical is completed or clinical trials are being
conducted in reliance upon work completed in other indications.

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CLINICAL RESULTS FOR MAXAMINE THERAPY --
SUCCESSFUL PHASE II TRIALS SET STAGE FOR PHASE III

REMARKABLY, THE MEDIAN SURVIVAL TIMES OF PATIENTS WITH LIVER METASTASES TREATED
WITH MAXAMINE THERAPY IN THE FIRST TWO TRIALS EXCEEDED 18 MONTHS, MORE THAN
FOUR TIMES LONGER THAN THE PREDICTED SURVIVAL TIME FOR THESE PATIENTS.

Phase II trials of MAXAMINE THERAPY in seriously ill cancer patients continue
to indicate improved survival outcomes while maintaining quality of life during
therapy.  All studies of MAXAMINE THERAPY conducted to date have used MAXAMINE
in combination with one or both of the cytokines interleukin-2 ("IL-2") and
interferon-alpha ("IFN-ALPHA").  Both IL-2 and IFN-ALPHA have the capacity for
stimulating certain immune functions.

MALIGNANT MELANOMA
Malignant melanoma is one of most rapidly increasing cancers in the developed
world.  In two completed Phase II trials of using MAXAMINE THERAPY in the
treatment of advanced malignant melanoma, overall survival times more than
doubled -- 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 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.  As evidenced
by the patient survival times, maintaining quality of life was achieved with no
reduction in efficacy.  A third Phase II clinical trial in advanced malignant
melanoma is currently underway in Sweden.


                                  [GRAPHIC]


Another very encouraging outcome of the 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

<PAGE>

patient population. Remarkably, the median survival times of patients with 
liver metastases treated with MAXAMINE THERAPY in the first two trials exceeded
18 months, more than four times longer than the predicted survival time for 
these patients.

                                  [GRAPHIC]


ACUTE MYELOGENOUS LEUKEMIA
AML is the most common form of adult leukemia, and prospects for long-term
survival are poor for a majority of patients.  Once diagnosed with AML,
patients are typically treated with chemotherapy, and can achieve complete
remission ("CR") in a majority of cases.  Unfortunately 75-80% of patients in
their first CR ("CR1") will relapse, usually within a year.  A subsequent CR
("CR2"), if achieved following chemotherapy or other treatment, normally has a
shorter duration, approximately 50% of the length of the prior CR.  Less than
5% of patients who have relapsed survive long term.

A Phase II clinical study of MAXAMINE THERAPY is ongoing in Sweden, the
objective of which is to treat AML patients in remission with MAXAMINE and low
doses of IL-2 to prevent relapse and prolong disease-free survival while
maintaining a good quality of life during treatment.  As of November 1997,
after 23 months of follow-up, 67% of the CR1 patients treated with MAXAMINE
THERAPY remain in complete remission; in contrast, approximately 30% of
patients would be expected to remain in remission under standard treatments.

For patients treated with MAXAMINE THERAPY in the second or greater remission
("CR2+"), the median time to relapse was 21 months compared to the six-month
historical median.  Also, only 10-20% of AML patients who use current treatment
historically achieve remission inversions, the lengthening of subsequent
remission times beyond the duration of their previous remissions.  However, 75%
of patients treated with MAXAMINE THERAPY have achieved remission inversion.

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                                  [GRAPHIC]


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DISCOVERY OF NOVEL MECHANISM -HOW MAXAMINE THERAPY WORKS

The scientific foundation for MAXAMINE THERAPY is based on discoveries by the
Company's scientists at the University of Goteborg, Sweden.  MAXAMINE, based on
a naturally occurring molecule, preserves the functions of two kinds of immune
cells, the natural killer-cells (NK-cells) and T-cells, both of which possess
an ability to kill and support the killing of cancer cells and virally infected
cells.

The killing activity of NK-cells and T-cells can be stimulated by certain 
agents such as cytokines, naturally occurring proteins.  The cytokines IL-2 
and IFN-ALPHA have been studied and used for the treatment of many cancers 
and infectious diseases, but results have been largely disappointing in most 
indications.  Maxim's research may explain, in part, why cytokine therapy 
using IL-2 or IFN-ALPHA alone has demonstrated limited efficacy.  Phagocytic 
cells, present in large quantities at the site of malignant cell growth, may 
inhibit the tumor-killing activity of NK-cells and T-cells by releasing 
reactive oxygen metabolites (ROM's).  ROM's such as H(2)O(2) induce 
self-destruction (apoptosis) of NK-cells and T-cells, preventing the NK-cells 
and T-cells from attacking the tumor and thus limiting the potential 
therapeutic effect of cytokines.

(Insert illustration showing inhibition of NK-cell by phagocyte.)

PHAGOCYTIC CELLS, WHICH ARE PRESENT IN TUMORS, INHIBIT THE TUMORICIDAL ACTIVITY
OF NK-CELLS AND T-CELLS AND CAN PREVENT THEIR ACTIVATION BY CYTOKINES SUCH AS
IL-2 OR IFN-ALPHA.

Maxim researchers have discovered that when MAXAMINE binds to the type-2 
histamine receptor (H(2) receptor) on the surface of phagocytic cells, it can 
block the production of ROMs, resulting in enhanced activation of NK-cells 
and T-cells.  MAXAMINE THERAPY combines MAXAMINE'S protection of NK and 
T-cell function with the stimulation of these functions by cytokines or other 
biological response modifiers.

(Insert illustration showing protection of NK-cell by Maxamine, and killing of
cancer cells by NK-cell.)

MAXAMINE CAN BLOCK THE PRODUCTION OF ROMS (SUCH AS H2O2), THEREBY PROTECTING
NK-CELLS AND T-CELLS. UNDER SUCH CONDITIONS, ENHANCED ACTIVATION OF NK-CELLS
AND T-CELLS IS POSSIBLE, LEADING TO IMPROVED ANTI-TUMOR AND ANTI-VIRAL
ACTIVITY.

Because MAXAMINE increases the effectiveness of cytokines, lower doses of
cytokines such as IL-2 and IFN-ALPHA can be used in MAXAMINE THERAPY without
compromising therapeutic effectiveness, thereby reducing side effects and
maintaining the patient's quality of life.  The Company expects that MAXAMINE
THERAPY will ultimately encompass the combination of MAXAMINE and a broad range
of cytokines and other biological response modifiers (agents designed to
stimulate the immune system).


<PAGE>

PREPARING FOR RAPID COMMERCIALIZATION OF MAXAMINE -- PHASE III CLINICAL 
DEVELOPMENT PROGRAM

CONDUCTING THREE CONCURRENT PHASE III TRIALS OF MAXAMINE THERAPY AS A 
TREATMENT FOR TWO DIFFERENT DISEASE INDICATIONS INCREASES THE LIKELIHOOD OF 
MAXAMINE'S COMMERCIAL SUCCESS.   CONDUCTING THE CLINICAL TRIALS ON THREE 
CONTINENTS ALSO BUILDS THE WORLDWIDE MARKET AWARENESS KEY TO THE SUCCESSFUL 
COMMERCIAL LAUNCH OF MAXAMINE.

Building on the success of the Phase II clinical trials, during 1997 Maxim 
initiated an aggressive clinical development program encompassing three 
concurrent Phase III clinical trials of MAXAMINE THERAPY for the treatment of 
cancer.  Two Phase III trials in malignant melanoma were commenced in 1997, 
and a Phase III trial in AML is expected to begin in early 1998.  Each of 
these trials is designed to independently support regulatory submissions for 
approval to market MAXAMINE.

The two Phase III malignant melanoma trials complement each other by 
addressing separate clinical and marketing issues.  The United States trial 
is designed to demonstrate that MAXAMINE THERAPY using IL-2 is better at 
extending patient survival than the administration of IL-2 alone.  The second 
pivotal trial, centered in Europe and Australia, 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.

The Phase III AML clinical trial planned to commence in early 1998 is 
expected to be held in the United States, Europe and Australia.  The trial is 
designed as a remission therapy to demonstrate that MAXAMINE THERAPY can 
prolong disease-free remission time and prevents relapse in AML patients 
compared to the current standard of care, which is no therapy during 
remission.

The Phase III trials are critical in proving the safety and effectiveness of 
MAXAMINE THERAPY in extending survival or remission times without 
debilitating side effects.  The encouraging Phase II clinical trial data have 
had the added benefit of facilitating 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 800 patients will be 
enrolled in these three trials.  Maxim is hopeful that these trials will lead 
to an international launch of MAXAMINE, and will help define a new focus in 
patient care characterized by the EXTENSION OF PATIENTS' LIVES...WITH QUALITY.

<PAGE>

MAXAMINE THERAPY - PHASE III CLINICAL TRIALS
--------------------------------------------------------------------------------
<TABLE>

                                                                      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       July 1997      MAXAMINE           IL - 2     12 mos.           Survival,       240
                                                          + IL-2                                         QOL & Tumor
                                                                                                           Response

Malignant Melanoma   Europe & Australia     November       MAXAMINE           DTIC       12 mos.            Survival,      240
                                              1997        + IL-2 & IFN-ALPHA                             QOL & Tumor
                                                                                                            Response

Acute Myelogenous       United States,    Planned for      MAXAMINE           SOC (d)     12/18          Disease-Free      360
Leukemia             Europe & Australia   Early 1998      + IL-2                         mos. (b)          Survival,
                                                                                                             QOL
</TABLE>
(a)  Expected duration of trial after completion of patient enrollment.
(b)  12 months for patients in CR2+ group, 18 months for patients in CR1 group.
(c)  QOL = quality of life.
(d)  SOC = standard of care.
--------------------------------------------------------------------------------

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

As MAXAMINE moves closer to commercialization for the treatment of malignant 
melanoma and AML, Maxim is evaluating the potential of MAXAMINE THERAPY for 
treating other cancers.  As described previously, the potential broad 
applicability of its mechanism of action may make MAXAMINE THERAPY applicable 
to a number of cancers and infectious diseases.  Phase II studies are ongoing 
in multiple myeloma and renal cell carcinoma.  Also, as a result of positive 
preclinical test results, the Company currently plans to initiate a Phase II 
trial in prostate adenocarcinoma in 1998.

Maxim has also initiated a pilot Phase I trial of MAXAMINE THERAPY in 
hepatitis C.  Hepatitis C, a viral infection, is estimated to afflict 4 
million people in the United States and at least 60 million worldwide, and is 
a leading cause of liver cirrhosis and liver cancer, and the primary reason 
for liver transplantation.  Maxim expects to start a Phase II trial of 
MAXAMINE THERAPY in hepatitis C in the United States in 1998.

<PAGE>

LOOKING FORWARD:  EXPANDING OUR PRODUCT PIPELINE

THE TECHNOLOGY UNDERLYING MAXVAX MAY BE KEY TO A NEW CLASS OF VACCINES WITH 
IMPORTANT CLINICAL AND COMMERCIAL ADVANTAGES.

In the coming year, Maxim will continue to capitalize on opportunities that 
lead to the development of products that extend life while maintaining the 
quality of patients' lives, and that build company value.  Maxim's 
development efforts have yielded a second technology that expands and 
diversifies the Company's product portfolio.  MAXVAX, a novel mucosal vaccine 
carrier platform, has the potential to yield a new class of vaccines to 
provide patients with effective, safe and affordable protection against a 
range of infectious diseases.

Mucosal immune protection is particularly important because it represents a 
way to fortify the body's first line defense in the mouth, eyes, ears, 
respiratory, gastrointestinal and urogenital tracts--the sites where most 
pathogens enter the body.  Vaccines based on the MAXVAX technology could 
establish an effective immune response to battle the bacteria and viruses 
that cause a wide variety of diseases, including sexually transmitted 
diseases such as chlamydia, herpes and HIV, as well as respiratory or GI 
illnesses like respiratory syncytial virus (RSV) and rotavirus.

With development, MAXVAX technology could produce protective and therapeutic 
vaccines that would be given as an oral, inhaled or topical agent, rather 
than by injection.  This new class of vaccines may offer important clinical 
and commercial advantages such as greater clinical efficacy, higher levels of 
safety, lower delivery costs and improved patient use. 

<PAGE>

MAXVAX is based on a harmless portion of the protein made by vibrio cholera, 
the Cholera Toxin B subunit (CTB).  Scientists bind an antigen from an 
infectious agent to the MAXVAX carrier for delivery to the mucosal tissues.  
In addition, vectors, plasmids or genes can also be delivered to the mucosal 
tissues using MAXVAX.  Once the antigen is in the body, the immune system 
will recognize it.  This recognition will prompt the production of antibodies 
initially in the mucosal tissue and then throughout the body, offering two 
lines of defense for subsequent exposures to the pathogen.

(Insert illustration shpwing (i) chloera toxin, (ii) CTB, and (iii) the 
MaxVax system.)

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. THE COMPANY IS 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.

Maxim is focusing first on developing MAXVAX vaccines for chlamydia and 
diphtheria.  The Company is also testing the MAXVAX technology alone, without 
an infectious agent component, in Phase I human studies to establish safe 
dosage levels and the best method of administering the vaccine.  Maxim 
intends to seek collaborations with pharmaceutical and biopharmaceutical 
companies for the discovery and development of vaccine candidates of market 
interest.

<PAGE>
                                       
MAXIM'S PROMISE: A NEW FOCUS IN PATIENT CARE

Maxim values the quality of patients' lives.  Too often the treatments for 
cancer and some infectious diseases are as harsh as their illnesses, forcing 
patients to make a difficult choice of whether to continue their therapy. 
Maxim intends to build a future in which seriously ill patients need not face 
such choices.  By focusing on safety and well-being as well as effectiveness 
of therapy, Maxim is developing treatments designed to extend survival and 
maintain a good quality of life.

Maxim's lead drug MAXAMINE has shown substantial promise in Phase II trials 
and is currently in international Phase III trials for cancer patients.  In 
completed and ongoing Phase II trials, patients have lived longer without the 
debilitating side effects of standard chemotherapies.  Maxim's strategy of 
conducting concurrent, international trials in patients with different 
cancers strengthens the likelihood of a near-term commercial launch.  Any one 
of the three Phase III cancer trials of MAXAMINE THERAPY, if successful, 
could provide the data necessary to file for marketing approval.  MAXAMINE 
THERAPY'S novel mechanism offers the likelihood of even wider use, which we 
are exploring in ongoing or planned earlier-stage trials.

Building on the success of MAXAMINE, your company plans to develop other 
pipeline products, notably the mucosal vaccine carrier platform MAXVAX. 
Maxim's programs for MAXAMINE, MAXVAX and future products, supported by our 
experienced managers, high-value commercialization strategies and strong 
resources, are designed to build a competitive company whose products extend 
life...with quality.

<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.  THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM 
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS.

OVERVIEW

During the periods encompassed by this Annual Report, Maxim Pharmaceuticals, 
Inc. (the Company) has devoted substantially all of its resources to its 
MAXAMINE and MAXVAX 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 relating to ongoing and planned Phase III and Phase 
II cancer 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, 1997, 1996 AND 1995

RESEARCH AND DEVELOPMENT EXPENSES - 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.  This increase was primarily attributable to 
increased activity related to cancer clinical trials of the Company's 
MAXAMINE THERAPY, including hiring additional clinical and development 
personnel, clinical trial site and contract research organization costs, and 
other expenses associated with commencement in June 1997 of a Phase III 
cancer clinical trial in the United States, and the preparation for two 
international Phase III cancer trials.  For the year ended September 30, 
1996, research and development expenses were $1,609,000, an increase of 
$624,000, or 63%, over the prior year, primarily due to increased activity in 
cancer clinical trials of the Company's MAXAMINE THERAPY and an expansion of 
preclinical projects for its MAXVAX mucosal vaccine technology.

BUSINESS DEVELOPMENT AND GENERAL AND ADMINISTRATIVE EXPENSES - Business 
development expenses for the year ended September 30, 1997 were $384,000, an 
increase of $271,000, or 241%, over the same period of the prior year.  This 
increase was due to additional personnel and other resources devoted to 
corporate partnering efforts and market evaluations.  Business development 
expenses for the year ended September 30, 1996 were consistent with the prior 
year and totaled $112,000.  For the year ended September 30, 1997, general 
and administrative expenses were $1,993,000, an increase of $750,000, or 60%, 
over the prior year.  This increase was in large part due to the increased 
personnel, insurance, reporting and compliance costs associated with a full 
year of operation as a public company.  For the year ended September 30, 
1996, general and administrative expenses totaled $1,243,000, an increase of 
$243,000, or 24%, as a result of $276,000 in compensation expense related to 
stock options issued to management, directors and consultants; no such 
expense was incurred in the prior year.

OTHER INCOME (EXPENSE)  - Investment income was $927,000 for the year ended 
September 30, 1997, an increase of  $667,000 over the prior year, due to a 
full year of income on the proceeds of the Company's initial public offering 

<PAGE>

completed in July 1996.  Investment income for the year ended September 30, 
1996 totaled $260,000, an increase of $254,000 over the prior year, as a 
result of three months of income on the proceeds of the initial public 
offering. 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 
1995.  Interest expense for the year ended September 30, 1996 was $197,000, a 
decrease of $290,000, or 60%, from the prior year primarily due to the 
repayment of debt discussed above.  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, 1997 totaled $6,895,000, 
an increase of $6,062,000 over the prior year.  The increase was due to the 
current year expansion of research and development and general corporate 
activities, partially offset by the current year increase in investment 
income. The remainder of the increase was due to the aforementioned gain on 
sale of subsidiary of $2,288,000 recorded in the year ended September 30, 
1996.  Net loss for the year ended September 30, 1996 totaled $833,000, a 
decrease of $1,957,000 from the prior year.  The decrease resulted primarily 
from the gain on sale of subsidiary.  Net loss per share of common stock for 
the year ended September 30, 1997 was $1.03, an increase of $.83 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, 1996 was $.20, a 
decrease of $.67 from the prior year, due to the decrease in net loss for the 
year and 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 those 
activities.  The Company has financed its operations primarily through the 
sale of its equity securities, including an initial public offering in July 
1996 which provided approximately $18.2 million, net of financing costs, to 
the Company.

As of September 30, 1997, the Company had cash, cash equivalents and 
investments totaling approximately $12.2 million.  For the years ended 
September 30, 1997, 1996 and 1995, net cash used in the Company's operating 
activities was approximately $5.9 million, $2.7 million and $2.6 million, 
respectively.  Subsequent to September 30, 1997 the Company completed a 
secondary public offering which provided net proceeds to the Company of 
approximately  $34.8 million.  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 developed.  Among the activities which are expected to 
result in an increase in cash requirements are two Phase III cancer clinical 
trials of the MAXAMINE THERAPY commenced in June 1997 in the U.S. and in 
November 1997 internationally, a third Phase III trial of the MAXAMINE 
THERAPY planned for the first quarter of 1998, and other planned clinical 
trials.

The Company's cash requirements may vary materially from those now planned 
because of the results of clinical trials and other research and development, 
the time and costs involved in obtaining regulatory approvals, the cost of 
filing, prosecuting, defending and enforcing patent claims and other 
intellectual property rights, competing technological and market 
developments, changes in the Company's existing research relationships, the 
ability of the Company to establish collaborative arrangements and the 
development of the Company's product commercialization 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 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.

<PAGE>

NEW ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board ("FASB") issued 
SFAS No. 128,  "EARNINGS PER SHARE."  This statement specifies the 
computation, presentation, and disclosure requirements for earnings per share 
for entities with publicly held common stock or potential common stock.  This 
statement shall be effective for financial statements for both interim and 
annual periods ending after December 15, 1997.  Earlier application is not 
permitted, however, retroactive restatement is required.  At this time the 
Company does not believe that this statement will have a significant impact 
on the financial position or results of operations for the year ending 
September 30,1998.  In February 1997 the FASB issued SFAS No. 129, 
"DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE."  This statement shall be 
effective for financial statements for both interim and annual periods ending 
after December 15, 1997.  At this time the Company does not believe that this 
statement will have a significant impact on the financial statement 
disclosures for the year ending September 30, 1998. In June 1997 the 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 shall be effective for 
fiscal years beginning after December 15, 1997.  Reclassification of 
financial statements for earlier periods provided for comparative purposes is 
required. 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 
shall be effective for fiscal years beginning after December 15, 1997.  In 
the initial year of application, comparative information for earlier years is 
to be restated.

IMPACT OF INFLATION

The impact of inflation on the operations of the Company for the years ended 
September 30, 1997, 1996 and 1995 was not material.

                            SELECTED FINANCIAL DATA
                     (in thousands except per share data)
<TABLE>
<CAPTION>

                                                                                      Year Ended September 30
                                                                    ----------------------------------------------------------
                                                                    1997          1996         1995         1994        1993
                                                                    ----          ----         ----         ----        ----
<S>                                                                <C>           <C>          <C>          <C>         <C>
SELECTED STATEMENT OF OPERATIONS DATA:
 Research and development expenses                                 $5,353        $1,609       $  985       $  999      $3,416
 Net loss                                                          (6,895)         (833)      (2,790)      (2,433)     (4,239)
 Net loss per share                                                 (1.03)        (0.20)       (0.87)       (0.82)      (1.48)
 Weighted average shares outstanding                                6,671         4,075        3,209        2,961       2,859
</TABLE>

<TABLE>
<CAPTION>
                                                                                        As of September 30
                                                                    ----------------------------------------------------------
                                                               1997               1996         1995         1994        1993
                                                     ---------------------        ----         ----         ----        ----
                                                    As Adjusted(1)  Actual
                                                    --------------  ------
<S>                                                    <C>         <C>          <C>          <C>          <C>        <C>
SELECTED BALANCE SHEET DATA:
  Cash, cash equivalents and investments               $46,960     $ 12,160     $ 19,144     $    513     $    119   $    335
  Total assets                                          50,658       15,858       21,255        2,454        1,878      2,688
  Long-term debt, less current portion                     555          555            -          247          640      7,395
  Deficit accumulated during the development stage     (20,832)     (20,832)     (13,937)     (13,103)     (10,313)    (7,881)
  Stockholders' equity (deficit)                        48,193       13,393       20,124       (3,644)      (2,513)    (6,568)
</TABLE>

(1)  Adjusted to reflect the net proceeds from a secondary public offering 
     completed by the Company in October 1997.
<PAGE>

BALANCE SHEETS

MAXIM PHARMACEUTICALS, INC.  (A DEVELOPMENT STAGE COMPANY)


<TABLE>
<CAPTION>
                                                                            As of September 30
                                                                       -------------------------
                                                                             1997        1996
                                                                             ----        ----
<S>                                                                   <C>           <C>
ASSETS
CURRENT ASSETS:
 Cash and cash equivalents                                            $     447,523  $  4,070,089
 Short-term investments in marketable securities                          9,389,690    12,563,622
 Accrued interest and other current assets                                  576,836       709,285
                                                                       ------------  ------------
   Total current assets                                                  10,414,049    17,342,996

Investments in marketable securities                                      2,322,398     2,510,366
Patents and licenses, net                                                 1,815,428     1,367,235
Property and equipment, net                                                 718,988        31,037
Other assets                                                                586,893         3,397
                                                                      -------------  ------------
   Total assets                                                       $  15,857,756  $ 21,255,031
                                                                      -------------  ------------
                                                                      -------------  ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable                                                     $   1,082,038  $     405,760
 Accrued expenses                                                           597,388        478,623
 Note payable                                                               102,161              -
 Current portion of long-term debt                                          127,712        247,000
                                                                      -------------  -------------
  Total current liabilities                                               1,909,299      1,131,383

 Long-term debt, less current portion                                       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;
  6,671,237 shares issued and outstanding at
  September 30, 1997 and 1996.                                                6,672          6,672
 Additional paid-in capital                                              34,269,521     34,172,618
 Deficit accumulated during the development stage                      (20,832,052)   (13,936,903)
 Deferred compensation                                                     (50,913)      (118,739)
                                                                      -------------  -------------
  Total stockholders' equity                                             13,393,228     20,123,648
                                                                      -------------  -------------
   Total liabilities and stockholders' equity                         $  15,857,756  $  21,255,031
                                                                      -------------  -------------
                                                                      -------------  -------------
</TABLE>


SEE NOTES TO FINANCIAL STATEMENTS


<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,   
                                                         1997           1996           1995            1997
                                                     ------------   ------------     ----------    ------------------
<S>                                                  <C>            <C>              <C>           <C>          
Operating expenses:
 Research and development                            $  5,353,165   $  1,608,931     $  984,778    $  15,354,423
 Business development                                     383,667        112,454        116,969          613,090
 General and administrative                             1,992,629      1,242,743        999,745        9,351,013
                                                   --------------   ------------ --------------   --------------
  Total operating expenses                              7,729,461      2,964,128      2,101,492       25,318,526

Other income (expense):
 Investment income                                        927,050        259,625          5,590        1,214,780
 Interest expense                                         (77,562)      (197,028)      (486,671)      (1,981,371)
 Other expense                                            (15,176)      (220,431)      (207,549)        (116,964)
 Gain on sale of subsidiary                                     -      2,288,474              -        2,288,474
 Research grant revenue                                         -              -              -        2,946,001
                                                   --------------   ------------ --------------   --------------
  Total other income (expense)                            834,312      2,130,640       (688,630)       4,350,920
                                                   --------------   ------------ --------------   --------------
Loss from continuing operations                        (6,895,149)      (833,488)    (2,790,122)     (20,967,606)

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

Net loss                                             $ (6,895,149)   $  (833,488) $  (2,790,122)  $  (20,832,052)
                                                   --------------   ------------ --------------   --------------  
                                                   --------------   ------------ --------------   --------------

Net loss per share of common stock                   $      (1.03)   $     (0.20) $       (0.87)
                                                   --------------   ------------ --------------
                                                   --------------   ------------ --------------
Weighted average shares outstanding                     6,671,237      4,074,961      3,209,469
                                                   --------------   ------------ --------------
                                                   --------------   ------------ --------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

<PAGE>

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)

<TABLE>
<CAPTION>

                                          Preferred Stock           Common Stock         Additional  
                                        -------------------     -------------------       Paid-In   
                                       Shares        Amount     Shares       Amount        Capital   
                                       ------        ------     ------       ------     -----------  
<S>                                  <C>             <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          -      1,259,249  
Net loss                                     -           -              -          -              -  
                                    ----------       -----      ---------    -------    -----------
Balance at December 31, 1992                 -           -          1,042      8,029      1,259,249  
Net effect of reorganization                                                               
 and issuance of common                                                                    
 stock to account for reverse                                                              
 acquisition                                 -           -        173,977     (7,854)        53,009  
Net loss                                     -           -              -          -              -  
                                    ----------       -----      ---------    -------    -----------
Balance at September 30, 1993                -           -        175,019        175      1,312,258  
Issuance of common stock at $60                                                            
 per share for consulting and                                                              
 professional services                       -           -          1,098          1         65,999  
Issuance of Series A preferred                                                             
 stock for cash at $3.00 per                                                               
 share                                 250,000         250              -          -        487,250  
Issuance of common stock to                                                                
 convert bridge debt financing                                                             
 at prices from $52.50 to $75                                                              
 per share                                   -           -        112,440        113      5,933,894  
Net loss                                     -           -              -          -              -  
                                    ----------       -----      ---------    -------    -----------
Balance at September 30, 1994          250,000         250        288,557        289      7,799,401  
Issuance of common stock at                                                                
 $3.00 per share upon conversion                                                           
 of debt                                     -           -        553,254        553      1,659,210  
Issuance of common stock pursuant                                                          
 to anti-dilutive provisions in                                                            
 previous bridge debt financing              -           -      1,137,343      1,137         (1,137) 
Issuance of common stock at $3.00                                                          
 per share for subscription                                                                
 receivable                                  -           -        103,667        104        310,896  
Net loss                                     -           -              -          -              -  
                                    ----------       -----      ---------    -------    -----------
Balance at September 30, 1995          250,000         250      2,082,821      2,083      9,768,370  
Issuance of common stock at $3.00                                                          
 per share in exchange for                                                                 
 repayment of note payable to bank           -           -        744,646        745      2,249,255  
Receipt of subscription receivable           -           -              -          -              -  
Issuance of common stock and                                                               
 warrants at $3.75 per unit for                                                            
 cash                                        -           -        465,504        465      1,740,033  
Issuance of common stock at                                                                
$4.50 per share for cash                     -           -        400,000        400      1,799,600  
Exercise of common stock options             -           -            400          1          2,999  
Issuance of common stock at $7.50                                                          
 per share and warrants at $.10                                                            
 per warrant in initial public                                                             
 offering                                    -           -      2,875,000      2,875     18,217,215  
Conversion of preferred stock                                                              
 to common stock                     (250,000)        (250)       102,866        103            147  
Options granted to employees                 -           -              -          -        394,999  
Amortization of deferred                                                                   
 compensation                                -           -              -          -              -  
Net loss                                     -           -              -          -              -  
                                    ----------       -----      ---------    -------    -----------
Balance at September 30, 1996                -           -      6,671,237    $ 6,672    $34,172,618
Option granted to consultant                 -           -              -          -         96,903   
Amortization of deferred                                                                             
 compensation                                -           -              -          -              -  
Net loss                                     -           -              -          -              -
                                    ----------       -----      ---------    -------    ----------- 
Balance at September 30, 1997                -       $   -      6,671,237    $ 6,672    $34,269,521 
                                    ----------       -----      ---------    -------    -----------
                                    ----------       -----      ---------    -------    -----------
</TABLE>

<TABLE>                             
<CAPTION>                           
                                                       Subscription                  
                                                        Receivable/                   
                                       Accumulated       Deferred                     
                                         Deficit       Compensation        Total     
                                      ------------     ------------     -----------  
<S>                                   <C>               <C>             <C>          
Balance at October 23, 1989                                                          
 (inception)                          $          -      $       -       $         -  
Issuance of common stock at                                                          
 $.001                                           -              -             8,029  
Net income                                      44              -                44  
                                      ------------      ---------       -----------
Balance at December 31, 1989                    44              -             8,073  
Net income                                     751              -               751  
                                      ------------      ---------       -----------
Balance at December 31, 1990                   795              -             8,824  
Net income                                     272              -               272  
                                      ------------      ---------       -----------
Balance at December 31, 1991                 1,067              -             9,096  
Additional funding                               -              -         1,259,249  
Net loss                                (2,445,184)             -        (2,445,184) 
                                      ------------      ---------       -----------
Balance at December 31, 1992            (2,444,117)             -        (1,176,839) 
Net effect of reorganization                                                         
 and issuance of common                                                              
 stock to account for reverse                                                        
 acquisition                            (1,197,822)                      (1,152,667) 
Net loss                                (4,238,731)                      (4,238,731) 
                                      ------------      ---------       -----------
Balance at September 30, 1993           (7,880,670)                      (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)             -        (2,432,623) 
                                      ------------      ---------       -----------
Balance at September 30, 1994          (10,313,293)             -        (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)             -        (2,790,122) 
                                      ------------      ---------       -----------
Balance at September 30, 1995          (13,103,415)      (311,000)       (3,643,712) 
Issuance of common stock at $3.00                                                    
 per share in exchange for                                                           
 repayment of note payable to bank               -              -         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)             -          (833,488) 
                                      ------------      ---------       -----------
Balance at September 30, 1996         $(13,936,903)     $(118,739)      $20,123,648  
Option granted to consultant                     -              -            96,903  
Amortization of deferred                                                             
compensation                                     -         67,826            67,826  
Net loss                                (6,895,149)             -        (6,895,149) 
                                      ------------      ---------       -----------
Balance at September 30, 1997         $(20,832,052)     $ (50,913)      $13,393,228  
                                      ------------      ---------       -----------
                                      ------------      ---------       -----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS   

<PAGE>

STATEMENTS OF CASH FLOWS            

MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)

<TABLE>
<CAPTION>
                                                                  Year Ended September 30                October 23, 1989
                                                         -------------------------------------------      (inception) to
                                                             1997           1996           1995        September 30, 1997
                                                         ------------    ------------    -----------   ------------------
<S>                                                      <C>             <C>             <C>            <C>
OPERATING ACTIVITIES:
 Net loss                                                $ (6,895,149)   $   (833,488)   $(2,790,122)   $(20,832,052)
 Adjustments to reconcile net loss to net cash
 used in operating activities:
  Depreciation and amortization                               262,784         128,719         53,581       1,043,928
  Amortization of premium on investments                      156,342               -              -         156,342
  Stock options issued as compensation                        164,729         276,260              -         440,989
  Loss on write-off of patents                                 53,144         189,068              -         242,212
  Gain on sale of subsidiary                                        -      (2,288,474)             -      (2,288,474)
  Loss on disposal of property and equipment                    4,435         128,248              -         132,683
  Loss on write-off of  receivable from related party               -         147,803              -         147,803
  Other                                                             -          27,032         24,669          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                 132,449        (695,609)         1,779        (576,836)
    Other assets                                             (583,496)         14,214         46,966        (734,696)
    Accounts payable                                          676,278          70,204         42,089       1,082,038
    Accrued expenses                                          118,765         150,629         17,105         618,598
                                                        -------------    ------------    -----------    ------------
     Net cash used in operating activities                 (5,909,719)     (2,685,394)    (2,603,933)    (17,200,093)

INVESTING ACTIVITIES:
Purchases of marketable securities                        (10,835,442)    (15,073,988)             -     (25,909,430)
Maturities of marketable securities                        14,041,000               -              -      14,041,000
Additions to patents and licenses                            (652,053)       (213,196)      (274,901)     (2,494,840)
Purchases of property and equipment                          (804,454)        (23,524)             -      (1,612,695)
Cash acquired in acquisition of business                            -               -              -         985,356
Proceeds from sale of diagnostic division                           -               -              -         496,555
                                                        -------------    ------------    -----------    ------------
    Net cash provided (used) by investing activities        1,749,051     (15,310,708)      (274,901)    (14,494,054)

FINANCING ACTIVITIES:
Proceeds from issuance of notes payable and
 long-term debt                                               814,380          81,675      3,427,992       5,390,803
Payments on notes payable and long-term debt                 (276,278)     (2,603,000)             -      (3,046,783)
Proceeds from issuance of notes payable to
 related parties                                                    -               -        925,000       4,982,169
Payments on notes payable to related parties                        -        (250,000)    (1,079,885)     (1,329,885)
Net proceeds from issuance of common stock
 and warrants                                                       -      24,324,588              -      25,657,866
Net proceeds from issuance of preferred stock                       -               -              -         487,500
                                                        -------------    ------------    -----------    ------------
Net cash provided by financing activities                     538,102      21,553,263      3,273,107      32,141,670
                                                        -------------    ------------    -----------    ------------
Net increase (decrease) in cash and cash equivalents       (3,622,566)      3,557,161        394,273         447,523

Cash and cash equivalents at beginning of period            4,070,089         512,928        118,655               -
                                                        -------------    ------------    -----------    ------------

Cash and cash equivalents at end of period              $     447,523    $  4,070,089    $   512,928    $    447,523
                                                        -------------    ------------    -----------    ------------
                                                        -------------    ------------    -----------    ------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<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 target the treatment and prevention 
of 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 1993 
reverse acquisition reflects the equity activity of SVD.

Since the Reorganization, the Company has devoted substantially all of its 
resources to its MAXAMINE and MAXVAX 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, 
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.

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 (Note 13).

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. The Company has classified all investments as 
held-to-maturity securities.  Investments are carried at cost, which 
approximates market.  The investments mature at various dates through 
February 1999.

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.

<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.  Effective October 1, 1996, the Company adopted 
Financial Accounting Standards Board Statement No. 121, "Accounting for the 
Impairment of Long-Lived Assets to be Disposed Of:" ("SFAS 121").  SFAS 
requires losses from impairment to be recorded on long-lived assets used in 
operations when indicators of impairment are present and the undiscounted 
cash flows estimated to be generated by those assets before interest are less 
than the assets' carrying amount.  The adoption of SFAS 121 did not have a 
material effect of the Company's financial statements for the year ended 
September 30, 1997.

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 7), 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 - 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.  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.  For periods subsequent to the initial 
public offering, common stock equivalents have not been included as they are 
antidilutive.

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.


<PAGE>

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

                                                          September 30
                                                       1997          1996
                                                       ----          ----
     Laboratory equipment                            $454,115       $    -
     Office equipment and furniture                   365,239       56,187
     Leasehold improvements                            25,963            -
                                                     --------       ------
                                                      845,317       56,187
     Less accumulated depreciation and amortization  (126,329)     (25,150)
                                                     --------       ------
                                                     $718,988      $31,037
                                                     --------       ------
                                                     --------       ------
  
During the year ended September 30, 1996, the Company transferred laboratory 
equipment with a net book value of $128,248 to a former Swedish collaborating 
scientist and former director of the Company.

4. SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                          Year Ended September 30             From Inception
                                      -------------------------------            Through
                                      1997         1996          1995        September 30,1997
                                      ----         ----          ----        -----------------
<S>                                 <C>         <C>           <C>               <C>
Noncash investing and
  financing activities:
    Issuance of common stock
      to convert debt               $     -     $         -   $1,659,763        $ 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           83,167         341,126      202,627          1,476,291
</TABLE>

5. ACCRUED EXPENSES

Accrued expenses consist of the following:

                                          September 30
                                       1997          1996
                                       ----          ----
     Compensation                    $185,848      $ 79,868
     Professional fees                167,985       201,179
     Collaborator fees                130,000       100,000
     Other                            113,555        97,576
                                     --------      --------
                                     $597,388      $478,623
                                     --------      --------
                                     --------      --------

<PAGE>

6.   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 may borrow up to $900,000 during 1997 
to fund qualified equipment purchases.  At January 1, 1998 any outstanding 
advances under the line of credit will convert to a term loan payable in 
equal installments over 48 months, including interest at prime plus 0.5%.  
The loan is secured by all assets of the Company.  At September 30, 1997 
aggregate advances under the line of credit totaled $660,965.

Long-term debt consists of the following:

                                                         September 30
                                                      1997          1996
                                                      ----          ----
     Credit agreement with bank, secured
       by all assets of the Company                 $660,965     $       -
     Capital lease agreement, secured by
       certain equipment                              21,976      
     Note payable, secured by a priority interest
       in certain technology and rights                    -       247,000
                                                    --------     ---------
                                                     682,941       247,000
     Less current portion                           (127,712)     (247,000)
                                                    --------     ---------
                                                    $555,229     $       -
                                                    --------     ---------
                                                    --------     ---------

In July 1993, the Company issued a note payable to a company for $600,000 in 
partial consideration for certain worldwide exclusive rights related to its 
Maxamine technology.  In June 1997, the Company made the final payment of 
principal of $247,000 due under the note.

7. STOCKHOLDERS' EQUITY

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, 1997, warrants to purchase 3,707,642 shares of 
the Company's common stock at a weighted average exercise price of $9.86 per 
share are outstanding, of which warrants to purchase 3,576,087 shares are 
exercisable.

Included in the above total warrants outstanding are 2,875,000 Redeemable 
Warrants issued in connection with the aforementioned 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.  Commencing  January 10, 1998, the 
Company may redeem the Redeemable Warrants at $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 may purchase up to 250,000 shares of 
common stock at a price of $9.00 per share and up to 250,000 warrants at a 
price of $0.12 per warrant. The warrants issuable upon exercise of the 
initial public offering warrants are exercisable at a price of $12.38 per 
share of common stock.

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 
332,642 shares of the Company's common stock at an exercise price of $3.00 
per share were outstanding at September 30, 1997, of which warrants to 
purchase 201,087 shares were exercisable.

<PAGE>

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

During the year ended September 30, 1997, the Company adopted 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, 
1997 and 1996 totaled $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, 1994                  34,067              $7.50 - $60.00
       Granted                                        3,333                  $7.50
       Exercised                                          -                    -
       Canceled                                        (533)                $60.00
                                                    -------
     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
                                                    -------
                                                    -------
</TABLE>

At September 30, 1997, options for 449,691 shares of common stock are 
exercisable and the remaining 332,641 become exercisable at various dates 
through January 2, 2002. The options expire at various dates through 
September 25, 2004.  The following table summarizes information concerning 
outstanding and exercisable options as of September 30, 1997.

<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                         510,666           $ 3.75         5.59 years       394,232          $  3.75
$7.00 - $9.99                 238,166           $ 8.78         6.47 years        53,959          $  8.69
$10.00 - $14.50                33,500           $12.58         6.81 years         1,500          $ 10.02
</TABLE>

<PAGE>

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, 1997 and 1996 would have been increased by $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 1997 
and 1996, respectively: risk-free interest rates of 5.80% and 5.76%; dividend 
yield of 0%; volatility factors of the expected market price of the Company's 
common stock of 73%; and an expected life of the option of five years.  These 
assumptions resulted in weighted-average fair values of $5.00 and $2.51 per 
share for stock options granted in the fiscal years ended September 30, 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.

8. INCOME TAXES

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

                                                         September 30
                                                      1997          1996
                                                      ----          ----
     Deferred tax assets:
       Net operating loss carryforwards           10,665,000     $7,434,000
       General business credit carryforwards         453,000        276,000
       Other                                         149,000         87,000
                                                 -----------     ----------
         Total net deferred tax assets            11,267,000      7,797,000
     Valuation allowance for deferred tax assets (11,267,000)    (7,797,000)
                                                 -----------     ----------
         Net deferred tax assets                 $         -     $        -
                                                 -----------     ----------
                                                 -----------     ----------

At September 30, 1997, the Company has federal and California tax net 
operating loss carryforwards of approximately $28,500,000 and $9,800,000, 
respectively. The federal tax loss carryforwards will begin expiring in 
fiscal 1999 unless previously utilized.  The California tax loss 
carryforwards will begin expiring in fiscal 1998.

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.

9. COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS - The Company leases laboratory and administrative office 
facilities under a five-year operating lease agreement that commenced 
December 1996.  Future minimum lease commitments approximate the following 
for each of the five years ended September 30, 2002, and thereafter:  1998 - 
$320,000; 1999 - $333,000; 2000 - $346,000; 2001 - $360,000; 2002 - $69,000; 
and none thereafter.  Total rent expense for the fiscal years ended September 
30, 1997, 1996 and 1995 was $281,150, $87,456 and $78,449, respectively.

CONTINGENCY -  In March 1997, the former President and Chief Operating 
Officer and the Chief Financial Officer of the Company (the "Former 
Employees") filed a complaint in the Superior Court in the State of 
California, County of San Diego (the "Complaint") seeking claims for certain 
purported damages in contract and in tort arising from their respective 
terminations of employment with the Company in March 1996.  In addition, the 
Former Employees asserted possible punitive damages and damages based on 
emotional distress.  The Former Employees also claimed the right to vested 
options of the Company's Common Stock. According to the Complaint, each of 
the Former Employees appears to be claiming compensatory damages in excess of 
$2 million and punitive damages in excess of $3 million.  In June 1997, the 
Company filed an answer to the Complaint denying each of the allegations 
therein.  
<PAGE>

Pretrial discovery with respect to these legal proceedings has commenced, and 
a trial date has been scheduled for May 1998.  The Company believes the 
Former Employees' claims are without merit and the Company intends to contest 
any such claims vigorously.  However, there can be no assurances as to the 
eventual outcome of such claims or their effect on the Company's business, 
financial condition and results of operations.  In addition, an adverse 
determination in any litigation arising from these claims or the settlement 
of such claims could have a material adverse effect of the Company's 
business, financial condition and results of operations.

10.  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 inventors 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.

11.  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.  The Company made payments totaling 
$120,000 and $80,000 in connection with the consulting agreement during the 
years ended September 30, 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.

As described in Note 12, in July 1996 the Company sold its ownership interest 
in a subsidiary to a former director and shareholder of the Company for 
$1.00, and recorded a gain on the disposal of $2,288,474.  During the year 
ended September 30, 1996 the Company also transferred laboratory equipment 
with a net book value of $128,248 to this former director.

<PAGE>

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.

12. DISPOSAL OF CERTAIN OPERATIONS

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.

13.  SUBSEQUENT EVENT - SECONDARY PUBLIC STOCK OFFERING

During October 1997 the Company completed a secondary 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 $34,800,000 after 
underwriting discounts and other issuance costs.

14.  QUARTERLY RESULTS (UNAUDITED)

Summarized quarterly results of operations for the years ended September 30, 
1997 and 1996 were as follows (in thousands except per share amounts):

<TABLE>
<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 loss                                          (764,560)    (1,596,618)    (1,953,443)   (2,580,528)
Net loss per share of common stock                   (0.11)         (0.24)         (0.29)        (0.39)

<CAPTION>
                                                                Year ended September 30, 1996
                                                ---------------------------------------------------------
                                                    First        Second          Third        Fourth
                                                    -----        ------          -----        ------
<S>                                               <C>          <C>            <C>           <C>
Research and development expenses                 $219,388       $593,896       $341,777      $453,870
Net income (loss)                                 (570,879)      (922,009)      (885,410)    1,544,810
Net income (loss) per share of common stock          (0.12)         (0.16)         (0.14)         0.25
</TABLE>

<PAGE>

15.  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.  The following 
table shows the high and low sales price for the common stock by quarter, as 
reported by the AMEX, for the period subsequent to the initial public 
offering:

                                                     Price Range
                 Period                           High          Low
                 ------                           ----          ---
  Fiscal Year Ending September 30, 1996
     Fourth Quarter (commencing July 10, 1996)     $11        $7-3/4

  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

  On December 19, 1997 the last reported sales price of the Common Stock, as 
reported by the AMEX, was    $15 1/16 per share.  As of such date, there were 
approximately 1,200 holders of the Common Stock.  On October 24, 1997, 
concurrent with the completion of a secondary public offering, the Company's 
common stock commenced trading on the SSE under the symbol "MAXM."  The 
Company has not paid cash dividends and has no intention to do so in the 
foreseeable future. 

<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, 1997 and 1996, 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, 1997 
and for the period from inception (October 23, 1989) through September 30, 
1997.  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, 1997 and 1996, and the 
results of their operations and their cash flows for each of the years in the 
three-year period ended September 30, 1997 and for the period from inception 
(October 23, 1989) through September 30, 1997, in conformity with generally 
accepted accounting principles.



/s/ KPMG PEAT MARWICK LLP

San Diego, California
October 31, 1997

<PAGE>

CORPORATE INFORMATION

<TABLE>
<CAPTION>
<S>                                      <C>
EXECUTIVE OFFICERS                       CORPORATE HEADQUARTERS        
Larry G. Stambaugh                       10835 Altman Row, Suite 150   
CHAIRMAN OF THE BOARD,                   San Diego, California  92121  
PRESIDENT AND CHIEF EXECUTIVE OFFICER    tel. 619-453-4040             
                                         fax 619-453-5005              

Kurt R. Gehlsen, Ph.D.                   10-K AVAILABILITY                          
VICE PRESIDENT, DEVELOPMENT AND          A copy of the company's annual report      
CHIEF TECHNICAL OFFICER                  to the Securities and Exchange Commission  
                                         on Form 10-K for the fiscal year ended     
Dale A. Sander                           September 30, 1997, without exhibits,      
VICE PRESIDENT, FINANCE,                 will be made available to any Stockholder  
CHIEF FINANCIAL OFFICER                  upon written request to:                   
AND CORPORATE SECRETARY                  Maxim Pharmaceuticals, Inc.                
                                         10835 Altman Row, Suite 150                
                                         San Diego, California  92121               

DIRECTORS                                STOCK LISTING                          
Larry G. Stambaugh                       The shares of the Company's common     
CHAIRMAN OF THE BOARD,                   stock and redeemable common stock is   
PRESIDENT AND CHIEF EXECUTIVE OFFICER    traded on the American Stock Exchange  
                                         under the symbol "MMP", and on the       
Colin B. Bier, Ph.D.                     Stockholm Stock Exchange under the     
MANAGING DIRECTOR                        symbol "MAXM".  The Company's redeemable 
ABA BIORESEARCH                          common stock purchase warrants are     
                                         traded on the American Stock Exchange  
G. Steven Burrill                        under the symbol "MMP.WS".               
CHIEF EXECUTIVE OFFICER
BURRILL & COMPANY LLC                    TRANSFER AGENT                           
                                         American Stock Transfer & Trust Company  
Per-Olof Martensson                      40 Wall Street                           
PRINCIPAL                                New York, New York 10005                 
POM ADVISORY SERVICES AB                                                          
                                         CORPORATE COUNSEL                        
F. Duwaine Townsen                       Cooley Godward LLP                       
MANAGING PARTNER                         4365 Executive Drive, Suite 1100         
VENTANA GROWTH FUNDS                     San Diego, California 92121              
                                                                                  
                                         INDEPENDENT AUDITORS                     
                                         KMPG Peat Marwick LLP                    
                                         750 B Street, Suite 3000                 
                                         San Diego, California  92101             
</TABLE>

THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND 
UNCERTAINTIES.  THE COMPANY'S 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 COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE 
YEAR ENDED SEPTEMBER 30, 1997, 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 THE COMPANY 
WILL NOT OBTAIN APPROVAL TO MARKET ITS PRODUCTS.