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

FORM 10-Q

[X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

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.



|Delaware                                                       | 94-3116852                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number)

901 Mariner's Island Boulevard
San Mateo, California      94404

(650) 358-3456

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 reports), and (2) has been subject to such filing
requirements for the past 90 days.  YES    x NO     ̈

Indicate by check mark whether the Registrant is an accelerated filer (as defined in
Rule 121(b)2 of the Securities Exchange Act of 1934). YES    x NO     ̈

As of March 31, 2005, 44,763,701 shares of the registrant's Common Stock, $0.001 par value, were issued and outstanding.




SciClone Pharmaceuticals, Inc.

                                    FORM 10-Q

                             TABLE OF CONTENTS



|                                                                                                                      | Page No.
|--------------------------------------------------------------------------------------------------------------------- | --------
|PART I.   FINANCIAL INFORMATION                                                                                       |         
|                                                                                                                      |         
|Item 1.   Financial Statements                                                                                        |         
|                                                                                                                      |         
|Consolidated Balance Sheets - March 31, 2005 and December 31, 2004                                                    | 4       
|                                                                                                                      |         
|Consolidated Statements of Income - Three Months Ended March 31, 2005 and 2004                                        | 3       
|                                                                                                                      |         
|Consolidated Statements of Cash Flows - Three Months Ended March 31, 2005 and 2004                                    | 5       
|                                                                                                                      |         
|Notes to Consolidated Financial Statements                                                                            | 6       
|                                                                                                                      |         
|Item 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations | 11      
|                                                                                                                      |         
|Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                                  | 24      
|                                                                                                                      |         
|Item 4.   Controls and Procedures                                                                                     | 25      
|                                                                                                                      |         
|PART II.  OTHER INFORMATION                                                                                           |         
|                                                                                                                      |         
|Item 6.   Exhibits and Reports on Form 8-K                                                                            | 26      
|                                                                                                                      |         
|SIGNATURES                                                                                                            | 28      
|                                                                                                                      |         
|EXHIBIT INDEX                                                                                                         | 28      

---

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

---



SCICLONE PHARMACEUTICALS, INC.

                       CONDENSED CONSOLIDATED BALANCE SHEETS

`March 31,    December 31,
                                                                                           2005           2004
                                                                                       -------------  -------------
                                                                                        (unaudited)
                                       ASSETS
Current assets:                                                                                                    
     Cash and cash equivalents....................................................... $  36,911,000  $  41,204,000
     Restricted short-term investments...............................................       697,000        700,000
     Other short-term investments....................................................     9,445,000      9,395,000
     Accounts receivable, net of allowance of $466,000 in 2005 and $452,000 in 2004..    11,776,000     10,279,000
     Inventories.....................................................................     3,394,000      4,179,000
     Prepaid expenses and other current assets.......................................     1,054,000      1,478,000
                                                                                       -------------  -------------
Total current assets.................................................................    63,277,000     67,235,000
Property and equipment, net..........................................................       387,000        398,000
Intangible assets, net...............................................................       525,000        542,000
Other assets.........................................................................     1,527,000      1,534,000
                                                                                       -------------  -------------
Total assets......................................................................... $  65,716,000  $  69,709,000
                                                                                       =============  =============
                                                                                                                   
                        LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:                                                                                               
     Accounts payable................................................................ $     985,000  $   1,733,000
     Accrued compensation and employee benefits......................................     1,242,000      2,177,000
     Accrued professional fees.......................................................       637,000        452,000
     Other accrued expenses..........................................................     1,374,000      1,409,000
     Accrued clinical trials expense.................................................     1,113,000      1,500,000
     Deferred revenue................................................................       537,000        537,000
     Convertible notes payable.......................................................     5,600,000      4,000,000
                                                                                       -------------  -------------
Total current liabilities............................................................    11,488,000     11,808,000
Deferred revenue.....................................................................            --        134,000
Other long-term liabilities..........................................................       500,000      1,044,000
Convertible note payable.............................................................            --      1,600,000
Commitments and contingencies
Stockholders' equity:
     Preferred stock; $0.001 par value; 10,000,000 shares authorized; no shares
         outstanding.................................................................            --             --
     Common stock; $0.001 par value; 75,000,000 shares authorized; 44,763,701 and
         44,677,845 shares issued and outstanding in 2005 and 2004, respectively.....        45,000         45,000
Additional paid-in capital...........................................................   206,712,000    206,608,000
Accumulated other comprehensive income...............................................        33,000         38,000
Accumulated deficit..................................................................  (153,062,000)  (151,568,000)
                                                                                       -------------  -------------
Total stockholders' equity...........................................................    53,728,000     55,123,000
                                                                                       -------------  -------------
Total liabilities and stockholders' equity........................................... $  65,716,000  $  69,709,000
                                                                                       =============  =============`

See notes to condensed consolidated financial statements

---



SCICLONE PHARMACEUTICALS, INC.

                     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                            (unaudited)

`Three Months Ended
                                                                                         March 31,
                                                                                  ------------------------
                                                                                     2005         2004
                                                                                  -----------  -----------                          
Product sales................................................................... $ 6,661,000  $ 5,414,000
Contract revenue................................................................     134,000      228,000
                                                                                  -----------  -----------
         Total revenues.........................................................   6,795,000    5,642,000
Cost of product sales...........................................................     997,000    1,142,000
                                                                                  -----------  -----------
Gross margin....................................................................   5,798,000    4,500,000
                                                                                  -----------  -----------
Operating expenses:
    Research and development....................................................   3,481,000    3,931,000
    Sales and marketing.........................................................   2,328,000    2,443,000
    General and administrative..................................................   1,620,000    1,293,000
                                                                                  -----------  -----------
         Total operating expenses...............................................   7,429,000    7,667,000
                                                                                  -----------  -----------
Loss from operations............................................................  (1,631,000)  (3,167,000)
Interest and investment income..................................................     233,000      116,000
Interest expense................................................................     (90,000)     (90,000)
Other income (expense), net.....................................................      (6,000)       8,000
                                                                                  -----------  -----------
Net loss........................................................................ $(1,494,000) $(3,133,000)
                                                                                  ===========  ===========

Basic and diluted net loss per share............................................ $     (0.03) $     (0.07)
                                                                                  ===========  ===========

Weighted average shares used in computing basic and diluted net loss per share..  44,699,777   44,569,087
                                                                                  ===========  ===========`

See notes to condensed consolidated financial statements

---



SCICLONE PHARMACEUTICALS, INC.

                    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                      (unaudited)

`Three Months Ended
                                                                                              March 31,
                                                                                      --------------------------
                                                                                          2005          2004
                                                                                      ------------  ------------
Operating activities:                                                                                           
Net loss............................................................................ $ (1,494,000)   (3,133,000)
Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization...................................................       55,000        50,000
    Changes in operating assets and liabilities:
        Accounts receivable.........................................................   (1,497,000)     (244,000)
        Inventories.................................................................      785,000       156,000
        Prepaid expenses and other assets...........................................      424,000       441,000
        Accounts payable and other accrued expenses.................................     (783,000)   (1,546,000)
        Accrued compensation and employee benefits..................................     (935,000)     (697,000)
        Accrued clinical trials expense.............................................     (387,000)      598,000
        Accrued professional fees...................................................      185,000      (320,000)
        Long-term liabilities.......................................................     (544,000)           --
        Deferred revenue............................................................     (134,000)     (134,000)
                                                                                      ------------  ------------
Net cash used in operating activities...............................................   (4,325,000)   (4,829,000)
                                                                                      ------------  ------------
Investing activities:                                                                                           
    Purchases of property and equipment.............................................      (20,000)      (19,000)
    Purchases of marketable securities..............................................      (52,000)           --
                                                                                      ------------  ------------
Net cash used in investing activities...............................................      (72,000)      (19,000)
                                                                                      ------------  ------------
Financing activities:                                                                                           
    Proceeds from issuances of common stock, net of financing costs.................      104,000        70,000
                                                                                      ------------  ------------
Net cash provided by financing activities...........................................      104,000        70,000
                                                                                      ------------  ------------
Net decrease in cash and cash equivalents...........................................   (4,293,000)   (4,778,000)
Cash and cash equivalents, beginning of period......................................   41,204,000    52,899,000
                                                                                      ------------  ------------
Cash and cash equivalents, end of period............................................ $ 36,911,000    48,121,000
                                                                                      ============  ============`

See notes to condensed consolidated financial statements

---



SCICLONE PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements 
(unaudited)

1. Basis of Presentation
2. Significant Accounting Policies
3. Comprehensive Loss
4. Available-For-Sale Securities
5. Inventories
6. Prepaid Expenses and Other Current Assets
7. Intangible Assets
8. Contract Revenue
9. Other Accrued Expenses

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

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q 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 business, industry, management's beliefs and
certain assumptions made by us. Words such as "anticipate,"
"expect," "intend," "plan," "believe" or
similar expressions are intended to identify forward-looking statements
including those statements we make regarding our future financial results;
anticipated product sales; the sufficiency of our resources to complete clinical
trials and other new product development initiatives; the timing and outcome of
clinical trials; the timing of completion of therapy and observation for our
clinical trials;ZADAXIN's ability to complement existing
therapies; prospects for ZADAXIN and our plans for its enhancement and
commercialization; future size of the worldwide hepatitis C virus market;
research and development and other expense levels; cash and other asset levels;
and the allocation of financial resources to certain trials and programs.  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" in this
Quarterly Report on Form 10-Q. We undertake no obligation to revise or update
publicly any forward-looking statements for any reason.

Overview

SciClone Pharmaceuticals, Inc. is a biopharmaceutical
company engaged in the development and commercialization of therapeutics to
treat life-threatening diseases.  We and our partner, Sigma Tau are currently
evaluating our lead product, ZADAXIN, in several late stage clinical trials for
the treatment of patients with the hepatitis C virus, or HCV, the hepatitis B
virus, or HBV, and certain types of cancer.  Our primary focus is the successful
completion of our two ongoing ZADAXIN phase 3 HCV clinical trials in the United
States. We believe the worldwide market for HCV therapies was approximately $3
billion in 2004 and could exceed $8 billion in 2012. If approved by the U.S.
Food and Drug Administration (FDA), we expect ZADAXIN to complement other HCV
therapies and to expand the HCV market.  In addition to the HCV trials in the
United States, our European marketing and development partner, Sigma-Tau, is
conducting an HCV phase 3 trial in Europe evaluating ZADAXIN as part of a triple
therapy combination.  ZADAXIN is also being evaluated in an ongoing, licensee-
sponsored phase 2 malignant melanoma clinical trial in Europe with Sigma-Tau,
ongoing phase 2 proof-of-concept studies in the United States for the treatment
of liver cancer, and an ongoing HBV clinical trial in Taiwan.  Our other
proprietary drug development candidate is SCV-07, which is currently in pre-
clinical studies as a potential therapeutic to treat viral and other infectious
diseases.  We expect to file an Investigational New Drug (IND) application for
SCV-07 in the first half of 2005.

Results of Operations

Total Revenues

Product sales were $6,661,000 for the three-month period
ended March 31, 2005, as compared to $5,414,000 for the corresponding period in
2004.  All product sales in each period were derived from sales of ZADAXIN.  The
increase was attributable to a higher volume of product sold as prices have
remained stable between the 2004 and 2005 periods.  Sales to customers in China
accounted for approximately 91% and 88% of product sales for the three-month
periods ended March 31, 2005 and 2004, respectively.

For the three-month period ended March 31, 2005, sales to two
importing agents in China accounted for approximately 74% and 17% of our product
sales, respectively.  For the three-month period ended March 31, 2004, sales to
two importing agents in China accounted for 50% and 38% of our product sales,
respectively.  The single largest customer in each of these two periods was not
the same importing agent, but the second largest customer was the same importing
agent for each of these periods.  We expect that the share of our product sales
to China will vary among a small number of importing agents from quarter to
quarter.

Contract revenue was $134,000 and $228,000 for the three-
month periods ended March 31, 2005 and 2004, respectively.  We recognized
$134,000 of contract revenue for each of the three-month periods ended March 31,
2005 and 2004, respectively, in connection with the $2,685,000 payment we
received from Sigma-Tau in January 2002.  This revenue is recognized as contract
revenue over the course of the ZADAXIN hepatitis C U.S. clinical program and the
period of sharing the clinical data from this program with Sigma-Tau in
accordance with the requirements under our contract with Sigma-Tau. During the
three-month period ended March 31, 2004, we also recognized $94,000 of contract
revenue in connection with a National Institutes of Health grant.

Cost of Product Sales and Gross Margin on Product
Sales

Gross margin on product sales was 85% for the three-
month period ended March 31, 2005, as compared to 80% for the corresponding
period in 2004.  The prices of ZADAXIN sales were similar in the comparable
periods, and the increase in gross margin percentage was primarily the result of
lower product costs for product sold in the 2005 period.  Much of this product
had been produced by our former contract manufacturer in relatively higher
volume production runs resulting in a relatively lower level of fixed cost
absorption per unit.  In addition, the cost of $219,000 of the product sold in
the 2005 period had been previously written off in 2004 as a result of
management's concerns at that time of its salability because this inventory was
approaching its minimum shelf life accepted by our customers.  We expect such
factors to have a diminished effect on the three-month period ended June 30,
2005 and no effect in the subsequent quarters.  The average unit cost of
products sold in subsequent quarters in 2005 is expected to be higher than that
for the period ended March 31, 2005.  We expect cost of product sales, and hence
gross margin on product sales, to vary from period to period, depending upon the
sales levels and prices of ZADAXIN, the absorption of product-related fixed
costs, and any charges associated with excess or expiring finished product
inventory.

Research and Development

Research and development expenses were $3,481,000 for the
three-month period ended March 31, 2005, as compared to $3,931,000 for the
corresponding period in 2004.  The decrease was primarily related to the U.S.
phase 3 hepatitis C clinical trials, which are nearing completion by the end of
2005.  The initiation and continuation of our current clinical development
programs has had and will continue to have a significant effect on our research
and development expenses.  Due to the uncertain nature of the clinical trial
process, it is not possible to determine the total cost expected to be incurred
for each trial.  In general, we expect research and development expenses to vary
substantially from 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 $2,328,000 for the
three-month period ended March 31, 2005, as compared to $2,443,000 for the
corresponding period in 2004.  The decrease in sales and marketing expenses was
due to lower promotional and advertising expenses.  We expect sales and
marketing expenses to vary in the next several quarters and to increase in the
next several years if we are successful in our efforts to expand our
commercialization and marketing efforts.

General and Administrative

General and administrative expenses were $1,620,000 for
the three-month period ended March 31, 2005, as compared to $1,293,000 for the
corresponding period in 2004.  The increase in general and administrative
expenses was primarily attributable to increased legal expense and higher
expenses incurred with Sarbanes Oxley compliance efforts.  In the near term, we
expect general and administrative expenses to vary from quarter to quarter as we
increase our general and administrative activities to support increased
securities regulation requirements and legal and regulatory activities.

Interest and Investment Income and Expense

Interest and investment income was approximately $233,000
for the three-month period ended March 31, 2005, as compared to $116,000 for the
corresponding period in 2004.  The increase was primarily due to cash balances
earning higher interest rates in the 2005 period.  Interest expense is related
to the $5,600,000 of convertible notes payable outstanding throughout the three-
month periods ended March 31, 2005 and 2004 and was $90,000 in each period.

Liquidity and Capital Resources

On March 31, 2005 and December 31, 2004, we had
$47,053,000 and $51,299,000, respectively, in cash, cash equivalents and short-
term investments including $697,000 and $700,000, respectively, of restricted
short-term investments. We currently estimate cash, cash equivalents and short-
term investments at December 31, 2005 will be lower than the balance at March
31, 2005.  The expected decrease in this balance is attributable to further
expected net losses and the assumption that the outstanding $4 million
convertible note due December 2005 will be repaid rather than converted.  The
short-term investments consist primarily of highly liquid marketable securities.
Our restricted short-term investments relate to two letters of credit each
secured by a certificate of deposit.  On March 31, 2005, the letters of credit
totaled $697,000 and were comprised of $633,000 under our lease agreement and
$64,000 to facilitate our value added tax filings in Europe.  For the December
31, 2004 period, the letters of credit totaled $700,000 and were comprised of
$633,000 under our lease agreement and $67,000 to facilitate our value added tax
filings in Europe.

Net cash used in operating activities amounted to $4,325,000
for the three-month period ended March 31, 2005 as compared to net cash used in
operating activities in the amount of $4,829,000 in the corresponding period in
2004.  The change in the 2005 period was primarily due to a lower net loss
incurred partially offset by an increase in accounts receivable.

Net cash used by us in investing activities amounted to
$72,000 for the three-month period ended March 31, 2005, as compared to net cash
used by u in investing activities in the amount of $19,000 for the corresponding
period in 2004. The change in the 2005 period was primarily due to payments on
the purchase of marketable securities.

Net cash provided by financing activities amounted to
$104,000 for the three-month period ended March 31, 2005 and consisted of
approximately $69,000 related to exercises of outstanding options under our
employee stock option plans and approximately $35,000 from the issuance of
common stock under our employee stock purchase plan.    For the three-month
period ended March 31, 2004, net cash provided by financing activities amounted
to $70,000, all of which were generated from the issuance of common stock under
our employee stock purchase plan.

We intend to give priority use of our financial resources to
ZADAXIN clinical programs in the United States.  We believe our existing capital
resources and funds from product sales are sufficient to complete our current
U.S. phase 3 clinical trials and, if the trials are successful and we receive
FDA approval, to begin commercialization of ZADAXIN in the United States.
However, we cannot assure you that such funds will be sufficient, or that sales
of ZADAXIN, if approved in the United States, will result in profitable
operations.  If we need to raise additional financing, the unavailability or the
inopportune timing of any financing could prevent or delay our long-term product
development and commercialization programs, either of which would severely hurt
our business.  The need, timing and amount of any such financing would depend
upon numerous factors, including the level of ZADAXIN sales, the timing and
amount of manufacturing costs related to ZADAXIN, the availability of
complementary products, technologies and businesses, the initiation and
continuation of preclinical and clinical trials and testing, the timing of
regulatory approvals, developments in relationships with existing or future
collaborative parties and the status of competitive products.

Contractual Obligations

There were no material changes in the three-month period
ended March 31, 2005 to our contractual obligations as disclosed in our Form 10-
K for the year ended December 31, 2004.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements in the
three-month period ended March 31, 2005.

Recent Accounting Pronouncement

In December 2004, the Financial Accounting Standards
Board ("FASB") issued FASB Statement No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123R").  SFAS 123R
requires share-based payments to employees and directors, including grants of
stock options, to be recognized in the statement of operations based on their
fair values.  Pro forma disclosure is no longer an alternative.  The amount
of compensation cost will be measured based on the grant-date fair value of the
instruments issued.  Compensation cost will be recognized over the period
that an employee or director provides service in exchange for the award. 
We expect to adopt SFAS 123R on January 1, 2006.

As permitted by SFAS 123, the Company currently accounts for
share-based payments to employees and directors using Accounting Principles
Board Opinion 25's intrinsic value method and, as such, generally recognizes no
compensation cost for employee and director stock options and employee stock
purchase plans.  Accordingly, the adoption of SFAS 123R's fair value method will
have a significant impact on our results of operations, although it will have no
impact on our overall financial position.  The impact of adoption of SFAS 123R
cannot be predicted at this time because it will depend on levels of share-based
payments granted in the future.  However, had we adopted SFAS 123R using the
Black-Scholes option pricing model in prior periods, the impact of that standard
would have approximated the impact of SFAS 123 as described in the disclosure of
pro forma net loss and net loss per share in the Accounting for Stock-Based
Compensation section of Note 2 of our condensed consolidated financial
statements.



Risk Factors

You should carefully consider the risks described
below, in addition to the other information in this report on Form 10-Q and our
report on Form 10-K for the year ended December 31, 2004, 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.

If we are unable to commercialize ZADAXIN in various markets for
multiple indications, particularly in the United States for the treatment of
HCV, our business will be harmed.

Our ability to achieve and sustain operating profitability
depends in large part on our ability to commence, execute and complete clinical
programs and obtain additional regulatory approvals for ZADAXIN and other drug
candidates, particularly in the United States, Europe and Japan We are also
dependent on our ability to increase ZADAXIN sales in existing markets and
launch ZADAXIN in new markets. In particular, our ability to achieve and sustain
profitability will depend in large part on our ability to commercialize ZADAXIN
for the treatment of HCV in the United States. We cannot assure you that we will
achieve significant levels of sales or that we will receive approval for ZADAXIN
for the treatment of HCV in the United States or for the treatment of HCV or
other indications in other countries. If we are unable to do so, our business
will be harmed.

If we do not obtain regulatory approval for ZADAXIN for the intended
indications that we are evaluating, our revenues will be limited and we will not
become profitable.

Our ability to execute on our business strategy requires
that we obtain regulatory approval for the use of ZADAXIN, particularly for the
treatment of HCV in the United States and both HCV and malignant melanoma in
Europe. If our current phase 3 trials in the United States and current and
future trials in Europe yield favorable results, we intend to submit
applications for marketing approval of ZADAXIN for the treatment of HCV in the
United States and through our partner, Sigma-Tau, for the treatment of HCV and
malignant melanoma in Europe. The regulatory approval processes in the United
States and Europe are demanding and typically require 12 months or more in the
United States and 18 months or more in Europe from the date of submission of a
New Drug Application (NDA). We have committed significant resources, including
capital and time, to develop ZADAXIN, particularly for HCV in the United States,
with the goal of obtaining such approvals. If we do not obtain these approvals,
we will be unable to achieve any substantial increase in our revenue from
ZADAXIN and our ZADAXIN sales in other jurisdictions could decline.

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 may change from time to time and new regulations may be
adopted.

Obtaining regulatory approval in developing countries also is
time-consuming and expensive. In some countries where we are contemplating
marketing and selling ZADAXIN, the regulatory approval process often relies on
prior approvals obtained in the United States or in Europe. Without such prior
approvals, our ability to obtain regulatory approvals for ZADAXIN in these
countries may be delayed or prevented. In addition, to secure these regulatory
approvals, we will need, among other things, to demonstrate favorable results
from additional clinical trials of ZADAXIN. 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 approval in
these countries, and we have experienced difficulties in preparing for
regulatory approval in Japan. We cannot assure you that we will ultimately
obtain regulatory approvals in our targeted countries in a timely and cost-
effective manner or at all. If we fail to obtain the required regulatory
approvals to develop, market and sell our products in countries where we
currently do not have such rights, our revenues will be limited.

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 impose costly procedures upon our activities. Even if we obtain regulatory
approval for our products, such approval may impose limitations on the indicated
uses for which our products may be marketed. Unsatisfactory data resulting from
clinical trials may also adversely affect our ability to market and sell ZADAXIN
in markets where it is approved for sale.

If the results of our clinical trials are not favorable, we will be unable to
obtain regulatory approval for the intended indications we are evaluating.

To obtain regulatory approvals, we must, among other
requirements, complete carefully controlled and well-designed clinical trials
demonstrating that a particular drug is safe and effective for the applicable
disease. We cannot depend on data from prior trial results to predict or
demonstrate that our potential drug products are safe and efficacious under
regulatory guidelines to qualify for commercial sale. We cannot assure you, nor
can you rely on our previous clinical trial results to predict, that our ongoing
or future clinical trials will yield favorable results. Adverse or inconclusive
clinical results would prevent us from filing for regulatory approval of ZADAXIN
(thymosin alpha 1) for the indications that we are evaluating, and our current
programs in those areas would fail.  In the past, Alpha 1 Biomedical, from which
we acquired certain rights to thymosin alpha 1, conducted a phase 3 clinical
trial of thymosin alpha 1 as a therapy for HBV that did not produce
statistically significant results and Alpha 1 Biomedical did not submit an NDA
to the FDA.

We are currently conducting phase 3 clinical trials based on
the use of ZADAXIN in combination with pegylated interferon alpha for the
treatment of HCV patients who did not previously respond to treatment. We cannot
assure you that these phase 3 clinical trials will yield sufficient or adequate
data to demonstrate appropriate safety and efficacy under FDA guidelines. Any
failure to obtain sufficient or adequate data could delay or prevent us from
securing FDA approval.

Our two phase 3 HCV clinical trials in the United States have
been designed to show that the combination of ZADAXIN and pegylated interferon
alpha adds a significant clinical benefit when compared to the use of pegylated
interferon alpha alone in non-responders. We cannot assure you that the results
of this combination therapy will be favorable, or that the independent use of
pegylated interferon alpha will not perform better than anticipated, either of
which could reduce the chances that an NDA will be approved or that we will
submit an NDA based on such results. If the combination therapy of ZADAXIN and
pegylated interferon alpha causes significant adverse side effects beyond those
caused by pegylated interferon alpha alone, our clinical trials could be
delayed, we may be forced to halt the trials or the FDA may reject an NDA due to
safety issues. If any of the foregoing occurs, our efforts to market and sell
ZADAXIN in the United States will be significantly impaired, our business will
suffer and the price of our stock may decline.

The results and documentation of the hepatitis B clinical
trials for ZADAXIN in Japan may not be sufficient to obtain Japanese regulatory
approval.

Despite the favorable data from our phase 3 hepatitis B
clinical trial in Japan, we have identified problems in meeting the requirements
for filing a Japanese New Drug Application (JNDA) for ZADAXIN.  A JNDA filing
requires complete documentation from all phases of the clinical trials.  The
phase 1 and phase 2 clinical trials, and part of the phase 3 clinical trials,
were conducted and sponsored by Schering Plough KK (SPKK), a pharmaceutical
company in Japan, under a development agreement with SciClone.  After soliciting
from SPKK the data and documentation necessary to proceed with the JNDA filing
in Japan, and after receiving some additional documentation, we have determined
that certain information and documentation from earlier stages of the
development process has still not been delivered.  Furthermore, we are concerned
that some of the necessary documentation may not be available at all, and that
certain important administrative procedures may not have been observed during
the clinical trial process.  If the necessary documentation cannot be obtained
or reproduced, or if important administrative procedures were not complied with,
it is unlikely that we will be able to proceed with the JNDA.  We are reviewing
our legal rights and remedies with respect to third parties.  We continue to
seek a resolution of this matter with SPKK.

Higher than anticipated patient drop out rates in our clinical trials could make it more difficult to obtain regulatory approval.

Each of our two current phase 3 HCV clinical trials in the
United States enrolled more than the planned number of  500 patients, one trial
treating patients with no liver damage and the other trial treating patients
with mild cirrhosis of the liver. The trials require patient treatment for 48
weeks and a follow-up observation period for an additional 24 weeks.  Patient
dropouts were expected, but have been higher than anticipated.  A patient who
drops out at any point in the 72 weeks of the trial is considered a
"failure to respond" in results of the clinical trial.  We do not
expect that dropouts will  prevent us from completing our trials.  However, in
general, the fewer patients who complete each trial, the higher the positive
response rate for the group of remaining ZADAXIN treated patients in such trial
needs to be in order to demonstrate statistical significance.  Therefore, a
higher than anticipated dropout rate lowers our chances of proving statistical
significance which could adversely effect our preparation of an NDA.

We cannot predict the safety profile of the use of ZADAXIN
when used in combination with other drugs.

Many of our trials involve the use of ZADAXIN in
combination with other drugs. Some of these drugs are known to cause adverse
patient reactions. Even if ZADAXIN does not produce adverse side effects when
used alone, we cannot predict how it will work with other drugs, including
causing possible adverse side effects not directly attributable to the other
drugs that could compromise the safety profile of ZADAXIN when used in certain
combination therapies.

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 worldwide
nature of our business. Following the departure of our Chief Executive Officer
on July 14, 2004, we established an Office of the President, and believe that
the Company will continue to function effectively under the Office of the
President until our new President and Chief Executive Officer, Dr. Ira Lawrence,
begins his service to the Company, which is scheduled to occur on June 1, 2005.
However, we may still be affected adversely, particularly if there is any
unforeseen delay in the start of Dr. Lawrence's service and by changes in our
key management personnel.  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, we assign numerous key
responsibilities to a limited number of individuals, and we would experience
difficulty in finding immediate replacements for any of them. If we were 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 be adversely affected.
At this time, we do not maintain "key person" life insurance on any of our key
personnel.

Our revenue is 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 product revenue 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 China.
Sales of ZADAXIN in China may be limited due to the low average personal income,
lack of patient cost reimbursement, poorly developed infrastructure and existing
and potential competition from other products, including generics. In China,
ZADAXIN is approved only for the treatment of HBV.  We face competition from
certain large, global pharmaceutical companies who are aggressively marketing
competing products for the treatment of HBV and other indications where ZADAXIN
is used on an off-label basis.  In addition, several local companies have
introduced lower priced locally manufactured generic thymosin which is a
competitive product.  We expect such competition to
continue and there could be a negative impact on the price and the volume of
ZADAXIN sold in China, which would harm our business.

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 registrations, permits, pricing
approvals and reimbursement and unexpected changes in regulatory requirements.
We are also subject to the laws and regulations of other countries regarding the
marketing, sale and distribution of our products in those countries where
approvals have been obtained.  We experience other issues with managing foreign
sales operations including long payment cycles, difficulties in accounts
receivable collection and, especially from significant customers, fluctuations
in the timing and amount of orders. Operations in foreign countries also expose
us to risks relating to difficulties in enforcing our proprietary rights,
currency fluctuations and adverse or deteriorating economic conditions.  If we
experience problems with obtaining registrations, complying with reimbursement
rules or compliance with other laws, or if we experience difficulties in
payments or intellectual property matters in foreign jurisdictions, our results
could be adversely affected.

We do not have product sales in the United States, Europe or
Japan with which to offset any decrease in our revenue from ZADAXIN sales in
Asia, Latin America and the Middle East, and sales outside of China have not
been substantial to date. 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.

Because of China's tiered method of importing and distributing finished
pharmaceutical products, our quarterly results may vary substantially from one
period to the next.

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 typically place large, and therefore relatively few, orders
within any six month period. 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. We rely on four to six importers, in any given quarter, to supply
substantially all of our product in China. Because we use a small number of
importing agents in China, our receivables from any one importing agent are
material, and if we were unable to collect receivables from any importer, our
business and cash-flow would be adversely affected.

Our sales of ZADAXIN may fluctuate due to seasonality of product orders
and sales in any quarter may not be indicative of future sales.

Our sales for the quarter ended June 30, 2003 were greatly
affected by the demand in China for ZADAXIN in connection with the treatment of
SARS. To date, SARS has not re-emerged, like influenza, as a seasonal public
health problem.  However, if SARS or a similar epidemic were to emerge, it is
not possible to predict what effect, if any, this would have on future sales of
ZADAXIN.  Although we do not market ZADAXIN for use in treating such epidemic
diseases, if ZADAXIN is purchased in connection with
future outbreaks of seasonal viral contagions, product sales could become more
concentrated in certain quarters of the calendar year, quarterly sales levels
could fluctuate and sales in any quarter may not be indicative of sales in
future periods.

If we fail to protect our products, technologies and trade secrets, we may
not be able to successfully use, manufacture, market or 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 and
to preserve our trade secrets. 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 that may be issued, if any, 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, market or sell our
products or maintain our competitive position with respect to our products.
Although many of our patents relating to ZADAXIN have expired, including
composition of matter patents, we have rights to other patents and patent
applications relating to ZADAXIN and ZADAXIN analogues, including method of use
patents with respect to the use of ZADAXIN for certain indications. If other
parties develop generic forms of ZADAXIN for other indications, including
conducting clinical trials for such indications, our patents and other rights
might not be sufficient to prohibit them from marketing and selling such generic
forms of ZADAXIN. If other parties develop analogues or derivatives of ZADAXIN,
our patents and other rights might not be sufficient to prohibit them from
marketing these analogues or derivatives.

Pharmaceutical products are either not patentable or have
only recently become patentable in some of the countries in which we market or
may market ZADAXIN. We do not have patent protection for ZADAXIN in China, our
largest market.  Other companies market generic thymosin alpha 1 in China,
sometimes in violation of our trademark or other rights which we defend by
informing physicians and hospitals of the practice as well as through the
limited legal recourse.  Past enforcement of intellectual property rights in
many of these countries, including China in particular, 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 are involved in intellectual property claims and litigation, the
proceedings may divert our resources and subject us to significant liability for
damages, substantial litigation expense and the loss of our proprietary
rights.

Our commercial success 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 a third-party patent that may relate to our products and may cover a
method of action used by ZADAXIN. We cannot assure you that our mechanism of
action does not infringe on their claim. In addition, we may not be aware of all
patents or patent applications that may impact our ability to make, use or sell
any of our potential products. For example, U.S. patent applications may be kept
confidential for 12 or more months while pending in the Patent and Trademark
Office, and patent applications filed in foreign countries are often first
published six months or more after filing. 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,
regardless of merit, 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. Any conflicts resulting from the patent rights of others could
significantly reduce the coverage of our patents and limit our ability to obtain
meaningful patent protection.

If other companies obtain patents with conflicting claims, we
may be required to obtain licenses to those patents or develop or obtain
alternative technology to manufacture or market the affected products and
processes. We may not be able to obtain any such licenses on acceptable terms or
at all. Any failure to obtain such licenses could delay or prevent us from
pursuing the development or commercialization of our potential products. Our
efforts to defend against any of these claims would require us to devote
resources and attention that could have been directed to our operations and
growth plans.

We may need to initiate litigation, which could be time-
consuming and expensive, to enforce our proprietary rights or to determine the
scope and validity of others' rights. If litigation results, a court may find
our patents or those of our licensors invalid or may find that we have infringed
on a competitor's rights. If any of our competitors have filed patent
applications in the United States which claim technology we also have invented,
the Patent and Trademark Office may require us to participate in expensive
interference proceedings to determine who has the right to a patent for the
technology. 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.

We rely on third parties to supply our clinical trial and commercial
products. Deficiencies in their work could delay or harm one or more important
areas of our business including our sales, clinical trials or the regulatory
approval process.

We rely on third parties, who are subject to regulatory
oversight, to supply our clinical and commercial products.  We have been in the
process of registering a new manufacturer of ZADAXIN and if we encounter
problems with this process of validation, our sales or our clinical trials could
be adversely affected.  If sales of ZADAXIN were to increase dramatically, our
third-party suppliers may not be able to supply ZADAXIN quickly enough, which
could limit our ability to satisfy increased demand or could adversely affect
the ability of these suppliers to provide products for our clinical trials. If
unanticipated deficiencies in these suppliers occur, we could experience delays
in our ability to assemble a timely and acceptable NDA.  Roche is our exclusive
supplier of pegylated interferon alpha for our current U.S. phase 3 HCV clinical
trials and we have received all the pegylated interferon to be used in these
clinical trials.  However, any recall of pegylated interferon alpha could delay
the clinical trials or detract from the integrity of the trial data, in which
case, our ability to complete the clinical trials in the United States and to
market and sell ZADAXIN worldwide will be delayed or impaired, our business will
suffer and the price of our stock may decline.

If we are not able to establish and maintain adequate manufacturing
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 stringent regulatory requirements and
at an acceptable cost. Typically we have at any time only one supplier for each
phase of manufacturing of our product.  Manufacturing interruptions or failure
to comply with regulatory requirements could significantly delay clinical
development of potential products and reduce third-party or clinical researcher
interest and support of proposed trials. These interruptions or failures 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.

We are in the process of registering a new supplier for
ZADAXIN with regulatory agencies.  This process, quality assurance and other
steps could cause delays or interruptions of supply.  To date, the registration
process has proceeded more slowly than anticipated and if we do not obtain the
required regulatory approvals for a manufacturing change in China by the end of
the second quarter, our sales may be interrupted until the manufacturing change
is approved which could adversely affect our results.  We have also applied for
a one-time permit to import product from the new manufacture while the
registration process continues.  Although we have received a one-time permit in
the past, we cannot assure that the authorities will grant this exemption
request.

In some countries, a manufacturing change may require
additional regulatory approvals which may delay ZADAXIN marketing approvals in
new markets.

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

We may not be able to successfully develop or commercialize our products.
We may consider strategic alliances with other companies in efforts to broaden
our product development pipeline.

While we have limited sales of ZADAXIN in certain markets, we
do not yet have regulatory approval for ZADAXIN for our principal target
markets, and, in this respect, ZADAXIN is still being developed. Our other
potential products are in earlier stages of development than ZADAXIN. We may
consider and undertake various strategies to expand our portfolio of potential
products, including acquiring product candidate rights through licenses or other
relationships, or through other strategic relationships including acquisitions
of other companies that may have proprietary rights to other development
candidates or the capability to discover new drug candidates.  Such transactions
could require a substantial amount of our financial resources, or, if equity is
involved, may result in substantial dilution to current stockholders.  Strategic
transactions also require substantial management time and effort and are subject
to various risks that could adversely affect us or our financial results.

To fully develop our products, we will need to commit
substantial resources to extensive research, development, pre-clinical testing,
clinical trials, manufacturing scale-up and regulatory approval prior to being
ready for sale. We cannot assure that our efforts will produce commercially
viable products. 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 and our
sales have been primarily in a single country, China. Our future revenue growth
depends on increased market acceptance and commercialization of ZADAXIN in
additional countries, particularly in the United States, Europe and Japan. If we
fail to successfully market ZADAXIN, or if we cannot commercialize this drug in
the United States and other additional markets, our revenue and operating
results will suffer. If unexpected and serious adverse events are reported, or
if expected efficacy results are not achieved, it would have a material adverse
effect on our business.  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 to use our products as an alternative to other
treatments and therapies and to convince prospective strategic partners to
market our products effectively and to manufacture our products in sufficient
quantities with acceptable quality and at an acceptable cost. In addition,
doctors must opt to use treatments involving our products. If doctors elect to
use a different course of treatment, demand for our drug products would be
reduced. Failure to do any of the above will lead to an unfavorable outcome on
the results of our operations.

We rely on third-party clinical investigators to conduct our clinical
trials and, as a result, we may encounter delays outside our control.

We have limited experience in conducting and managing
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 fulfill their obligations to us.

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

We believe our existing resources will be sufficient to
complete our current U.S. phase 3 clinical trials and, if the trials are
successful and we receive FDA approval, to begin commercialization of ZADAXIN in
the United States. However, we cannot assure that such funds will be sufficient,
or that sales of ZADAXIN, if approved in the United States, will result in
profitable operations. In addition, we intend to develop other products and we
may need additional funds in the future to support such development and to
support future growth and achieve profitability. If we need to raise additional
funds in the future and such funds are not available on reasonable terms, if at
all, our commercialization efforts may be impeded, our revenues may be limited
and our operating results may suffer.

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, 2005, we had an accumulated deficit of
approximately $153 million. 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 United States, and these losses may increase if we cannot increase or
sustain revenue. As a result, we may never achieve profitability.

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 may 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. Moreover, 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.

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. For example, Sigma-Tau is
responsible for the development and marketing of ZADAXIN in Europe. 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 hurt our business and cause our stock price to decline. In addition,
our relationships with these companies may not be successful. Disputes may arise
with our collaborators, including disputes over ownership rights to intellectual
property, know-how or technologies developed with our collaborators. We may not
be able to negotiate similar additional arrangements in the future to develop
and commercialize ZADAXIN or other products.

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 will increase. Our success depends on our ability to
compete in this industry, but we cannot assure you that we will be able to
successfully compete with our competitors. Increased competitive pressure could
lead to intensified price-based competition resulting in lower prices and
margins, which would hurt our operating results.

We are focused on developing ZADAXIN as a treatment for HCV
and HBV and certain cancers. Several large biopharmaceutical companies have
substantial commitments to interferon alpha, an approved drug for treating HBV
and HCV, and to lamivudine and adefovir, approved drugs to treat HBV. 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 HCV, HBV, cancer and other diseases that will be superior to
ours.

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

Significant uncertainty exists as to the reimbursement status
of new therapeutic products, such as ZADAXIN. We cannot assure you that third-
party insurance coverage and reimbursement will be available for therapeutic
products we might develop. The failure to obtain third-party reimbursement for
our products, particularly in the United States, Europe and Japan, would harm
our business. Further, we cannot assure you that additional limitations will not
be imposed in the future in the United States on drug coverage and reimbursement
due to proposed health care reforms. In many emerging markets where we have
marketing rights to ZADAXIN, but where government resources and per capita
income may be so low that our products will be prohibitively expensive, we may
not be able to market our products on economically favorable terms, if at
all.

Efforts by governmental and third-party payers to contain or
reduce health care costs or the announcement of legislative proposals or reforms
to implement government controls could cause us to reduce the prices at which we
market our drugs, which will reduce our gross margins and may harm our
business.

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, if at
all, 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.

We depend on international sales, and global conditions
could negatively affect our operating results.

A large majority of our sales are in China. Heightened
tensions resulting from the current geopolitical conditions in the Middle East,
North Korea and elsewhere could worsen, causing disruptions in foreign trade,
which would harm our sales. In particular, our commercial product is
manufactured in Europe and distributed by us from our operations in Hong Kong.
Any disruption of our supply and distribution activities due to geopolitical
conditions could decrease our sales and harm our operating results.

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

We are subject to various federal, state and local laws,
regulations and recommendations relating to the use, manufacture, storage,
handling and disposal of hazardous materials and waste products (including
radioactive compounds and infectious disease agents), as well as safe working
conditions, laboratory and manufacturing practices and the experimental use of
animals. The extent of government regulation that might result from future
legislation or administrative action in these areas cannot be accurately
predicted.

We do not currently maintain hazardous materials at our
facilities. 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 environmental laws and regulations. Further, in the event of an accident,
we would be liable for any damages that result, and the liability could exceed
our resources.

Our stock price may be volatile, and an investment in our stock could
suffer a decline in value.

The market price of our common stock has experienced, and may
continue to experience, substantial volatility due to many factors, some of
which we have no control over, including:

- progress and results of clinical trials involving ZADAXIN;
- progress of ZADAXIN through the regulatory process, especially regulatory
actions and the adequacy of clinical data and documentation for regulatory
purposes in the United States, Europe and Japan;
- timing and achievement of milestones;
- announcements of technological innovations or new products by us or our
competitors;
- government regulatory action affecting our drug products or our
competitors' drug products in both the United States and foreign countries;
- developments or disputes concerning patent or proprietary rights;
- changes in company assessments or financial estimates by securities
analysts;
- actual or anticipated fluctuations in our quarterly operating results;
- general stock market conditions and fluctuations for the emerging growth
and biopharmaceutical market sectors;
- economic conditions in the United States or abroad; and
- broad financial market fluctuations in the United States, Europe or
Asia.

In the past, following periods of large price declines in the
public market price of a company's securities, securities class action
litigation has often been initiated against that company. Litigation of this
type could result in substantial costs and diversion of our attention and
resources, which would hurt our business. Any adverse determination in
litigation could also subject us to significant liabilities.

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

As of March 31, 2005, stock options to purchase 7,371,638
shares of common stock were outstanding, of which options to purchase 5,131,413
shares were exercisable.  Also, as of the same date two notes convertible into a
total of 684,140 shares of common stock were outstanding.  The note holder has
the right to purchase up to $8.3 million of additional convertible notes due on
or before March 2006, which, if fully issued, will be convertible into an
additional 684,140 shares of our common stock.  Upon exercise of options 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 present
stockholders will be reduced and the price of our common stock may fall.

Sales of our common stock by officers and directors and a former officer
could affect our stock price.

Our Board of Directors has approved an amendment to our
trading policy that permits officers and directors to enter into trading plans
that comply with the requirements of Rule 10b5-1 of the Securities and Exchange
Act of 1934.  Rule 10b5-1 allows corporate officers and directors to adopt
written, pre-arranged stock trading plans when they do not have material, non-
public information. Using these plans, officers and directors can gradually
diversify their investment portfolios, can spread stock trades out over an
extended period of time to reduce any market impact and can avoid concerns about
initiating stock transactions at a time when they might be in possession of
material, non-public information.  As of April 19, 2005, only one director has
adopted such a plan, and other directors or officers may do so in the future.
In general our officers and directors have rarely sold stock in the Company,
though they have held options or stock for many years.  However, our former
Chief Executive Officer has been exercising his stock options and selling stock
which may have affected or may in the futureaffect the
trading price of our stock.  As of April 19, 2005, our former Chief Executive
Officer had stock options that will expire between April 2005 and July 2006 and
are exercisable to purchase a total of 1,443,954 shares of our common stock.  We
expect future sales by officers and directors either under 10b5-1 plans or
otherwise as a result of their personal financial planning.  We do not believe
the volume of such sales would affect our trading price; however, the market
could react negatively to sales by our officers and directors, which could
affect the trading price of our stock.

Anti-takeover provisions in our charter documents and under Delaware law
may make an acquisition of us, which may be beneficial to our stockholders, more
difficult.

Certain anti-takeover provisions of Delaware law and our
charter documents as currently in effect may make a change in control of our
company more difficult, even if a change in control would be beneficial to the
stockholders. Prior to our reincorporation in Delaware, we had a stockholder
rights plan, also commonly known as a "poison pill," which we terminated in
connection with the reincorporation.  We currently do not intend to adopt a
stockholder rights plan. However, our charter documents do contain certain anti-
takeover provisions, including provisions in our certificate of incorporation
providing that stockholders may not cumulate votes, stockholders' meetings may
be called by stockholders only if they hold 25% or more of our common stock and
provisions in our bylaws providing that the stockholders may not take action by
written consent. Additionally, our board of directors has the authority to issue
10 million shares of preferred stock and to determine the terms of those shares
of stock without any further action by the stockholders. The rights of holders
of our common stock are subject to the rights of the holders of any preferred
stock that may be issued. The issuance of preferred stock could make it more
difficult for a third-party to acquire a majority of our outstanding voting
stock. Delaware law also prohibits corporations from engaging in a business
combination with any holders of 15% or more of their capital stock until the
holder has held the stock for three years unless, among other possibilities, the
board of directors approves the transaction.  Our board of directors may use
these provisions to prevent changes in the management and control of our
company. Also, under applicable Delaware law, our board of directors may adopt
additional anti-takeover measures in the future.

New accounting pronouncements may impact our operations and financial
position or results of operations.

Future changes in financial accounting standards may cause
adverse, unexpected fluctuations in the timing of the recognition of revenues or
expenses and may affect our financial position or results of operations.  New
pronouncements and varying interpretations of pronouncements have occurred with
frequency and may occur in the future and this may lead to changes in our
accounting policies in the future.  Compliance with changing regulations
concerning corporate governance and public disclosure has resulted in and may
continue to result in additional expenses.  One such new pronouncement issued in
December 2004 by the Financial Accounting Standards Board
("FASB") is FASB Statement No. 123 (revised 2004), "Share-Based
Payment" ("SFAS 123R").  SFAS 123R requires share-based
payments to employees and directors, including grants of stock options, to be
recognized in the statement of operations based on their fair values.  We expect
to adopt SFAS 123R on January 1, 2006.  As permitted by SFAS 123, the Company
currently accounts for share-based payments to employees and directors using
Accounting Principles Board Opinion 25's intrinsic value method and, as such,
generally recognizes no compensation cost for employee and director stock
options and employee stock purchase plans.  Accordingly, the adoption of SFAS
123R's fair value method will have a significant impact on our results of
operations, although it will have no impact on our overall financial position.

New legislation may impact our operations and financial
position or results of operations.

Compliance with changing regulations concerning corporate
governance and public disclosure has resulted in and may continue to result in
additional expenses. Changing laws, regulations and standards relating to
corporate governance and public disclosure, including the Sarbanes-Oxley Act of
2002, new SEC regulations and NASDAQ National Market rules, are creating
uncertainty for companies such as ours and costs are increasing as a result of
this uncertainty and other factors.  We are committed to maintaining high
standards of corporate governance and public disclosure.  As a result, we intend
to invest all reasonably necessary resources to comply with evolving standards,
and this investment has and may continue to result in increased general and
administrative expenses and a diversion of management time and attention from
revenue-generating activities to compliance activities.

We may be subject to currency exchange rate fluctuations, which could
adversely affect our financial performance.

Substantially all of our product sales are denominated
in U.S. dollars.  Fluctuation in the U.S. dollar exchange rate with local
currency directly affects the customer's cost for our product.  In particular, a
stronger U.S. dollar vis-à-vis the local currency would tend to have an
adverse effect on sales and potentially on collection of accounts receivable.
To date, this exposure to currency exchange rate fluctuations has been minimal
because the Chinese currency has been pegged to the U.S. dollar.  However, the
fixed nature of the Chinese currency in relation to the U.S. dollar may not
continue in the future and, consequently, our foreign operations may expose us
to greater risk of currency exchange rate fluctuations in the future.  In
addition, we are subject to currency exchange rate fluctuations as a result of
expenses incurred by our foreign operations.  In particular, one of our supply
arrangements under which we purchase finished products is denominated in euros.
Consequently, changes in exchange rates could unpredictably and adversely affect
our operating results and could result in exchange losses.  To date, we have not
hedged against the risks associated with fluctuations in exchange rates and,
therefore, exchange rate fluctuations could have a material adverse impact on
our future operating results and stock price.

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 primarily in
U.S. Treasury or U.S. government agency notes. Our investments in these notes
are subject to interest rate risk. To minimize the exposure due to an adverse
shift in interest rates, we invest in short-term notes and maintain an average
maturity of less than one year.  A hypothetical 60 basis point increase in
interest rates would result in an approximate $209,652 decrease (0.6%) in fair
value of our available-for-sale securities. This potential change is based on
sensitivity analyses performed on our financial position at March 31, 2005.
Actual results may differ materially.

Substantially all our sales and most of our
manufacturing costs to date have been in U.S. dollars and our foreign currency
exchange rate losses to date have been insignificant.  Our purchases from one of
our contract manufacturers, however, are denominated in euros and this exposes
us to foreign currency rate fluctuations. Consequently, changes in exchange
rates could unpredictably and adversely affect our operating results and could
result in significant exchange rate losses.  To date, we have not hedged against
the risks associated with fluctuations in exchange rates and, therefore,
exchange rate fluctuations could have a material adverse impact on our future
operating results and stock price.

Item 4. Controls and Procedures

Under the supervision and with the participation of our
management, including our Chief Financial Officer and both members of our Office
of the President, we evaluated the effectiveness of our disclosure controls and
procedures, as such term is defined in Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended.  Based on this evaluation, our
Chief Financial Officer and the members of our Office of the President concluded
that our disclosure controls and procedures were effective as of the end of the
period covered by this quarterly report.

PART II.  OTHER INFORMATION

Item 6.  Exhibits

|Exhibit Number | Description                                                                                                               
|-------------- | --------------------------------------------------------------------------------------------------------------------------
|3(i).1(1)      | Amended and Restated Certificate of
Incorporation.                                                                        
|3(ii).1(1)     | Bylaws.                                                                                                                   
|4.1(2)         | Rights Agreement dated as of July 25, 1997
between the Registrant and Chase Mellon Shareholder Services, LLC.             
|4.2(1)         | First Amendment to Rights Agreement dated as of
July 17, 2003 between the Registrant and Mellon Investor Services
LLC.    
|4.3(3)*        | 6% Convertible Note dated as of December 7, 2000
by the Registrant in favor of UBS AG, London Branch.                     
|4.4(3)*        | Option Agreement dated as of October 26, 2000 by
and between the Registrant and UBS AG, London Branch.                    
|4.5(3)*        | Amendment No. 1 to Option Agreement dated as of
December 19, 2000 by and between the Registrant and UBS AG, London
Branch.
|4.6(4)*        | 6% Convertible Note dated as of March 21, 2001
by the Company in favor of UBS AG, London Branch.                          
|4.7(4)*        | Option Agreement dated as of February 16, 2001
by and between the Company and UBS AG, London Branch.                      
|4.8(4)*        | Amendment No.1 to Option Agreement dated as of
March 21, 2001 by and between the Company and UBS AG, London Branch.       
|31.1(5)        | Rule 13a-14(a) Certification of member of the
Office of the President.                                                    
|31.2(5)        | Rule 13a-14(a) Certification of Chief Financial
Officer and member of the Office of the President.                        
|32.1(5)        | Section 1350 Certification of member of the
Office of the President.                                                      
|32.2(5)        | Section 1350 Certification of Chief
Financial Officer and member of the Office of the President.                          

*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(b)(4), 200.83 and
230.46.

(1)	Incorporated by reference from the Company's Current
Report on Form 8-K filed on July 28, 2003.

(2)	Incorporated by reference from the Company's Current
Report on Form 8-K filed on October 14, 1997.

(3)	Incorporated by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 2000.

(4)	Incorporated by reference from the Company's Quarterly
Report on Form 10-Q filed on May 15, 2001.

(5)	Filed herewith.

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SIGNATURES

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

|                   | SCICLONE PHARMACEUTICALS, INC.                                                                                                                                                                
|------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                   | (Registrant)                                                                                                                                                                                  
|Date:  May 9, 2005 | /s/  Richard A. Waldron
                                Richard A. Waldron
                               Chief Financial Officer
                  (Principal Financial & Accounting Officer)

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INDEX TO EXHIBITS

|ExhibitNumber | Exhibit                                                                                                                    | Sequentially
      NumberedPage
|------------- | -------------------------------------------------------------------------------------------------------------------------- | -------------------------------
|3(i).1(1)     | Amended and Restated Certificate of
Incorporation                                                                          |                                
|3(ii).1(1)    | Bylaws.                                                                                                                    |                                
|4.1(2)        | Rights Agreement dated as of July 25, 1997 between the
Registrant and Chase Mellon Shareholder Services, LLC.              |                                
|4.2(1)        | First Amendment to Rights Agreement dated as of July 17,
2003 between the Registrant and Mellon Investor Services LLC.     |                                
|4.3(3)*       | 6% Convertible Note dated as of December 7, 2000 by the
Registrant in favor of UBS AG, London Branch.                      |                                
|4.4(3)*       | Option Agreement dated as of October 26, 2000 by and between the
Registrant and UBS AG, London Branch.                     |                                
|4.5(3)*       | Amendment No. 1 to Option Agreement dated as of December 19,
2000 by and between the Registrant and UBS AG, London Branch. |                                
|4.6(4)*       | 6% Convertible Note dated as of March 21, 2001 by the Company in
favor of UBS AG, London Branch.                           |                                
|4.7(4)*       | Option Agreement dated as of February 16, 2001 by and between
the Company and UBS AG, London Branch.                       |                                
|4.8(4)*       | Amendment No. 1 to Option Agreement dated as of March 21, 2001
by and between the Company and UBS AG, London Branch.       |                                
|31.1(5)       | Rule 13a-14(a) Certificate of member of the Office of the
President                                                        |                                
|31.2(5)       | Rule 13a-14(a) Certification of Chief Financial Officer and
member of the Office of the President.                         |                                
|32.1(5)       | Section 1350 Certification of member of the Office of the
President.                                                       |                                
|32.2(5)       | Section 1350 Certification of Chief Financial Officer and
member of the Office of the President.                           |                                

* 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(b)(4), 200.83 and
230.46.

(1)	Incorporated by reference from the Company's Current
Report on Form 8-K filed on July 28, 2003.

(2)	Incorporated by reference from the Company's Current
Report on Form 8-K filed on October 14, 1997.

(3)	Incorporated by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 2000.

(4)	Incorporated by reference from the Company's Quarterly
Report on Form 10-Q filed on May 15, 2001.

(5) 	Filed herewith.

---