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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, 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 quarterly period ended March 31, 2002

OR



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

For the transition period from ________________________to ______________________

Commission file number: 0-19825

SCICLONE PHARMACEUTICALS, INC.

---

(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|California                                                     |  | 94-3116852                          
|                                                               |  |                                     
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. employer
Identification no.)
|                                                              
|901 Mariners Island Blvd., Suite 205, San Mateo, California   |  | 94404                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip code)                          

(650) 358-3456

---

(Registrants telephone number, including area code)


Not Applicable

---

(Former name, former address and former fiscal year, if changed since last report) 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 March 31, 2002, 32,717,475 shares of the registrants Common Stock,
no par value, were issued and outstanding.





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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Condensed Consolidated Financial Statements                                          
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                              |                                                                                               | Notes to Condensed Consolidated Financial Statements
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative and Qualitative Disclosures About Market Risk.                          
|PART II. OTHER INFORMATION   
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   



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SCICLONE PHARMACEUTICALS, INC.

INDEX

|           |  |                                                                                                           |  |        
|---------- |  | --------------------------------------------------------------------------------------------------------- |  | -------
|PART I     |  | FINANCIAL INFORMATION                                                                                     |  | PAGENO.
|          
|Item 1.    |  | Condensed Consolidated Financial Statements (Unaudited)                                                   |  |        
|          
|           |  | Condensed Consolidated Balance Sheets as of March 31,
2002 and December 31, 2001                          |  | 3      
|          
|           |  | Condensed Consolidated Statements of Operations for the
Three-month periods ended March 31, 2002 and 2001 |  | 4      
|          
|           |  | Condensed Consolidated Statements of Cash Flows for the
Three-month periods ended March 31, 2002 and 2001 |  | 5      
|          
|           |  | Notes to Condensed Consolidated Financial Statements                                                      |  | 6      
|          
|Item 2.    |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations                     |  | 9      
|          
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                |  | 29     
|          
|PART II    |  | OTHER INFORMATION                                                                                         |  |        
|          
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                          |  | 30     
|          
|Signatures |  |                                                                                                           |  | 31     

2



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PART I. FINANCIAL INFORMATION




Item 1. Condensed Consolidated Financial Statements




SCICLONE PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

|                                           |                                                                                                                                                                         |   |             |              |              |   |            |              |  
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | ------------ | ------------ | - | ---------- | ------------ | -
|                                           |                                                                                                                                                                         |   | March 31,   |              | December 31,
|                                           |                                                                                                                                                                         |   | 2002        |              | 2001        
|                                           |                                                                                                                                                                         |   |             |              |             
|                                           |                                                                                                                                                                         |   | (unaudited) |              | (Note 1)    
|Current assets:                            |                                                                                                                                                                         |   |             |              |              |   |            |             
|                                           | Cash and cash equivalents                                                                                                                                               |   | $           | 15,532,000   |              |   | $          | 15,518,000   |  
|                                           | Restricted short-term investments                                                                                                                                       |   |             | 633,000      |              |   |            | 633,000      |  
|                                           | Other short-term investments                                                                                                                                            |   |             | 360,000      |              |   |            | 317,000      |  
|                                           | Accounts receivable, net                                                                                                                                                |   |             | 9,336,000    |              |   |            | 8,792,000    |  
|                                           | Inventories                                                                                                                                                             |   |             | 4,310,000    |              |   |            | 4,059,000    |  
|                                           | Prepaid expenses and other current assets                                                                                                                               |   |             | 1,155,000    |              |   |            | 1,333,000    |  
|                                           |                                                                                                                                                                         |   |             |              |              |   |            |             
|Total current assets                       |                                                                                                                                                                         |   | 31,326,000  |              |              |   | 30,652,000 |             
|Property and equipment, net                |                                                                                                                                                                         |   | 166,000     |              |              |   | 167,000    |             
|Intangible assets, net                     |                                                                                                                                                                         |   | 990,000     |              |              |   | 1,091,000  |             
|Other assets                               |                                                                                                                                                                         |   | 179,000     |              |              |   | 186,000    |             
|                                           |                                                                                                                                                                         |   |             |              |              |   |            |             
|Total assets                               |                                                                                                                                                                         | $ | 32,661,000  |              |              | $ | 32,096,000 |             
|                                           |                                                                                                                                                                         |   |             |              |              |   |            |             
|                                          
|LIABILITIES AND SHAREHOLDERS EQUITY       |                                                                                                                                                                         |   |             |              |              |   |            |             
|                                          
|Current liabilities:                       |                                                                                                                                                                         |   |             |              |              |   |            |             
|                                           | Accounts payable                                                                                                                                                        |   | $           | 1,673,000    |              |   | $          | 1,575,000    |  
|                                           | Accrued compensation and employee benefits                                                                                                                              |   |             | 538,000      |              |   |            | 960,000      |  
|                                           | Accrued clinical trials expense                                                                                                                                         |   |             | 441,000      |              |   |            | 296,000      |  
|                                           | Accrued professional fees                                                                                                                                               |   |             | 583,000      |              |   |            | 633,000      |  
|                                           | Deferred revenue                                                                                                                                                        |   |             | 895,000      |              |   |            |             |  
|                                           | Other accrued expenses                                                                                                                                                  |   |             | 262,000      |              |   |            | 258,000      |  
|Total current liabilities                  |                                                                                                                                                                         |   | 4,392,000   |              |              |   | 3,722,000  |             
|Deferred revenue                           |                                                                                                                                                                         |   | 1,790,000   |              |              |   |           |             
|Convertible notes payable                  |                                                                                                                                                                         |   | 5,600,000   |              |              |   | 5,600,000  |             
|Shareholders equity:                      |                                                                                                                                                                         |   |             |              |              |   |            |             
|                                           | Common stock, no par value; 75,000,000
shares authorized; 32,717,475 and
32,474,150 shares issued and outstanding at
March 31, 2002 and December 31, 2001,
respectively |   |             | 146,184,000  |              |   |            | 145,713,000  |  
|                                           | Accumulated other comprehensive income                                                                                                                                  |   |             | 76,000       |              |   |            | 39,000       |  
|                                           | Accumulated deficit                                                                                                                                                     |   |             | (125,381,000 | )            |   |            | (122,978,000 | )
|Total shareholders equity                 |                                                                                                                                                                         |   | 20,879,000  |              |              |   | 22,774,000 |             
|                                           |                                                                                                                                                                         |   |             |              |              |   |            |             
|Total liabilities and shareholders equity |                                                                                                                                                                         | $ | 32,661,000  |              |              | $ | 32,096,000 |             
|                                           |                                                                                                                                                                         |   |             |              |              |   |            |             

See notes to condensed consolidated financial statements

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SCICLONE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

|                                                                               |                            |   |                    |           |      |   |            |           | 
|------------------------------------------------------------------------------ | -------------------------- | - | ------------------ | --------- | ---- | - | ---------- | --------- | 
|                                                                               |                            |   | Three months ended
|                                                                               |                            |   | March 31,         
|                                                                               |                            |   |                   
|                                                                               |                            |   | 2002               |           | 2001
|                                                                               |                            |   |                    |           |     
|Product sales                                                                  |                            | $ | 3,948,000          |           |      | $ | 3,113,000  |          
|Cost of product sales                                                          |                            |   | 792,000            |           |      |   | 598,000    |          
|                                                                               |                            |   |                    |           |      |   |            |          
|Gross margin                                                                   |                            |   | 3,156,000          |           |      |   | 2,515,000  |          
|Operating expenses:                                                            |                            |   |                    |           |      |   |            |          
|                                                                               | Research and development   |   |                    | 2,526,000 |      |   |            | 1,741,000 | 
|                                                                               | Sales and marketing        |   |                    | 2,008,000 |      |   |            | 2,090,000 | 
|                                                                               | General and administrative |   |                    | 992,000   |      |   |            | 1,017,000 | 
|                                                                               |                            |   |                    |           |      |   |            |          
|Total operating expenses                                                       |                            |   | 5,526,000          |           |      |   | 4,848,000  |          
|                                                                               |                            |   |                    |           |      |   |            |          
|Loss from operations                                                           |                            |   | (2,370,000         | )         |      |   | (2,333,000 | )        
|Interest and investment income                                                 |                            |   | 76,000             |           |      |   | 264,000    |          
|Interest and investment expense                                                |                            |   | (90,000            | )         |      |   | (63,000    | )        
|Other income (expense), net                                                    |                            |   | (19,000            | )         |      |   | 7,000      |          
|                                                                               |                            |   |                    |           |      |   |            |          
|Net loss                                                                       |                            | $ | (2,403,000         | )         |      | $ | (2,125,000 | )        
|                                                                               |                            |   |                    |           |      |   |            |          
|Basic and diluted net loss per share                                           |                            | $ | (0.07              | )         |      | $ | (0.07      | )        
|                                                                               |                            |   |                    |           |      |   |            |          
|Weighted average shares used in computing basic
and diluted net loss per share |                            |   | 32,583,558         |           |      |   | 32,242,093 |          
|                                                                               |                            |   |                    |           |      |   |            |          

See notes to condensed consolidated financial statements

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SCICLONE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

|                                                                            |                                                                |                                             |            |                    |           |      |            |           |            |  
|--------------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------------------------------- | ---------- | ------------------ | --------- | ---- | ---------- | --------- | ---------- | -
|                                                                            |                                                                |                                             |            | Three months ended
|                                                                            |                                                                |                                             |            | March 31,         
|                                                                            |                                                                |                                             |            |                   
|                                                                            |                                                                |                                             |            | 2002               |           | 2001
|                                                                            |                                                                |                                             |            |                    |           |     
|Operating activities:                                                       |                                                                |                                             |            |                    |           |      |            |          
|Net loss                                                                    |                                                                | $                                           | (2,403,000 | )                  |           | $    | (2,125,000 | )        
|Adjustments to reconcile net loss to net cash used in
operating activities: |                                                                |                                             |            |                    |           |      |            |          
|                                                                            | Depreciation and amortization                                  |                                             |            | 146,000            |           |      |            | 126,000   |           
|                                                                            | Changes in operating assets and liabilities:                   |                                             |            |                    |           |      |            |           |           
|                                                                            |                                                                | Prepaid expenses and other current assets   |            |                    | 178,000   |      |            |           | (312,000   | )
|                                                                            |                                                                | Accounts receivable, net                    |            |                    | (544,000  | )    |            |           | (175,000   | )
|                                                                            |                                                                | Inventories                                 |            |                    | (251,000  | )    |            |           | 59,000     |  
|                                                                            |                                                                | Accounts payable and other accrued expenses |            |                    | 102,000   |      |            |           | (1,029,000 | )
|                                                                            |                                                                | Accrued compensation and employee benefits  |            |                    | (422,000  | )    |            |           | (387,000   | )
|                                                                            |                                                                | Accrued clinical trials expense             |            |                    | 145,000   |      |            |           | 48,000     |  
|                                                                            |                                                                | Accrued professional fees                   |            |                    | (50,000   | )    |            |           | 296,000    |  
|                                                                            |                                                                | Deferred revenue                            |            |                    | 2,685,000 |      |            |           |           |  
|                                                                            |                                                                |                                             |            |                    |           |      |            |          
|Net cash used in operating activities                                       |                                                                |                                             | (414,000   | )                  |           |      | (3,499,000 | )        
|                                                                            |                                                                |                                             |            |                    |           |      |            |          
|Investing activities:                                                       |                                                                |                                             |            |                    |           |      |            |          
|                                                                            | Purchase of property and equipment                             |                                             |            | (36,000            | )         |      |            | (18,000   | )         
|                                                                            | Payment on purchase of marketable securities                   |                                             |            | (7,000             | )         |      |            | (313,000  | )         
|                                                                            |                                                                |                                             |            |                    |           |      |            |          
|Net cash used in investing activities                                       |                                                                |                                             | (43,000    | )                  |           |      | (331,000   | )        
|                                                                            |                                                                |                                             |            |                    |           |      |            |          
|Financing activities:                                                       |                                                                |                                             |            |                    |           |      |            |          
|                                                                            | Proceeds from issuance of convertible note                     |                                             |            |                   |           |      |            | 1,600,000 |           
|                                                                            | Proceeds from issuance of common stock, net of
financing costs |                                             |            | 471,000            |           |      |            | 465,000   |           
|                                                                            |                                                                |                                             |            |                    |           |      |            |          
|Net cash provided by financing activities                                   |                                                                |                                             | 471,000    |                    |           |      | 2,065,000  |          
|                                                                            |                                                                |                                             |            |                    |           |      |            |          
|Net increase (decrease) in cash and cash equivalents                        |                                                                |                                             | 14,000     |                    |           |      | (1,765,000 | )        
|Cash and cash equivalents, beginning of period                              |                                                                |                                             | 15,518,000 |                    |           |      | 21,981,000 |          
|                                                                            |                                                                |                                             |            |                    |           |      |            |          
|Cash and cash equivalents, end of period                                    |                                                                | $                                           | 15,532,000 |                    |           | $    | 20,216,000 |          
|                                                                            |                                                                |                                             |            |                    |           |      |            |          

See notes to condensed consolidated financial statements

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SCICLONE PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements
(unaudited)



|1. |  | The accompanying unaudited condensed consolidated financial statements
have been prepared in conformity with generally accepted accounting
principles consistent with those applied in, and should be read in
conjunction with, the audited financial statements for the year ended
December 31, 2001. The interim financial information reflects all normal
recurring adjustments which are, in the opinion of management, necessary
for a fair presentation of the results for the interim periods presented.
The balance sheet data at December 31, 2001 is derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. Certain prior year amounts
have been reclassified to conform to the current quarter presentation.
The interim results are not necessarily indicative of results for
subsequent interim periods or for the full year.                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | The Company recognizes revenue from product sales at the time of shipment
and recognizes contract/grant revenue when services have been performed.
There are no significant customer acceptance requirements or post shipment
obligations on the part of the Company. Sales to importing agents or
distributors are recognized at time of shipment when title to the product
is transferred to them, and they do not have contractual rights of return
except under limited terms regarding product quality. However, the Company
will replace products that have expired or are deemed to be damaged or
defective when delivered. Payments by the importing agents and
distributors are not contingent upon sale to the end user by the importing
agents or distributors. Contract revenue for research and development is
recorded as earned based on the performance requirements of the contract.
Nonrefundable contract fees for which no further performance obligations
exist, and there is no continuing involvement by the Company, are
recognized on the earlier of when the payments are received or when
collection is assured. Revenue associated with substantive performance
milestones is recognized based upon the achievement of the milestones, as
defined in the respective agreements. Revenue under research and
development cost reimbursement contracts is recognized as the related
costs are incurred.
|  
|3. |  | For the three-month periods ended March 31, 2002 and 2001, the Companys
total comprehensive loss amounted to $(2,365,000) and $(2,112,000),
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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|4. |  | The following is a summary of available-for sale securities at March 31,
2002 and December 31, 2001:
|-- |  | ----------------------------------------------------------------------------------------------------

|                   |                             |   |            |            |            |   |        |        |           |   |            |            | 
|------------------ | --------------------------- | - | ---------- | ---------- | ---------- | - | ------ | ------ | --------- | - | ---------- | ---------- | 
|                   |                             |   |            |            |            |   | Gross  |        | Estimated
|                   |                             |   | Amortized  |            | Unrealized |   | Fair  
|                   |                             |   | Cost       |            | Gains      |   | Value 
|                   |                             |   |            |            |            |   |       
|March 31, 2002:    |                             |   |            |            |            |   |        |        |           |   |            |           
|                   | Certificate of deposit      |   | $          | 867,000    |            |   | $      |       |           |   | $          | 867,000    | 
|                   | Corporate obligations       |   |            | 12,167,000 |            |   |        | 2,000  |           |   |            | 12,169,000 | 
|                   | Corporate equity securities |   |            | 51,000     |            |   |        | 75,000 |           |   |            | 126,000    | 
|                   |                             |   |            |            |            |   |        |        |           |   |            |           
|                   |                             | $ | 13,085,000 |            |            | $ | 77,000 |        |           | $ | 13,162,000 |           
|                   |                             |   |            |            |            |   |        |        |           |   |            |           
|December 31, 2001: |                             |   |            |            |            |   |        |        |           |   |            |           
|                   | Certificate of deposit      |   | $          | 865,000    |            |   | $      |       |           |   | $          | 865,000    | 
|                   | Corporate obligations       |   |            | 10,858,000 |            |   |        | 6,000  |           |   |            | 10,864,000 | 
|                   | Corporate equity securities |   |            | 51,000     |            |   |        | 33,000 |           |   |            | 84,000     | 
|                   |                             |   |            |            |            |   |        |        |           |   |            |           
|                   |                             | $ | 11,774,000 |            |            | $ | 39,000 |        |           | $ | 11,813,000 |           
|                   |                             |   |            |            |            |   |        |        |           |   |            |           



|   |  | As of March 31, 2002, the total available-for-sale securities are
included as follows, $12,169,000 in cash and cash equivalents, $633,000,
in restricted short-term investments and $360,000 in other short-term
investments.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|5. |  | The following is a summary of inventories at March 31, 2002 and December
31, 2001:                                                                                                                                           

|                 |  |           |           |              |  |   |           |  
|---------------- |  | --------- | --------- | ------------ |  | - | --------- | -
|                 |  | March 31, |           | December 31,
|                 |  | 2002      |           | 2001        
|                 |  |           |           |             
|Raw materials    |  | $         | 2,955,000 |              |  | $ | 2,759,000 |  
|Work in progress |  |           | 1,158,000 |              |  |   | 1,269,000 |  
|Finished goods   |  |           | 452,000   |              |  |   | 431,000   |  
|Reserve          |  |           | (255,000  | )            |  |   | (400,000  | )
|                 |  |           |           |              |  |   |           |  
|                 |  | $         | 4,310,000 |              |  | $ | 4,059,000 |  
|                 |  |           |           |              |  |   |           |  



|6. |  | The following is a summary of intangible assets at March 31, 2002 and
December 31, 2001:
|-- |  | ----------------------------------------------------------------------------------------

|                          |  |           |            |              |  |   |            |  
|------------------------- |  | --------- | ---------- | ------------ |  | - | ---------- | -
|                          |  | March 31, |            | December 31,
|                          |  | 2002      |            | 2001        
|                          |  |           |            |             
|Intangible product rights |  | $         | 2,456,000  |              |  | $ | 2,456,000  |  
|Accumulated amortization  |  |           | (1,466,000 | )            |  |   | (1,365,000 | )
|                          |  |           |            |              |  |   |            |  
|                          |  | $         | 990,000    |              |  | $ | 1,091,000  |  
|                          |  |           |            |              |  |   |            |  



| |  | ZADAXIN® product rights that the Company acquired are being amortized
over six years beginning in September 1998. Amortization expense for the
three months ended March 31, 2002 and 2001 was $101,000. Amortization
expense for the years ended December 31, 2002, 2003 and 2004 is expected
to be $409,000, $409,000 and $273,000,
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|    |  | respectively. The Company reassesses the useful life of these assets in
accordance with current facts and circumstances. Further, the Company
identifies and records impairment losses, as circumstances dictate, on
intangible product rights when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those
assets. The Company to date has not identified any changes in useful
life or impairment losses on these assets.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|7.  |  | For the three-month period ended March 31, 2002, the Company received
approximately $442,000 in connection with exercises of outstanding options
to purchase 231,502 shares of common stock.                                                                                                                                                                                                                                                                                                                                                                 
|   
|8.  |  | The Company does not have any minimum purchase requirements under its
contract manufacturing supply agreements for ZADAXIN and CPX.                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|9.  |  | Net loss per share is computed using the weighted average number of
shares of common stock outstanding. Common equivalent shares from stock
options and warrants are excluded, as their effect is antidilutive.                                                                                                                                                                                                                                                                                                                                              
|   
|10. |  | The Company adopted Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets, on January 1, 2002. There has been no impact on the Companys
operating results from the adoption of this standard.                                                                                                                                                                                                                                                                                      
|   
|11. |  | In January 2002, we received $2,685,000 from our European partner Sigma
Tau under the terms of our collaborative agreement announced in late
December 2001. This receipt has been recorded as deferred revenue and
will be recognized as contract revenue starting in April 2002 over the
next three years.                                                                                                                                                                                                                                                  

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Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations

Special Note Regarding Forward-Looking Statements

This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
are based on our current expectations, estimates and projections about our
industry, managements beliefs and certain assumptions made by us. Words such
as anticipates, expects, intends, plans, believes or similar
expressions are intended to identify forward-looking statements and our forward
looking statements include those statements we make regarding the timing and
outcome of clinical trials, anticipated sales and research and development
expense levels. These statements are not guarantees of future performance and
are subject to certain risks, uncertainties and assumptions that are difficult
to predict. Therefore, our actual results could differ materially and adversely
from those expressed in any forward-looking statements as a result of various
factors including, but not limited to, those described under the caption Risk
Factors on this Form 10-Q. We undertake no obligation to revise or update
publicly any forward-looking statements for any reason.

Overview

SciClone Pharmaceuticals, Inc. (SciClone or the Company) develops and
commercializes pharmaceutical and biological therapeutic compounds that are
acquired or in-licensed at the stage of late pre-clinical or early clinical
development. SciClones strategic goal, based on the broad therapeutic
potential of its lead drug ZADAXIN, is to become the preeminent worldwide
provider of immune system enhancers, or ISEs, as monotherapies and as critical
components of combination drug therapies for infectious diseases and cancer.
ZADAXIN has been approved for sale primarily as a monotherapy for hepatitis B,
in 27 countries with additional approvals anticipated and has been administered
without clinically significant side effects to patients for over 10 years.
Currently, SciClone is targeting major market regulatory approval for ZADAXIN
by focusing on its U.S. hepatitis C phase 3 clinical trials, Japanese hepatitis
B phase 3 clinical trial and European cancer phase 2-3 clinical trials in
collaboration with SciClones European partner, Sigma-Tau, S.p.A.

ZADAXIN is a synthetic preparation of a natural peptide, thymosin alpha 1,
that enhances the bodys Th1 (T-helper cell 1) immune response. There are no
reports of significant side effects in more than 10,000 patients to date, in
both clinical trial and commercial use for several different diseases,
including viral diseases (hepatitis C and B) and cancers (hepatocellular
carcinoma and malignant melanoma). This safety profile, combined with its
unique mechanism of action, ideally positions ZADAXIN as the immune system
enhancer of choice for use in combination therapies for infectious diseases and
cancer. Other drugs in SciClones pipeline are intended to protect and expand
this franchise, and to address the protein-based disorder that causes cystic
fibrosis.

While SciClone has obtained ZADAXIN marketing approvals in 27 countries
overseas, the Companys current clinical development strategy is to focus on
hepatitis C as the first indication for commercial registration of ZADAXIN in
the U.S. In Europe, SciClones

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collaboration partner Sigma-Tau plans to pursue regulatory approval for
ZADAXIN for oncology indications with a phase 2 and 3 clinical program,
initially focused on malignant melanoma. In addition, Sigma-Tau will pursue
regulatory approval in Europe for ZADAXIN as a therapy for hepatitis C using
data from SciClones phase 3 clinical trials in the U.S. SciClone is also
developing ZADAXIN for use as a therapy for hepatitis B in Japan and also
intends to file hepatitis C data in that market after the U.S. trial is
completed. SciClone produces ZADAXIN for current commercial sales through
contract manufacturers in Western Europe. Most of the Companys current sales
are to importing agents in the Peoples Republic of China for distribution in
that country. In the U.S., SciClone anticipates moving toward entering into a
marketing collaboration in the later stages of its phase 3 clinical trials when
the Company believes the product should have enhanced partnering value, though
there is no assurance such a partnering arrangement can be successfully
achieved.

ZADAXIN

ZADAXIN, an immune system enhancer, is a synthetic preparation of thymosin
alpha 1, an immune system peptide that occurs naturally and whose activities
increasingly are being recognized to regulate the bodys immune response to
viral infection or malignancy. Published scientific and clinical studies have
shown that ZADAXINs activities include helping to stimulate, maintain and
direct the bodys antiviral and anticancer immune response  to both target the
intended affected cells and to enhance the immune systems capabilities for
cell-specific eradication.

Disease-causing agents which remain circulating in the blood usually are
quickly recognized and eliminated by the bodys humoral, or antibody-based,
immune component. ZADAXINs critical role in the immune response is played out
in the more complicated realm of cellular immunity, when certain of the bodys
own cells need to be the target of an immune response because of infection or
malignancy, even though the immune system does not recognize these cells as
foreign. Diseases requiring a cellular immune response, such as HIV, hepatitis
C and cancer, have generally been the most resistant to therapeutic
intervention to date, and remain at the frontier of current medical
investigation.

Humoral and cellular immune response to some degree cross-regulate each
other, with cytokine production determining which holds precedence. ZADAXIN
seems to be an important regulator of these responses. Increasingly, studies
have suggested that ZADAXIN enhances the maturation of stem cells and their
differentiation into mature CD4, CD8, T and natural killer cells. ZADAXIN
increases the Th1 subset of CD4 cells (which favors cellular immunity) by
increasing the production of cytokines such as IL-2 and gamma interferon.
ZADAXIN also enhances the expression of class I MHC molecules on diseased human
cells, which leads to increased recognition and their destruction by CD8 cells.

Studies also have demonstrated that hepatitis C is able to evade the
bodys immune response leading to chronic viral infection if the bodys immune
response is switched to the Th2 mode. A Th1 response, on the other hand, is
fundamental to hepatitis C eradication. Current treatments for hepatitis C,
such as alpha interferon, although showing a degree of efficacy, actually
induce a counter-regulatory increase in Th2 cytokine production. The addition
of ZADAXIN to alpha interferon counterbalances this Th2 cytokine production
process and

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amplifies Th1 cytokine production thereby presenting the promise of an
enhanced combination therapy. There are no reports that ZADAXIN, either as a
monotherapy or as a component in combination therapy with other drugs, has
produced any serious, adverse side effects in more than 3,000 patients in
various clinical trials to date and in thousands more in commercial use,
thereby suggesting that ZADAXIN should not add to the toxicity profile of a
multi-drug hepatitis C regimen.

SciClones proprietary position for ZADAXIN is protected by patents in the
U.S., Europe, Japan and various other countries, either alone or in combination
with a variety of other drugs, for its use as a treatment for hepatitis C,
hepatitis B and for certain cancers. For use as a treatment for hepatitis C,
patent coverage extends to 2015 in the U.S. and to 2012 in the European Union
and in Japan.

Hepatitis C (HCV)

The Centers for Disease Control estimate that up to 4 million people in
the U.S. are infected by HCV and no vaccine for it has been developed. There
are approximately 40,000 new cases each year. While only 30 percent of those
infected are initially symptomatic, in approximately 85 percent the infection
becomes chronic, and some 70 percent suffer from complications of chronic liver
disease. HCV currently causes 8,000 to 10,000 deaths per year in the U.S. These
numbers are expected to triple by 2010. There are at least six different
genotypes, or strains, of HCV and over 100 sub-genotypes. Genotype 1 is the
most difficult to treat and is the most common variant in the U.S., infecting
approximately 75 percent of all patients.

Current year-long treatment regimens can cost more than $17,000 per
patient in the U.S., with the total therapeutic market in the U.S. and Europe
estimated to be well over $2 billion and expected to grow to $4-5 billion by
2004. Alpha interferon is the backbone of treatment, predominantly used in
combination with the antiviral ribavirin (the combination treatment is marketed
by Schering-Plough under the tradename Rebetron). Alpha interferon can
induce relatively severe toxicity, and ribavirin introduces additional serious
toxicities of its own. Many patients cannot, or will not, tolerate a full-year
regimen of alpha interferon and ribavirin. More recently, longer acting forms
of alpha interferon, pegylated alpha interferon, have been developed by
Schering-Plough and by F. Hoffmann La-Roche under the tradenames Peg-Intron
and Pegasys, respectively. Alpha interferon in its pegylated form allows
alpha interferon to stay in the bloodstream longer permitting less frequent
injections and more consistent viral suppression. However, the combination of
pegylated alpha interferon plus ribavirin is effective in achieving a sustained
elimination of the hepatitis C virus in only about 50 percent of naïve, that
is, first time treated, patients and the treatment side effect profile remains
severe. Moreover, the effectiveness of current therapy is highly dependent on
the genotype of the infecting virus and the viral load, or level of virus
present in the patient. For genotype 1 patients with a high viral load, which
characterizes about half of all HCV patients in the U.S., current therapy is
effective in only about 30 percent of the cases. Patients that fail to respond
to therapy seldom respond to a second 12-month regimen of the same treatment.
The success rate for treating non-responders with non-pegylated alpha
interferon plus ribavirin is only approximately 8 percent. In early clinical
studies, the combination of ZADAXIN and alpha interferon, when used to treat
non-responders, achieved a 22 percent response rate. We believe that this
improvement is clinically significant and have designed and implemented our
U.S. phase 3 hepatitis C clinical program based on these data.

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ZADAXIN, we believe, represents the closest new opportunity for improving
the treatment for hepatitis C patients in the foreseeable future. Based upon
our review of the market, virtually nothing else is on the horizon in a similar
advanced clinical stage of development. We redesigned and timed the
implementation of our phase 3 U.S. clinical program of ZADAXIN to use it in
combination with the newest form of interferon, pegylated alpha interferon.

Clinical Development Strategy

Our clinical development strategy for ZADAXIN in the U.S. has been to
select an indication where ZADAXIN may add the greatest efficacy compared to
current standard treatment, where the likelihood of expedited review is
greatest due to a lack of an approved treatment, where the initial patient
population supports the greatest financial return upon successful registration
and where SciClone has a strong intellectual property position for the use of
ZADAXIN. Results from clinical trials suggest that using ZADAXIN with
interferon produces better results than using interferon independently or
interferon with ribavirin for the treatment of hepatitis C in primary
non-responders. Thus, we have focused our phase 3 clinical trials on hepatitis
C non-responders (no virological response at the end of a standard course of
therapy) to interferon or to interferon plus ribavirin.

Non-responders typically have high viral loads of HCV genotype 1, which is
also characteristic of half of all HCV patients in the U.S. We estimate that
there are approximately 200,000 patients in the U.S. alone who have failed to
respond to treatment using interferon independently or interferon in
combination with ribavirin and that this patient group will grow to
approximately 500,000 identifiable non-responders by 2005. Non-responders are a
commercially attractive initial target market for ZADAXIN. Such patients
generally are motivated to seek treatment, are already identified by their
physicians, are in the health care and insurance systems, and their number is
growing as more new patients seek and ultimately fail first-time therapy for
HCV.

The phase 3 U.S. clinical trials consist of two 500-patient, multicenter,
randomized, double-blinded studies, and the trials are designed to provide the
data and safeguards required to file a successful marketing application if the
data demonstrate clinical benefit. Patients in equal numbers are being assigned
to a one-year course of ZADAXIN plus pegylated interferon or to a course of
pegylated interferon plus placebo. Primary endpoints are a sustained
virological response and an improvement in the liver histological activity
index measured six months after the end of the 12-month therapy, consistent
with the U.S. Food and Drug Administration, or the FDA, standard for
demonstrating sustained response to HCV therapy. Efficacy data at the end of
the 12-month treatment period will be included as a secondary endpoint of the
trial.

The Pegasys brand of pegylated interferon for both trials is being
provided at no cost to us by F. Hoffmann La-Roche, which receives the right to
use the data resulting from the trials but does not receive any marketing
rights to ZADAXIN or the combination therapy. The costs of this U.S. study are
also supported, without any U.S. marketing rights, by our European partner,
Sigma-Tau. In early 2002 Sigma-Tau contributed $2.7 million and will make an
additional $1 million milestone payment when the 1,000 patients are recruited
in our U.S. clinical trials. Patient enrollment began in the early part of the
second quarter of 2002. Under this plan the

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treatment and observation periods for the first patients would be
completed by the end of 2003 and for all patients in the phase 3 clinical
trials by mid-2004, though there is no assurance that patients can be recruited
to plan.

We believe that oncology will be another large market opportunity for
ZADAXIN as the immune system enhancer of choice in certain cancer multi-drug
treatments. ZADAXINs mechanism of action stimulates and directs the bodys
immune response toward many forms of malignant cells. In addition, use of
ZADAXIN has not demonstrated any serious, adverse side effects in combination
with many known anticancer drugs. In comparison, most anticancer drugs are
normally highly toxic which complicates the efficacy of many combination
treatments often raising prohibitive safety issues and hindering patient
compliance.

Our clinical strategy in oncology is to implement a broad phase 2 clinical
program with leading cancer investigators in the U.S. and Europe concurrent
with the phase 3 HCV clinical and registration program. We intend to generate a
substantial body of published phase 2 data in specific cancers where ZADAXIN
has shown preclinical or early clinical potential as a component of therapy in
order to determine the feasibility and design of pivotal phase 3 trials in
oncology. We are currently sponsoring two phase 2 U.S. trials for liver cancer,
which is a common result of untreated or progressive hepatitis C or hepatitis
B. ZADAXIN is being combined with transarterial chemoembolization (TACE) or
with radio frequency ablation (RFA), the two most common procedures for
hepatocellular carcinoma (HCC) patients whose tumors cannot be treated either
by surgery or by liver transplantation. The studies are designed to duplicate
the survival benefits that were demonstrated in our European phase 2 HCC
studies. HCC accounts for more than 80 percent of all primary liver tumors and
is the most prevalent fatal malignancy in the world, with an annual incidence
of approximately one million new cases. In the U.S., there are some 4,000 to
6,000 new cases of HCC diagnosed each year. ZADAXINs use also has been
investigated with promising early results in malignant melanoma, and non-small
cell lung cancer.

International Strategy

While U.S. clinical efforts are at the forefront of our current
activities, our commercialization strategy has always been global. Our initial
target markets for ZADAXIN have been in emerging growth countries. ZADAXIN is
now approved for sale in 27 countries, including China, India and Mexico.
ZADAXIN is approved principally for the treatment of hepatitis B and hepatitis
C, and also in certain countries as a vaccine adjuvant for patients with
weakened immune systems and as an adjuvant to chemotherapy for the treatment of
various cancers. Additional marketing approvals are pending in significant
hepatitis markets such as Turkey and Hong Kong. Commercial activities in
selected countries where ZADAXIN is approved for sale, and most significantly
in China, have played an important role in our early development. We believe
that the demonstration of continued progress in this international sales
program will significantly increase the value of any future development or
marketing alliance to our shareholders. Overseas efforts also provide
invaluable experience in the successful marketing and sales of ZADAXIN,
particularly in economically challenged conditions.

Together with Sigma-Tau, we are engaged in a regulatory development
strategy for ZADAXIN targeting a pan-European hepatitis C registration intended
to run concurrently with

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U.S. registration efforts. Sigma-Tau has exclusive marketing rights for
ZADAXIN in most Western European countries. Sigma-Tau is responsible for
funding the ZADAXIN European hepatitis C regulatory efforts utilizing the U.S.
phase 3 clinical trial data that SciClone will provide to Sigma-Tau. In
addition, Sigma-Tau has agreed to fund and conduct phase 2 and 3 oncology
clinical trials in Europe. Combination therapy of ZADAXIN with the cytotoxic
agent dacarbazine (DTIC) for the treatment of malignant melanoma is the first
clinical effort of this collaboration, and the clinical trial is expected to
commence in 2002.

In Japan, we are conducting a phase 3 clinical trial in over 300 patients
using ZADAXIN as a monotherapy for the treatment of hepatitis B (HBV). In March
2002 we announced positive preliminary data on the first evaluated one-third of
these patients indicating that, after 6 months of therapy and 12 months of
follow up, 24% demonstrated a successful interruption of viral replication, as
measured by sustained seroconversion of hepatitis B e-antigen (loss of HBeAg
and the development of antibody to HBeAg). By comparison, published data on
lamivudine, the drug most widely used for treatment of hepatitis B worldwide,
indicate that lamivudine is capable of inducing sustained HBeAg seroconversion
in 16% of Asian patients that took the drug for one year. Over two-thirds of
the patients in the trial have already completed the therapy and follow-up
evaluation periods. The remaining patients are scheduled to complete the
therapy and evaluation periods by the end of 2002. There are approximately 31.5
million carriers of HBV in Japan, of which approximately 10 percent are
chronically infected.

We also plan to continue to supply ZADAXIN to qualified investigators
outside of the U.S. and Europe for non-company sponsored hepatitis and cancer
studies. For example, currently, leading oncology researchers in Australia are
studying ZADAXIN in combination with dendritic cell-based vaccination for
malignant melanoma, the first pure immunotherapy combination study for ZADAXIN
in cancer. Malignant melanoma is one of the most prevalent cancers in
Australia. Worldwide, there are at least 50,000 new cases of malignant melanoma
diagnosed each year, and there currently is no effective treatment.

Second Generation Immune System Enhancers

In 1999, we acquired exclusive rights to a new class of immunomodulators
which in preclinical studies enhanced the immune system in a manner similar to
ZADAXIN. At least one of these compounds, SCV-07, has the potential to be
orally active (ZADAXIN is administered as a subcutaneous injection). With the
$300,000 grant awarded by the U.S. Civilian Research and Development
Foundations Next Steps to Market Program, several preclinical and clinical
studies of SCV-07 treatment in tuberculosis, or TB, have been conducted in
collaboration with Verta Ltd., a biotechnology company located in St.
Petersburg, Russia. These studies have shown potential for efficacy in this
difficult to treat and emerging disease. SCV-07 and its related class of
compounds are covered by a composition of matter patent in the U.S. as well as
for their use as immunomodulators. In 2001 we were granted a U.S. composition
of matter patent for various analogs of ZADAXIN that we have determined could
have proprietary therapeutic or biologic distinctions from its current natural
synthetic formulation, such as length of circulation in the blood or
alternative delivery techniques.

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CPX for Cystic Fibrosis

While ZADAXIN is SciClones clear current focus, the Company has also
focused on the development of CPX, a novel small molecule protein-repair
therapy for cystic fibrosis, or CF, a common fatal genetic disorder among
Caucasians. Current treatments for CF address only the symptoms, which
ultimately include a build-up of viscous mucus in the lungs that harbor
infections and which lead to death in most patients. We licensed CPX from the
National Institutes of Health (NIH) after the gene encoding for the Cystic
Fibrosis Transmembrane Conductance Regulator (CFTR) protein was identified. In
preclinical studies conducted at the NIH utilizing several different approaches
to examine the efficacy of CPX, including the use of cells explanted from
cystic fibrosis patients, CPX demonstrated the ability to repair the two
principal protein defects underlying the cause of CF in most patients at the
cellular level: it enables the defective protein to travel through the cell and
reach the epithelial cell membrane, a process called trafficking, and
improves an originally impaired transport of chloride ions across the cell
membrane. Because of erratic digestive absorption patterns in CF patients our
first U.S. phase 2 trial aimed at demonstrating this protein repair activity in
CF patients did not produce the sustained circulatory drug levels required to
assess efficacy. We reformulated CPX to prepare for additional toxicology and
early human studies and may need to conduct further reformulation before
pursuing additional studies. We are exploring further development efforts and
opportunities for CPX. We have been granted Orphan Drug Status for CPX in both
the U.S. and Europe, protecting market exclusivity. The NIH has granted us an
exclusive license for a class of related compounds, one of which, DAX, is
another protein-repair candidate. DAX currently is in preclinical development.

Results of Operations

Product Sales

Product sales were $3,948,000 for the three-month period ended March 31,
2002, as compared to $3,113,000 for the corresponding period in 2001. The
growth was largely due to increased sales to our importers in China.

For the three-month period ended March 31, 2002, all of our product sales
were derived from sales of ZADAXIN, and China accounted for 89% of this
revenue. Sales emphasis is concentrated in China because, as one of our more
developed markets, marketing expenditures are more likely to benefit sales and
profits compared to newer markets, which require investment and development
spending.

Cost of product sales was $792,000 or 20% of product sales for the
three-month period ended March 31, 2002, as compared to $598,000 or 19% of
product sales for the corresponding period in 2001. We expect cost of product
sales to vary from quarter to quarter, depending upon the level of ZADAXIN
sales, the absorption of fixed product-related costs, and any charges
associated with excess or expiring finished product inventory.

Research and Development

Research and development expenses were $2,526,000 for the three-month
period ended March 31, 2002, as compared to $1,741,000 for the corresponding
period in 2001. The increase

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was primarily to support our late-stage clinical programs for ZADAXIN in
the U.S. and Japan. The initiation and continuation of ZADAXIN, CPX and other
product clinical development programs has had, and will continue to have, the
largest and most significant effect on our research and development expenses
and is expected to require us to seek additional capital resources. In
general, we expect product research and development expenses to increase
significantly in absolute dollars over the next several years and to vary
quarter to quarter as we pursue our strategy of initiating additional
preclinical and clinical trials and testing, acquiring product rights, and
expanding regulatory activities.

Sales and Marketing

Sales and marketing expenses were $2,008,000 for the three-month period
ended March 31, 2002, as compared to $2,090,000 for the corresponding period in
2001. The decrease was related to slightly lower promotional and advertising
expenses. We expect our marketing expenses to vary quarter to quarter and to
increase in the next several years as we expand our commercialization and
marketing efforts and pursue additional strategic collaborations.

General and Administrative

General and administrative expenses were $992,000 for the three-month
period ended March 31, 2002, as compared to $1,017,000 for the corresponding
period in 2001. The decrease was related to decreased fees for professional
services and expenses related to annual reports. In the near term, we expect
general and administrative expenses to vary quarter to quarter as we augment
our general and administrative activities and resources to support increased
expenditures on preclinical and clinical trials and testing, and regulatory,
pre-commercialization and marketing activities.

Interest and Investment Income

Interest and investment income was $76,000 for the three-month period
ended March 31, 2002, as compared to $264,000 for the corresponding period in
2001. The decrease was due to lower average invested cash balances and lower
interest rates.

Interest and Investment Expense

Interest and investment expense was $90,000 for the three-month period
ended March 31, 2002, as compared to $63,000 for the corresponding period in
2001. The increase was due to the interest accrued on the additional senior
unsecured convertible notes that we issued in the first quarter of 2001.

Other Income (Expense), net

Other income/(expense), net was $(19,000) for the three-month period ended
March 31, 2002, as compared to $7,000 for the corresponding period in 2001.

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Liquidity and Capital Resources

At March 31, 2002 and 2001, we had $16,525,000 and $21,057,000,
respectively, in cash, cash equivalents and short-term investments, $633,000 of
which was restricted cash at each date. The short-term investments consist
primarily of highly liquid marketable securities.

Net cash used by us in operating activities amounted to $414,000 for the
three-month period ended March 31, 2002. Net cash used in operating activities
in the 2002 period was less than our net loss for that period due to the
receipt of a payment from Sigma-Tau of $2,685,000 for a clinical trial
collaboration which increased deferred revenue balances by $2,685,000,
partially offset by increases in accounts receivable and inventories and
decreases in accrued compensation and employee benefits.

Net cash used by us in investing activities amounted to $43,000 for the
three-month period ended March 31, 2002 and related primarily to the purchase
of $36,000 in property and equipment.

Net cash provided by financing activities amounted to $471,000 for the
three-month period ended March 31, 2002. Net cash provided by financing
activities consisted of $442,000 related to exercises of outstanding options
under our employee stock option plans and $29,000 for the issuance of common
stock under our employee stock purchase plan.

Our contractual obligations and other commitments as of March 31, 2002 are
as follows:

|                                   |  |                        |            |      |  |             |           |           |  |               |           |  |  |   |           |  |  |  |   | 
|---------------------------------- |  | ---------------------- | ---------- | ---- |  | ----------- | --------- | --------- |  | ------------- | --------- |  |  | - | --------- |  |  |  | - | 
|                                   |  | Payments Due by Period
|                                   |  |                       
|Contractual                        |  |                        |            |      |  | Less than 1 |           |           |  |               |           |  |  |   |           |  |  | 
|Obligations                        |  | Total                  |            | year |  | 1-3 years   |           | 4-5 years |  | After 5 years
|                                   |  |                        |            |      |  |             |           |           |  |              
|Long Term Debt                     |  | $                      | 5,600,000  |      |  |             |          |           |  |               |          |  |  | $ | 5,600,000 |  |  |  |  | 
|Operating Leases                   |  | $                      | 5,314,000  |      |  | $           | 1,321,000 |           |  | $             | 2,714,000 |  |  | $ | 1,279,000 |  |  |  |  | 
|Total Contractual Cash Obligations |  | $                      | 10,914,000 |      |  | $           | 1,321,000 |           |  | $             | 2,714,000 |  |  | $ | 6,879,000 |  |  |  |  | 
|                                   |  |                        |            |      |  |             |           |           |  |               |           |  |  |   |           |  |  |  |   | 

|                 |  |               |         |             |  |                                            |         |           |  |               |   |  |  |  |   |  |  |  |   | 
|---------------- |  | ------------- | ------- | ----------- |  | ------------------------------------------ | ------- | --------- |  | ------------- | - |  |  |  | - |  |  |  | - | 
|                 |  |               |         |             |  | Amount of Commitment Expiration Per Period
|                 |  |               |         |             |  |                                           
|Other Commercial |  | Total Amounts |         | Less than 1 |  |                                            |         |           |  |               |   |  |  |  |   | 
|Commitments      |  | Committed     |         | year        |  | 1-3 years                                  |         | 4-5 years |  | After 5 years
|                 |  |               |         |             |  |                                            |         |           |  |              
|Letter of Credit |  | $             | 633,000 |             |  | $                                          | 633,000 |           |  |               |  |  |  |  |  |  |  |  |  | 

There are no officers or directors that were involved in related party
transactions in the three-month period ended March 31, 2002.

Management intends to give priority use of the Companys financial
resources to its clinical programs in the United States. Management believes
our existing capital resources and interest on funds available are adequate to
maintain our current and planned operations into 2003. We will need to obtain
additional capital to support our long-term product development and
commercialization programs. The need, timing and amount of additional funding
will depend upon numerous factors, including the level of ZADAXIN sales, the
timing and amount of manufacturing costs related to ZADAXIN and CPX, the
availability of complementary products, technologies and businesses, the
initiation and continuation of preclinical and clinical trials and testing,
particularly ZADAXIN trials in the U.S. and Japan, the timing of regulatory
approvals, developments in relationships with existing or future collaborative
parties and the status of competitive products. In the event we need to raise
additional financing, the unavailability or the

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timing of any financing could prevent or delay our long-term product
development and commercialization programs, either of which would severely hurt
our business.

Risk Factors

You should carefully consider the risks described below, in addition to
the other information in this report on Form 10-Q, before making an investment
decision. Each of these risk factors could adversely affect our business,
financial condition, and operating results as well as adversely affect the
value of an investment in our common stock.

Our phase 3 program in the U.S. for the approval of ZADAXIN in combination with
pegylated interferon for the treatment of hepatitis C may fail, which will harm
our business.

We conservatively designed a phase 3 study program based on the use of
ZADAXIN in combination with pegylated interferon. There can be no assurances
that the results from our previous phase 2 and phase 3 hepatitis C studies
which enabled us to produce this design will carryover to the trials involving
a combination of ZADAXIN and pegylated interferon and any resulting data may be
insufficient to demonstrate efficacy under FDA guidelines. We may not be able
to enroll patients quickly enough to meet our expectations for completing the
trial. The independent use of the pegylated form of interferon may perform
better than anticipated. If that results, our efforts to market and sell
ZADAXIN in combination with pegylated interferon will be impaired.

We may not be able to successfully develop or commercialize our products.

Many of our products are in the development stage and will require the
commitment of substantial resources, devoted to extensive research,
development, preclinical testing, clinical trials, manufacturing scale-up and
regulatory approval prior to being ready for sale. We cannot assure you that
commercially viable products will result from these efforts. We face
significant technological risks inherent in developing these products. We may
also abandon some or all of our proposed products before they become
commercially viable. We have limited experience in conducting and managing U.S.
clinical trials and we rely, in part, on third parties, particularly clinical
research organizations and our development partners, to assist us in managing
and monitoring clinical trials. Our reliance on these third parties may result
in delays in completing, or failure to complete, these clinical trials if third
parties fail to perform their obligations to us. If any of our products, even
if developed and approved, cannot be successfully commercialized in a timely
manner, our business will be harmed and the price of our stock may decline.

We have not yet sold any product other than ZADAXIN. We have experienced
difficulties with the formulation of CPX which has delayed its further
development. Our future revenue growth depends on increased market acceptance
and commercialization of ZADAXIN in additional countries, particularly in the
U.S., Europe and Japan. If we fail to successfully market ZADAXIN, or if we
cannot commercialize this drug in the U.S. and other additional markets, our
revenue and operating results will suffer. Our future revenue will also depend
in part on our ability to develop other commercially viable and accepted
products. Market acceptance of our products will depend on many factors,
including our ability to convince prospective customers

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and prospective strategic partners that our products are an attractive
alternative to other treatments and therapies, and manufacture products in
sufficient quantities with acceptable quality and at an acceptable cost.

If we fail to satisfy and comply with governmental regulations or if government
regulations change, our business will suffer.

All new drugs, including our products, which have been developed or are
under development, are subject to extensive and rigorous regulation by the FDA,
and comparable agencies in state and local jurisdictions and in foreign
countries. These regulations govern, among other things, the development,
testing, manufacturing, labeling, storage, pre-market approval, importation,
advertising, promotion, sale and distribution of our products. These
regulations change from time to time and new regulations may be adopted. For
example, in prior years, legislation has been introduced in the U.S. Congress
that would restrict the duration of the marketing exclusivity of an orphan
drug. There can be no assurances that this type of legislation will not be
reintroduced and passed into law, or that the benefits of the existing statute
will remain in effect. Our failure to satisfy and comply with regulations
adopted by the FDA, and comparable agencies in state and local jurisdictions
and in foreign countries, may delay or stop approval of our drugs. In
particular, such failure can, among other things, result in warning letters,
fines, suspensions of regulatory approvals, product recalls or seizures,
operating restrictions, injunctions, total or partial suspension of production,
civil penalties, and criminal prosecutions. Furthermore, additional government
regulation may be established or imposed by legislation or otherwise, which
could prevent or delay regulatory approval of ZADAXIN or any of our other
future products. Adverse events related to our products in any of our existing
or future markets could cause regulatory authorities to withdraw market
approval for such products, if any, or prevent us from receiving market
approval in the future. There is no assurance that ZADAXIN, or any of our other
products, will demonstrate efficacy sufficient to obtain approval by the FDA or
its counterpart regulatory agencies in other countries.

Satisfaction of government regulations may take several years and the time
needed to satisfy them varies substantially, based on the type, complexity and
novelty of the pharmaceutical product. As a result, government regulation may
cause us to delay the introduction of, or prevent us from marketing, our
existing or potential products for a considerable period of time and to impose
costly procedures upon our activities. If regulatory approval of our products
is granted, such approval may impose limitations on the indicated uses for
which our products may be marketed. The pegylated interferon we will use in our
phase 3 program in the U.S. has not yet been approved by the FDA. If this
pegylated interferon is not approved by the FDA, we would need to conduct an
additional trial with an approved form, resulting in additional delays and
expenses.

If we fail to obtain regulatory approvals for our products in countries where
we have targeted regulatory approval, we may not be able to sustain or increase
our revenues and our stock price may decline.

The research, preclinical and clinical development, manufacturing,
marketing and sale of ZADAXIN and our other drug candidates are subject to
extensive regulation by governmental authorities. ZADAXIN and any other
products we may sell in countries outside the U.S. must be

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approved by the foreign counterparts of the FDA before they can be sold in
any jurisdiction. Obtaining regulatory approval is time-consuming and
expensive. In some countries where we are contemplating marketing and selling
ZADAXIN, the regulatory approval process for drugs that have not been
previously approved in countries with established clinical trial review
procedures is uncertain, and this may delay the grant of regulatory approvals
for ZADAXIN. In addition, to secure these regulatory approvals, we will need,
among other things, to demonstrate favorable results from additional clinical
trials of ZADAXIN and the safety and efficacy of CPX as a treatment for cystic
fibrosis in preclinical and clinical trials. There can be no assurance that we
will ultimately obtain regulatory approvals in our targeted countries in a
timely and cost-effective manner or at all. Our failure to obtain the required
regulatory approvals so that we can develop, market and sell our products in
countries where we currently do not have such rights may limit our revenues.

Even if we are able to complete the clinical trials we have sponsored or
are planning in a timely or cost-effective manner, these trials may not fulfill
the applicable regulatory approval criteria, in which case we will not be able
to obtain regulatory approvals in these countries. Failure to obtain additional
regulatory approvals will harm our operating results. In addition, adverse
results that occur in our clinical trials could result in restrictions on the
use of ZADAXIN.

We will need to obtain additional capital to support our long-term product
development and commercialization programs.

Our ability to achieve and sustain operating profitability depends in
large part on our ability to commence, execute and complete clinical programs
for, and obtain additional regulatory approvals for ZADAXIN and other drug
candidates, particularly in the U.S., Europe and Japan, increase ZADAXIN sales
in existing markets, and launch ZADAXIN in new markets. We cannot assure you
that we will ever achieve more significant levels of sales or that we will
receive additional ZADAXIN market approvals.

Our current sales levels of ZADAXIN are not expected to generate all the
funds we anticipate will be needed to support our current plans for product
development including our U.S. phase 3 clinical trials for ZADAXIN. We will
need to obtain additional financing to support our product development and
commercialization programs. We may seek additional funds through public and
private stock offerings, arrangements with corporate partners, borrowings under
lease lines of credit or other sources. If we cannot raise the necessary funds,
we will have to reduce our capital expenditures, curtail or delay our phase 3
clinical trials, scale back our development of new products, reduce our
workforce and out-license to others products or technologies that we otherwise
would seek to commercialize ourselves.

The amount of capital we will need will depend on many factors, including:
the timing, location, scope and results of ongoing and planned preclinical
studies and clinical trials; the cost of manufacturing or obtaining preclinical
and clinical materials; the timing and cost involved in applying for and
obtaining FDA and international regulatory approvals; whether we elect to
establish additional partnering arrangements for development, sales,
manufacturing, and marketing of our products; the level of future ZADAXIN
sales; expense levels for our international sales and marketing efforts; our
ability to establish and maintain strategic

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arrangements for development, sales, manufacturing and marketing of our
products; competing technological and market developments; the costs involved
in filing, prosecuting and enforcing patent claims; and whether any or all of
our outstanding common stock warrants are exercised and the timing and amount
of these exercises.

Many of the foregoing factors are not within our control. If we need to
raise additional funds and such funds are not available on reasonable terms, we
may be required to delay or cancel our product development and
commercialization programs. Any additional equity financing will be dilutive to
shareholders, and any debt financing, if available, may include restrictive
covenants.

We have a history of operating losses and an accumulated deficit. We expect to
continue to incur losses in the near term and may never achieve profitability.

We have experienced significant operating losses since our inception and
as of March 31, 2002, we had an accumulated deficit of approximately
$125,000,000. We expect our operating expenses to increase over the next
several years as we plan to dedicate substantially all of our resources to
expanding our development, testing and marketing capabilities, particularly in
the U.S., and we may never achieve profitability. Our failure to achieve
profitability may cause our stock price to decline.

We are dependent on the sale of ZADAXIN in foreign countries, particularly
China, and if we experience difficulties in our foreign sales efforts, our
financial condition will be harmed.

Our financial condition in the near term is highly dependent on the sale
of ZADAXIN in foreign countries. If we experience difficulties in our foreign
sales efforts, our business will suffer and our financial condition will be
harmed. Substantially all of our ZADAXIN sales are to customers in the Peoples
Republic of China. Sales of ZADAXIN in China may be limited due to its low
average personal income, lack of patient cost reimbursement, poorly developed
infrastructure, and existing and potential competition from other products,
possibly including generics. China uses a tiered method to import and
distribute finished pharmaceutical products. At each port of entry, and prior
to moving the product forward to the distributors, government licensed
importing agents must process and evaluate each shipment to determine whether
such shipment satisfies Chinas quality assurance requirements. In order to
efficiently manage this process, the importing agents place relatively few
orders from time to time over any six month period and each order is typically
for large quantities. Therefore, our sales to an importing agent can vary
substantially from quarter to quarter depending on the size and timing of the
orders, which has in the past and may in the future cause our quarterly results
to fluctuate. Because we use four importing agents in China, our account
receivable from any one importing agent is material and if we were unable to
collect receivables from any importer, our business and cash-flow would be
adversely affected, at least in the short term.

In addition, our ZADAXIN sales and operations in other parts of Asia, as
well as in Latin America and the Middle East, are subject to a number of risks,
including: difficulties and delays in obtaining pricing approvals and
reimbursement, product health registrations and importation permits; unexpected
changes in regulatory requirements; difficulties in staffing and managing

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foreign operations; long payment cycles; difficulties in accounts
receivable collection; difficulties in enforcing our proprietary rights;
currency fluctuations; adverse or deteriorating economic conditions; and
potential adverse tax consequences.

We do not have product sales in the U.S. with which to offset any decrease
in our revenue from ZADAXIN sales in Asia, Latin America and the Middle East.
In addition, some countries in these regions, including China, regulate
pharmaceutical prices and pharmaceutical importation. These regulations may
reduce prices for ZADAXIN to levels significantly below those that would
prevail in an unregulated market, limit the volume of product which may be
imported and sold, or place high import duties on the product, any of which may
limit the growth of our revenues or cause them to decline.

We have limited sales, marketing and distribution capabilities, which may
adversely affect our ability to successfully commercialize our products.

We currently have limited sales, marketing and distribution capabilities,
and we anticipate that we will be relying on third-party collaborators to sell,
market and distribute our products for the foreseeable future. If our
arrangements with these third parties are not successful, or if we are unable
to enter into additional third-party arrangements, we may need to substantially
expand our sales, marketing and distribution force. Our efforts to expand may
not succeed, or we may lack sufficient resources to expand in a timely manner,
either of which will harm our operating results. In addition, if we are able to
further expand our sales, marketing and distribution capabilities, we will
begin competing with other companies that have experienced and well funded
operations. If we cannot successfully compete with these larger companies, our
revenues may not grow and our business may suffer.

If we are not able to establish and maintain adequate manufacturing and supply
relationships, the development and sale of our products could be impaired.

To be successful, our products must be manufactured in commercial
quantities, in compliance with regulatory requirements and at an acceptable
cost. We may not be able to maintain the long-term manufacturing relationships
we currently have with our suppliers and we anticipate changes will be needed
if our volume requirements increase. Manufacturing interruptions could
significantly delay clinical development of potential products and reduce
third-party or clinical researcher interest and support of proposed trials.
These interruptions could also impede commercialization of our products,
including sales of ZADAXIN in approved markets, and impair our competitive
position. Any of these developments would harm our business.

In some countries, a manufacturing change may require additional
regulatory approvals. If we do not obtain the required regulatory approvals for
a manufacturing change in a timely fashion, new ZADAXIN marketing approvals may
be delayed or sales may be interrupted until the manufacturing change is
approved. Either of these results would harm our business.

In addition, manufacturing, supply and quality control problems may arise
as we, either alone or with subcontractors, attempt to scale-up our
manufacturing procedures. We may not be able to scale-up in a timely manner or
at a commercially reasonable cost, either of which could

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cause delays or pose a threat to the ultimate commercialization of our
products and harm our business.

If we do not obtain rights to additional products from third parties, our
prospects for future revenue may decline.

We are only actively pursuing clinical development of ZADAXIN and CPX at
this time. If we do not advance SCV-07 and DAX, the other products to which we
have in-licensed rights, from preclinical into clinical development, we may
lose the rights to these products. We may also have a shortage of drugs to
develop and commercialize if we do not license or otherwise acquire rights to
additional drugs. Any shortage in the number of drugs that we are able to
develop and commercialize may reduce our prospects for future revenue.

Commercialization of some of our products depends on collaborations with
others. If our collaborators are not successful, or if we are unable to find
future collaborators, we may not be able to properly develop and commercialize
our products.

We depend in part on our distributors and business partners to develop
and/or promote our drugs, and if they are not successful in their efforts or
fail to do so, our business will suffer. We generally do not have control over
the amount and timing of resources that our business partners devote to ZADAXIN
and they have not always performed as or when expected. If they do not perform
their obligations as we expect, particularly obligations regarding clinical
trials, our development expenses would increase and the development and/or sale
of our products could be limited or delayed, which could cause our business to
suffer and our stock price to decline. In addition, our relationships with
these companies may not be successful. Disputes may arise over ownership rights
to intellectual property, know-how or technologies developed with our
collaborators, and we may not be able to negotiate similar additional
arrangements in the future to develop and commercialize ZADAXIN or other
products.

If we fail to protect our products, technologies and trade secrets, we may not
be able to successfully use, manufacture or market and sell our products, or we
may fail to advance or maintain our competitive position.

Our success depends significantly on our ability to obtain and maintain
meaningful patent protection for our products and technologies, to preserve our
trade secrets and to avoid infringing on the proprietary rights of third
parties. Our pending patent applications may not result in the issuance of
patents in the future. Our patents or patent applications may not have priority
over others applications. Our existing patents and additional patents, if any,
that issued, may not provide a competitive advantage to us or may be
invalidated or circumvented by our competitors. Others may independently
develop similar products or design around patents issued or licensed to us.
Patents issued to, or patent applications filed by, other companies could harm
our ability to use, manufacture or market our products or maintain our
competitive position with respect to our products. Many of our patents relating
to ZADAXIN have expired, and we have rights to other patents and patent
applications relating to ZADAXIN under exclusive licenses. If we breach the
terms of any of these licenses, we could lose our rights to these patents and
patent applications.

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Our commercial success also depends in part on us not infringing valid,
enforceable patents or proprietary rights of third parties, and not breaching
any licenses that may relate to our technologies and products. We are aware of
third-party patents that may relate to our products. It is possible that we may
unintentionally infringe these patents or other patents or proprietary rights
of third parties. We may in the future receive notices claiming infringement
from third parties as well as invitations to take licenses under third-party
patents. Any legal action against us or our collaborative partners claiming
damages and seeking to enjoin commercial activities relating to our products
and processes affected by third-party rights may require us or our
collaborative partners to obtain licenses in order to continue to manufacture
or market the affected products and processes. Our efforts to defend against
any of these claims, even if unmeritorious, would require us to devote
resources and attention that could have been directed to our operations and
growth plans. In addition, these actions may subject us to potential liability
for damages. We or our collaborative partners may not prevail in a patent
action and any license required under a patent may not be made available on
commercially acceptable terms, or at all.

Pharmaceuticals are either not patentable or have only recently become
patentable in some of the countries in which we have exclusive rights to
ZADAXIN. Past enforcement of intellectual property rights in many of these
countries has been limited or non-existent. Future enforcement of patents and
proprietary rights in many other countries will likely be problematic or
unpredictable. Moreover, the issuance of a patent in one country does not
assure the issuance of a similar patent in another country. Claim
interpretation and infringement laws vary by nation, so the extent of any
patent protection is uncertain and may vary in different jurisdictions.

If we make any acquisitions, we will incur a variety of costs and may never
realize the anticipated benefits.

If appropriate opportunities become available, we may attempt to acquire
products, product candidates or businesses that we believe fit strategically
with our business. We currently have no commitments or agreements with respect
to material acquisitions. If we do undertake any transaction of this sort, the
process of integrating an acquired product, product candidate or business may
result in operating difficulties and expenditures and may absorb significant
management attention that would otherwise be available for our ongoing business
development plans. Moreover, we may never realize the anticipated benefits of
any acquisition. Future acquisitions could result in in-process research and
development expenses, potentially dilutive issuances of equity securities, the
incurrence of debt, contingent liabilities and/or impairment of goodwill and
amortization or impairment of other intangible assets, which could adversely
affect our business, financial condition and results of operations.

We may lose market share or otherwise fail to compete effectively in the
intensely competitive biopharmaceutical industry.

Competition in the biopharmaceutical industry is intense and we expect
that competition to increase. Our success depends on our ability to compete. We
believe that the principal competitive factors in this industry include the
efficacy, safety, price, therapeutic regimen, manufacturing quality assurance,
and patents associated with a given drug. Our competitors include
biopharmaceutical companies, biotechnology firms, universities and other
research institutions, both in the U.S. and abroad, that are actively engaged
in research and development

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of products in the therapeutic areas we are pursuing, particularly
hepatitis C, hepatitis B, cancer, and cystic fibrosis. Competitors are
currently marketing drugs for hepatitis C, hepatitis B and cancer, or have
products in late-stage clinical trials.

Most of our competitors, particularly large biopharmaceutical companies,
have substantially greater financial, technical, regulatory, manufacturing,
marketing and human resource capabilities than we do. Most of them also have
extensive experience in undertaking the preclinical and clinical testing and in
obtaining the regulatory approvals necessary to market drugs. Additional
mergers and acquisitions in the pharmaceutical industry may result in even more
resources being concentrated with our competitors. Where comparable products
are marketed by other companies, price is a competitive factor. Increased
competitive pressure could lead to intensified price-based competition
resulting in lower prices and margins, which would hurt our operating results.

We currently rely on sales of ZADAXIN as a treatment for hepatitis C and
hepatitis B as our primary source of revenue. However, several large
biopharmaceutical companies have substantial commitments to alpha interferon,
an approved drug for treating hepatitis B and hepatitis C, and to lamivudine,
an approved drug to treat hepatitis B. We cannot assure you that we will
compete successfully against our competitors or that our competitors, or
potential competitors, will not develop drugs or other treatments for hepatitis
C, hepatitis B, cystic fibrosis, cancer and other diseases that will be
superior to ours. However, in the area of immune system enhancer therapy, we
anticipate that our competition for ZADAXIN may be reduced by the fact that
ZADAXIN, administered in combination with numerous antiviral and anti-cancer
agents, is expected to be complementary rather than competitive to these agents
in enhancing the immune system. We believe that we can position ZADAXIN as a
complementary rather than competitive drug to many therapies, but cannot
guarantee that we will be successful in this endeavor. We expect continuing
advancements in and increasing awareness of the use of immune system enhancer
therapy to fight cancer and infectious diseases and that this may create new
competitors as well as numerous new opportunities for expanded use of ZADAXIN
worldwide. We cannot assure you that we will be able to meet these objectives,
however.

If third-party reimbursement is not available or patients cannot otherwise pay
for ZADAXIN, we may not be able to successfully market ZADAXIN.

Our ability to successfully commercialize our products may depend in part
on the extent to which coverage and reimbursement to patients for our products
will be available from government health care programs, private health insurers
and other third party payors or organizations. Significant uncertainty exists
as to the reimbursement status of new therapeutic products, such as ZADAXIN,
and we cannot assure you that third party insurance coverage and reimbursement
will be available for therapeutic products we might develop. In most of the
emerging markets in which we sell ZADAXIN or intend to sell ZADAXIN,
reimbursement for ZADAXIN under government or private health insurance programs
is not yet widely available. The failure to obtain third-party reimbursement
for our products, particularly in the U.S., Europe and Japan, will harm our
business. In the U.S., proposed health care reforms could limit the amount of
third-party reimbursement available for our products. We cannot assure you that
additional limitations will not be imposed in the future on drug coverage and
reimbursement. In many emerging markets where we have marketing rights to
ZADAXIN, government resources

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and per capita income may be so low that our products will be
prohibitively expensive. In these countries, we may not be able to market our
products on economically favorable terms, if at all.

Efforts by governmental and third-party payors to contain or reduce health
care costs could cause us to reduce the prices at which we market our drugs,
which will reduce our gross margins and may harm our business. Various
governments and third-party payors are trying to contain or reduce the costs of
health care through various means. We expect that there will continue to be a
number of legislative proposals to implement government controls. The
announcement of proposals or reforms could cause us to reduce the prices at
which we market our drugs, which will reduce our gross margins and may harm our
business.

If the current economic slowdown in the U.S. causes the economies of other
countries, particularly those in Asia, Latin America and the Middle East to
experience a slowdown or recession, our business will suffer.

The U.S. is the worlds largest consumer and as such, the current economic
slowdown in the U.S. may adversely affect the economies of other countries,
including the developing countries in Asia, Latin America and the Middle East
from which we derive all of our revenues. If the economic conditions in the
U.S. continue or worsen, these developing countries may also experience an
economic slowdown or recession, which would likely result in a decrease of
sales of ZADAXIN. Any decrease in sales of ZADAXIN would harm our operating
results, delay our efforts to achieve profitability, and likely cause our stock
price to decline.

If we lose key personnel or are unable to attract and retain additional, highly
skilled personnel required for the expansion of our activities, our business
will suffer.

We are highly dependent upon our ability to attract and retain qualified
personnel because of the specialized, scientific and international nature of
our business. There is intense competition for qualified management, scientific
and technical personnel in the pharmaceutical industry, and we may not be able
to attract and retain the qualified personnel we need to grow and develop our
business globally. In addition, numerous key responsibilities at SciClone are
assigned to a small number of individuals. If we are unable to attract and
retain qualified personnel as needed or promptly replace those employees who
are critical to our product development and commercialization, the development
and commercialization of our products would adversely be affected. At this
time, we do not maintain key person life insurance on any of our key
personnel.

We may be subject to product liability lawsuits and our insurance may be
inadequate to cover damages.

Clinical trials or marketing of any of our current and potential products
may expose us to liability claims from the use of these products. We currently
carry product liability insurance. However, we cannot be certain that we will
be able to maintain insurance on acceptable terms for clinical and commercial
activities or that the insurance would be sufficient to cover any potential
product liability claim or recall. If we fail to have sufficient coverage, our
business, results of operations and cash flows could be adversely affected.

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If we are unable to comply with environmental laws and regulations, our
business may be harmed.

We are subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of hazardous materials and
waste products. We currently maintain a supply of hazardous materials at our
facilities. In the event of an accident, we could be liable for any damages
that result, and the liability could exceed our resources. While we outsource
our research and development programs involving the controlled use of
biohazardous materials, if in the future we conduct these programs ourselves,
we might be required to incur significant cost to comply with the environmental
laws and regulations.

The price of our common stock has experienced substantial volatility and may
fluctuate due to factors beyond our control.

As a result of the September 11, 2001 events in Pennsylvania, New York
City and Washington, D.C., U.S. and global economies have weakened, which may
result in a decrease in our revenues and cause our stock price to decline.
Further, high profile corporate governance and accounting problems and
resulting corporate failures have eroded investor confidence. In the wake of
these events, U.S. and global capital markets have experienced a period of
extreme volatility, and this may continue for some time.

In addition, there has been significant volatility in the market prices
for publicly traded shares of pharmaceutical and biotechnology companies,
including ours. The following factors may have an adverse impact on the market
price of our common stock: significant negative changes in the major equity
market indices; announcements of technical or product developments by us or our
competitors; governmental regulation; health care legislation; public
announcements regarding advances in the treatment of the disease states that we
are targeting; public announcements from government officials relating to the
biotechnology or pharmaceutical industries; patent or proprietary rights
developments; changes in third-party reimbursement policies for our products;
and fluctuations in our operating results. In addition, the price of our common
stock may not remain at or exceed current levels.

If the current war on terrorism causes economic slowdowns in the economies of
certain countries our business will suffer.

The United States and its allied nations are aggressively attacking
terrorism with military and economic actions. If these actions lead to economic
slowdowns in the economies of developing countries in Asia, Latin America and
the Middle East from which we currently derive all of our product revenue, then
our sales could decrease. Any decrease in sales would harm our operating
results, delay our efforts to achieve profitability, and likely cause our stock
price to decline.

Our indebtedness may result in future liquidity problems.

As of March 31, 2002, we had $5.6 million in convertible notes payable, of
which $4.0 million were issued in the quarter ended December 31, 2000 and $1.6
million were issued in the quarter ended March 31, 2001. This indebtedness, or
additional debt we may incur to fund our

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operations, may make it more difficult for us to obtain additional
financing. The notes are payable five years after issuance unless converted
into common stock at the sole discretion of the holder. If we are unable to
satisfy our debt service requirements, substantial liquidity problems could
result which would negatively impact our future prospects. As of March 31, 2002
we had cash, cash equivalents and short-term investments of $16.5 million.

Substantial sales of our stock or convertible securities may impact the market
price of our common stock.

As of March 31, 2002, stock options for 4,515,614 shares of common stock
were outstanding, of which options for 3,352,993 shares were exercisable. Also
outstanding as of the same date were warrants exercisable for 1,970,500 shares
of common stock and two issues of notes convertible into a total of 684,140
shares of common stock. In addition, the note holder has the right to purchase
senior unsecured convertible notes due December 2005 and March 2006. If issued,
the additional notes will bear no interest (zero coupon) and will be
convertible into 684,140 shares of our common stock. Upon exercise of options
or warrants, or conversion of the notes, these issued shares of common stock
will be freely tradable.

Future sales of substantial amounts of our common stock could adversely
affect the market price of our common stock. Similarly, if we raise additional
funds through the issuance of common stock or securities convertible into or
exercisable for common stock, the percentage ownership of our shareholders will
be reduced and the price of our common stock may fall.

Issuing preferred stock with rights senior to those of our common stock could
adversely affect holders of common stock.

Our charter documents give our board of directors the authority to issue
additional series of preferred stock without a vote or action by our
shareholders. The board also has the authority to determine the terms of
preferred stock, including price, preferences and voting rights. The rights of
holders of our common stock may be adversely affected by the rights granted to
holders of preferred stock. For example, a series of preferred stock may be
granted the right to receive a liquidation preference  a pre-set distribution
in the event of a liquidation  that would reduce the amount available for
distribution to holders of common stock. In addition, the issuance of preferred
stock could make it more difficult for a third party to acquire a majority of
our outstanding voting stock. As a result, common shareholders could be
prevented from participating in transactions that would offer an optimal price
for their shares.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The primary objective of our investment activities is to preserve
principal while at the same time maximizing yields without significantly
increasing risk. To achieve this objective, we invest in highly liquid and
high quality debt securities. Our investments in debt securities are subject
to interest rate risk. To minimize the exposure due to an adverse shift in
interest rates, we invest in short term securities and maintain an average
maturity of less than one year. A hypothetical 60 basis point increase in
interest rates would result in an approximate $85,472 decrease (0.6%) in fair
value of our available-for-sale securities.

The potential change noted above is based on sensitivity analyses
performed on our financial positions at March 31, 2002. Actual results may
differ materially.

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PART II. OTHER INFORMATION




Item 6. Exhibits and Reports on Form 8-K



|(a) |  | Exhibits           
|--- |  | -------------------
|   
|    |  | None.              
|   
|(b) |  | Reports on Form 8-K
|   
|    |  | None.              

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SIGNATURES

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

|                   |                                                                                       |                                            
|------------------ | ------------------------------------------------------------------------------------- | -------------------------------------------
|                   |                                                                                       | SCICLONE PHARMACEUTICALS, INC.
(Registrant)
|                  
|Date: May 10, 2002 |                                                                                       | /s/ Richard A. Waldron                     
|                   |                                                                                      
|                   | Richard A. Waldron
Chief Financial Officer
(Principal Financial & Accounting Officer)

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