UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington D.C. 20549

FORM 10-Q

(Mark One)

|/x/ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|--- | ---------------------------------------------------------------------------------------

For the Quarter Ended June 30, 2001

or

|/ / | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|--- | ----------------------------------------------------------------------------------------

Commission file number1-14430

Maxim Pharmaceuticals, Inc.(Exact name of registrant as specified in its charter)

|Delaware(State of incorporation) | 87-0279983(I.R.S. Employer Identification No.)
|-------------------------------- | ----------------------------------------------

8899 University Center Lane, Suite 400, San Diego, CA 92122(Address of principal executive offices) (Zip Code)

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

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

As
of August 7, 2001, the registrant had 23,241,733 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)June 30, 2001 and September 30, 2000                                                                                            |  | 1   
|                             |  |         |  | Condensed Consolidated Statements of Operations (unaudited)Three Months and Nine Months Ended June 30, 2001 and 2000 and from Inception (October 23, 1989) through June 30, 2001 |  | 2   
|                             |  |         |  | Condensed Consolidated Statements of Cash Flows (unaudited)Nine Months Ended June 30, 2001 and 2000 and from Inception (October 23, 1989) through June 30, 2001                  |  | 3   
|                             |  |         |  | Notes to Condensed Consolidated Financial Statements                                                                                                                              |  | 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                                                                                                                        |  | 9   
|Part IIOther Information    |  |        
|                             |  | Item 1. |  | Legal Proceedings                                                                                                                                                                 |  | 11  
|                             |  | Item 2. |  | Changes in Securities and Use of Proceeds                                                                                                                                         |  | 11  
|                             |  | Item 6. |  | Exhibits and Reports on Form 8-K                                                                                                                                                  |  | 12  
|SIGNATURE                    |  | 12     

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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

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

|                                                                 |                                                                                                                                                                            | As of June 30
2001         |                                            | As of September 30
2000 |            
|---------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ----------------------- | -----------
|ASSETS                                                           |                                                                                                                                                                            |                            |                                            |                         |            
|Current Assets:                                                  |                                                                                                                                                                            |                            |                                            |                         |            
|                                                                 | Cash and cash equivalents                                                                                                                                                  |                            | $                                          | 42,516,353              |            
|                                                                 | Short-term investments in marketable securities, available for sale                                                                                                        |                            |                                            | 112,565,160             |            
|                                                                 | Note receivable from officer                                                                                                                                               |                            |                                            | 2,975,496               |            
|                                                                 | Accrued interest and other current assets                                                                                                                                  |                            |                                            | 3,705,441               |            
|                                                                 |                                                                                                                                                                            |                            |                                            |                         |            
|                                                                 |                                                                                                                                                                            | Total current assets       |                                            |                         | 161,762,450
|Property and equipment, net                                      |                                                                                                                                                                            |                            | 6,112,159                                  |                         |            
|Patents and licenses, net                                        |                                                                                                                                                                            |                            | 1,818,512                                  |                         |            
|Goodwill and intangible assets, net                              |                                                                                                                                                                            |                            | 28,902,911                                 |                         |            
|Deposits and other assets                                        |                                                                                                                                                                            |                            | 369,542                                    |                         |            
|                                                                 |                                                                                                                                                                            |                            |                                            |                         |            
|                                                                 |                                                                                                                                                                            | Total assets               |                                            | $                       | 198,965,574
|                                                                 |                                                                                                                                                                            |                            |                                            |                         |            
|LIABILITIES AND STOCKHOLDERS' EQUITY                             |                                                                                                                                                                            |                            |                                            |                         |            
|Current Liabilities:                                             |                                                                                                                                                                            |                            |                                            |                         |            
|                                                                 | Accounts payable                                                                                                                                                           |                            | $                                          | 2,389,721               |            
|                                                                 | Accrued expenses                                                                                                                                                           |                            |                                            | 4,875,393               |            
|                                                                 | Note payable                                                                                                                                                               |                            |                                            |                        |            
|                                                                 | Current installments of obligations under capital leases                                                                                                                   |                            |                                            | 406,607                 |            
|                                                                 | Current portion of long-term debt                                                                                                                                          |                            |                                            | 221,929                 |            
|                                                                 | Deferred revenue                                                                                                                                                           |                            |                                            | 1,166,664               |            
|                                                                 |                                                                                                                                                                            |                            |                                            |                         |            
|                                                                 |                                                                                                                                                                            | Total current liabilities  |                                            |                         | 9,060,314  
|Obligations under capital leases, excluding current installments |                                                                                                                                                                            |                            | 397,126                                    |                         |            
|Long-term debt                                                   |                                                                                                                                                                            |                            | 1,331,571                                  |                         |            
|Deferred revenue                                                 |                                                                                                                                                                            |                            |                                           |                         |            
|Commitments and contingencies                                    |                                                                                                                                                                            |                            |                                            |                         |            
|Stockholders' Equity:                                            |                                                                                                                                                                            |                            |                                            |                         |            
|                                                                 | Convertible preferred stock, $.001 par value, 5,000,000 shares authorized, zero shares issued and outstanding at June 30, 2001 and September 30, 2000                      |                            |                                            |                        |            
|                                                                 | Common stock, $.001 par value, 40,000,000 shares
authorized; 23,241,733 and 23,115,749 shares
issued and outstanding at June 30, 2001
and September 30, 2000, respectively |                            |                                            | 23,242                  |            
|                                                                 | Additional paid-in capital                                                                                                                                                 |                            |                                            | 376,193,017             |            
|                                                                 | Deficit accumulated during the development stage                                                                                                                           |                            |                                            | (188,556,413            | )          
|                                                                 | Accumulated other comprehensive income (loss)                                                                                                                              |                            |                                            | 516,717                 |            
|                                                                 |                                                                                                                                                                            |                            |                                            |                         |            
|                                                                 |                                                                                                                                                                            | Total stockholders' equity |                                            |                         | 188,176,563
|                                                                 |                                                                                                                                                                            |                            |                                            |                         |            
|                                                                 |                                                                                                                                                                            |                            | 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 June 30 |            | Nine Months Ended June 30 |           | From Inception
(October 23, 1989)
Through
June 30, 2001 |           
|---------------------------------------------------- | ------------------------------------------------------------------------ | -------------------------- | ---------- | ------------------------- | --------- | ------------------------------------------------------- | ----------
|
|Collaboration and research revenue                   |                                                                          | $                          | 826,715    |                           | $         | 140,250                                                 |           
|Operating expenses:                                  |                                                                          |                            |            |                           |           |                                                         |           
|                                                     | Research and development                                                 |                            |            | 5,950,652                 |           |                                                         | 8,924,323 
|                                                     | Marketing and business development                                       |                            |            | 1,536,514                 |           |                                                         | 1,226,832 
|                                                     | General and administrative                                               |                            |            | 1,383,058                 |           |                                                         | 1,307,112 
|                                                     | Amortization of goodwill and other acquisition-related intangible assets |                            |            | 550,929                   |           |                                                         | 106,367   
|                                                     | Purchased in-process technology                                          |                            |            |                          |           |                                                         | 42,300,000
|                                                     |                                                                          |                            |            |                           |           |                                                         |           
|                                                     |                                                                          | Total operating expenses   |            |                           | 9,421,153 |                                                         |           
|                                                     |                                                                          |                            |            |                           |           |                                                         |           
|Loss from operations                                 |                                                                          |                            | (8,594,438 | )                         |           | (53,724,384                                             | )         
|                                                     |                                                                          |                            |            |                           |           |                                                         |           
|Other income (expense):                              |                                                                          |                            |            |                           |           |                                                         |           
|                                                     | Investment income                                                        |                            |            | 2,195,013                 |           |                                                         | 3,344,358 
|                                                     | Gain on sale of assets                                                   |                            |            |                          |           |                                                         | 2,146,502 
|                                                     | Interest expense                                                         |                            |            | (27,631                   | )         |                                                         | (2,198    
|                                                     | Other income (expense)                                                   |                            |            | (2,182                    | )         |                                                         |          
|                                                     |                                                                          |                            |            |                           |           |                                                         |           
|                                                     |                                                                          | Total other income         |            |                           | 2,165,200 |                                                         |           
|                                                     |                                                                          |                            |            |                           |           |                                                         |           
|Net loss before preferred stock dividends            |                                                                          |                            | (6,429,238 | )                         |           | (48,235,722                                             | )         
|                                                     | Dividends on preferred stock                                             |                            |            |                          |           |                                                         |          
|                                                     |                                                                          |                            |            |                           |           |                                                         |           
|Net loss applicable to common stock                  |                                                                          | $                          | (6,429,238 | )                         | $         | (48,235,722                                             | )         
|                                                     |                                                                          |                            |            |                           |           |                                                         |           
|Basic and diluted net loss per share of common stock |                                                                          | $                          | (0.28      | )                         | $         | (2.26                                                   | )         
|                                                     |                                                                          |                            |            |                           |           |                                                         |           
|Weighted average shares outstanding                  |                                                                          |                            | 23,235,198 |                           |           | 21,297,651                                              |           
|                                                     |                                                                          |                            |            |                           |           |                                                         |           

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)

|                                                                                      |                                                         | Nine Months Ended
June 30                 |                                       |            |           
|------------------------------------------------------------------------------------- | ------------------------------------------------------- | ----------------------------------------- | ------------------------------------- | ---------- | ----------
|
|
|OPERATING ACTIVITIES:                                                                 |                                                         |                                           |                                       |            |           
|Net loss                                                                              |                                                         | $                                         | (29,154,393                           | )          | $         
|Adjustments to reconcile net loss to net cash used in operating activities:           |                                                         |                                           |                                       |            |           
|                                                                                      | Depreciation and amortization                           |                                           |                                       | 3,078,725  |           
|                                                                                      | Stock contributions to 401(k) plan                      |                                           |                                       | 145,697    |           
|                                                                                      | Stock-based compensation                                |                                           |                                       | 60,262     |           
|                                                                                      | Loss on disposal of property and equipment              |                                           |                                       | 3,545      |           
|                                                                                      | Loss on write-off of patents                            |                                           |                                       |           |           
|                                                                                      | Amortization of premium on investments                  |                                           |                                       |           |           
|                                                                                      | Other                                                   |                                           |                                       |           |           
|                                                                                      | Gain on sale of assets                                  |                                           |                                       | (3,958     | )         
|                                                                                      | Purchased in-process technology                         |                                           |                                       |           |           
|                                                                                      | Cumulative effect of reorganization                     |                                           |                                       |           |           
|                                                                                      | Gain on sale of subsidiary                              |                                           |                                       |           |           
|                                                                                      | Changes in operating assets and liabilities:            |                                           |                                       |            |           
|                                                                                      |                                                         | Accrued interest and other current assets |                                       |            | 1,491,201 
|                                                                                      |                                                         | Deposits and other assets                 |                                       |            | 18,893    
|                                                                                      |                                                         | Accounts payable                          |                                       |            | (4,575,968
|                                                                                      |                                                         | Accrued expenses                          |                                       |            | (422,436  
|                                                                                      |                                                         | Deferred revenue                          |                                       |            | (1,218,753
|                                                                                      |                                                         |                                           |                                       |            |           
|                                                                                      |                                                         |                                           | Net cash used in operating activities |            |           
|INVESTING ACTIVITIES:                                                                 |                                                         |                                           |                                       |            |           
|Purchases of marketable securities                                                    |                                                         |                                           | (66,356,717                           | )          |           
|Sales and maturities of marketable securities                                         |                                                         |                                           | 72,193,000                            |            |           
|Purchases of property and equipment                                                   |                                                         |                                           | (3,407,971                            | )          |           
|Additions to patents and licenses                                                     |                                                         |                                           | (550,447                              | )          |           
|Net proceeds from sale of assets                                                      |                                                         |                                           | 36,186                                |            |           
|Cash acquired in acquisition of business                                              |                                                         |                                           |                                      |            |           
|                                                                                      |                                                         |                                           |                                       |            |           
|                                                                                      | Net cash used in investing activities                   |                                           |                                       | 1,914,051  |           
|FINANCING ACTIVITIES:                                                                 |                                                         |                                           |                                       |            |           
|Net proceeds from issuance of common stock and exercise of stock options and warrants |                                                         |                                           | 511,743                               |            |           
|Net proceeds from issuance of preferred stock                                         |                                                         |                                           |                                      |            |           
|Payment of preferred stock dividends                                                  |                                                         |                                           |                                      |            |           
|Proceeds from issuance of notes payable and long-term debt                            |                                                         |                                           | 1,553,500                             |            |           
|Payments on notes payable and capital lease obligations                               |                                                         |                                           | (537,410                              | )          |           
|Loan to officer                                                                       |                                                         |                                           | (2,975,496                            | )          |           
|Proceeds from issuance of notes payable to related parties                            |                                                         |                                           |                                      |            |           
|Payments on notes payable to related parties                                          |                                                         |                                           |                                      |            |           
|                                                                                      |                                                         |                                           |                                       |            |           
|                                                                                      | Net cash (used in) provided by financing activities     |                                           |                                       | (1,447,663 | )         
|Effect of exchange rate changes on cash                                               |                                                         |                                           | 61                                    |            |           
|                                                                                      |                                                         |                                           |                                       |            |           
|Net increase (decrease) in cash and cash equivalents                                  |                                                         |                                           | (30,110,736                           | )          |           
|Cash and cash equivalents at beginning of period                                      |                                                         |                                           | 72,627,089                            |            |           
|                                                                                      |                                                         |                                           |                                       |            |           
|Cash and cash equivalents at end of period                                            |                                                         | $                                         | 42,516,353                            |            | $         
|                                                                                      |                                                         |                                           |                                       |            |           
|Noncash investing activities                                                         |                                                         |                                           |                                       |            |           
|                                                                                      | Increase in fair value of securities available for sale |                                           | $                                     | 663,703    |           
|                                                                                      |                                                         |                                           |                                       |            |           

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 June 30, 2001 and for the three and nine months ended June 30, 2001 and 2000 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
June 30, 2001 and September 30, 2000, and the condensed consolidated results of operations for the three months and nine months ended June 30, 2001 and 2000 and from inception (October 23, 1989)
through June 30, 2001. The condensed consolidated results of operations for the three months and nine months ended June 30, 2001 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/A for the year ended
September 30, 2000.

2. CASH AND CASH EQUIVALENTS

Investments with original maturities of less than 90 days are considered to be cash equivalents. All other investments are classified as short-term investments
which are deemed by management to be available-for-sale and reported at fair value with net unrealized gains or losses reported in accumulated other comprehensive income or loss within stockholders'
equity. At June 30, 2001, the Company was a guarantor on $1,200,000 in loans made by a bank to three officers of the Company. Under the
agreement, the Company granted the bank a security interest in a $1,200,000 certificate of deposit as collateral for loans the bank made to the officers.

3. TOTAL COMPREHENSIVE LOSS

Total comprehensive loss for the three months ended June 30, 2001 and 2000 were $6,607,188 and $48,431,791, respectively. Total comprehensive loss for the nine
months ended June 30, 2001 and 2000 were $28,490,630 and $73,667,471, respectively. The difference between total comprehensive loss and net loss attributable to common stock was composed of unrealized
gains and losses on available-for-sale securities and foreign translation gains and losses.

4. 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 June 30, 2001 and 2000, outstanding options and warrants totaled 3,190,060 and 3,318,057, respectively. As these securities were antidilutive, diluted
loss per share equaled the basic loss per share calculation in each respective period.

4

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5. DEBT

The company has a credit agreement with a bank that provides for a $3,200,000 committed line of credit. The Company can access the line for equipment and other
capital assets purchased between October 1, 2000 through December 31, 2001. At June 30, 2001, the total borrowings under this line were $1,553,500, bearing interest at the prime rate plus .75%.
Principal payments on the outstanding balance are required to be paid in equal monthly installments from January 1, 2002 through June 2005. The agreement contains customary affirmative and negative
covenants, including financial covenants requiring the maintenance of specified liquidity terms and minimum tangible net worth. In addition, we are required to maintain our principal depository and
operating accounts with the bank as well as a minimum aggregate balance of $4,000,000 at the institution. At June 30, 2001, the Company was in compliance with all covenants.

6. PRO FORMA RESULTS

On June 16, 2000, the Company acquired all of the outstanding capital stock of Cytovia, Inc. ("Cytovia") and assumed the outstanding stock options of Cytovia.
Cytovia was a privately held biopharmaceutical research company focused on the discovery and development of caspase inhibitors and activators, novel drugs that modulate programmed cell death. The
transaction was accounted for using the purchase method of accounting.

The
condensed consolidated financial statements include the operating results of Cytovia from the date of acquisition. Unaudited pro forma operating results for the Company, assuming
the acquisition of Cytovia had been made at the beginning of the three and nine month periods ended June 30, 2000, excluding the impact of the in-process research and development charge, are as
follows:

Three Months Ended
June 30, 2000

Nine Months Ended
June 30, 2000Collaboration and research revenue

$
140,250

$
427,750Net loss applicable to common stock


(10,857,623
)

(41,683,804
)Net loss per share


(0.48
)

(2.34
)Shares used in calculating net loss per share


22,578,362


17,833,175


These
pro forma results have been prepared for comparative purposes only and may not be indicative of the results of operations which actually would have occurred had the combination
been in effect at the beginning of the respective year or of future results of operations of the consolidated entities.

7. RECLASSIFICATIONS

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

8. COMMITMENTS AND CONTINGENCIES

On December 14, 2000, plaintiff Blake Martin, on behalf of himself and purportedly on behalf of a class of others similarly situated, filed a complaint in the
United States District Court for the Southern District of California against the Company and two officers of the Company, alleging violations of federal securities laws related to declines in the
Company's stock price. The complaint alleges securities fraud in connection with various statements and alleged omissions to the public and to the securities markets. The Company believes that the
claims set forth in this complaint are without merit, and it intends to engage in a rigorous defense of such claims. The Company has been served with at least 13

5

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substantially similar lawsuits arising from the same facts and circumstances, and these lawsuits are being consolidated into a single proceeding.

9. SUBSEQUENT EVENT

On July 10, 2001, the Company's publicly traded redeemable warrants expired in accordance with the terms of the securities. The warrants were issued in
conjunction with the Company's initial public offering in July 1996 and, prior to expiration, each warrant was exercisable for the purchase of one share of common stock. The total number of warrants
outstanding at the time of expiration was 1,063,821.

6

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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 Ceplene,
MaxDerm and caspase modulator technologies, and future cash requirements. Such statements are only predictions and the Company's actual results could differ materially from those
anticipated or projected in such forward-looking statements. Factors that could cause or contribute to differences include the risk that the Company will not obtain approval to market its products,
the risk that products that appeared promising in early research and clinical trials do not demonstrate efficacy in larger-scale clinical trials, the risk that planned clinical trials may not start
when anticipated, the need for additional funds and the uncertainty of additional funding, and dependence on collaborative partners. These factors and others are more fully described in the Company's
Annual Report on Form 10-K/A for the fiscal year ended September 30, 2000.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2001 AND 2000

Research and Collaboration RevenueFor the quarter ended June 30, 2001, collaboration and research revenue totaled
$827,000, an increase of $686,000, from the same period in the prior year. Research and collaboration revenue for the nine-month period ended June 30, 2001 totaled $2,528,000 compared to $428,000 for
the nine months ended June 30, 2000. These increases were related to license fees and research revenues associated with the licensing of the Company's CV2105 series of caspase-inducer anti-cancer
compounds.

Research and Development ExpensesResearch and development expenses for the quarter ended June 30, 2001 totaled $5,951,000,
a decrease of $2,974,000 or 33%, from the same period in the prior year. The
decrease was primarily attributable to the completion of several clinical trials associated with the Ceplene (histamine dihydrochloride, formerly Maxamine®) product candidate. The lower
clinical trial costs were partially offset by an increase in research expenses associated with the caspase modulator technology acquired in June 2000 in the purchase of Cytovia, Inc. and costs
associated with expanded manufacturing development, regulatory, and quality assurance activities.

For
the nine months ended June 30, 2001, research and development expenses were $25,087,000, a decrease of $2,620,000 or 9%, over the same period of the prior year. The decrease
resulted primarily from lower clinical trial costs offset by increased research associated with the caspase modulator technology, as described above.

Marketing and Business DevelopmentMarketing and business development expenses for the quarter ended June 30, 2001 were
$1,537,000, an increase of $310,000, or 25%, over the same period of the prior year, primarily as a result of increased business development activities in international markets. For the nine months
ended June 30, 2001, marketing and business development expenses were $7,541,000, an increase of $5,121,000 or 212% over the same period in the prior year. This increase was due to the build up of
marketing and sales management personnel and other pre-marketing activities associated with the potential market launch of Ceplene, originally anticipated for the first half of 2001. This potential
market launch has been delayed to a future period.

General and Administrative ExpensesFor the quarter ended June 30, 2001, general and administrative expenses were
$1,383,000, an increase of $76,000, or 6%, over the same period in the prior year. For the nine months ended June 30, 2001, general and administrative expenses were $5,204,000, an increase of
$2,040,000 or 64% over the same period in the prior year. These increases

7

---

were due primarily to the expansion of information systems and additional support personnel associated with the Company's potential market launch and expanded operations, and increased corporate
communication requirements associated with the release of key clinical data and regulatory events during these periods.

Amortization of Goodwill and Other Acquisition-Related Intangible AssetsAmortization of goodwill and other acquisition
related intangible assets for the quarter ended June 30, 2001 were $551,000, an increase of $445,000 or 418% over the same period in the prior year. For the nine months ended June 30, 2001,
amortization of goodwill and other related intangible assets expenses totaled $1,667,000, an increase of $1,561,000, or 1,468% over the same period in the prior year. These increases were the result
of the timing of the Cytovia acquisition, which did not occur until mid-June 2000. The amortization relates to intangible assets recorded in connection with the acquisition, a transaction accounted
for as a purchase.

Purchased In-Process TechnologyThe $42,300,000 expense for purchased in-process technology during the three and nine month
periods ended June 30, 2000 resulted from the purchase accounting related to the acquisition of Cytovia in June 2000. There were no similar transactions in the current year.

Other IncomeInvestment income was $2,195,000 for the quarter ended June 30, 2001, a decrease of $1,149,000, or 34%, from
the same period in the prior year which is a result of the decrease in investment balances. For the nine months ended June 30, 2001, investment income totaled $7,914,000, an increase of $3,064,000 or
63% over the same period in the prior year. This increase was a result of interest earned on the proceeds of the follow-on public offering completed in February 2000.

The
$2,146,502 gain from the sale of assets during the three and nine month periods ended June 30, 2000 was a result of the sale of all assets, including the patent, license and other
intellectual property rights, underlying the Company's MaxVax mucosal vaccine technology. There were no similar transactions in the current year.

Net Loss Applicable to Common StockNet loss applicable to common stock for the quarter ended June 30, 2001 totaled
$6,429,000, a decrease of $41,806,000 or 87%, from the same period in the prior year. Net loss applicable to common stock for the nine months ended June 30, 2001 totaled $29,154,000, a decrease of
$44,173,000 or 60%, from the same period in the prior year. These decreases were primarily due to the write-off of purchased in-process technology included in the prior year's results 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 caspase 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.

As
of June 30, 2001, the Company had cash, cash equivalents and investments totaling approximately $155.1 million. For the nine months ended June 30, 2001, net cash used in the
Company's operating activities was approximately $30.6 million, as compared to $27.9 million in the same period in the prior year. 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

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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 or planned, and research related to the caspase modulator and other earlier-stage programs.

The
Company's cash requirements may vary materially from those now planned because of the results and scope of clinical trials and other research and development activities, the time
required to obtain regulatory approvals, the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights, its 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. In
January 2001, the U.S. Food and Drug Administration (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. Thus, the U.S. market launch of Ceplene, originally anticipated for the first half of 2001, is delayed to a future period. The Company has been working with the FDA in the
current quarter to develop a strategy to support the approvability of this drug candidate.

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.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's exposure to market risk is principally confined to its cash equivalents and investments. 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 June 30, 2001 would have resulted in approximately a $216,000 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, 2000.

IMPACT OF INFLATION

The impact of inflation on the operations of the Company for the three months and nine months ended June 30, 2001 and 2000 was not material.

NEW ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued Statement No. 141,Business Combinations, and Statement No. 142, Goodwill and Other Intangible
Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated
after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful
lives be amortized over their respective estimated useful lives

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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.

The
Company is required to adopt the provisions of Statement 141 immediately, and Statement 142 is required for fiscal years beginning after December 15, 2001. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will continue to be amortized prior to the adoption of Statement 142.

Statement
141 will require, upon adoption of Statement 142, that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business
combination, and to make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. Upon adoption of Statement 142, the Company
will be required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end
of the first interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset
for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative
effect of a change in accounting principle in the first interim period.

In
connection with the transitional goodwill impairment evaluation, Statement 142 will require the Company to perform an assessment of whether there is an indication that goodwill is
impaired as of
the date of adoption. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company's statement of operations.

Because
of the extensive effort needed to comply with adopting Statements 141 and 142, it is not practicable to reasonably estimate the impact of adopting these Statements on the
Company's financial statements at the date of this report, including whether any transitional impairment losses will be required to be recognized as the cumulative effect of a change in accounting
principle.

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PART IIOTHER INFORMATION

Item 1. Legal Proceedings

On December 14, 2000, plaintiff Blake Martin, on behalf of himself and purportedly on behalf of a class of others similarly situated, filed a complaint in the
United States District Court for the Southern District of California against the Company and two officers of the Company, alleging violations of federal securities laws related to declines in the
Company's stock price. The complaint alleges securities fraud in connection with various statements and alleged omissions to the public and to the securities markets. The Company believes that the
claims set forth in this complaint are without merit, and it intends to engage in a rigorous defense of such claims. The Company has been served with at least 13 substantially similar lawsuits arising
from the same facts and circumstances, and these lawsuits are being consolidated into a single proceeding.

While
the Company is defending itself vigorously in these matters, no assurances can be made that we will be successful in our defense of such claims. If we are not successful in our
defense of such claims, we could be forced to make significant payments to these plaintiffs, and such payments could have a material adverse effect on our business, financial condition and results of
operations if not covered by our insurance carrier. Even if our defense against such claims is successful, the litigation could result in substantial costs and divert management's attention and
resources, which could adversely affect our business.

Item 2. Changes in Securities and Use of Proceeds



|                                                     |  | (A) |         | (B)
|---------------------------------------------------- |  | --- | ------- | ---
|Purchase and installation of machinery and equipment |  |     |         |    
|Repayment of indebtedness                            |  | $   | 289,000 |    
|Interest earning bonds and securities                |  |     |         |    
|Research and development expenses                    |  |     |         |    
|Business development expenses                        |  |     |         |    
|General and administrative                           |  |     |         |    
|Intellectual property                                |  |     |         |    

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On
July 10, 2001, the Company's publicly traded redeemable warrants expired in accordance with the terms of the securities. The warrants were issued in conjunction with the Company's
initial public offering in July 1996, and prior to expiration each warrant was exercisable for the purchase of one share of common stock. The total number of warrants outstanding at the time of
expiration was 1,063,821.

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Item 6. Exhibits and Reports on Form 8-K

|Exhibit Number |  | Description of Exhibit                                                                     
|-------------- |  | -------------------------------------------------------------------------------------------
|10.1           |  | Employment Agreement dated June 30, 2001 between the Registrant and Karl-Hermann Bremeyer.*

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No
reports on Form 8-K were filed during the quarter ended June 30, 2001.

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.



Date:
August 10, 2001

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