<PAGE>   1
                                    FORM 10-Q

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

    (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, 2001

                                       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                (I.R.S. employer
     incorporation or organization)                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 May 9, 2001, 32,270,951 shares of the registrant's Common Stock,
no par value, were issued and outstanding.

<PAGE>   2
                         SCICLONE PHARMACEUTICALS, INC.

                                      INDEX

<TABLE>
<CAPTION>
                                                                                 PAGE NO.
                                                                                 --------
<S>          <C>                                                                 <C>
PART I.      FINANCIAL INFORMATION
Item 1.      Condensed Consolidated Financial Statements (Unaudited)
                 Condensed Consolidated Balance Sheets as of March 31,
                     2001 and December 31, 2000                                     3
                 Condensed Consolidated Statements of Operations for the
                     Three month periods ended March 31, 2001 and 2000              4
                 Condensed Consolidated Statements of Cash Flows for the
                     Three-month periods ended March 31, 2001 and 2000              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             23
PART II.     OTHER INFORMATION
Item 2.      Changes in Securities and Use of Proceeds                              24
Item 6.      Exhibits and Reports on Form 8-K                                       24
Signatures                                                                          25
</TABLE>


                                       2
<PAGE>   3
PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                         SCICLONE PHARMACEUTICALS, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                     March 31,          December 31,
                                                                       2001                2000
                                                                   -------------       -------------
                                                                    (unaudited)           (Note 1)
<S>                                                                <C>                 <C>
Current assets:
    Cash and cash equivalents                                      $  20,216,000       $  21,981,000
    Short-term investments                                               841,000             516,000
    Accounts receivable, net                                           8,796,000           8,621,000
    Inventory                                                          1,961,000           2,020,000
    Prepaid expenses and other current assets                          1,336,000           1,233,000
                                                                   -------------       -------------
Total current assets                                                  33,150,000          34,371,000
Property and equipment, net                                              209,000             214,000
Other assets                                                           1,687,000           1,582,000
                                                                   -------------       -------------
Total assets                                                       $  35,046,000       $  36,167,000
                                                                   =============       =============

                              LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Accounts payable                                               $   1,587,000       $   2,327,000
    Accrued compensation and benefits                                    400,000             787,000
    Accrued clinical trials expense                                      250,000             202,000
    Accrued professional fees                                            577,000             281,000
    Other accrued expenses                                               101,000             453,000
    Other current liabilities                                            102,000              40,000
                                                                   -------------       -------------
Total current liabilities                                              3,017,000           4,090,000
Convertible notes payable                                              5,600,000           4,000,000
Shareholders' equity:
   Common stock, no par value; 75,000,000 shares authorized;
      32,264,628 and 32,209,286 shares issued and outstanding
      at March 31, 2001 and December 31, 2000, respectively          145,279,000         144,815,000
    Net unrealized gain on available-for-sale securities                  21,000               8,000
    Accumulated deficit                                             (118,871,000)       (116,746,000)
                                                                   -------------       -------------
Total shareholders' equity                                            26,429,000          28,077,000
                                                                   -------------       -------------
Total liabilities and shareholders' equity                         $  35,046,000       $  36,167,000
                                                                   =============       =============
</TABLE>

            See notes to condensed consolidated financial statements


                                       3
<PAGE>   4
                         SCICLONE PHARMACEUTICALS, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)


<TABLE>
<CAPTION>
                                                       Three months ended
                                                           March 31,
                                                -------------------------------
                                                    2001               2000
                                                ------------       ------------
<S>                                             <C>                <C>
Product revenue                                 $  3,113,000       $  3,499,000
Cost of product sales                                598,000            735,000
                                                ------------       ------------
Gross profit                                       2,515,000          2,764,000
Operating expenses:
    Research and development                       1,741,000          1,259,000
    Marketing                                      2,277,000          1,916,000
    General and administrative                       830,000            643,000
                                                ------------       ------------
Total operating expenses                           4,848,000          3,818,000
                                                ------------       ------------
Loss from operations                              (2,333,000)        (1,054,000)
Interest and investment income, net                  208,000            179,000
                                                ------------       ------------
Net loss                                        $ (2,125,000)      $   (875,000)
                                                ============       ============
Basic and diluted net loss per share            $      (0.07)      $      (0.03)
                                                ============       ============
Shares used in computing basic and diluted
    net loss per share                            32,242,093         28,476,234
                                                ============       ============
</TABLE>

            See notes to condensed consolidated financial statements


                                       4
<PAGE>   5
                              SCICLONE PHARMACEUTICALS, INC.

                       CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                        (unaudited)


<TABLE>
<CAPTION>
                                                                  Three months ended
                                                                      March 31,
                                                           -------------------------------
                                                               2001               2000
                                                           ------------       ------------
<S>                                                        <C>                <C>
OPERATING ACTIVITIES:
Net loss                                                   $ (2,125,000)      $   (875,000)
Adjustments to reconcile net loss to net cash used in
    operating activities:
    Depreciation and amortization                               126,000            153,000
    Changes in operating assets and liabilities:
        Prepaid expenses and other assets                      (312,000)           165,000
        Accounts receivable                                    (175,000)        (2,103,000)
        Inventory                                                59,000            638,000
        Accounts payable and other accrued expenses          (1,029,000)           844,000
        Accrued compensation and benefits                      (387,000)          (384,000)
        Accrued clinical trials expense                          48,000             78,000
        Accrued professional fees                               296,000           (217,000)
                                                           ------------       ------------
Net cash used in operating activities                        (3,499,000)        (1,701,000)
                                                           ------------       ------------
INVESTING ACTIVITIES:
    Purchase of property and equipment                          (18,000)           (24,000)
    Purchase of marketable securities, net                     (313,000)       (13,079,000)
                                                           ------------       ------------
Net cash used in investing activities                          (331,000)       (13,103,000)
                                                           ------------       ------------
FINANCING ACTIVITIES:
    Proceeds from issuance of convertible note                1,600,000                 --
    Proceeds from issuance of common stock, net of
      financing cost                                            465,000         17,828,000
                                                           ------------       ------------
Net cash provided by financing activities                     2,065,000         17,828,000
                                                           ------------       ------------
Net (decrease) increase in cash and cash equivalents         (1,765,000)         3,024,000
Cash and cash equivalents, beginning of period               21,981,000          1,828,000
                                                           ------------       ------------
Cash and cash equivalents, end of period                   $ 20,216,000       $  4,852,000
                                                           ============       ============
</TABLE>

                See notes to condensed consolidated financial statements


                                       5
<PAGE>   6
                         SCICLONE PHARMACEUTICALS, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.      The accompanying unaudited 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,
        2000. 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, 2000 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. The interim results are
        not necessarily indicative of results for subsequent interim periods or
        for the full year.

2.      In June 1998, the Financial Accounting Standards Board issued Statement
        No. 133, "Accounting for Derivative Instruments and Hedging Activities"
        ("SFAS 133"), which is required to be adopted for the year ending
        December 31, 2001. The adoption of SFAS 133 did not have a significant
        impact on results of operations or the financial position of the
        Company.

3.      In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"),
        "Accounting for Certain Transactions Involving Stock Compensation, an
        Interpretation of Opinion No. 25" for (a) the definition of employee for
        purposes of applying Opinion No. 25, (b) the criteria for determining
        whether a plan qualifies as a noncompensatory plan, (c) the accounting
        consequences of various modifications to the terms of a previously fixed
        stock option or award, and (d) the accounting for an exchange of stock
        compensation awards in a business combination. FIN 44 became effective
        July 1, 2000, but certain conclusions cover specific events that occur
        after either December 15, 1998, or January 12, 2000. The adoption of
        certain provisions of FIN 44 did not have a material impact on the
        Company's financial position or results of operations.

4.      For the three-month periods ended March 31, 2001 and 2000, the Company's
        total comprehensive loss amounted to $(2,112,000) and $(861,000),
        respectively.

5.      The following is a summary of available-for sale securities at March 31,
        2001:

<TABLE>
<CAPTION>
                                                        Available-for-sale securities
                                            -----------------------------------------------------
                                                              Gross        Gross
                                             Amortized     Unrealized    Unrealized   Estimated
                                              Cost           Gains        Losses     Fair Value
                                            -----------    ----------    ----------   -----------
         <S>                                 <C>            <C>           <C>          <C>
         Agency obligations                  $ 7,000,000      $    --        $ --      $ 7,000,000
         Corporate obligations                10,450,000        3,000          --       10,453,000
         Corporate equity securities                  --       18,000          --           18,000
                                             -----------      -------        ----      -----------
                                             $17,450,000      $21,000        $ --      $17,471,000
                                             ===========      =======        ====      ===========
</TABLE>

        As of March 31, 2001, the average portfolio duration was less than one
        year.


                                       6
<PAGE>   7
6.      The following is a summary of inventories at March 31, 2001:

<TABLE>
<S>                             <C>
        Raw materials           $1,564,000
        Finished goods             397,000
                                ----------
                                $1,961,000
                                ==========
</TABLE>

7.      The following is a summary of other assets at March 31, 2001:

<TABLE>
<S>                                         <C>
        Intangible product rights - net     $1,398,000
        Other                                  289,000
                                            ----------
                                            $1,687,000
                                            ==========
</TABLE>

        ZADAXIN(R) product rights that the Company acquired are being amortized
        over six years beginning in September 1998. 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.

8.      In March 2001, we completed a $1.6 million senior unsecured convertible
        note with an investment affiliate of UBS AG. The $1.6 million note is
        convertible into 276,530 shares of our common stock at a fixed
        conversion price of $5.7860 per share. The note will accrue interest at
        a rate of 6% per year and will mature in March 2006. The note is not
        convertible prior to March 21, 2002. We also received $360,000 for
        granting the investor the right to purchase approximately $2.3 million
        of senior unsecured convertible notes due March 2006. The $360,000 was
        accounted for as an increase to shareholders' equity. If issued, the
        notes will bear no interest (zero coupon) and will be convertible into
        276,530 shares of our common stock at a fixed conversion price of
        $8.5532 per share.

9.      For the three-month period ended March 31, 2001, the Company received
        approximately $86,000 in connection with exercises of outstanding
        options to purchase 51,131 shares of common stock.

10.     The Company does not have any minimum purchase requirements under its
        contract manufacturing supply agreements for ZADAXIN and CPX.

11.     The Company recognizes revenue from product sales to importing agents in
        the People's Republic of China and to distributors elsewhere at the time
        of shipment when legal title to the products is transferred to them. The
        Company's importing agents and distributors do not have a contractual
        right of return except under limited terms regarding product quality.
        The Company recognizes contract/grant revenue when services have been
        performed.

12.     The Company accounts for equity instruments issued to non-employees in
        accordance with the provisions of SFAS 123 and Emerging Issues Task
        Force ("EITF") 96-18. Warrants issued in connection with equity and debt
        arrangements are valued using the Black-Scholes option valuation model.
        Warrants issued to placement agents and similar parties in connection
        with equity financing efforts are accounted as stock issuance cost with
        an equal amount recorded as common stock. Warrants issued to purchasers
        of the Company's equities are not specifically accounted for as their
        value is a sub-component of common stock. The fair value of warrants
        issued in connection with debt arrangements, if material, is accounted
        for as a debt discount and amortized as additional interest expense over
        the term of the related debt.


                                       7
<PAGE>   8
13.     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.


                                       8
<PAGE>   9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our consolidated
financial statements and related notes appearing elsewhere in this report. This
discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. "Forward -- looking statements" include those
regarding expected increases in sales as well as statements including the words
"expects", "anticipates", "believes" or similar words. The actual results may
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, such as those set forth under "Risk Factors" and
the risks discussed in our other SEC filings, including our Annual Report on
Form 10-K filed March 29, 2001 with the SEC.

OVERVIEW

        We develop and commercialize novel medicines for treating a broad range
of the world's most serious diseases. We have focused our current product
development and commercial activities on the following diseases:

        -      hepatitis C, an infectious disease affecting 170 million people
               worldwide;

        -      hepatocellular carcinoma, the most common and deadliest form of
               liver cancer worldwide;

        -      malignant melanoma, the deadliest form of skin cancer and one of
               the most rapidly increasing types of cancer worldwide;

        -      hepatitis B, an infectious disease affecting 350 million people
               worldwide;

        -      HIV, the virus that causes AIDS;

        -      drug-resistant tuberculosis, an infectious disease reaching
               pandemic proportions worldwide; and

        -      cystic fibrosis, the most common fatal genetic disease among
               Caucasians.

        Our flagship drug is ZADAXIN, an immune system enhancer or ISE. An ISE
drug, such as ZADAXIN, is one that helps stimulate, maintain and direct the
body's antiviral or anticancer responses. ZADAXIN boosts the body's immune
system in the fight against multiple types of cancer and infectious diseases.
ZADAXIN is in or expected to enter phase 2 and phase 3 development in the U.S.,
Europe and Japan. These markets represent approximately 90% of the world's
pharmaceutical market. Current ZADAXIN clinical research focuses on four
diseases: hepatitis C, hepatocellular carcinoma, malignant melanoma and
hepatitis B. Approximately 3,000 patients have been treated with ZADAXIN in over
70 clinical trials covering a broad range of life-threatening diseases in which
the immune system plays a key role in the patient's ability to fight back.

        Unlike most young biotechnology/specialty pharmaceutical companies, we
are currently selling our lead drug, ZADAXIN. As of March 2001, ZADAXIN had been
approved for sale in 23 countries, principally for the treatment of hepatitis B
and hepatitis C, and as a vaccine adjuvant for patients with weakened immune
systems. Our total ZADAXIN sales for 2000 were $15,357,000, a 69% increase over
1999 sales of $9,091,000, and for the three months ended


                                       9
<PAGE>   10
March 31, 2001, sales were $3,113,000, an 11% decrease compared to sales of
$3,499,000 for the three months ended March 31, 2000. We have ZADAXIN marketing
applications pending in 17 additional countries.

        Our second product in clinical development, CPX, is a novel
protein-repair therapy for cystic fibrosis, the most common fatal genetic
disease among Caucasians. Currently approved drugs treat only the symptoms of
cystic fibrosis, not the underlying cause of the disease. CPX, which we have
in-licensed from the U.S. National Institutes of Health, is designed to repair
the underlying protein-associated defect responsible for cystic fibrosis in most
patients, not just the symptoms of the disease. CPX is currently in a phase 2
development program in the U.S.

        Additional drug candidates in our pipeline include SCV-07, the lead,
orally active, compound in our new class of immune system enhancer drugs and
DAX. SCV-07 has entered phase 1 testing for drug-resistant tuberculosis and we
expect to develop SCV-07 for cancer and viral hepatitis. DAX is targeted at
cystic fibrosis.

RESULTS OF OPERATIONS

        Total revenue was approximately $3,113,000 for the three-month period
ended March 31, 2001, as compared to approximately $3,499,000 for the
corresponding period in 2000. This 11 percent decrease was primarily due to
lower sales to importing agents in the People's Republic of China who supply the
Company's distributors in China with ZADAXIN and to increased competition from
other hepatitis B therapies. For the three-month period ended March 31, 2001,
all of our total revenue was derived from sales of ZADAXIN, and China accounted
for 91% of our product sales. Sales emphasis is concentrated in China because,
as one of our more developed markets, marketing expenditures can result in rapid
benefits in sales and profits compared to newer markets which require investment
and development spending. In addition, we have filed for approval to market
ZADAXIN in 17 additional countries and anticipate additional filings in other
countries. We expect ZADAXIN sales to increase both in our existing approved
markets and in new markets once regulatory approvals are secured and ZADAXIN is
launched.

        Cost of product sales was approximately $598,000 for the three-month
period ended March 31, 2001, as compared to approximately $735,000 for the
corresponding period in 2000. We expect cost of product sales to vary from
quarter to quarter, depending primarily on the level of ZADAXIN sales, the
absorption of fixed product-related costs, and any charges associated with
excess or expiring finished product.

        Research and development expenses were approximately $1,741,000 for the
three-month period ended March 31, 2001, as compared to approximately $1,259,000
for the corresponding period in 2000. The increase was primarily attributable to
increases in product research expenses, payroll expenses and increased fees for
professional services. The initiation and continuation of ZADAXIN, CPX and other
product clinical development programs has had, and will continue to have,
significant effect on our research and development expenses and may 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.

        Marketing expenses were approximately $2,277,000 for the three-month
period ended March 31, 2001, as compared to approximately $1,916,000 for the
corresponding period in 2000. The increase primarily relates to increased
payroll expenses and expenses for advertising associated with the expansion in
our existing ZADAXIN markets. We expect our marketing


                                       10
<PAGE>   11
expenses to increase in absolute dollars in the next several quarters as we
expand our commercialization and marketing efforts and pursue additional
strategic collaborations.

        General and administrative expenses were approximately $830,000 for the
three-month period ended March 31, 2001, as compared to approximately $643,000
for the corresponding period in 2000. The increase was primarily attributable to
increased fees for professional services. 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.

        Net interest and investment income was approximately $208,000 for the
three-month period ended March 31, 2001, as compared to approximately $179,000
for the corresponding period in 2000. The increase primarily resulted from
increased interest and investment income due to higher average invested cash
balances.

        In 2000, the Company added a third importing agent, located in the
Shanghai area, to facilitate the distribution of ZADAXIN in central China. No
sales were made to this agent in the fourth quarter of 2000 or in the quarter
ended March 31, 2001. We expect that sales in the current quarter ending June
30, 2001 may be lower than they otherwise would be as some or all of the
shipments to this importing agent in the second quarter may not be recognized
as revenue until subsequent quarters.

        Management intends to give priority use of the Company's financial
resources to its clinical programs in the United States.

LIQUIDITY AND CAPITAL RESOURCES

        At March 31, 2001 and 2000, we had approximately $21,057,000 and
$19,738,000, respectively, in cash, cash equivalents, short-term investments and
marketable securities. The marketable securities consist primarily of highly
liquid short-term investments.

        Net cash used by us in operating activities amounted to approximately
$3,499,000 for the three-month period ended March 31, 2001. Net cash used in
operating activities in the 2001 period was greater than our net loss for that
period due to decreases in accounts payable, decreases in accrued compensation
and benefits, and increases in accounts receivable and prepaid expenses.

        Net cash used by us in investing activities amounted to approximately
$331,000 for the three-month period ended March 31, 2001 and related to the net
purchase of approximately $313,000 of marketable securities and the purchase of
approximately $18,000 in equipment and furniture.

        Net cash provided by financing activities for the three-month period
ended March 31, 2001 amounted to approximately $2,065,000 in net proceeds,
approximately $24,000 in net proceeds from the issuance of common stock under
our employee stock purchase plan, approximately $87,000 in connection with
exercises of outstanding options under our employee stock option plans,
$1,600,000 from the issuance of a convertible note, $360,000 for granting


                                       11
<PAGE>   12
investors the right to purchase approximately $2,300,000 of senior unsecured
convertible notes and offset by approximately $6,000 in financing costs.

        Management believes our existing capital resources and interest on funds
available are adequate to maintain our current and planned operations through
mid-2002. The initiation and continuation of U.S. and Japanese clinical
development programs could, however, require additional funding either from a
collaborative source or through equity or debt financing. 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 timing of
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, together with
all of the other information included in this report on Form 10-Q, before making
an investment decision. The risks below are not the only ones we face. If any of
the following risks actually occurs, our business, financial condition or
operating results could be harmed. In such case, the trading price of our common
stock could decline, and you may lose all or part of your investment.

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 change from time to time. In prior years,
legislation was 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 by the FDA, and comparable agencies in state
and local jurisdictions and in foreign countries can delay or stop approval of
our drugs. These regulations govern, among other things, the development,
testing, manufacturing, labeling, storage, premarket approval, importation,
advertising, promotion, sale and distribution of our products. Satisfaction of
these regulations typically takes several years and the time needed to satisfy
them vary substantially, based on the type, complexity and novelty of the
pharmaceutical product. As a result, government regulation may cause us to delay
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.

IF WE FAIL TO OBTAIN REGULATORY APPROVALS IN COUNTRIES WHERE WE HAVE TARGETED
REGULATORY APPROVAL FOR OUR PRODUCTS, OUR REVENUE GROWTH MAY BE HARMED AND OUR
STOCK PRICE MAY DECLINE.

        The research, preclinical and clinical development, manufacturing,
marketing and sale of ZADAXIN, CPX and our other drug candidates are subject to
extensive regulation by governmental authorities. ZADAXIN, CPX and any other
products must be approved by the FDA or its foreign counterparts before they can
be sold in any jurisdiction. Obtaining regulatory


                                       12
<PAGE>   13
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 need favorable results from additional clinical trials of ZADAXIN
and we will need to demonstrate, in preclinical and clinical trials, the safety
and efficacy of CPX as a treatment for cystic fibrosis. 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 the
growth of our revenues.

        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. Failure to comply with applicable U.S. or foreign regulatory requirements
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. Further, additional government regulation may be
established or imposed by legislation or otherwise, which could prevent or delay
regulatory approval of ZADAXIN, CPX or any of our 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.

        We may not be able to commence or complete the clinical trials we have
sponsored or are planning relating to ZADAXIN and CPX in a timely or
cost-effective manner. Even if completed, 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 in our development programs also could result in restrictions on the use
of ZADAXIN and, if approved, CPX.

        Our failure, or the failure by one or more of our partners, to comply
with applicable U.S. or foreign regulatory requirements could, among other
things, result in warning letters, fines, suspensions of regulatory approvals,
product recalls or seizures, operating restrictions, injunctions and criminal
prosecutions. In addition, government regulations may be established or imposed
which prevent or delay regulatory approval of ZADAXIN, CPX or our future
products.

WE ARE PLANNING TO IMPLEMENT AND MANAGE A PHASE 3 PROGRAM IN THE U.S. FOR THE
APPROVAL IN THE U.S. OF ZADAXIN IN COMBINATION WITH PEGYLATED INTERFERON FOR THE
TREATMENT OF HEPATITIS C. OUR SCIENTIFIC AND CLINICAL RESEARCH DATA RELATING TO
ZADAXIN IN COMBINATION WITH INTERFERON FOR THE TREATMENT OF HEPATITIS C IS BASED
ON THE USE OF THE UN-PEGYLATED FORM OF INTERFERON.

        The results from our previous phase 2 and phase 3 hepatitis C studies
have enabled us to produce a conservatively designed study program based on the
use of ZADAXIN in combination with un-pegylated interferon. However, there can
be no assurances that the results that produced this conservative design will
carryover to the design of the study program using the combination of ZADAXIN
and pegylated interferon. The pegylated form of interferon may perform better
than anticipated in comparison to the combination of ZADAXIN and pegylated
interferon resulting in an underpowered study.

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, 2001, we had an accumulated deficit of $118,871,000. We expect
our operating expenses to


                                       13
<PAGE>   14
increase over the next several years as we plan to dedicate substantially all of
our resources to expanding our development, testing and marketing capabilities.
Accordingly, we may never achieve profitability. Our failure to achieve
profitability may cause our stock price to decline.

IF WE DO NOT INCREASE THE AMOUNT OF REVENUE WE DERIVE FROM SALES OF ZADAXIN WE
WILL NEED TO OBTAIN ADDITIONAL CAPITAL TO SUPPORT OUR LONG-TERM PRODUCT
DEVELOPMENT AND COMMERCIALIZATION PROGRAMS.

        Our strategy in the near term is to invest in phase 2 and 3 clinical
studies in the U.S. Europe and Japan and continue to maintain and develop our
international ZADAXIN business. 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, CPX, and/or future
               products, particularly in the U.S., Europe and Japan;

        -      increase ZADAXIN sales in existing markets; and

        -      launch ZADAXIN in new markets;

        Although we remain optimistic regarding the prospects of ZADAXIN, we
cannot assure you that we will ever achieve significant levels of sales or that
we will receive additional ZADAXIN market approvals.

        If we do not increase the revenue we derive from the sales of ZADAXIN
and achieve operating profitability, we will need to obtain additional financing
to support our long-term 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, 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 need will depend on many factors, including:

        -      the level of future ZADAXIN sales;

        -      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;

        -      the costs involved in filing, prosecuting and enforcing patent
               claims;

        -      competing technological and market developments;

        -      whether any or all of our outstanding common stock warrants are
               exercised and the timing and amount of these exercises;

        -      our ability to establish and maintain strategic arrangements for
               development, sales, manufacturing and marketing of our products;
               and


                                       14
<PAGE>   15
        -      whether we elect to establish additional partnering arrangements
               for development, sales, manufacturing, and marketing of our
               products.

        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 long-term 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 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 can not 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. 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. Our future revenue
growth depends on increased market acceptance and commercialization of ZADAXIN
in additional countries, particularly the U.S. and European countries. 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 that our products are an
               attractive alternative to other treatments and therapies;

        -      convince 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.

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. The majority 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 income and poorly developed infrastructure. 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 quality assurance requirements mandated by
China. 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, the Company's sales to an
importing agent can vary from quarter to quarter depending on the size and
timing of the orders, causing our quarterly results to fluctuate.



                                       15
<PAGE>   16
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;

        -      difficulties and delays in obtaining product health registration;

        -      difficulties and delays in obtaining importation permits;

        -      unexpected changes in regulatory requirements;

        -      difficulties in staffing and managing foreign operations;

        -      long payment cycles;

        -      difficulties in accounts receivable collection;

        -      currency fluctuations; adverse or deteriorating economic
               conditions; and

        -      potential adverse tax consequences.

        We do not have any 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 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 or limit the volume of product which may be imported and sold, either of
which will cause our revenues to fall and our business to suffer.

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 in 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. If we are able
to further develop our sales, marketing and distribution capabilities, we will
compete with other companies that have experienced and well funded operations.
If we cannot successfully compete with them, 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 of ZADAXIN and CPX. Manufacturing
interruptions, if any, 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 change may require additional regulatory
approvals. If we do not obtain the required regulatory approvals of


                                       16
<PAGE>   17
this 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 will hurt our business.

        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. Problems could lead to delays or pose a threat to
the ultimate commercialization of our products and harm us.

IF WE DO NOT OBTAIN RIGHTS TO ADDITIONAL PRODUCTS FROM THIRD PARTIES, OUR
REVENUE MAY DECLINE AND OUR FUTURE DEVELOPMENT EXPENSES MAY INCREASE.

        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, or license
or otherwise acquire rights to additional drugs, we may have a shortage of drugs
to develop and commercialize. Any shortage in the number of drugs that we are
able to develop and commercialize may cause our revenues to fall and increase
our future development expenses.

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.
If they do not perform their obligations as we expect, 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.

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 patent applications may not have priority over
others' applications and, even if any patents are issued, they 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.

        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


                                       17
<PAGE>   18
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 operation 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 other than the U.S., 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 potentially dilutive
issuances of equity securities, the incurrence of debt, contingent liabilities
and/or amortization expenses related to goodwill and 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 and manufacturing quality assurance
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 of products in the therapeutic areas we are pursuing, particularly
cancer, hepatitis B, hepatitis C, HIV and cystic fibrosis. In certain instances,
our competitors are currently marketing drugs for cancer, hepatitis B, hepatitis
C and HIV 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
obtaining the regulatory approvals necessary to market drugs. Additional mergers
and acquisitions in the pharmaceutical industry may result in ever more
resources being concentrated with our competitors. Principal competitive factors
in the


                                       18
<PAGE>   19
pharmaceutical field include efficacy, safety, and therapeutic regimen. Where
comparable products are marketed by other companies price is also 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 may create new competitors as
well as numerous new opportunities for expanded use of ZADAXIN worldwide.

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.

WE RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR OPERATIONS, AND CALIFORNIA'S
CURRENT ENERGY CRISIS COULD DISRUPT OUR BUSINESS AND INCREASE OUR EXPENSES.

       California is in the midst of an energy crisis that could disrupt our
operations and increase our expenses. In the event of an acute power shortage,
that is, when power reserves for California fall below 1.5%, electricity
providers have on some occasions implemented, and may in the future continue to
implement, rolling blackouts. The majority of our operations are located in
California; however, we currently do not have backup generators or alternate
sources of power in the event of a blackout. If blackouts interrupt our power
supply, we would be temporarily unable to continue operations at our facilities.
Any such interruption in our ability to continue operations at our facilities
could damage our reputation and harm our development efforts, which could
adversely affect our business and results of operation.

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


                                       19
<PAGE>   20
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 hurt 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
future 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 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 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 operation and cash flows could be adversely affected.

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.


                                       20
<PAGE>   21
THE PRICE OF OUR COMMON STOCK HAS EXPERIENCED SUBSTANTIAL VOLATILITY AND MAY
FLUCTUATE DUE TO FACTORS BEYOND OUR CONTROL.

       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.

       The price of our common stock may not remain at or exceed current levels.

OUR INDEBTEDNESS MAY RESULT IN FUTURE LIQUIDITY PROBLEMS.

        As of March 31, 2001, 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 increased
indebtedness has and will continue to impact us by increasing expense and making
it more difficult 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, 2001 we had cash and short-term investments of
$21.1 million.

SUBSTANTIAL SALES OF OUR STOCK OR CONVERTIBLE SECURITIES MAY IMPACT THE MARKET
PRICE OF OUR COMMON STOCK.

       As of March 31, 2001, stock options for 5,151,184 shares of common stock
were outstanding, of which options for 3,112,834 shares were exercisable, and
there were warrants exercisable for 1,970,500 shares of common stock
outstanding. Two issues of convertible notes payable as of March 31, 2001 were
convertible into a total of 684,137 shares of common stock beginning one year
from date of issuance of the notes. In addition, the investors were given 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 684,137 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.


                                       21
<PAGE>   22
        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 SciClone is liquidated -- 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.


                                       22
<PAGE>   23
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 adverse shift in the
interest rates we invest in short term securities and maintain an average
maturity of less than 1 year. A hypothetical 60 basis point increase in interest
rates would result in an approximate $98,905 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, 2001. Actual results may
differ materially.


                                       23
<PAGE>   24
PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(c)     Recent Sales of Unregistered Securities

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)     Exhibits

<TABLE>
<S>               <C>
        3(i).1    Restated Articles of Incorporation (incorporated by reference
                  from the Company's Registration Statement on Form S-1 (No.
                  33-45446), declared effective by the Commission on March 17,
                  1992).

        3(i).2    Certificate of Amendment of Restated Articles of Incorporation
                  (incorporated by reference from the Company's Registration
                  Statement on Form S-8 (No. 33-66832) filed with the Commission
                  on August 3, 1993).

        3(i).3    Certificate of Determination (incorporated by reference from
                  the Company's Current Report on Form 8-K filed on October 14,
                  1997).

        3(ii).1   Bylaws (incorporated by reference from the Company's
                  Registration Statement on Form S-1 (No. 33-45446), declared
                  effective by the Commission on March 17, 1992).

        3(ii).2   Certificate of Amendment of Bylaws (incorporated by reference
                  from the Company's Registration Statement on Form S-8 (No.
                  33-66832) filed with the Commission on August 3, 1993).

            4.2   Rights Agreement, dated as of July 25, 1997, between the
                  Company and ChaseMellon Shareholder Services, LLC.
                  (incorporated by reference to the Company's Current Report on
                  Form 8-K filed on October 14, 1997).

            4.3*  6% Convertible Note dated as of March 21, 2001 by the Company
                  in favor of UBS AG, London Branch.

            4.4*  Option Agreement dated as of February 16, 2001 by and between
                  the Company and UBS AG, London Branch.

            4.5*  Amendment No. 1 to Option Agreement dated as of March 21, 2001
                  by and between the Company and UBS AG, London Branch.

           10.1*  Registration Rights Agreement dated as of February 16, 2001 by
                  and between the Company and UBS AG, London Branch.

           10.2*  Materials Transfer Agreement dated as of December 21, 2000
                  executed as of January 8, 2001 by and between the Company and
                  F. Hoffmann-La Roche Ltd.

           10.3*  Manufacturing Services Agreement by and between SciClone
                  Pharmaceuticals International, Ltd. and ISF S.p.A.
</TABLE>

(b)     Reports on Form 8-K

        None.

----------

*   Certain information in this exhibit has been omitted and filed separately
    with the Securities and Exchange Commission pursuant to a Confidential
    Treatment Request under 17 C.F.R. Sections 200.80, 200.83 and 230.406.


                                       24
<PAGE>   25
                                   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 15, 2001                           /s/ Richard A. Waldron
                                     ------------------------------------------
                                                 Richard A. Waldron
                                              Chief Financial Officer
                                     (Principal Financial & Accounting Officer)


                                       25
<PAGE>   26
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER     DESCRIPTION
       --------   -----------
<S>               <C>
        3(i).1    Restated Articles of Incorporation (incorporated by reference
                  from the Company's Registration Statement on Form S-1 (No.
                  33-45446), declared effective by the Commission on March 17,
                  1992).

        3(i).2    Certificate of Amendment of Restated Articles of Incorporation
                  (incorporated by reference from the Company's Registration
                  Statement on Form S-8 (No. 33-66832) filed with the Commission
                  on August 3, 1993).

        3(i).3    Certificate of Determination (incorporated by reference from
                  the Company's Current Report on Form 8-K filed on October 14,
                  1997).

        3(ii).1   Bylaws (incorporated by reference from the Company's
                  Registration Statement on Form S-1 (No. 33-45446), declared
                  effective by the Commission on March 17, 1992).

        3(ii).2   Certificate of Amendment of Bylaws (incorporated by reference
                  from the Company's Registration Statement on Form S-8 (No.
                  33-66832) filed with the Commission on August 3, 1993).

            4.2   Rights Agreement, dated as of July 25, 1997, between the
                  Company and ChaseMellon Shareholder Services, LLC.
                  (incorporated by reference to the Company's Current Report on
                  Form 8-K filed on October 14, 1997).

            4.3*  6% Convertible Note dated as of March 21, 2001 by the Company
                  in favor of UBS AG, London Branch.

            4.4*  Option Agreement dated as of February 16, 2001 by and between
                  the Company and UBS AG, London Branch.

            4.5*  Amendment No. 1 to Option Agreement dated as of March 21, 2001
                  by and between the Company and UBS AG, London Branch.

           10.1*  Registration Rights Agreement dated as of February 16, 2001 by
                  and between the Company and UBS AG, London Branch.

           10.2*  Materials Transfer Agreement dated as of December 21, 2000
                  executed as of January 8, 2001 by and between the Company and
                  F. Hoffmann-La Roche Ltd.

           10.3*  Manufacturing Services Agreement by and between SciClone
                  Pharmaceuticals International, Ltd. and ISF S.p.A.
</TABLE>