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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

(Mark One)

|ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the Quarter Ended March 31, 2002

or

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission file number 1-14430

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

Delaware(State of incorporation)

87-0279983(IRS Employer Identification No.)8899 University Center Lane, Suite 400, San Diego, CA(Address of principal executive offices)

92122(zip code)


(858) 453-4040(Registrant's telephone number, including area code)

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

As
of May 2, 2002, the registrant had 23,278,877 shares of Common Stock, $.001 par value, outstanding.

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MAXIM PHARMACEUTICALS, INC. AND SUBSIDIARIES(A Development Stage Company)

INDEX

|                             |  |         |  |                                                                                                                                                                                    |  | Page
|---------------------------- |  | ------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|Part IFinancial Information |  |        
|                             |  | Item 1. |  | Financial Statements                                                                                                                                                               |  |     
|                             |  |         |  | Condensed Consolidated Balance Sheets (unaudited)March 31, 2002 and September 30, 2001                                                                                            |  | 1   
|                             |  |         |  | Condensed Consolidated Statements of Operations (unaudited)Three Months and Six Months Ended March 31, 2002 and 2001 and from Inception (October 23, 1989) through March 31, 2002 |  | 2   
|                             |  |         |  | Condensed Consolidated Statements of Cash Flows (unaudited)Six Months Ended March 31, 2002 and 2001 and from Inception (October 23, 1989) through March 31, 2002                  |  | 3   
|                             |  |         |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                                                                   |  | 4   
|                             |  | Item 2. |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                                                              |  | 7   
|                             |  | Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                         |  | 18  
|Part IIOther Information    |  |        
|                             |  | Item 1. |  | Legal Proceedings                                                                                                                                                                  |  | 19  
|                             |  | Item 4. |  | Submission of Matters to a Vote of Security Holders                                                                                                                                |  | 19  
|                             |  | Item 6. |  | Exhibits and Reports on Form 8-K                                                                                                                                                   |  | 19  
|SIGNATURE                    |  | 20     

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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

Maxim Pharmaceuticals, Inc. and Subsidiaries (A Development Stage Company)

|                                                                 |                                                                                                                                                                             | As of March 31
2002        |                                            | As of September 30
2001 |            
|---------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ----------------------- | -----------
|ASSETS                                                           |                                                                                                                                                                             |                            |                                            |                         |            
|Current Assets:                                                  |                                                                                                                                                                             |                            |                                            |                         |            
|                                                                 | Cash and cash equivalents                                                                                                                                                   |                            | $                                          | 22,086,580              |            
|                                                                 | Short-term investments in marketable securities, available for sale                                                                                                         |                            |                                            | 102,542,068             |            
|                                                                 | Accrued interest and other current assets                                                                                                                                   |                            |                                            | 3,240,753               |            
|                                                                 |                                                                                                                                                                             |                            |                                            |                         |            
|                                                                 |                                                                                                                                                                             | Total current assets       |                                            |                         | 127,869,401
|Restricted cash and cash equivalents                             |                                                                                                                                                                             |                            | 4,000,000                                  |                         |            
|Property and equipment, net                                      |                                                                                                                                                                             |                            | 5,574,016                                  |                         |            
|Patents and licenses, net                                        |                                                                                                                                                                             |                            | 2,417,892                                  |                         |            
|Note receivable from officer                                     |                                                                                                                                                                             |                            | 3,080,500                                  |                         |            
|Goodwill and intangible assets, net                              |                                                                                                                                                                             |                            |                                           |                         |            
|Deposits and other assets                                        |                                                                                                                                                                             |                            | 170,985                                    |                         |            
|                                                                 |                                                                                                                                                                             |                            |                                            |                         |            
|                                                                 |                                                                                                                                                                             | Total assets               |                                            | $                       | 143,112,794
|                                                                 |                                                                                                                                                                             |                            |                                            |                         |            
|LIABILITIES AND STOCKHOLDERS' EQUITY                             |                                                                                                                                                                             |                            |                                            |                         |            
|Current Liabilities:                                             |                                                                                                                                                                             |                            |                                            |                         |            
|                                                                 | Accounts payable                                                                                                                                                            |                            | $                                          | 1,596,143               |            
|                                                                 | Accrued expenses                                                                                                                                                            |                            |                                            | 3,807,598               |            
|                                                                 | Notes payable                                                                                                                                                               |                            |                                            | 31,019                  |            
|                                                                 | Current installments of obligations under capital leases                                                                                                                    |                            |                                            | 326,945                 |            
|                                                                 | Current portion of long-term debt                                                                                                                                           |                            |                                            | 663,000                 |            
|                                                                 | Deferred revenue                                                                                                                                                            |                            |                                            | 518,750                 |            
|                                                                 |                                                                                                                                                                             |                            |                                            |                         |            
|                                                                 |                                                                                                                                                                             | Total current liabilities  |                                            |                         | 6,943,455  
|Long-term debt                                                   |                                                                                                                                                                             |                            | 1,547,000                                  |                         |            
|Obligations under capital leases, excluding current installments |                                                                                                                                                                             |                            | 156,290                                    |                         |            
|Commitments and contingencies                                    |                                                                                                                                                                             |                            |                                            |                         |            
|Stockholders' Equity:                                            |                                                                                                                                                                             |                            |                                            |                         |            
|                                                                 | Convertible preferred stock, $.001 par value, 5,000,000 shares authorized, zero shares issued and outstanding at March 31, 2002 and September 30, 2001                      |                            |                                            |                        |            
|                                                                 | Common stock, $.001 par value, 40,000,000 shares authorized; 23,278,362 and 23,252,457 shares issued and outstanding at March 31, 2002 and September 30, 2001, respectively |                            |                                            | 23,279                  |            
|                                                                 | Additional paid-in capital                                                                                                                                                  |                            |                                            | 376,562,648             |            
|                                                                 | Deficit accumulated during the development stage                                                                                                                            |                            |                                            | (241,792,326            | )          
|                                                                 | Accumulated other comprehensive income                                                                                                                                      |                            |                                            | (327,552                | )          
|                                                                 |                                                                                                                                                                             |                            |                                            |                         |            
|                                                                 |                                                                                                                                                                             | Total stockholders' equity |                                            |                         | 134,466,049
|                                                                 |                                                                                                                                                                             |                            |                                            |                         |            
|                                                                 |                                                                                                                                                                             |                            | Total liabilities and stockholders' equity |                         | $          
|                                                                 |                                                                                                                                                                             |                            |                                            |                         |            

See Notes to Condensed Consolidated Financial Statements

1

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

Maxim Pharmaceuticals, Inc. and Subsidiaries (A Development Stage Company)

|                                                                                 |                                                                          | Three Months Ended March 31 |             | Six Months Ended March 31 |            | From Inception
(October 23, 1989)
Through
March 31, 2002 |          
|-------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | --------------------------- | ----------- | ------------------------- | ---------- | -------------------------------------------------------- | ---------
|
|Collaboration and research revenue                                               |                                                                          | $                           | 594,359     |                           | $          | 871,499                                                  |          
|Operating expenses:                                                              |                                                                          |                             |             |                           |            |                                                          |          
|                                                                                 | Research and development                                                 |                             |             | 8,412,611                 |            |                                                          | 8,417,102
|                                                                                 | Marketing and business development                                       |                             |             | 662,029                   |            |                                                          | 2,244,763
|                                                                                 | General and administrative                                               |                             |             | 1,815,623                 |            |                                                          | 2,082,894
|                                                                                 | Amortization of goodwill and other acquisition-related intangible assets |                             |             |                          |            |                                                          | 553,496  
|                                                                                 | Purchased in-process technology                                          |                             |             |                          |            |                                                          |         
|                                                                                 |                                                                          |                             |             |                           |            |                                                          |          
|                                                                                 |                                                                          | Total operating expenses    |             |                           | 10,890,263 |                                                          |          
|                                                                                 |                                                                          |                             |             |                           |            |                                                          |          
|Loss from operations                                                             |                                                                          |                             | (10,295,904 | )                         |            | (12,426,756                                              | )        
|                                                                                 |                                                                          |                             |             |                           |            |                                                          |          
|Other income (expense):                                                          |                                                                          |                             |             |                           |            |                                                          |          
|                                                                                 | Investment income                                                        |                             |             | 1,278,217                 |            |                                                          | 2,668,629
|                                                                                 | Gain on sale of assets                                                   |                             |             |                          |            |                                                          |         
|                                                                                 | Interest expense                                                         |                             |             | (39,349                   | )          |                                                          | (6,739   
|                                                                                 | Other income (expense)                                                   |                             |             | (5,600                    | )          |                                                          | 6,804    
|                                                                                 |                                                                          |                             |             |                           |            |                                                          |          
|                                                                                 |                                                                          | Total other income          |             |                           | 1,233,268  |                                                          |          
|                                                                                 |                                                                          |                             |             |                           |            |                                                          |          
|Loss before cumulative effect of accounting change and preferred stock dividends |                                                                          |                             | (9,062,636  | )                         |            | (9,758,062                                               | )        
|                                                                                 | Cumulative effect of accounting change                                   |                             |             |                          |            |                                                          |         
|                                                                                 |                                                                          |                             |             |                           |            |                                                          |          
|Net loss before preferred stock dividends                                        |                                                                          |                             | (9,062,636  | )                         |            | (9,758,062                                               | )        
|                                                                                 | Dividends on preferred stock                                             |                             |             |                          |            |                                                          |         
|                                                                                 |                                                                          |                             |             |                           |            |                                                          |          
|Net loss applicable to common stock                                              |                                                                          | $                           | (9,062,636  | )                         | $          | (9,758,062                                               | )        
|                                                                                 |                                                                          |                             |             |                           |            |                                                          |          
|Basic and diluted net loss per share of common stock                             |                                                                          |                             |             |                           |            |                                                          |          
|                                                                                 | Before cumulative effect of accounting change                            |                             | $           | (0.39                     | )          | $                                                        | (0.42    
|                                                                                 | Cumulative effect of accounting change                                   |                             |             |                          |            |                                                          |         
|                                                                                 |                                                                          |                             |             |                           |            |                                                          |          
|                                                                                 | Basic and diluted net loss per share of common stock                     |                             |             | (0.39                     | )          |                                                          | (0.42    
|                                                                                 |                                                                          |                             |             |                           |            |                                                          |          
|Weighted average shares outstanding                                              |                                                                          |                             | 23,266,001  |                           |            | 23,219,833                                               |          
|                                                                                 |                                                                          |                             |             |                           |            |                                                          |          

See Notes to Condensed Consolidated Financial Statements

2

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Maxim Pharmaceuticals, Inc. and Subsidiaries (A Development Stage Company)

|                                                                                      |                                                                    | Six Months Ended March 31                 |             |            |           
|------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ----------------------------------------- | ----------- | ---------- | ----------
|
|
|OPERATING ACTIVITIES:                                                                 |                                                                    |                                           |             |            |           
|Net loss                                                                              |                                                                    | $                                         | (45,067,021 | )          | $         
|Adjustments to reconcile net loss to net cash used in operating activities:           |                                                                    |                                           |             |            |           
|                                                                                      | Depreciation and amortization                                      |                                           |             | 1,133,683  |           
|                                                                                      | Stock contributions to 401(k) plan                                 |                                           |             | 101,580    |           
|                                                                                      | Cumulative effect of accounting change                             |                                           |             | 28,179,466 |           
|                                                                                      | Stock-based compensation                                           |                                           |             |           |           
|                                                                                      | Loss on disposal of property and equipment                         |                                           |             | 3,181      |           
|                                                                                      | Loss on write-off of patents                                       |                                           |             |           |           
|                                                                                      | Amortization of premium on investments                             |                                           |             |           |           
|                                                                                      | Other                                                              |                                           |             |           |           
|                                                                                      | Purchased in-process technology                                    |                                           |             |           |           
|                                                                                      | Cumulative effect of reorganization                                |                                           |             |           |           
|                                                                                      | Gain on sale of subsidiary                                         |                                           |             |           |           
|                                                                                      | Gain on sale of assets                                             |                                           |             |           |           
|                                                                                      | Changes in operating assets and liabilities:                       |                                           |             |            |           
|                                                                                      |                                                                    | Accrued interest and other current assets |             |            | 1,361,582 
|                                                                                      |                                                                    | Deposits and other assets                 |             |            | 202,671   
|                                                                                      |                                                                    | Accounts payable                          |             |            | (1,130,500
|                                                                                      |                                                                    | Accrued expenses                          |             |            | 26,520    
|                                                                                      |                                                                    | Deferred revenue                          |             |            | (325,000  
|                                                                                      |                                                                    |                                           |             |            |           
|Net cash used in operating activities                                                 |                                                                    |                                           | (15,513,838 | )          |           
|INVESTING ACTIVITIES:                                                                 |                                                                    |                                           |             |            |           
|Purchases of marketable securities                                                    |                                                                    |                                           | (44,086,417 | )          |           
|Sales and maturities of marketable securities                                         |                                                                    |                                           | 62,400,000  |            |           
|Purchases of property and equipment                                                   |                                                                    |                                           | (596,035    | )          |           
|Additions to patents and licenses                                                     |                                                                    |                                           | (549,321    | )          |           
|Net proceeds from sale of assets                                                      |                                                                    |                                           | 45,750      |            |           
|Cash acquired in acquisition of business                                              |                                                                    |                                           |            |            |           
|                                                                                      |                                                                    |                                           |             |            |           
|Net cash provided by (used in) investing activities                                   |                                                                    |                                           | 17,213,977  |            |           
|FINANCING ACTIVITIES:                                                                 |                                                                    |                                           |             |            |           
|Net proceeds from issuance of common stock and exercise of stock options and warrants |                                                                    |                                           | 50,518      |            |           
|Net proceeds from issuance of preferred stock                                         |                                                                    |                                           |            |            |           
|Payment of preferred stock dividends                                                  |                                                                    |                                           |            |            |           
|Proceeds from issuance of notes payable and long-term debt                            |                                                                    |                                           | 475,000     |            |           
|Payments on notes payable, long-term debt, and capital lease obligations              |                                                                    |                                           | (509,012    | )          |           
|Restricted cash                                                                       |                                                                    |                                           |            |            |           
|Proceeds from issuance of notes payable to related parties                            |                                                                    |                                           |            |            |           
|Payments on notes payable to related parties                                          |                                                                    |                                           |            |            |           
|Loan to officer                                                                       |                                                                    |                                           | (68,791     | )          |           
|                                                                                      |                                                                    |                                           |             |            |           
|Net cash (used in) provided by financing activities                                   |                                                                    |                                           | (52,285     | )          |           
|Effect of exchange rate changes on cash                                               |                                                                    |                                           |            |            |           
|                                                                                      |                                                                    |                                           |             |            |           
|Net increase (decrease) in cash and cash equivalents                                  |                                                                    |                                           | 1,647,854   |            |           
|Cash and cash equivalents at beginning of period                                      |                                                                    |                                           | 20,438,726  |            |           
|                                                                                      |                                                                    |                                           |             |            |           
|Cash and cash equivalents at end of period                                            |                                                                    | $                                         | 22,086,580  |            | $         
|                                                                                      |                                                                    |                                           |             |            |           
|Noncash investing activities:                                                         |                                                                    |                                           |             |            |           
|                                                                                      | Increase (decrease) in fair value of securities available for sale |                                           | $           | (1,265,629 | )         
|                                                                                      |                                                                    |                                           |             |            |           

See Notes to Condensed Consolidated Financial Statements.

3

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Maxim Pharmaceuticals, Inc. and Subsidiaries (A Development Stage Company)

1. PRINCIPLES OF INTERIM PERIOD REPORTING

Maxim Pharmaceuticals, Inc. (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.

The
information at March 31, 2002 and for the three and six months ended March 31, 2002 and 2001 is unaudited. In the opinion of the Company, these condensed consolidated
financial statements contain all of the adjustments, consisting only of normal recurring adjustments and accruals, necessary to present fairly the condensed consolidated financial position of the
Company as of March 31, 2002 and September 30, 2001, and the condensed consolidated results of operations for the three months and six months ended March 31, 2002 and 2001 and
from inception (October 23, 1989) through March 31, 2002. The condensed consolidated results of operations for the three months and six months ended March 31, 2002 are not
necessarily indicative of the results to be expected in subsequent periods or for the year as a whole. For further information, refer to the consolidated financial statements and footnotes thereto in
our Annual Report on Form 10-K for the year ended September 30, 2001.

2. TOTAL OTHER COMPREHENSIVE LOSS

Total other comprehensive losses for the three months ended March 31, 2002 and 2001 were $9,913,471 and $9,321,940, respectively. Total other comprehensive
losses for the six months ended March 31, 2002
and 2001 were $46,332,650 and $21,883,442, respectively. The difference between total other comprehensive losses and net losses attributable to common stock was composed of unrealized gains and losses
on available-for-sale securities and foreign translation gains and losses.

3. NET LOSS PER SHARE

Net loss per share is calculated in accordance with Statement of Financial Accounting Standards No. 128 "Earnings per Share." Basic net loss per share of
common stock is computed by dividing the net loss after deduction of dividends on preferred stock by the weighted average number of shares of common stock outstanding during the period. Diluted loss
per share is calculated by including the additional common shares issuable upon exercise of outstanding options and warrants in the basic weighted average share calculation unless the effect of their
inclusion is antidilutive. For the quarters ended March 31, 2002 and 2001, outstanding options and warrants totaled 3,223,122 and 3,140,821, respectively. As these securities were antidilutive,
diluted loss per share equaled the basic loss per share calculation in each respective period.

4. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTGOODWILL AND OTHER INTANGIBLE ASSETS

On June 16, 2000, the Company acquired all of the outstanding capital stock of Cytovia, Inc. ("Cytovia"), a privately held biopharmaceutical
research company. The transaction was accounted for using the purchase method in accordance with Accounting Principles Board (APB) Opinion No. 16, and the Company recorded goodwill and other
intangible assets, consisting of assembled workforce, that combined had an unamortized book value of $28,179,466 at September 30, 2001. Through September 30, 2001, the goodwill and
assembled workforce were being amortized over 15 years and five years, respectively.

4

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Effective
October 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standard ("SFAS") No. 142, "Goodwill and Other Intangible Assets". SFAS
No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. SFAS No. 142 also
requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of".

As
a result of the adoption of SFAS No. 142, the Company ceased amortizing goodwill and performed the transitional impairment assessment of the goodwill related to the Cytovia
acquisition for impairment as of October 1, 2001. Although the goodwill arose from purchase accounting applied to the
acquisition of a specific entity, SFAS No. 142 requires that this test be applied to the relevant "reporting unit" which may differ from the specific entity acquired. Due to the integrated
nature of the Company's operations, the entire Company was determined to be one single reporting unit. Under the provisions of SFAS No. 142, the Company was required for the first time to
determine the impairment of goodwill by first comparing the fair value of the Company, with the fair value based on the market price of the Company's common stock, to the carrying value of its assets,
including goodwill. As this analysis indicated an impairment of goodwill, the Company was required to measure the amount of impairment by comparing the "implied" fair value of the goodwill to its
carrying amount.

The
analyses performed under SFAS No. 142 resulted in an implied fair value of the goodwill of zero. Therefore, a charge of $28,179,466 was recorded during the quarter ended
December 31, 2001 reflecting the cumulative effect of change in accounting principle resulting from the adoption of SFAS No. 142 and the related write down of goodwill.

Had
the Company accounted for its goodwill under the provisions of SFAS No. 142 beginning October 1, 2000, the Company's net loss applicable to common stock and net loss
per share would have been as follows for the three and six months ended March 31, 2001:

Three Months Ended
March 31, 2001

Six Months Ended
March 31, 2001Reported net loss applicable to common stock

$
(9,758,062
)
$
(22,725,155
)Add back goodwill amortization


553,496


1,116,490Adjusted net loss applicable to common stock

$
(9,204,566
)
$
(21,608,665
)Basic and diluted net loss per share of common stock:Reported net loss per share of common stock

$
(0.42
)
$
(0.98
)Goodwill amortization


0.02


0.05Adjusted basic and diluted net loss per share of common stock

$
(0.40
)
$
(0.93
)


5. RECLASSIFICATIONS

Certain amounts in the prior years' financial statements have been reclassified to conform with current year classifications.

5

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6. CONTINGENCIES

In December 2000, plaintiff Blake Martin, on behalf of himself and purportedly on behalf of a class of Company stockholders, filed a complaint in the
United States District Court for the Southern District of California against the Company and certain officers, alleging violations of federal securities laws related to declines in the Company's stock
price. In September 2001, this complaint, and similar complaints based on the same facts and circumstances, were consolidated into a single action. The complaints allege claims in connection
with various alleged statements and omissions to the public and to the securities markets. On April 22, 2002, the complaint filed in the United States District Court for the Southern District
of California was dismissed by the court, but the plaintiff was given 30 days to file an amended complaint.

In
October 2001, certain former shareholders of Cytovia filed a complaint in California Superior Court in San Diego, against the Company and two of its officers based on similar
facts and circumstances, alleging fraud and negligent misrepresentation in connection with the Company's acquisition of Cytovia. The Superior Court subsequently issued an order compelling this
litigation to an arbitration forum. The Company believes that the claims set forth in each of these complaints are without merit, and it intends to engage in a rigorous defense of such claims.

6

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Maxim Pharmaceuticals, Inc. and Subsidiaries (A Development Stage Company)

This Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements
that involve risks and uncertainties. Such forward-looking statements include statements regarding plans for the development and commercialization of the Company's drug candidates and future cash
requirements. Such statements are only predictions and the Company's actual results could differ materially from those anticipated or projected in such forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Risk Factors" following in this Report. As a result, you are cautioned not to rely on
these forward-looking statements.

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2002 AND 2001

Collaboration and Research RevenueFor the quarter ended March 31, 2002, collaboration and
research revenue totaled $594,000, a decrease of $277,000, or 32%, from the same period in the prior year. Collaboration and research revenue for the six-month period ended
March 31, 2002 totaled $1,042,000 compared to $1,701,000 for the six months ended March 31, 2001. These decreases were primarily related to a decrease in research revenues associated
with the licensing of the Company's MX2105 series of caspase-inducer anti-cancer compounds, a transaction that occurred shortly before the start of the prior fiscal year.

Research and Development ExpensesResearch and development expenses for the quarter ended March 31, 2002 totaled
$8,413,000, consistent with the $8,417,000 incurred for the same period in the prior year. For the six months ended March 31, 2002, research and development expenses were $15,870,000, a
decrease of $3,431,000 or 18%, over the same period of the prior year. The decrease was primarily due to the completion of two large Ceplene clinical trials, and the advancement of
several other clinical trials to the follow-up stage where ongoing costs were less than in the prior period. The
lower clinical trial costs were partially offset by an increase in research expenses associated with the apoptosis modulator technology platform.

Marketing and Business Development ExpensesMarketing and business development expenses for the quarter ended March 31,
2002 were $662,000, a decrease of $1,583,000, or 71%, over the same period of the prior year. For the six months ended March 31, 2002, marketing and business development expenses were
$1,382,000, a decrease of $4,458,000 or 76% over the same period in the prior year. These decreases are due to a decrease in marketing and sales management personnel and other premarketing activities
that were incurred in preparation for the potential U.S. market launch of Ceplene. The market launch of Ceplene was originally anticipated for the first half of 2001; therefore, increased marketing
preparation costs were incurred during the prior year periods. The potential launch was delayed to a future period after the FDA declined to approve the use of Ceplene for its most advanced
development program, the treatment of patients with advanced metastatic melanoma that have liver metastases, until a second Phase 3 clinical trial is completed.

General and Administrative ExpensesFor the quarter ended March 31, 2002, general and administrative expenses were
$1,816,000, a decrease of $267,000, or 13%, over the same period in the prior year. For the six months ended March 31, 2002, general and administrative expenses were $3,479,000, a decrease of
$342,000 or 9% over the same period in the prior year. These decreases were due primarily to a general decrease in corporate expenditures related to the delay of potential marketing approval.

7

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Amortization of Goodwill and Other Acquisition-Related Intangible AssetsThere was no amortization of goodwill and other
acquisition related intangible assets for the three and six months ended March 31, 2002, compared to the $553,000 and $1,116,000, incurred in the same periods in the prior year. These decreases
were due to the adoption, effective October 1, 2001, of SFAS No. 142, "Accounting for Goodwill and Other Intangible Assets", which ceased the amortization of goodwill and identified
intangible assets with indefinite lives.

Other IncomeInvestment income was $1,278,000 for the quarter ended March 31, 2002, a decrease of $1,390,000, or 52%,
from the same period in the prior year. For the six months ended March 31, 2002, investment income totaled $2,883,000, a decrease of $2,836,000 or 50% over the same period in the prior year.
These decreases were a result of the decrease in investment balances and the rate of earnings.

Cumulative Effect of Change in Accounting PrincipleThe non-cash $28,179,000 charge recorded during the six months
ended March 31, 2002 reflects the write down of the carrying value of goodwill associated with the Cytovia acquisition recorded as a result of the adoption, effective October 1, 2001, of
SFAS No. 142, "Accounting for Goodwill and Other Intangible Assets".

Net Loss Applicable to Common StockNet loss applicable to common stock for the quarter ended March 31, 2002 totaled
$9,063,000, a decrease of $695,000 or 7%, from the same period in the prior year. This decrease was primarily due to the decrease in operating expenses, partially offset by the decrease in investment
income, as described above. Net loss applicable to common stock for the six months ended March 31, 2002 totaled $45,067,000, an increase of $22,342,000 or 98%, from the same period in the prior
year. The increase was primarily due to the cumulative effect of the change in accounting principle and the decrease in investment income, partially offset by the decrease in operating expenses, as
described above.

LIQUIDITY AND CAPITAL RESOURCES

The Company, as a development stage enterprise, anticipates incurring substantial additional losses at least in the near future as it continues to expend
substantial amounts on its ongoing and planned clinical trials and its expanded efforts related to its other research and development efforts, including the apoptosis modulator program acquired as
part of the Cytovia purchase. The Company has financed its operations primarily through the sale of its equity securities, including an initial public offering in 1996, an international
follow-on public offering in 1997, private offerings of preferred stock in July and November 1999 and a follow-on public offering in February 2000 that provided
total net proceeds of approximately $294 million.

Until
required for operations, the Company's policy under established guidelines is to keep its cash reserves in bank deposits, certificates of deposit, commercial paper, corporate
notes, United States government instruments and other readily marketable debt instruments, all of which are investment-grade quality.

As
of March 31, 2002, the Company had cash, cash equivalents and investments totaling approximately $128.6 million. For the six months ended March 31, 2002, net cash
used in the Company's operating activities was approximately $15.5 million, as compared to $24.2 million during the same period in the prior year, primarily due to lower research and
development and marketing and business development expenditures. The Company's cash requirements may fluctuate in future periods as it conducts additional research and development activities including
clinical trials, other research and development activities, and efforts associated with the commercial launch of any products that are approved for sale by government regulatory bodies. Among the
activities that may result in an increase in cash requirements are the scope and timing of the Phase 3 and Phase 2 Ceplene cancer and hepatitis C clinical trials currently underway, and earlier-stage
clinical trials and other research related to liver disease and the apoptosis modulator and MaxDerm technologies. Other factors that may

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impact the Company's cash requirements include the results of clinical trials, the scope of other research and development activities, the time required to obtain regulatory approvals, costs
associated with defending certain lawsuits currently pending against the Company, the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights, the
ability to establish marketing alliances and collaborative arrangements and the cost of internal marketing activities. As a
result of these factors, it is difficult to predict accurately the timing and amount of future cash requirements.

The
Company may pursue the issuance of additional equity securities, and pursue corporate collaborative agreements, as required, to meet its cash requirements. The issuance of additional
equity securities, if any, could result in substantial dilution to the Company's stockholders. There can be no assurance that additional funding will be available on terms acceptable to the Company,
if at all. The failure to fund the Company's capital requirements would have a material adverse effect on its business, financial condition and results of operations.

The
Company has never paid a cash dividend on its common stock and does not contemplate the payment of cash dividends on its common stock in the foreseeable future.

IMPACT OF INFLATION

The impact of inflation on the operations of the Company for the three months and six months ended March 31, 2002 and 2001 was not material.

CRITICAL ACCOUNTING POLICIES



Clinical trial expenses.We account for our clinical trial costs by estimating the total cost to treat a patient in each
clinical trial and amortizing this total cost for the patient over the estimated treatment period, beginning when the patient enrolls in the clinical trial. This estimated cost includes payments to
the trial site and patient-related costs, including lab costs, related to the conduct of the trial. Cost per patient varies based on the type of clinical trial, the site of the clinical trial and the
length of treatment period for each patient. Treatment periods vary from one month to eighteen months, depending on the clinical trial. As actual costs become known to us, we may need to make a
material change in our estimated accrual, which could also materially affect our results of operations.



We earn revenue from performing services under research agreements and from non-refundable license fees from the sale of license rights to our
proprietary technologies. Revenue from these fees is recorded over the term of the arrangement. Amounts received but unearned are recorded as deferred revenue.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and for the associated asset retirement costs. The standard applies to tangible long-lived assets that
have a legal obligation associated with their retirement that results from the acquisition, construction or development or normal use of the asset. SFAS No. 143 requires that the fair value of
a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the
carrying amount of the associated asset and this additional carrying amount is depreciated over the remaining life of the asset. The liability is accreted at the end of each period through charges to

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operating expense. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The adoption of this statement is not expected to have a material
impact on the Company's consolidated financial statements.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of", it retains many of the fundamental provisions of SFAS No. 121, including the recognition and measurement of the impairment of
long-lived assets to be held and used, and the measurement of long-lived assets to be disposed of by sale. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001. The adoption of this statement is not expected to have a material impact on the Company's consolidated financial statements.

RISK FACTORS

You should carefully consider the following risk factors and the other information included herein as well as the information included in our Annual Report on
Form 10-K for the year ended September 30, 2001, and other reports and filing made with the Securities and Exchange Commission before investing in our common stock. If any of
the following risks actually occurs, our business, financial condition or
results of operations could be harmed. The trading price of our common stock could decline due to any of these risks, and you may lose part or all of your investment.

The development of our drug candidates is subject to uncertainties, many of which are beyond our control. If we fail to successfully develop our drug candidates, our ability to
generate revenues will be substantially impaired.

Potential products based on our Ceplene, apoptosis modulator and MaxDerm technologies will require, dependent upon the current specific drug candidate, extensive
research and development, preclinical testing, clinical testing, regulatory approval and substantial additional investment before we can market them. We cannot assure you that any of our drug
candidates will:



We
have not completed final testing for efficacy or safety in humans for the diseases we propose to treat with Ceplene and our other drug candidates. Failure to ultimately obtain
approval for Ceplene and our other drug candidates, any delay in our expected testing and development schedules, or any elimination of a product development program in its entirety, will negatively
impact our ability to generate revenues in the future from the sale of our products.

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We may not obtain regulatory clearance to market Ceplene or our other drug candidates on a timely basis, or at all.

Ceplene and our other drug candidates are subject to extensive government regulations related to development, clinical trials, manufacturing and
commercialization. The process of obtaining FDA and other regulatory approvals is costly, time consuming, uncertain and subject to unanticipated delays. Even if we believe that preclinical and
clinical data are sufficient to support regulatory approval for a drug candidate, the FDA and foreign regulatory authorities may not ultimately approve the candidate for commercial sale in any
jurisdiction. The FDA may refuse to approve an application for approval of a drug candidate if it believes that applicable regulatory criteria are not satisfied. The FDA may also require additional
testing for safety and efficacy. For example, in 2000, we submitted an NDA to the FDA seeking approval to market Ceplene based on the data from our first Phase 3 clinical study in advanced metastatic
melanoma. In January 2001, the FDA determined that a second study will be required to support approval.

In
addition, manufacturing facilities operated by the third party manufacturers with whom we contract to manufacture Ceplene and our other drug candidates may not pass an FDA preapproval
inspection. Moreover, if the FDA grants regulatory approval of a product, the approval may be limited to specific indications or limited with respect to its distribution. Foreign regulatory
authorities may apply similar limitations or may refuse to grant any approval.

Any
failure or delay in obtaining these approvals could prohibit or delay us from marketing Ceplene and our other drug candidates. If Ceplene and our other drug candidates do not meet
applicable regulatory requirements for approval, we may not have the financial resources to continue research and development of these candidates, and we may not generate revenues from the commercial
sale of any products.

Delays in the commencement, conduct or completion of our clinical trials would negatively impact our business.

We may encounter problems with any of our completed, ongoing or planned clinical studies. For example, we may encounter delays in commencing studies or enrolling
volunteers, lower than anticipated retention rate of volunteers in a trial, or serious side effects experienced by study participants relating to the drug candidate. If we encounter any delay in the
commencement, conduct
or completion of our clinical studies for Ceplene or our other drug candidates, we may experience the following consequences:



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We have been named as a defendant in a securities class action litigation that could result in substantial costs and divert management's attention and resources.

In December 2000, plaintiff Blake Martin, on behalf of himself and purportedly on behalf of a class of Company stockholders, filed a complaint in the
United States District Court for the Southern District of California against the Company and certain of its officers, alleging violations of federal securities laws related to declines in the
Company's stock price. Thereafter, approximately thirteen similar complaints were filed in the same court (collectively "Southern District Complaints"). The Southern District Complaints have been
consolidated into a single action. All complaints allege claims in connection with various alleged statements and omissions to the public and to the securities markets relating to the Company's drug
candidate, Ceplene. In December 2001, the Company filed a motion to dismiss the Southern District Complaints, which was heard in February 2002. On April 22, 2002, the court
granted the Company's motion to dismiss but gave the plaintiff 30 days to file an amended complaint.

In
October 2001, a state court action was filed in the Superior Court in San Diego County, California, alleging fraud and misrepresentation in connection with the Company's
acquisition of Cytovia. In
November 2001, the Company filed a petition to compel arbitration of the state court action, and such motion was granted in January 2002.

No
assurances can be made that the Company will be successful in its defense of these claims. If it is not successful in its defense of such claims, the Company could be forced to make
significant payments to its stockholders and their lawyers, and such payments could have a material adverse effect on the Company's business, financial condition and results of operations if not
covered by the Company's insurance carrier. Even if the Company's defense against such claims is successful, the litigation could result in substantial costs and divert management's attention and
resources, which could adversely affect the Company's business.

Because we are dependent on clinical research centers and other contractors for clinical testing and for certain research and development activities, the results of our
clinical trials and such research activities are, to a certain extent, beyond our control.

The nature of clinical trials and our business strategy requires us to rely on clinical research centers and our other contractors to assist us with clinical
testing and certain research and development activities. As a result, our success is dependent upon the success of these outside parties in performing their responsibilities. Although we believe our
contractors are economically motivated to perform on their contractual obligations, we cannot directly control the adequacy and timeliness of the resources and expertise applied to these activities by
our contractors. If our contractors do not perform their activities in an adequate or timely manner, the development and commercialization of our drug candidates could be delayed.

We expect to rely on collaborative partners for research, development and commercialization of certain potential products.

We expect to rely on collaborative arrangements for research and development and commercialization of certain drug candidates discovered and developed by us, such
as the license agreement with Shire-BioChem for the MX2105 series of anti-cancer compounds, and our agreement with Schering Corporation related to our Phase 2 Ceplene clinical trial in
nonresponder hepatitis C patients. We cannot be certain that we will be able to maintain these collaborations or enter into any future collaborative arrangements, that any of our collaborations will
be successful or that we will receive revenues from any of these collaborations. The success of these and any future collaborations will depend, in significant part, on our partners' development and
strategic considerations, including the relative advantages of alternative products being developed or marketed by competitors. If our partners

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fail to conduct their activities in a timely manner, or at all, preclinical or clinical development of drug candidates under those collaborations could be delayed or terminated. The suspension or
termination of our collaborations, the failure of our collaborations to be successful or the delay in the development or commercialization of drug candidates pursuant to our collaborations could harm
our business.

Our planned business may expose us to product, clinical trial and other liability claims.

Our design, testing, and development of products involves an inherent risk of exposure to clinical trial and product liability claims and related adverse
publicity. Insurance coverage is expensive and difficult to obtain, and we may be unable to obtain coverage in the future on acceptable terms, if at all. Although we currently maintain clinical trial
insurance for our drug candidates in the amounts we believe to be commercially reasonable, we cannot be certain that the coverage limits of our insurance policies or those of our strategic partners
will be adequate. If we are unable to obtain sufficient insurance at an acceptable cost or if a claim is brought against us, whether fully covered by insurance or not, our business, results of
operations and financial condition could be materially adversely affected.

Our products may not be accepted, purchased or used by doctors, patients or payors.

Ceplene, and any of our other drug candidates in development, may not achieve market acceptance even if they are approved by the FDA and similar international
regulatory agencies. The degree of market acceptance of our products will depend on a number of factors, including:



We
cannot guarantee that physicians, patients, payors or the medical community in general will accept and utilize any products that we develop.

We have yet to market or sell any of our products.

Although we currently intend to market Ceplene in the United States, if approved by the FDA, through the recruitment of experienced marketing and sales personnel,
Maxim has never before marketed or sold any pharmaceutical product. In order to market or co-market Ceplene or certain other drug candidates, we will need to hire a significant number of
people with relevant pharmaceutical experience to staff our sales force and marketing group, and possibly also to make appropriate arrangements with strategic partners. If we cannot develop the
required marketing and sales expertise both internally and through our partnering arrangements, our ability to generate revenue from product sales will likely suffer.

We
may rely on collaborative partners to market and sell Ceplene in international markets, and such arrangements may be sought to market certain other drug candidates in all markets. We
have not yet entered into any collaborative arrangement with respect to marketing or selling Ceplene with the exception of agreements relating to Australia, New Zealand and Israel, and have not
entered into any agreements regarding the marketing or selling of our other drug candidates with the exception of a license agreement relating to our MX2105 series of anti-cancer
compounds. We cannot guarantee that we will be able to enter into any such arrangements on terms favorable to us, or at all. If we are able to enter into marketing and selling arrangements with
collaborative partners, we cannot assure you that such marketing collaborators will apply adequate resources and skills to their responsibilities, or that their marketing efforts will be successful.

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We will be dependent on third party manufacturers of our products. Our ability to sell our products may be harmed if adequate quantities of our products are not manufactured on
a timely basis.

We do not intend to acquire or establish our own dedicated manufacturing facilities for Ceplene and our other drug candidates in the foreseeable future. We have
contracted and expect to continue to contract with established pharmaceutical manufacturers for the production of Ceplene. If we are unable to continue to contract with third-party manufacturers on
acceptable terms or our manufacturers do not comply with applicable regulatory requirements, our ability to conduct clinical testing and to produce commercial quantities of Ceplene and other products
will be adversely affected. If we cannot adequately manufacture our products, it could result in delays in submissions for regulatory approval and in commercial product launches, which in turn could
materially impair our competitive position and the possibility of achieving profitability. We cannot guarantee that we will be able to maintain our existing contract manufacturing relationships, or
acquire or establish new, satisfactory third-party relationships to provide adequate manufacturing capabilities in the future.

We are not profitable and expect to continue to incur losses. If we do not become profitable, we may ultimately be forced to discontinue our operations.

We are a development-stage enterprise. We have experienced net losses every year since our inception and, as of March 31, 2002, had an accumulated deficit
of approximately $242 million. We anticipate incurring substantial additional losses over at least the next several years related to developing and testing our drug candidates and preparing for
commercialization and planned market launches of our products. If we do not become profitable, our stock price will be negatively affected, and we may ultimately be forced to discontinue our
operations.

We may need to raise additional funds in the future. If we are unable to obtain the funds necessary to continue our operations, we may be required to delay, scale back or
eliminate one or more of our drug development programs.

We have already spent substantial funds developing our products and business. We expect to continue to have negative cash flow from our operations for at least
the next several years. We may have to raise additional funds to complete the development of our drug candidates and to bring them to market. Our future capital requirements will depend on numerous
factors, including:



Additional
financing may not be available on acceptable terms, if at all. If adequate funds are not available, we may be required to delay, scale back or eliminate one or more of our
drug development programs or obtain funds through arrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies or products that we would
not otherwise relinquish.

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We compete against many companies and research institutions that are developing products to treat the same diseases as our drug candidates. To the extent these competitors are
successful in developing and marketing such products, our future potential market share and revenues could be reduced.

There are many companies, both publicly and privately held, including well-known pharmaceutical companies and academic and other research
institutions, engaged in developing pharmaceutical products for the treatment of cancer and hepatitis. Products developed by any of these companies or institutions may demonstrate greater safety or
efficacy than our drug candidates or be more widely accepted by doctors, patients or payors. Many of our competitors and potential competitors have substantially greater capital, research and
development capabilities and human resources than we do. Many of these competitors also have significantly greater experience than we do in undertaking preclinical testing and clinical trials of new
pharmaceutical products and obtaining FDA and other regulatory approvals. If any of our drug candidates are approved for commercial sale, we will also be competing with companies that have greater
resources and experience in manufacturing, marketing and selling pharmaceutical products. To the extent that any of our competitors succeed in developing products that are more effective, less costly
or have better side effect profiles than our products, then our future potential market share could decrease which may have a negative impact on our business.

If we fail to secure adequate protection of our intellectual property or the right to use certain intellectual property of others, we may not be able to protect our products
and technologies from competitors.

Our success depends in large part on our ability to obtain, maintain and protect patents and trade secrets and to operate without infringing upon the proprietary
rights of others. If we are unable to do so, our products and technologies may not provide us with any competitive advantage.

The
patent positions of biotechnology and pharmaceutical companies are highly uncertain and involve complex legal and factual questions, and the breadth of claims allowed in
biotechnology and pharmaceutical patents cannot be predicted. As a result, patents may not issue from any of our patent applications. Further, at this time most patent applications in the United
States are secret until a patent issues. Under recent statutory changes, some, but not all U.S. patent applications will be published, but only 18 months after filing. Thus, we cannot be
certain that others have not filed patent applications for technology covered by our pending applications or that we were the first to file patent applications for
this technology. In addition, patents currently held by us or issued to us in the future, or to licensors from whom we have licensed technology rights, may be challenged, invalidated or circumvented
so that our intellectual property rights may not protect our technologies or provide commercial advantage to us. In addition, we also rely on unpatented trade secrets and proprietary
know-how, and we cannot be sure that others will not obtain access to or independently develop such trade secrets and know-how. Enforcement of our intellectual property rights
against any infringers of our patents relating to Ceplene and our other technologies will be costly and time-consuming. Because of the nature of those patents, we could be required to
bring lawsuits against many different entities such as hospitals or clinics. This would have the effect of increasing the costs of enforcing our rights.

The
pharmaceutical industry has experienced extensive litigation regarding patent and other intellectual property rights. Although, to date, we are not aware of any intellectual property
claims against us, in the future we could be forced to incur substantial costs in defending ourselves in lawsuits that are brought against us claiming that we have infringed on the patent rights of
others or in asserting our patent rights in lawsuits against other parties. We may also be required to participate in interference proceedings declared by the U.S. Patent and Trademark Office for the
purpose of determining the priority of inventions in connection with our patent applications or other parties' patent applications. Adverse determinations in litigation or interference proceedings
could require us to

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seek licenses that may not be available on commercially reasonable terms or subject us to significant liabilities to third parties.

The technology in our sector is developing rapidly, and our future success depends on our ability to keep abreast of technological change.

We are engaged in the pharmaceutical field, which is characterized by extensive research efforts and rapid technological progress. New developments in oncology,
cancer therapy, medicinal pharmacology, biochemistry and other fields are expected to continue at a rapid pace. Research and discoveries by others may render some or all of our proposed programs or
products noncompetitive or obsolete. Our business strategy is subject to the risks inherent in the development of new products using new technologies and approaches. Unforeseen problems may develop
with these technologies or applications, and we may not be able to successfully address technological challenges we encounter in our research and development programs. This may result in our inability
to develop commercially feasible products.

The marketability of our products may depend on reimbursement and reform measures in the health care industry.

Our success may depend, in part, on the extent to which reimbursement for the costs of therapeutic products and related treatments will be available from
third-party payors such as government health administration authorities, private health insurers, managed care programs and other organizations. Over the past decade, the cost of health care has risen
significantly, and there have been numerous
proposals by legislators, regulators and third-party health care payors to curb these costs. Some of these proposals have involved limitations on the amount of reimbursement for certain products. We
cannot guarantee that similar federal or state health care legislation will not be adopted in the future or that any products sought to be commercialized by us will be considered
cost-effective or that adequate third-party insurance coverage will be available for us to establish and maintain price levels sufficient for realization of an appropriate return on our
investment in product development. Moreover, the existence or threat of cost control measures could have an adverse effect on the willingness of potential collaborators to pursue research and
development programs related to our products.

We may engage in strategic transactions, which could adversely affect our business.

From time to time we consider strategic transactions and alternatives with the goal of maximizing stockholder value. For example, in June 2000 we completed
the acquisition of Cytovia, Inc. We will continue to evaluate other potential strategic transactions and alternatives which we believe have the potential to enhance stockholder value. These
additional potential transactions may include a variety of different business arrangements, including spin-offs, acquisitions, strategic partnerships, joint ventures, restructurings,
divestitures, business combinations and investments. We cannot assure you that any such transactions will be consummated on favorable terms or at all, will in fact enhance stockholder value, or will
not adversely affect our business or the trading price of our stock. Any such transaction may require us to incur non-recurring or other charges and may pose significant integration
challenges and/or management and business disruptions, any of which could materially and adversely affect our business and financial results.

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Our stock price may be highly volatile due to external factors.

Our common stock currently trades on the Nasdaq National Market and on the OM Stockholm Exchange. Historically, our common stock has generally experienced
relatively low daily trading volumes in relation to the aggregate number of shares outstanding. Sales of substantial amounts of our common stock in the public market could adversely affect the
prevailing market prices of our common stock and our ability to raise equity capital in the future.

Factors
that may have a significant impact on the market price or the liquidity of our common stock also include:



External
factors may also adversely affect the market price for our common stock. The price and liquidity of our common stock may be significantly affected by the overall trading
activity and market factors on the Nasdaq National Market and the OM Stockholm Exchange, and these factors may differ between the two markets. In addition, the securities markets have from time to
time experienced significant price and volume fluctuations that may be unrelated to the operating performance of particular companies. The market prices of the common stock of many publicly traded
pharmaceutical or biotechnology companies have in the past been, and can in the future be expected to be, especially volatile.

Certain of our charter and by-law provisions may deter a third party from acquiring us.

Certain provisions of our charter and by-laws may make it more difficult for a third party to acquire control of us. These provisions include:



We
have also adopted a shareholder rights plan or "poison pill." Our shareholder rights plan is designed to protect our shareholders in the event of an unsolicited bid to acquire the
company. In general terms, the rights plan imposes a significant penalty upon any person or group that acquires 15% or more of our outstanding common stock without the approval of our board of
directors. Our shareholder rights plan could discourage a third party from attempting to acquire us through an acquisition of our outstanding voting stock.

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Our
board of directors also has the authority to issue, at any time, without further stockholder approval, up to 5,000,000 shares of preferred stock, and to determine the price, rights,
privileges and preferences of those shares. We have used shares in connection with our shareholder rights plan. Any issuance of preferred stock could discourage a third party from acquiring a majority
of our outstanding voting stock.

Furthermore,
we are subject to the provisions of Section 203 of the DGCL, an anti-takeover law, which may also dissuade a potential acquiror of our common stock.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's exposure to market risk is principally confined to its cash equivalents and investments that have maturities of less than three years. The Company
maintains a non-trading investment portfolio of investment grade, liquid debt securities that limits the amount of credit exposure to any one issue, issuer or type of instrument. The
securities in its investment portfolio are not leveraged, are classified as available-for-sale and are therefore subject to interest rate risk. The Company currently does not
hedge interest rate exposure. A hypothetical 10 percent change in interest rates during the quarter ended March 31, 2002 would have resulted in approximately a $130,000 change in net
loss. The Company has not used derivative financial instruments in its investment portfolio. There have been no significant changes in the types or maturities of investments held from
September 30, 2001.

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PART IIOTHER INFORMATION

Item 1. Legal Proceedings

In December 2000, plaintiff Blake Martin, on behalf of himself and purportedly on behalf of a class of Company stockholders, filed a complaint in the
United States District Court for the Southern District of California against the Company and certain of its officers, alleging violations of federal securities laws related to declines in the
Company's stock price. Thereafter, approximately thirteen similar complaints were filed in the same court (collectively "Southern District Complaints"). The Southern District Complaints have been
consolidated into a single action. All complaints allege claims in connection with various alleged statements and omissions to the public and to the securities markets relating to the Company's drug
candidate, Ceplene. In December 2001, the Company filed a motion to dismiss the Southern District Complaints, which was heard in February 2002. On April 22, 2002, the court
granted the Company's motion to dismiss but gave the plaintiff 30 days to file an amended complaint.

In
October 2001, a state court action was filed in the Superior Court in San Diego County, California, alleging fraud and misrepresentation in connection with the Company's
acquisition of Cytovia. In November 2001, the Company filed a petition to compel arbitration of the state court action, and such motion was granted in January 2002.

No
assurances can be made that the Company will be successful in its defense of these claims. If it is not successful in its defense of such claims, the Company could be forced to make
significant payments to its stockholders and their lawyers, and such payments could have a material adverse effect on the Company's business, financial condition and results of operations if not
covered by the Company's insurance carrier. Even if the Company's defense against such claims is successful, the litigation could result in substantial costs and divert management's attention and
resources, which could adversely affect the Company's business.

Item 4. Submission of Matters to a Vote of Security Holders

Item 6. Exhibits and Reports on Form 8-K





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

|                  |  | MAXIM PHARMACEUTICALS, INC.
|----------------- |  | ---------------------------
|Date: May 6, 2002 |  | By:                        

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