##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2008

OR



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

For the transition period from ________________________to ______________________

Commission file number: 0-19825

SCICLONE PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 94-3116852                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. employer Identification no.)
|                                                               | 
|950 Tower Lane, Suite 900, Foster City, California             |  | 94404                               
|(Address of principal executive offices)                       |  | (Zip code)                          

(650) 358-3456

(Registrants telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   ̈            Accelerated filer  x            Non-accelerated filer   ̈            
Smaller Reporting Company   ̈

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).

Yes   ̈    No  x

As of July 29, 2008,
46,219,562 shares of the registrants Common Stock, $0.001 par value, were issued and outstanding.









---

##### Table of Contents

SCICLONE PHARMACEUTICALS, INC.

INDEX



|          |  |                                                                                                                  |  |         
|--------- |  | ---------------------------------------------------------------------------------------------------------------- |  | --------
|          |  |                                                                                                                  |  | PAGE NO.
|PART I.   |  | FINANCIAL INFORMATION                                                                                            |  | 3       
|          |  |                                                                                                                 
|Item 1.   |  | Condensed Consolidated Financial Statements (Unaudited)                                                          |  |         
|          |  |                                                                                                                 
|          |  | Condensed Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007                                  |  | 3       
|          |  |                                                                                                                 
|          |  | Condensed Consolidated Statements of Operations for the three and six-month periods ended June 30, 2008 and 2007 |  | 4       
|          |  |                                                                                                                 
|          |  | Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2008 and
2007           |  | 5       
|          |  |                                                                                                                 
|          |  | Notes to Condensed Consolidated Financial Statements                                                             |  | 6       
|          |  |                                                                                                                 
|Item 2.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                            |  | 14      
|          |  |                                                                                                                 
|Item 3.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                       |  | 31      
|          |  |                                                                                                                 
|Item 4.   |  | Controls and Procedures                                                                                          |  | 32      
|          |  |                                                                                                                 
|PART II.  |  | OTHER INFORMATION                                                                                                |  | 32      
|          |  |                                                                                                                 
|Item 1.   |  | Legal Proceedings                                                                                                |  | 32      
|          |  |                                                                                                                 
|Item 1A.  |  | Risk Factors                                                                                                     |  | 32      
|          |  |                                                                                                                 
|Item 4.   |  | Submission of Matters to a Vote of Security Holders                                                              |  | 35      
|          |  |                                                                                                                 
|Item 6.   |  | Exhibits                                                                                                         |  | 36      
|          | 
|Signature |  | 38                                                                                                              



2



---

##### Table of Contents

PART I. FINANCIAL INFORMATION



|Item 1. | Condensed Consolidated Financial Statements
|------- | -------------------------------------------

SCICLONE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                           |  |              |              |   |                  |   |              |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------------ | - | ---------------- | - | ------------ | -
|                                                                                                                                                                           |  | June 30,2008 |              |   | December 31,2007 |  
|                                                                                                                                                                           |  | (unaudited)  |              |   |                  |  
|ASSETS                                                                                                                                                                     |  |              |              |   |                  |   |              |  
|Current assets:                                                                                                                                                            |  |              |              |   |                  |   |              |  
|Cash and cash equivalents                                                                                                                                                  |  | $            | 21,673,000   |   |                  | $ | 31,817,000   |  
|Restricted short-term investment                                                                                                                                           |  |              | 78,000       |   |                  |   | 72,000       |  
|Other short-term investments                                                                                                                                               |  |              | 134,000      |   |                  |   | 3,392,000    |  
|Accounts receivable, net of allowance of $0 at June 30, 2008 and $15,000 at December 31, 2007                                                                              |  |              | 17,654,000   |   |                  |   | 12,650,000   |  
|Inventories                                                                                                                                                                |  |              | 5,432,000    |   |                  |   | 5,579,000    |  
|Prepaid expenses and other current assets                                                                                                                                  |  |              | 2,286,000    |   |                  |   | 2,949,000    |  
|                                                                                                                                                                           |  |              |              |   |                  |   |              |  
|Total current assets                                                                                                                                                       |  |              | 47,257,000   |   |                  |   | 56,459,000   |  
|Property and equipment, net                                                                                                                                                |  |              | 685,000      |   |                  |   | 774,000      |  
|Intangible assets, net                                                                                                                                                     |  |              | 297,000      |   |                  |   | 332,000      |  
|Long-term investments                                                                                                                                                      |  |              | 1,679,000    |   |                  |   |             |  
|Other assets                                                                                                                                                               |  |              | 995,000      |   |                  |   | 1,094,000    |  
|                                                                                                                                                                           |  |              |              |   |                  |   |              |  
|Total assets                                                                                                                                                               |  | $            | 50,913,000   |   |                  | $ | 58,659,000   |  
|                                                                                                                                                                           |  |              |              |   |                  |   |              |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                       |  |              |              |   |                  |   |              |  
|Current liabilities:                                                                                                                                                       |  |              |              |   |                  |   |              |  
|Accounts payable                                                                                                                                                           |  | $            | 851,000      |   |                  | $ | 1,937,000    |  
|Accrued compensation and employee benefits                                                                                                                                 |  |              | 1,705,000    |   |                  |   | 1,758,000    |  
|Accrued professional fees                                                                                                                                                  |  |              | 839,000      |   |                  |   | 699,000      |  
|Other accrued expenses                                                                                                                                                     |  |              | 2,638,000    |   |                  |   | 3,394,000    |  
|Accrued clinical trials expense                                                                                                                                            |  |              | 470,000      |   |                  |   | 1,614,000    |  
|Accrued clinical trials expense due to related party                                                                                                                       |  |              | 1,816,000    |   |                  |   | 1,620,000    |  
|Deferred revenue                                                                                                                                                           |  |              | 64,000       |   |                  |   | 37,000       |  
|                                                                                                                                                                           |  |              |              |   |                  |   |              |  
|Total current liabilities                                                                                                                                                  |  |              | 8,383,000    |   |                  |   | 11,059,000   |  
|Long-term liabilities                                                                                                                                                      |  |              | 211,000      |   |                  |   | 341,000      |  
|Commitments and contingencies (see Note 11)                                                                                                                                |  |              |              |   |                  |   |              |  
|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; 46,219,562 and 46,121,562 shares issued and outstanding at June 30, 2008
and December 31, 2007, respectively |  |              | 46,000       |   |                  |   | 46,000       |  
|Additional paid-in capital                                                                                                                                                 |  |              | 216,799,000  |   |                  |   | 215,633,000  |  
|Accumulated other comprehensive (loss) income                                                                                                                              |  |              | (46,000      | ) |                  |   | 82,000       |  
|Accumulated deficit                                                                                                                                                        |  |              | (174,480,000 | ) |                  |   | (168,502,000 | )
|                                                                                                                                                                           |  |              |              |   |                  |   |              |  
|Total stockholders equity                                                                                                                                                 |  |              | 42,319,000   |   |                  |   | 47,259,000   |  
|                                                                                                                                                                           |  |              |              |   |                  |   |              |  
|Total liabilities and stockholders equity                                                                                                                                 |  | $            | 50,913,000   |   |                  | $ | 58,659,000   |  
|                                                                                                                                                                           |  |              |              |   |                  |   |              |  

See notes to condensed consolidated financial statements.



3



---

##### Table of Contents

SCICLONE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



|                                                                               |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------------ |  | -------------------------- | ---------- | - | ------------------------ | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                               |  | Three Months EndedJune 30, |            |   | Six Months EndedJune 30, |  
|                                                                               |  | 2008                       |            |   | 2007                     |   |            | 2008 |  |   | 2007       |  
|Product sales                                                                  |  | $                          | 13,834,000 |   |                          | $ | 8,955,000  |      |  | $ | 24,468,000 |   |  | $ | 17,599,000 |  
|Cost of product sales                                                          |  |                            | 2,511,000  |   |                          |   | 1,687,000  |      |  |   | 4,478,000  |   |  |   | 3,315,000  |  
|                                                                               |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Gross margin                                                                   |  |                            | 11,323,000 |   |                          |   | 7,268,000  |      |  |   | 19,990,000 |   |  |   | 14,284,000 |  
|                                                                               |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Operating expenses:                                                            |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Research and development                                                       |  |                            | 4,466,000  |   |                          |   | 4,585,000  |      |  |   | 11,888,000 |   |  |   | 6,882,000  |  
|Related party research and development                                         |  |                            | 69,000     |   |                          |   | 127,000    |      |  |   | 196,000    |   |  |   | 253,000    |  
|Sales and marketing                                                            |  |                            | 4,192,000  |   |                          |   | 3,139,000  |      |  |   | 8,140,000  |   |  |   | 6,163,000  |  
|General and administrative                                                     |  |                            | 2,860,000  |   |                          |   | 2,444,000  |      |  |   | 5,881,000  |   |  |   | 5,054,000  |  
|                                                                               |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Total operating expenses                                                       |  |                            | 11,587,000 |   |                          |   | 10,295,000 |      |  |   | 26,105,000 |   |  |   | 18,352,000 |  
|                                                                               |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Loss from operations                                                           |  |                            | (264,000   | ) |                          |   | (3,027,000 | )    |  |   | (6,115,000 | ) |  |   | (4,068,000 | )
|Interest and investment income                                                 |  |                            | 124,000    |   |                          |   | 419,000    |      |  |   | 385,000    |   |  |   | 873,000    |  
|Interest and investment expense                                                |  |                            |           |   |                          |   | (10,000    | )    |  |   |           |   |  |   | (20,000    | )
|Other income (expense), net                                                    |  |                            | 17,000     |   |                          |   | (11,000    | )    |  |   | 54,000     |   |  |   | (17,000    | )
|                                                                               |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Loss before provision for income tax                                           |  |                            | (123,000   | ) |                          |   | (2,629,000 | )    |  |   | (5,676,000 | ) |  |   | (3,232,000 | )
|Provision for income tax                                                       |  |                            | 196,000    |   |                          |   | 28,000     |      |  |   | 302,000    |   |  |   | 49,000     |  
|                                                                               |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Net loss                                                                       |  | $                          | (319,000   | ) |                          | $ | (2,657,000 | )    |  | $ | (5,978,000 | ) |  | $ | (3,281,000 | )
|                                                                               |  |                            |            |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Basic and diluted net loss per share                                           |  | $                          | (0.01      | ) |                          | $ | (0.06      | )    |  | $ | (0.13      | ) |  | $ | (0.07      | )
|Weighted average shares used in computing basic and diluted net loss per share |  |                            | 46,219,562 |   |                          |   | 46,093,452 |      |  |   | 46,204,804 |   |  |   | 46,083,777 |  

See notes to condensed consolidated financial statements.



4



---

##### Table of Contents

SCICLONE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                            |  |                          |             |   |      |   |            |  
|--------------------------------------------------------------------------- |  | ------------------------ | ----------- | - | ---- | - | ---------- | -
|                                                                            |  | Six Months EndedJune 30, |            
|                                                                            |  | 2008                     |             |   | 2007 |  
|Operating activities:                                                       |  |                          |             |   |      |   |            |  
|Net loss                                                                    |  | $                        | (5,978,000  | ) |      | $ | (3,281,000 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                          |             |   |      |   |            |  
|Non-cash expense related to employee stock options                          |  |                          | 992,000     |   |      |   | 1,158,000  |  
|Amortization of interest on investments held to maturity                    |  |                          |            |   |      |   | 26,000     |  
|Depreciation and amortization                                               |  |                          | 157,000     |   |      |   | 109,000    |  
|Changes in operating assets and liabilities:                                |  |                          |             |   |      |   |            |  
|Accounts receivable, net                                                    |  |                          | (5,004,000  | ) |      |   | (76,000    | )
|Inventories                                                                 |  |                          | 172,000     |   |      |   | (1,222,000 | )
|Prepaid expenses and other assets                                           |  |                          | 762,000     |   |      |   | (636,000   | )
|Accounts payable and other accrued expenses                                 |  |                          | (1,842,000  | ) |      |   | (670,000   | )
|Accrued compensation and employee benefits                                  |  |                          | (53,000     | ) |      |   | (607,000   | )
|Accrued clinical trials expenses                                            |  |                          | (1,144,000  | ) |      |   | (134,000   | )
|Accrued clinical trials expense due to related party                        |  |                          | 196,000     |   |      |   | (233,000   | )
|Accrued professional fees                                                   |  |                          | 140,000     |   |      |   | 241,000    |  
|Deferred revenue                                                            |  |                          | 27,000      |   |      |   | (26,000    | )
|Long-term liabilities                                                       |  |                          | (130,000    | ) |      |   | 58,000     |  
|                                                                            |  |                          |             |   |      |   |            |  
|Net cash used in operating activities                                       |  |                          | (11,705,000 | ) |      |   | (5,293,000 | )
|                                                                            |  |                          |             |   |      |   |            |  
|Investing activities:                                                       |  |                          |             |   |      |   |            |  
|Purchases of property and equipment                                         |  |                          | (28,000     | ) |      |   | (16,000    | )
|Proceeds from sales and maturities of short-term investments                |  |                          | 2,293,000   |   |      |   | 13,808,000 |  
|Purchases of short-term investments                                         |  |                          | (900,000    | ) |      |   | (6,954,000 | )
|                                                                            |  |                          |             |   |      |   |            |  
|Net cash provided by investing activities                                   |  |                          | 1,365,000   |   |      |   | 6,838,000  |  
|                                                                            |  |                          |             |   |      |   |            |  
|Financing activities:                                                       |  |                          |             |   |      |   |            |  
|Proceeds from issuances of common stock, net                                |  |                          | 149,000     |   |      |   | 225,000    |  
|                                                                            |  |                          |             |   |      |   |            |  
|Net cash provided by financing activities                                   |  |                          | 149,000     |   |      |   | 225,000    |  
|                                                                            |  |                          |             |   |      |   |            |  
|Effect of exchange rate changes on cash and cash equivalents                |  |                          | 47,000      |   |      |   |           |  
|                                                                            |  |                          |             |   |      |   |            |  
|Net (decrease) increase in cash and cash equivalents                        |  |                          | (10,144,000 | ) |      |   | 1,770,000  |  
|Cash and cash equivalents, beginning of period                              |  |                          | 31,817,000  |   |      |   | 25,615,000 |  
|                                                                            |  |                          |             |   |      |   |            |  
|Cash and cash equivalents, end of period                                    |  | $                        | 21,673,000  |   |      | $ | 27,385,000 |  
|                                                                            |  |                          |             |   |      |   |            |  
|Supplemental disclosures of cash flow information:                          |  |                          |             |   |      |   |            |  
|Income taxes paid related to foreign operations                             |  | $                        | 297,000     |   |      | $ | 21,000     |  

See notes to condensed consolidated financial statements.



5



---

##### Table of Contents

SCICLONE PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)



|1. | Basis of Presentation
|-- | ---------------------

The accompanying
unaudited condensed consolidated financial statements of SciClone Pharmaceuticals, Inc. (SciClone or the Company) have been prepared in conformity with generally accepted accounting principles in the United States
(GAAP) consistent with those applied in, and should be read in conjunction with, the audited financial statements for the year ended December 31, 2007 included in the Companys Form 10-K as filed with the Securities and
Exchange Commission. The interim financial information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods
presented and are not necessarily indicative of results for subsequent interim periods or for the full year. The condensed consolidated balance sheet data at December 31, 2007 is derived from the audited financial statements at that date but
does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. Material intercompany accounts and transactions have been eliminated.

Use of Estimates

The
preparation of financial statements in conformity with GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in our Condensed Consolidated Financial Statements and accompanying notes. Actual results
could differ materially from those estimates.

Significant Accounting Policies

Revenue Recognition

The Company
recognizes revenue from product sales at the time of delivery. There are no significant customer acceptance requirements or post shipment obligations on the part of the Company. Sales to importing agents or distributors are recognized at time of
shipment when title to the product is transferred to them, and they do not have contractual rights of return except under limited terms regarding product quality. However, the Company is expected to replace products that have expired or are deemed
to be damaged or defective when delivered. The Company estimates expected returns primarily on historical patterns. Historically, the Company has had no product returns of damaged, defective or expired product. As such, no amount was accrued for
product returns as of June 30, 2008 or December 31, 2007 in the condensed consolidated balance sheets. Payments by the importing agents and distributors are not contingent upon sale to the end user by the importing agents or distributors.

Amounts invoiced relating to arrangements where revenue cannot be recognized are reflected on the Companys balance sheet as deferred
revenue and recognized as the applicable revenue recognition criteria are satisfied.

Net Loss Per Share

Net loss per share is computed using the weighted average number of shares of common stock outstanding. For the three months ended June 30, 2008 and
2007, approximately 8,131,880 and 7,498,055 shares, respectively, attributable to outstanding stock options were excluded from the calculation of diluted net loss per share because their inclusion would have been anti-dilutive. For the six months
ended June 30, 2008 and 2007, approximately 7,698,419 and 7,307,637 shares, respectively, attributable to outstanding stock options were excluded from the calculation of diluted net loss per share because their inclusion would have been
anti-dilutive.

Recent Accounting Pronouncements

Adopted January 1, 2008

Effective January 1, 2008, the Company adopted Emerging Issues Task Force (EITF) Issue No. 07-3 Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and
Development activities (EITF 07-3). EITF 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized and
recognized as an expense as the goods are delivered or the related services are performed. The adoption did not have a material impact on the Companys consolidated results of operations or financial condition.



6



---

##### Table of Contents

The Company adopted the provisions of the Financial Accounting Standards Board (FASB)
Statement No. 157, Fair Value Measurements (SFAS No. 157), effective January 1, 2008. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective Date of FASB Statement
No. 157, which provides a one year deferral of the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least
annually. Therefore, the Company deferred adoption of SFAS 157 as it relates to its non financial assets and liabilities. SFAS No. 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting
principles and enhances disclosures about fair value measurements. Fair value is defined under SFAS No. 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the
use of unobservable inputs.

The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are
considered observable and the last unobservable, that may be used to measure fair value. The Companys assessment of the significance of a particular input to the fair value measurements requires judgment, and may affect the valuation of the
assets and liabilities being measured and their placement within the fair value hierarchy. The three levels of input are:

Level 1 - Quoted
prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or
liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of
the assets or liabilities.

The adoption of this statement did not have a material impact on the Companys consolidated results of
operations and financial condition.

Effective January 1, 2008, the Company adopted SFAS No. 159 The Fair Value Option for
Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for specified financial assets and liabilities on a
contract-by-contract basis. The Company did not elect to adopt the fair value option for any financial assets or liabilities under this Statement.

Not Yet Adopted

In December 2007, EITF Issue No. 07-1 Accounting for Collaborative Arrangements
(EITF 07-1) was issued. EITF 07-1 provides guidance concerning: determining whether an arrangement constitutes a collaborative arrangement within the scope of this Issue; how costs incurred and revenue generated on sales to third parties
should be reported in the income statement; how an entity should characterize payments on the income statement; and what participants should disclose in the notes to the financial statements about a collaborative arrangement. EITF 07-1 is effective
as of the beginning of an entitys fiscal year that begins after December 15, 2008, which will be the Companys fiscal year beginning January 1, 2009. The Company is in the process of evaluating the impact, if any, of adopting
EITF 07-1 on its financial statements.



7



---

##### Table of Contents

|2. | Cash, Cash Equivalents and Investments
|-- | --------------------------------------

The
following is a summary of cash, cash equivalents, and available-for-sale securities at June 30, 2008 and December 31, 2007:



|                                               |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|---------------------------------------------- |  | ----------------- | ---------- | --------------- | - | ---------------- |  | - | ------------------- | - |  | - | ----------
|                                               |  | June 30, 2008    
|                                               |  | AmortizedCost     |            | UnrealizedGains |   | UnrealizedLosses |  |   | EstimatedFair Value
|Cash and cash equivalents:                     |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Cash                                           |  | $                 | 4,895,000  |                 | $ |                 |  | $ |                    |   |  | $ | 4,895,000 
|Money market funds                             |  |                   | 2,696,000  |                 |   |                 |  |   |                    |   |  |   | 2,696,000 
|U.S. term deposits                             |  |                   | 14,082,000 |                 |   |                 |  |   |                    |   |  |   | 14,082,000
|                                               |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Total cash and cash equivalents                |  | $                 | 21,673,000 |                 | $ |                 |  | $ |                    |   |  | $ | 21,673,000
|                                               |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Available-for-sale investments:                |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Certificates of deposit maturing within 1 year |  | $                 | 120,000    |                 | $ |                 |  | $ |                    |   |  | $ | 120,000   
|Corporate equity securities                    |  |                   | 51,000     |                 |   | 41,000           |  |   |                    |   |  |   | 92,000    
|Long-term auction rate securities              |  |                   | 1,800,000  |                 |   |                 |  |   | (121,000            | ) |  |   | 1,679,000 
|                                               |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Total available-for-sale investments           |  | $                 | 1,971,000  |                 | $ | 41,000           |  | $ | (121,000            | ) |  | $ | 1,891,000 
|                                               |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|                                               | 
|                                               |  | December 31, 2007
|                                               |  | AmortizedCost     |            | UnrealizedGains |   | UnrealizedLosses |  |   | EstimatedFair Value
|Cash and cash equivalents:                     |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Cash                                           |  | $                 | 10,814,000 |                 | $ |                 |  | $ |                    |   |  | $ | 10,814,000
|Money market funds                             |  |                   | 1,574,000  |                 |   |                 |  |   |                    |   |  |   | 1,574,000 
|U.S. term deposits                             |  |                   | 19,429,000 |                 |   |                 |  |   |                    |   |  |   | 19,429,000
|                                               |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Total cash and cash equivalents                |  | $                 | 31,817,000 |                 | $ |                 |  | $ |                    |   |  | $ | 31,817,000
|                                               |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Available-for-sale investments:                |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Certificates of deposit maturing within 1 year |  | $                 | 488,000    |                 | $ |                 |  | $ |                    |   |  | $ | 488,000   
|Corporate equity securities                    |  |                   | 51,000     |                 |   | 100,000          |  |   |                    |   |  |   | 151,000   
|Short-term auction rate securities             |  |                   | 2,825,000  |                 |   |                 |  |   |                    |   |  |   | 2,825,000 
|                                               |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Total available-for-sale investments           |  | $                 | 3,364,000  |                 | $ | 100,000          |  | $ |                    |   |  | $ | 3,464,000 
|                                               |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           

As of June 30, 2008, there was $78,000 in restricted short-term investment, $134,000 in other
short-term investments, and $1,679,000 in long-term investments held in available-for-sale securities. As of December 31, 2007, there was $72,000 in restricted short-term investment and $3,392,000 in other short-term investments held in
available-for-sale securities.

The auction rate securities (ARS) whose underlying assets are generally student loans which are
substantially backed by the federal government have an auction reset feature. In February 2008, auctions began to fail for these securities and each auction has failed since February 2008. The Company has classified ARS as long-term assets on its
balance sheet as of June 30, 2008 based on the overall failure rate of these auctions, the frequency of the failures, the underlying maturities of the securities, a portion of which are greater than 30 years, and its estimation of future
liquidity of such investments. These investments were recorded at fair value as of June 30, 2008 of $1,679,000 which reflects a temporary impairment on these investments of $121,000 recorded as an unrealized loss. The Company estimates the fair
value of these investments to be $1,679,000 based on a discounted cash flow model. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, estimates for discount rates using yields of comparable traded
instruments adjusted for illiquidity and other risk factors, amount of cash flows and expected holding periods of the ARS. These inputs reflect the Companys own assumptions about the assumptions market participants would use in pricing the
ARS, including assumptions about risk, developed based on the best information available in the circumstances. The Company intends and believes it has the ability to hold the securities until recovery.



8



---

##### Table of Contents

|3. | Fair Value Measurements
|-- | -----------------------

In accordance with
SFAS 157, the following table represents the Companys fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of June 30, 2008:



|                                  |  |                                                           |            |                                           |   |                                        |  |                           |           |  |   |           
|--------------------------------- |  | --------------------------------------------------------- | ---------- | ----------------------------------------- | - | -------------------------------------- |  | ------------------------- | --------- |  | - | ----------
|                                  |  | Fair Value Measurements at June 30, 2008 Using           
|Description                       |  | Quoted Pricesin ActiveMarketsforIdentical Assets(Level 1) |            | SignificantOtherObservableInputs(Level 2) |   | SignificantUnobservableInputs(Level 3) |  | Balanceas ofJune 30, 2008
|Money market funds                |  | $                                                         | 2,696,000  |                                           | $ |                                       |  | $                         |          |  | $ | 2,696,000 
|U.S. term deposits                |  |                                                           | 14,082,000 |                                           |   |                                       |  |                           |          |  |   | 14,082,000
|Certificates of deposit           |  |                                                           |           |                                           |   | 120,000                                |  |                           |          |  |   | 120,000   
|Corporate equity securities       |  |                                                           | 92,000     |                                           |   |                                       |  |                           |          |  |   | 92,000    
|Long-term auction rate securities |  |                                                           |           |                                           |   |                                       |  |                           | 1,679,000 |  |   | 1,679,000 
|                                  |  |                                                           |            |                                           |   |                                        |  |                           |           |  |   |           
|Total                             |  | $                                                         | 16,870,000 |                                           | $ | 120,000                                |  | $                         | 1,679,000 |  | $ | 18,669,000
|                                  |  |                                                           |            |                                           |   |                                        |  |                           |           |  |   |           

The following table provides a summary of changes in fair value of the Companys Level 3
financial assets as of June 30, 2008:



|                                                                       |  |                        |            |  
|---------------------------------------------------------------------- |  | ---------------------- | ---------- | -
|                                                                       |  | Auction RateSecurities |           
|Balance at December 31, 2007 reflected as other short-term investments |  | $                      | 2,825,000  |  
|Total unrealized loss included in other comprehensive loss             |  |                        | (121,000   | )
|Sales, net of purchases                                                |  |                        | (1,025,000 | )
|                                                                       |  |                        |            |  
|Balance at June 30, 2008 reflected as long-term investments            |  | $                      | 1,679,000  |  
|                                                                       |  |                        |            |  

As a result of the decline in fair value for the Companys ARS, which the Company believes
are temporary and attributed to liquidity issues rather than credit issues, the Company has recorded an unrealized loss of $121,000, which is included in the accumulated other comprehensive loss included as part of stockholders
equity. All of the ARS held by the Company at June 30, 2008 were in securities collateralized by student loan portfolios, which are substantially guaranteed by the United States government. Due to the Companys belief that the
market for these student loan collateralized instruments may take in excess of twelve months to fully recover, the Company has classified these investments as long-term on its unaudited condensed consolidated balance sheet at June 30,
2008. Any future fluctuation in fair value related to these instruments that the Company deems to be temporary, including any recoveries of previous write-downs, is expected to be recorded to accumulated other comprehensive loss. If the
Company determines that any future valuation adjustment is other than temporary, it would record a charge to earnings as appropriate. The Company had no realized losses for the quarter ended June 30, 2008 relating to those assets for which the
Company utilized Level 3 inputs to determine fair value that were still held by the Company at June 30, 2008.



|4. | Inventories
|-- | -----------

Inventories consisted of the
following:



|                 |  |              |           |                  |   |          
|---------------- |  | ------------ | --------- | ---------------- | - | ---------
|                 |  | June 30,2008 |           | December 31,2007
|Raw materials    |  | $            | 2,229,000 |                  | $ | 1,319,000
|Work in progress |  |              | 1,011,000 |                  |   | 259,000  
|Finished goods   |  |              | 2,192,000 |                  |   | 4,001,000
|                 |  |              |           |                  |   |          
|                 |  | $            | 5,432,000 |                  | $ | 5,579,000
|                 |  |              |           |                  |   |          



9



---

##### Table of Contents

|5. | Prepaid Expenses and Other Current Assets
|-- | -----------------------------------------

The following is a summary of prepaid expenses and other current assets:



|                               |  |              |           |                  |   |          
|------------------------------ |  | ------------ | --------- | ---------------- | - | ---------
|                               |  | June 30,2008 |           | December 31,2007
|Prepaid clinical expenses      |  | $            | 908,000   |                  | $ | 1,265,000
|Value added tax receivable     |  |              | 367,000   |                  |   | 381,000  
|Prepaid insurance              |  |              | 337,000   |                  |   | 600,000  
|Prepaid royalties              |  |              | 170,000   |                  |   | 253,000  
|Drug substance manufacturing   |  |              | 149,000   |                  |   |         
|Prepaid rent                   |  |              | 44,000    |                  |   | 42,000   
|Prepaid interest and dividends |  |              | 14,000    |                  |   | 218,000  
|Other prepaid expenses         |  |              | 297,000   |                  |   | 190,000  
|                               |  |              |           |                  |   |          
|                               |  | $            | 2,286,000 |                  | $ | 2,949,000
|                               |  |              |           |                  |   |          



|6. | Accrued Expenses
|-- | ----------------

The following is a summary
of other accrued expenses:



|                                     |  |              |           |                  |   |          
|------------------------------------ |  | ------------ | --------- | ---------------- | - | ---------
|                                     |  | June 30,2008 |           | December 31,2007
|Accrued sales and marketing expenses |  | $            | 997,000   |                  | $ | 921,000  
|Accrued royalties                    |  |              | 804,000   |                  |   | 681,000  
|Accrued tax expense                  |  |              | 314,000   |                  |   | 306,000  
|Accrued manufacturing costs          |  |              | 195,000   |                  |   | 1,117,000
|Accrued pre-clinical trial expenses  |  |              | 147,000   |                  |   | 112,000  
|Accrued annual reports expense       |  |              | 65,000    |                  |   | 100,000  
|Other                                |  |              | 116,000   |                  |   | 157,000  
|                                     |  |              |           |                  |   |          
|                                     |  | $            | 2,638,000 |                  | $ | 3,394,000
|                                     |  |              |           |                  |   |          



|7. | Shareholders Equity
|-- | --------------------

Stock Award
Plans

The Company has several stock-based compensation plans (the Plans) that are described in the Companys Annual
Report on Form 10-K for the fiscal year ended December 31, 2007. The Company, under the various equity plans, grants stock options for shares of common stock to employees and directors. In accordance with the Plans, the options expire ten years
from the date of grant. Options are generally granted at fair market value on the date of grant and vest over time, generally four years. Certain options granted under the Plans vest over shorter periods.

Stock-Based Compensation

The fair
value of each stock option granted under our Plans is estimated on the date of grant using the Black-Scholes option valuation model and the single option approach with the weighted average assumptions:



|                                                                   |  |                            |   |  |                          |   |  |       |   |  |       |  
|------------------------------------------------------------------ |  | -------------------------- | - |  | ------------------------ | - |  | ----- | - |  | ----- | -
|                                                                   |  | Three Months EndedJune 30, |   |  | Six Months EndedJune 30, |  
|Stock Option Plan                                                  |  | 2008                       |   |  | 2007                     |   |  | 2008  |   |  | 2007  |  
|Risk-free interest rate                                            |  | 3.12                       | % |  | 4.76                     | % |  | 2.79  | % |  | 4.71  | %
|Dividend yield                                                     |  |                           |   |  |                         |   |  |      |   |  |      |  
|Volatility factor of the expected market price of our common stock |  | 65.60                      | % |  | 67.98                    | % |  | 66.33 | % |  | 69.32 | %
|Weighted-average expected life of option (years)                   |  | 4.83                       |   |  | 4.64                     |   |  | 4.83  |   |  | 4.64  |  



10



---

##### Table of Contents

The expected life of options is derived from historical data on employee exercises and terminations. The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on the historical volatility of the Companys stock. The expected dividend assumption is based on the Companys
history and expectations of no dividend payouts.

The Company amortizes the compensation cost over the vesting period, which is generally
four years, using the straight line attribution method. Stock-based compensation expense recognized in the Consolidated Statement of Operations for the three and six months ended June 30, 2008 and 2007 is based on awards ultimately expected to
vest. FAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures
and records stock-based compensation only for those awards that are expected to vest.

The Company granted to its Chief Executive Officer,
Dr. Blobel, an option to purchase 300,000 shares of the Companys common stock at an exercise price per share equal to the closing price of a share of the Companys common stock on March 18, 2008. This option has a term of 10
years and will vest upon the Companys common stock trading after March 18, 2008 for at least 30 consecutive calendar days at or greater than a target closing stock price as reported on the NASDAQ Stock Market, of (a) $4.50 on or
before June 2, 2009 for 50,000 shares, (b) $6.00 on or before June 2, 2010 for 50,000 shares, (c) $8.00 on or before June 2, 2011 for 50,000 shares, (d) $10.00 on or before June 2, 2012 for 50,000 shares,
(e) $12.00 on or before June 2, 2013 for 50,000 shares, and (f) $14.00 on or before June 2, 2014 for 50,000 shares, each price as adjusted for stock dividends, stock splits or similar changes in the Companys capital
structure.

This grant is considered an award with market and service conditions. The market conditions are not considered performance
conditions and therefore, compensation expense is recognized for the option with market conditions as long as service requirements are met, even if the market conditions are not reached. Therefore, the grant date fair values related to each of the
six vesting portions of this award have been calculated using a Monte Carlo simulation option pricing model with the following assumptions, risk-free interest rate of 3.875%; dividend yield of 0%; volatility factor of 89.14% and expected life of 10
years, and the related compensation costs are being expensed over the service periods for each of the six vesting portions of the award. For the three and six months ended June 30, 2008, the Company recorded approximately $42,000 and $46,000
respectively, of compensation expense related to this award.

The Company has not recognized, and does not expect to recognize in the near
future, any tax benefit related to employee stock-based compensation cost as a result of the full valuation allowance on its net deferred tax assets including its net operating loss carryforwards.

As of June 30, 2008, unamortized compensation expense related to unvested options was approximately $3,517,000. The weighted average period over
which compensation expense related to these options will be recognized is 3.96 years. The weighted-average fair value per share of options granted during the three months ended June 30, 2008 and 2007 was $1.00 and $1.54, respectively. The
weighted-average fair value per share of options granted during the six months ended June 30, 2008 and 2007 was $1.03 and $1.60, respectively. The total fair value of the shares that vested during the three months ended June 30, 2008 and
2007 was $488,000 and $381,000, respectively. The total fair value of the shares that vested during the six months ended June 30, 2008 and 2007 was $1,164,000 and $1,044,000, respectively.

Employee Stock Purchase Plan

The
Company has an employee stock purchase plan (ESPP) under which substantially all employees may purchase common stock through payroll deductions. Employees may choose to have up to 15% of their salary withheld to purchase the
Companys common stock at a purchase price of the stock equal to 95% of the fair market value of a share of the Companys Common Stock on the Purchase Date (or such other amount as may be established by the Board). The ESPP is treated as a
non-compensatory plan under FAS 123R. As of June 30, 2008, 282,519 shares were reserved for future issuance under the ESPP.



11



---

##### Table of Contents

|8. | Comprehensive Loss/Income
|-- | -------------------------

The following
table summarizes components of total comprehensive loss:



|                                                                       |  |                             |          |   |                          |   |            |      |  |   |            |   |  |   |            |  
|---------------------------------------------------------------------- |  | --------------------------- | -------- | - | ------------------------ | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                       |  | Three Months Ended June 30, |          |   | Six Months EndedJune 30, |  
|                                                                       |  | 2008                        |          |   | 2007                     |   |            | 2008 |  |   | 2007       |  
|Net loss                                                               |  | $                           | (319,000 | ) |                          | $ | (2,657,000 | )    |  | $ | (5,978,000 | ) |  | $ | (3,281,000 | )
|Other comprehensive (loss) income:                                     |  |                             |          |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Net change in unrealized gains/losses on available-for-sale securities |  |                             | (65,000  | ) |                          |   | (3,000     | )    |  |   | (181,000   | ) |  |   | (1,000     | )
|Foreign currency translation                                           |  |                             | (3,000   | ) |                          |   |           |      |  |   | 53,000     |   |  |   |           |  
|                                                                       |  |                             |          |   |                          |   |            |      |  |   |            |   |  |   |            |  
|Total comprehensive loss                                               |  | $                           | (387,000 | ) |                          | $ | (2,660,000 | )    |  | $ | (6,106,000 | ) |  | $ | (3,282,000 | )
|                                                                       |  |                             |          |   |                          |   |            |      |  |   |            |   |  |   |            |  

The following table summarizes the components of accumulated other comprehensive (loss) income:



|                                                             |  |              |         |   |                  |   |         |  
|------------------------------------------------------------ |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                             |  | June 30,2008 |         |   | December 31,2007 |  
|Net unrealized gains/losses on available-for-sale securities |  | $            | (81,000 | ) |                  | $ | 100,000 |  
|Cumulative foreign currency translation adjustment           |  |              | 35,000  |   |                  |   | (18,000 | )
|                                                             |  |              |         |   |                  |   |         |  
|Accumulated other comprehensive (loss) income                |  | $            | (46,000 | ) |                  | $ | 82,000  |  
|                                                             |  |              |         |   |                  |   |         |  



|9. | Income Taxes
|-- | ------------

Provision for income tax of
$196,000 and $28,000 for the three months ended June 30, 2008 and 2007, respectively, and $302,000 and $49,000 for the six months ended June 30, 2008 and 2007, respectively, related to the Companys foreign operations in the
Peoples Republic of China.



|10. | Related Party Transactions
|--- | --------------------------

The Company has
licensed to Sigma-Tau exclusive ZADAXIN development and marketing rights that cover all countries in the European Union as defined on January 1, 1995 and Iceland, Norway and Switzerland. Sigma-Tau and affiliated persons were stockholders of the
Company at the time this transaction was entered into, and are currently the Companys largest shareholder. Under the agreement with Sigma-Tau, Sigma-Tau is conducting a multi-center phase 3 hepatitis C triple therapy clinical trial in Europe
with 553 patients. The objective of the European trial is to provide data on ZADAXINs use as part of a triple therapy in treating HCV patients. The Company is providing Sigma-Tau approximately $2,509,000 of funding support during the course of
patient enrollment and trial period of which $2,009,000 has been paid as of June 30, 2008 and the remaining $500,000 will be paid during the third quarter of 2008. The Company will also pay a $1,500,000 milestone payment upon completion of the
final report. Based on the level of activity in this trial, the Company has recorded approximately $69,000 and $127,000 of research and development expense related to this agreement in the three-month periods ended June 30, 2008 and 2007,
respectively, and has recorded $196,000 and $253,000 of research and development expense related to this agreement in the six-month periods ended June 30, 2008 and 2007, respectively. As of June 30, 2008 and December 31, 2007, the
Company had accrued clinical trial expenses of $1,816,000 and $1,620,000, respectively, due to Sigma-Tau.



|11. | Commitments
|--- | -----------

In April 2007, the Company
acquired the exclusive rights in the United States and Canada to develop and commercialize RP101, a clinical-stage compound for the treatment of cancer. Under the terms of the agreements with Resistys, Inc., a wholly-owned subsidiary of Avantogen
Oncology, Inc., and with RESprotect GmbH (RESprotect), the Company may be obligated to pay post phase 3 success-based regulatory and commercial milestone payments up to $22,000,000, and royalties on future sales. The Company has entered
into an agreement with Pharmaceuticals Research Associates, Inc. (PRA) for clinical trials management services, for a randomized, double blind, placebo controlled, phase 2 study evaluating the efficacy and safety of RP101 for the
treatment of pancreatic cancer. The estimated cost of PRAs management services and pass-through costs is $8,000,000 and $4,000,000, respectively, of which $4,521,000 had been paid to PRA by the Company and another $139,000 was due and payable
as of June 30, 2008. The Company has also entered into a supply agreement with RESprotect to purchase RP101 from RESprotect for clinical trials and for commercial purposes following regulatory approval. Under the terms of the supply agreement,
the Company and



12



---

##### Table of Contents

RESprotect will share the scale-up costs required to manufacture RP101 prior to and after FDA approval. The Companys share of the scale-up costs is
estimated to be 1,448,000 through June 2010, of which 1,204,000 ($1,845,000) was paid by the Company to RESprotect through June 30, 2008, leaving a balance of approximately 244,000 ($384,000 at June 30, 2008 conversion
rates).

In May 2007, the Company entered into a non-cancelable operating lease agreement for its main office facility (the
lease) to lease space from July 1, 2007 through June 30, 2014. Under the terms of the lease, the Company was provided an allowance in the amount of approximately $206,000 towards the cost of its leasehold improvements. In accordance
with FASB Technical Bulletin 88-1, the Company has capitalized the leasehold improvements and recorded the allowance as deferred rent which is being amortized over the lease term as a reduction of rent expense. The lease requires the Company to pay
insurance and taxes and its pro-rata share of operating expenses. The Company also leases various office facilities abroad and equipment under non-cancelable lease agreements. Minimum future rental payments under facility and equipment operating
lease agreements as of June 30, 2008 amount to a total of $3,917,000 which consists of $477,000 remaining in 2008, $726,000 in 2009, $572,000 in 2010, $595,000 in 2011, $608,000 in 2012, $622,000 in 2013, and $317,000 thereafter.

On April 4, 2008, the Companys former Executive Vice President and Chief Financial Officer resigned from the Company effective April 30,
2008. In connection with the resignation, the Company entered into an agreement in which the former Executive Vice President and Chief Financial Officer will be available to consult with the Company on a limited capacity for up to one year
thereafter. He will retain the right to exercise any vested options during this one-year consulting period and will be entitled to payments in the aggregate amount of $345,000, payable over approximately a one-year period, in addition to payments of
salary and bonus deemed earned through the date of termination of employment. As of June 30, 2008, $304,000 remains in accrued compensation and employee benefits included in the Companys condensed consolidated balance sheet related to
this agreement.



13



---

##### Table of Contents

|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 and other markets; 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 novel therapeutics to treat life-threatening diseases. Our strategy is to in-license products in the areas of cancer and viral infectious diseases, and to develop them for commercialization in the major pharmaceutical markets
with a particular focus on the Peoples Republic of China (China), one of the worlds fastest growing pharmaceutical markets. ZADAXIN®, our brand of thymalfasin, is
one of the largest imported drugs, as measured by revenue, in China today, and currently is in late-stage clinical development for the treatment of hepatitis C virus (HCV) in Europe. Our proprietary in-licensed compound RP101 entered phase 2
clinical development for the treatment of pancreatic cancer in combination with gemcitabine in January 2008. Our proprietary in-licensed compound SCV-07 entered phase 2 clinical development for viral infectious disease in June 2007. We also
submitted a regulatory application to the Chinese State Food and Drug Administration (SFDA) in December 2006 related to DC BeadTM, a product for the
treatment of liver cancer, or hepatocellular carcinoma (HCC), for which we obtained Chinese marketing rights in June 2006 from Biocompatibles UK Ltd., a UK-based company.

In addition to our current product portfolio, we believe we are well-positioned to in-license additional therapeutics for both China and the significantly larger U.S. and European markets, in part because of our
opportunity to develop and commercialize such products in China. Also, we intend to use our clinical work in China to support and accelerate regulatory applications in the United States and Europe.

Our European partner, Sigma-Tau, is conducting a triple therapy combination (ZADAXIN plus pegylated interferon alpha and ribavirin) hepatitis C clinical
trial in Europe. In a press release dated February 11, 2008, we reported what we believe were promising interim blinded results and in a press release dated June 26, 2008, we reported that this trial has been successfully completed and
that we expect the unblinded results of the trial to be released in the fourth quarter of 2008.

In June 2007, we reported positive data
from a phase 2 trial, also conducted by Sigma-Tau, treating patients with stage IV malignant melanoma indicating that thymalfasin in combination with dacarbazine (DTIC) chemotherapy and low dose interferon alpha met its primary endpoint by reaching
the tumor response rate required to reject the null hypothesis. In fact, two of the thymalfasin treated groups had a tripled overall response rate compared to malignant melanoma patients treated with DTIC, the current standard of care, and low dose
interferon alpha. In addition, survival, a key secondary endpoint, was extended by nearly 3 months. We and Sigma-Tau are planning the design of a phase 3 melanoma trial and our regulatory strategy including a Special Protocol Assessment (SPA) to be
filed with the FDA. Thymalfasin phase 3 clinical development and commercialization plans for HCV and melanoma have potentially significantly different timelines, costs, and sales potential, and the markets for these two products differ in terms of
competitive products and other factors. Consequently, before proceeding with a further melanoma trial, we expect that we and Sigma-Tau will review the final results for the current HCV clinical trial anticipated in the fourth quarter of 2008 in
order to determine the next steps for an optimal thymalfasin development program.

We manufacture ZADAXIN for sale and for our clinical
trials through third party contract manufacturers, and we conduct our research and development efforts principally through arrangements with clinical research sites, contract research organizations and universities.

As of June 30, 2008, we have an accumulated deficit of approximately $174,480,000. At least over the next few years, we expect net losses due to
increased operating expenses as we expand our research and development and clinical testing efforts and our sales and marketing capabilities. Our ability to achieve and sustain operating profitability is dependent on



14



---

##### Table of Contents

expansion of sales of ZADAXIN and securing regulatory approval for DC Bead in China, the execution and successful completion of ZADAXIN, SCV-07, and RP101
clinical trials and securing regulatory approvals for these products in the major pharmaceutical markets of the United States and Europe. If regulatory approval is secured in those territories, our ability to achieve and sustain operating
profitability will depend on the successful commercialization and marketing of these products. Clinical development involves numerous risks and uncertainties and, in addition to our successes, we have experienced setbacks in clinical development in
the past. In particular, in December 2005 and June 2006, we reported results from our two U.S. phase 3 trials evaluating the double therapy combination of ZADAXIN and pegylated interferon alpha to treat HCV patients who had failed previous therapy.
The results from these trials did not demonstrate that ZADAXIN in combination with pegylated interferon alpha provides a statistically significant clinical benefit when compared with pegylated interferon alpha alone. In addition, other factors may
also impact our ability to achieve and sustain operating profitability, including the pricing of ZADAXIN and its manufacturing and marketing costs, our ability to compete in pharmaceutical markets, the cost of product development and
commercialization programs including SCV-07, DC Bead, and RP101, the timing and costs of acquiring rights to additional drugs, our ability to fund our operations and the entrance into and extension of agreements for product development and
commercialization, where appropriate.

For the six months ended June 30, 2008 and 2007, product sales in China were $23,058,000 and
$16,243,000, respectively. We expect net sales to increase for the remainder of fiscal 2008, compared to the same period in 2007. For the overall consolidated Company, primarily due to the level of research and development activities and other
operations, we expect a net loss and a reduction in cash, cash equivalents and short-term investments for 2008. We are considering raising additional funding in 2008 to finance our operations, including anticipated clinical trials. We are exploring
various alternatives for financing in addition to sales of equity of SciClone, including a line of credit, debt financing and financing of our Chinese operations either through debt, equity or joint venture transactions, but we have not determined
the timing or structure of any transaction.

Our operating results may fluctuate from quarter to quarter and these fluctuations may be
substantial as a result of, among other factors, the number, timing, costs and results of pre-clinical and clinical trials of our products, market acceptance of ZADAXIN, and potentially of SCV-07, DC Bead, and RP101, and the timing of orders for
ZADAXIN from international markets, particularly China, the regulatory approval process, the timing of FDA or international regulatory approvals, and the acquisition of additional product rights and the funding, if any, provided as a result of
corporate partnering arrangements.

Recent Accounting Pronouncements

Adopted January 1, 2008

Effective January 1, 2008, we adopted Emerging Issues Task Force
(EITF) Issue No. 07-3 Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development activities (EITF 07-3). EITF 07-3 requires that nonrefundable
advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed. The
adoption did not have a material impact on our consolidated results of operations or financial condition.

We adopted the provisions of the
Financial Accounting Standards Board (FASB) Statement No. 157 Fair Value Measurements (SFAS No. 157), effective January 1, 2008. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2,
Effective Date of FASB Statement No. 157, which provides a one year deferral of the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial
statements at fair value at least annually. Therefore, we deferred adoption of SFAS 157 as it relates to our non financial assets and liabilities. SFAS No. 157 defines fair value, establishes a framework for measuring fair value under generally
accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under SFAS No. 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS 157 must maximize the use of observable inputs
and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. Our
assessment of the significance of a particular input to the fair value measurements requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. The three levels of
input are:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.



15



---

##### Table of Contents

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant
to the fair value of the assets or liabilities.

The adoption of this statement did not have a material impact on our consolidated results
of operations and financial condition.

Effective January 1, 2008, we adopted SFAS No. 159 The Fair Value Option for
Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for specified financial assets and liabilities on a
contract-by-contract basis. We did not elect to adopt the fair value option for any financial assets or liabilities under this Statement.

Not Yet
Adopted

In December 2007, EITF Issue No. 07-1, Accounting for Collaborative Arrangements (EITF 07-1) was
issued. EITF 07-1 provides guidance concerning: determining whether an arrangement constitutes a collaborative arrangement within the scope of this Issue; how costs incurred and revenue generated on sales to third parties should be reported in the
income statement; how an entity should characterize payments on the income statement; and what participants should disclose in the notes to the financial statements about a collaborative arrangement. EITF 07-1 is effective as of the beginning of an
entitys fiscal year that begins after December 15, 2008, which will be our fiscal year beginning January 1, 2009. We are in the process of evaluating the impact, if any, of adopting EITF 07-1 on our financial statements.

Critical Accounting Policies

The preparation of
financial statements in conformity with generally accepted accounting principles requires management to make judgments, estimates and assumptions in the preparation of our consolidated financial statements and accompanying notes. Actual results
could differ from those estimates. We believe there have been no significant changes in our critical accounting policies as discussed in our Annual Report on Form 10-K for the year ended December 31, 2007 other than the adoption of SFAS
No. 157.

Results of Operations

Total Revenues

Product sales were $13,834,000 and $24,468,000 for the three and six-month periods ended June 30, 2008,
respectively, as compared to $8,955,000 and $17,599,000 for the corresponding period in 2007. All product sales in each period were derived from sales of ZADAXIN. The increase was attributable to a higher volume of product sold and a slight increase
in prices between the 2008 and 2007 periods. Sales to customers in China are denominated in U.S. dollars and accounted for approximately 94% of product sales for both the three and six-month periods ended June 30, 2008, as compared to
approximately 93% and 92% of product sales for the three and six-month periods ended June 30, 2007, respectively.

For the three-month
period ended June 30, 2008, sales to three importing agents in China accounted for approximately 65%, 17%, and 12% of our product sales. For the three-month period ended June 30, 2007, sales to three importing agents in China accounted for
approximately 56%, 19%, and 18% of our product sales. For the six-month period ended June 30, 2008, sales to two importing agents in China accounted for approximately 67% and 21% of our product sales. For the six-month period ended
June 30, 2007, sales to three importing agents in China accounted for approximately 57%, 20% and 16% of our product sales. The three largest customers were the same importing agents in each of these periods.

We expect that product revenues for the remainder of fiscal 2008 will be at or somewhat above the product sales for the six months ended June 30,
2008.

Cost of Product Sales and Gross Margin on Product Sales

Gross margin on product sales was 82% for both the three and six-month periods ended June 30, 2008, as compared to 81% for the corresponding periods
in 2007. We expect cost of product sales, and hence gross margin on product sales, to vary slightly from period to period, depending upon the level of ZADAXIN sales, the absorption of product-related fixed costs, and any charges associated with
excess or expiring finished product inventory. For the three and six-month periods ended June 30, 2008, we recorded a charge of $630,000 associated with our finished goods inventory related to vials made obsolete due to labeling requirements
arising from our new import license. No charges were recorded by us associated with product inventory during the three or six month periods ended June 30, 2007. We believe that cost of goods sold for the third quarter of fiscal 2008 will be
lower than the second quarter of fiscal 2008 due to the charge associated with our finished goods inventory during the second quarter of 2008 as we do not expect any further charges to be recorded related to our finished goods inventory.



16



---

##### Table of Contents

Research and Development

Research and development expenses were $4,535,000 for the three-month period ended June 30, 2008, as compared to $4,712,000 for the corresponding
period in 2007. Included in research and development expense for the three months ended June 30, 2007 was approximately $2,200,000 of acquisition and legal costs related to the acquisition of exclusive rights for the United States and Canada to
develop and commercialize RP101. We did not record any similar expenditure in the three months ended June 30, 2008; however, the resulting decrease was partially offset by an increase in clinical trial expenses for the three months ended
June 30, 2008 related to our phase 2 trials for RP101 and SCV-07, and to the development planning for a phase 3 clinical trial for Melanoma.

Research and development expenses were $12,084,000 for the six-month period ended June 30, 2008, as compared to $7,135,000 for the corresponding period in 2007. The increase in research and development expenses of $4,949,000 is related
to our phase 2 clinical trials for RP101 and SCV-07, and to the development planning for a phase 3 clinical trial for melanoma. These increases included approximately $2,369,000 for clinical trial management, statistician services and investigator
expenses; an increase of approximately $1,955,000 for drug development and manufacturing costs related to the scale up of RP101 and purchase of gemcitabine for the RP101 clinical trial, and manufacturing of SCV-07 for the SCV-07 clinical trial; a
$1,320,000 milestone payment upon first patient dosing in the RP101 phase 2 clinical trial; an increase in compensation and benefits expense and recruiting fees due to increases in the number of research and development personnel; and an increase in
consulting and travel expenses. These increases were partially offset by a decrease of approximately $2,200,000 of acquisition and legal costs related to the acquisition of exclusive rights for the United States and Canada to develop and
commercialize RP101 recorded during the six months ended June 30, 2007. We expect that our research and development expenses for the third and fourth quarters of 2008 will increase compared to the second quarter of 2008 related to our clinical
trials for RP101 and SCV-07. 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, acquiring product rights, and
expanding regulatory activities.

Sales and Marketing

Sales and marketing expenses were $4,192,000 and $8,140,000 for the three and six-month periods ended June 30, 2008, respectively, as compared to $3,139,000 and $6,163,000, respectively, for the corresponding
period in 2007. The higher level of sales and marketing expenses was primarily due to increases in the number of sales and marketing personnel, and increases in promotional activities and operating expense related to our expanding sales and
marketing efforts. We expect that our future sales and marketing expenses will remain at similar or somewhat higher levels for the remainder of fiscal 2008 and may increase in future years if we are successful in expanding our commercialization and
marketing efforts.

General and Administrative

General and administrative expenses were $2,860,000 for the three months ended June 30, 2008, as compared to $2,444,000 for the three months ended June 30, 2007. The higher levels of general and
administrative expenses were primarily due to increased severance costs of approximately $322,000 and employment recruiting costs of approximately $106,000 recorded during the three month period ending June 30, 2008.

General and administrative expenses were $5,881,000 for the six months ended June 30, 2008, as compared to $5,054,000 for the six months ended
June 30, 2007. The higher levels of general and administrative expenses were primarily due to increases in severance costs of approximately $322,000, accounting and professional fees of approximately $326,000 and employment recruiting costs of
approximately $169,000 recorded during the six month period ended June 30, 2008. We believe that general and administrative expenses for the third quarter of fiscal 2008 will be comparable to the second quarter of fiscal 2008.

Interest and Investment Income

Interest and investment income was approximately $124,000 and $385,000, respectively, for the three and six-month periods ended June 30, 2008, as compared to $419,000 and $873,000, respectively, for the corresponding period in 2007.
The decrease was primarily due to lower cash and investment balances in the 2008 period.

Provision for Income Tax

Provision for income tax was approximately $196,000 and $302,000, respectively, for the three and six-month periods ended June 30, 2008, as compared
to $28,000 and $49,000, respectively, for the corresponding period in 2007. The increase in provision for income tax for both the 2008 periods compared to the corresponding 2007 period was due to increased net operating income and an increased tax
rate related to the Companys foreign operations in the Peoples Republic of China.



17



---

##### Table of Contents

Liquidity and Capital Resources

Days sales outstanding in accounts receivable, using the average receivables method, were 121 and 150 days as of June 30, 2008 and 2007,
respectively. The majority of our sales are to customers in China, where our accounts receivable collections have standard credit terms of 180 days. For the six-month periods ended June 30, 2008 and 2007, such receivables were collected within
these terms. Days sales outstanding decreased from 2007 to 2008, due to normal fluctuations in the timing of customer payments received.

On June 30, 2008 and December 31, 2007, we had $21,885,000 and $35,281,000, respectively, in cash, cash equivalents, and short-term investments. Based on our clinical trial activities including RP101, SCV07, and the development
planning for a melanoma trial, and expected further net losses in fiscal 2008, we currently estimate cash, cash equivalents and short and long-term investments at December 31, 2008 will be approximately $12,000,000 to $14,000,000.

Our short-term investments consist of highly liquid marketable securities. Our restricted short-term investment of $78,000 relates to a letter of
credit secured by a certificate of deposit to facilitate our value added tax filings in Europe.

As of June 30, 2008, we held
approximately $1,679,000 of auction rate securities with an auction reset feature whose underlying assets are generally student loans which are substantially backed by the federal government. In February 2008, auctions began to fail for these
securities and each auction has failed since February 2008. Based on the overall failure rate of these auctions, the frequency of the failures, the underlying maturities of the securities, a portion of which are greater than 30 years, and our
estimation of future liquidity of such investments, we have classified the investments as long-term assets on our June 30, 2008 balance sheet. These investments were recorded at fair value as of June 30, 2008.

All of our auction rate securities are currently rated AAA, the highest rating by a rating agency. If the issuers are unable to successfully close future
auctions or refinance their debt in the near term and their credit ratings deteriorate, we may in the future be required to record an impairment charge on these investments. We believe that even with the possible requirement to hold all such
securities for an indefinite period of time, our remaining cash and cash equivalents and short-term investments will be sufficient to meet our anticipated cash needs for at least the next twelve months.

Net cash used in operating activities amounted to $11,705,000 for the six-month period ended June 30, 2008 as compared to net cash used in operating
activities in the amount of $5,293,000 in the corresponding period in 2007. The $11,705,000 of net cash used in operating activities for the six-month period ended June 30, 2008 was comprised primarily of net loss of $5,978,000 which was
adjusted for non-cash items such as stock-based compensation expense of $992,000 and depreciation and amortization of $157,000, and $6,876,000 of net cash outflow related to changes in operating assets and liabilities. Such changes included a
$1,842,000 decrease in accounts payable and other accrued expenses and a $1,144,000 decrease in our accrued clinical trials expense, both decreases related primarily to payments made to vendors during the six months ended June 30, 2008 related
to the phase 2 RP101 and SCV-07 clinical trials, and to the development planning for a phase 3 melanoma clinical trial. Further change resulted from an increase of $5,004,000 in our accounts receivable due to an increase in sales and fluctuations in
the timing of customer payments received. In addition, prepaid expenses and other assets decreased $762,000 mainly due to receipt of gemcitabine for the phase 2 RP101 clinical trial during the six months ended June 30, 2008.

Net cash used in operating activities of $5,293,000 for the six-month period ended June 30, 2007 was comprised primarily of net loss of $3,281,000
which was adjusted for non-cash items such as stock-based compensation expense of $1,158,000, depreciation and amortization of $135,000, and $3,305,000 of net cash outflow related to changes in operating assets and liabilities. Such changes included
an increase of $1,222,000 in our inventory as our supplier of bulk active pharmaceutical ingredient (API) product for the manufacture of ZADAXIN was able to produce larger quantities enabling us to increase our inventory levels, compared to the
lower than expected inventory levels in the prior period.

Net cash provided by investing activities amounted to $1,365,000 for the
six-month period ended June 30, 2008, compared to cash provided by investing activities of $6,838,000 for the six-month period ended June 30, 2007. The change in the 2008 period was primarily due to a decrease in net proceeds from the
sales, maturities and purchases of marketable securities as compared to the prior year period.

Net cash provided by financing activities
amounted to $149,000 and $225,000 for the six-month periods ended June 30, 2008 and 2007, respectively, and consisted mainly of proceeds from issuance of common stock under our employee stock option plan.

Our existing capital resources and funds from product sales are not sufficient to complete our plans with RP101, SCV-07 and thymalfasin including
conducting and completing clinical trials, including phase 3 trials, relating to these products, and, if we proceed with all the development efforts we are planning, we would 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 the Company. We cannot assure you that funds from financings will be sufficient to complete our
current plans to conduct and complete clinical trials. The need, timing and amount of any such



18



---

##### Table of Contents

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, the status of competitive products, and the condition of the capital markets and the availability of financing for SciClone in particular. We are exploring various alternatives for financing in addition to sales of equity of
SciClone, including a line of credit, debt financing and financing of our Chinese operations either through debt, equity or joint venture transactions, but we have not determined the timing or structure of any transaction.

Contractual Obligations

During the six months ended
June 30, 2008, we completed negotiations and executed a long-term supply agreement with Lonza Sales Ltd., our sole supplier of bulk API product, for the manufacture of thymalfasin for our current markets including China. There were no other
material changes in the six-month period ended June 30, 2008 to our contractual obligations as disclosed in our Form 10-K for the year ended December 31, 2007.

Related Party Transactions

There are no officers or directors that were involved in related party
transactions in the six-month period ended June 30, 2008.

We have licensed to Sigma-Tau exclusive ZADAXIN development and marketing
rights that cover all countries in the European Union as defined on January 1, 1995 and Iceland, Norway and Switzerland. Sigma-Tau and affiliated persons were stockholders of the Company at the time this transaction was entered into, and are
currently our largest shareholder. Under the agreement with Sigma-Tau, Sigma-Tau is conducting a multi-center phase 3 hepatitis C triple therapy clinical trial in Europe with 553 patients. The objective of the European trial is to provide data on
thymalfasins use as part of a triple therapy in treating HCV patients. We are providing Sigma-Tau approximately $2,509,000 of funding support during the course of patient enrollment and trial period of which $2,009,000 has been paid through
June 30, 2008 and the remaining $500,000 will be paid during the third quarter of 2008. We will also pay a $1,500,000 milestone payment upon completion of the final report. Based on the level of activity in this trial, we have recorded
approximately $69,000 and $127,000 of research and development expense related to this trial for the three months ended June 30, 2008 and 2007, respectively, and have recorded $196,000 and $253,000 of research and development expense related to
this trial for the six months ended June 30, 2008 and 2007, respectively. As of June 30, 2008 and December 31, 2007, we had accrued clinical trial expenses of $1,816,000 and $1,620,000, respectively, due to Sigma-Tau.

Off-Balance Sheet Arrangements

There were no
off-balance sheet arrangements in the three and six-month periods ended June 30, 2008.

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, 2007, before making an investment decision. Each of these risk factors could adversely affect our business, financial condition, and operating results as well as adversely affect the value of an investment in our
common stock.

Our revenue is dependent on the sale of ZADAXIN in foreign countries, particularly China, and if we experience difficulties in our
foreign sales efforts, our operating results and financial condition will be harmed.

Our product revenue 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 operating results and financial condition will be harmed. For each of the six-month periods ended June 30, 2008
and 2007, approximately 94% and 92%, respectively, of our ZADAXIN sales were 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. ZADAXIN sales growth in recent years has benefited from the rapidly growing Chinese economy and growing personal disposable income. Sales of ZADAXIN in China could be
adversely affected by a slowing or downturn of the Chinese economy. In China, ZADAXIN is approved only for the treatment of hepatitis B virus (HBV) and as a vaccine adjuvant. 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 are selling lower priced locally manufactured generic thymosin, which
is a competitive product and is selling in substantial and increasing quantities. While generic products outsell ZADAXIN in unit volumes, we have been able to maintain an advantage through the reputation of our imported, branded 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 efforts to in-license other pharmaceutical products for marketing in China and other markets
may be unsuccessful or may not have a meaningful effect on our dependence on ZADAXIN sales in those markets.



19



---

##### Table of Contents

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. Some countries in these regions, including China, regulate pharmaceutical prices and pharmaceutical importation.
These regulations may reduce prices for ZADAXIN to levels significantly below those that would prevail in an unregulated market, limit the volume of product which may be imported and sold or place high import duties on the product, any of which may
limit the growth of our revenues or cause them to decline. We believe that the Chinese government is increasing its efforts to reduce overall health care costs, including through pricing controls. Individual provinces in China and, in some cases,
individual hospitals can and have established pricing requirements for a product to be included on formulary lists. These prices may be lower than our distributors have been selling ZADAXIN in which case we have been removed from formulary lists,
which consequently has reduced sales to certain hospitals and could adversely affect our future sales.

We have received regulatory
approvals to market ZADAXIN in China and to manufacture ZADAXIN and export the product from Italy. In order to continue our sales to China, we need to maintain these approvals. Our license to import ZADAXIN into China needs to be renewed every five
years and the next renewal is required in 2013. Although we have been successful in obtaining renewal earlier this year, there is no assurance that we will receive renewals in the future when applied for or that the renewals will not be conditioned
or limited in ways that limit our ability to conduct business in China. Further, our licenses to manufacture and export ZADAXIN from Italy are dependent upon our continuing compliance with regulations in Italy. Our business would be adversely
affected if we are not able to maintain these approvals.

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, renewals of registrations, permits, pricing approvals and reimbursement, unexpected changes in regulatory requirements and
political instability.

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, potential 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 foreign country or applicable U.S. laws, or if we experience difficulties in payments or intellectual property matters in
foreign jurisdictions, or if significant political, economic or regulatory changes occur, our results could be adversely affected. Moreover, many of these operations, which are carried out in various parts of the world including in particular across
China and thus cover a vast geography, are potentially subject to the laws and regulations of the United States including through the Foreign Corrupt Practices Act, in addition to the laws and regulations of the local countries, and in particular
China. Regulation in China of the activities in the pharmaceutical industry has recently increased and may continue to undergo significant and unanticipated changes. If we fail to comply with regulations or to carry out controls on our Chinese or
other foreign operations in a manner that satisfy all applicable laws, our business would be harmed.

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

We are considering raising additional capital in 2008 to
fund our operations, including anticipated clinical trials. We are exploring various alternatives for financing in addition to sales of equity of SciClone, including a line of credit, debt financing and financing of our Chinese operations either
through debt, equity or joint venture transactions, but we have not determined the timing or structure of any transaction. However, we cannot assure you that such funds will be sufficient, or that we will attain profitable operations in future
periods. 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.

Final results from our ongoing clinical trials for thymalfasin, SCV-07, and RP101 may differ materially from interim or pre-clinical trial results. These clinical trials could be affected by the future actions of
our partners, unexpected delays, unanticipated patient drop out rates or adverse side effects, future actions by the United States Food and Drug Administration (FDA) or equivalent regulatory authorities in Europe or other countries or additional
expenses.

Clinical trials are inherently risky and may reveal that our product candidates are ineffective or have unanticipated drug
interactions that may significantly decrease the likelihood of regulatory approval. The results of the Mexican triple therapy pilot trial using thymalfasin to treat HCV do not necessarily predict that the phase 3 clinical trial using thymalfasin as
part of a triple therapy to treat HCV will be successful. The results of this trial may be different, or not statistically significant. Similarly, the results of our thymalfasin phase 2 melanoma clinical trial does not necessarily predict future
clinical or commercial success. SCV-07 and RP101 pre-clinical and phase 1 trial results also do not predict clinical or commercial success.



20



---

##### Table of Contents

We may face numerous unforeseen events during, or as a result of, clinical trials that could delay or
prevent commercialization of our product candidates including: our product candidate clinical trials may not prove statistical significance; negative or inconclusive clinical trial results may require us to conduct further testing or we may choose
to abandon projects that we had been expecting to complete; patient drop out rates in our clinical trial may be higher than anticipated; the FDA, its European equivalent EMEA or the Chinese State Food and Drug Administration (SFDA) may not approve
our products for commercialization or may require additional clinical trial data prior to approving our products.

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 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 (thymalfasin) in most of Europe. Biocompatibles is primarily responsible for the efforts to obtain regulatory approval in China for
the DC Bead, and RESprotect is primarily responsible for the scale-up of production for RP101. We generally do not have control over the amount and timing of resources that our business partners devote to our collaborative efforts, and some 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 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 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. The manufacturing of the raw material and the processing to finished product of ZADAXIN is done in few batches in any given three-month period. Manufacturing interruptions or
failure or delay of product to meet quality assurance specifications could adversely affect shipments and recognition of sales of ZADAXIN in any period and impair our relationships with customers and our competitive position. During 2006, we
experienced failures and lower yields on production runs from our sole supplier of bulk API product for the manufacture of ZADAXIN for our current markets including China and our current ZADAXIN clinical trials. We have taken and are taking various
actions to ensure that our sales are not interrupted; through June 30, 2008, our planned inventory levels of finished product have been met by additional production runs and our sales of ZADAXIN and supply of clinical trial product have been
unaffected. However, the production run failures and the related costs incurred in additional production runs are circumstances that have not been economical for our supplier. Our supplier is working to remedy the production problems, but has not
been able to produce our product at targeted yields and costs. Until the production problems are remedied, we may suffer production problems that may cause future interruptions in product supply that may harm our business. In addition, 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. In addition, Biocompatibles is the sole supplier of the DC Bead. If unanticipated deficiencies in these suppliers occur, we could experience delays in our ability to fulfill regulatory requirements which may adversely affect
our sales or prospects for regulatory marketing approvals. We have an exclusive supplier of pegylated interferon alpha and ribavirin for our European phase 3 HCV clinical trial, who also supplied all of the pegylated interferon used in our U.S.
phase 3 HCV clinical trials, and RESprotect is the exclusive supplier of RP101 for our phase 2 study evaluating the safety and efficacy of RP101. Any unanticipated deficiencies in these suppliers, recall of the manufacturing lots or similar action
regarding the pegylated interferon alpha, ribavirin or RP101 used in our clinical trials could delay the trials or detract from the integrity of the trial data and its potential use in future regulatory filings.

We rely on third parties and corporate collaborators to conduct clinical trials and these third parties may not perform satisfactorily.

We rely on third parties including Sigma Tau, as well as contract research organizations, medical institutions, clinical investigators, contract
laboratories, and collaborative partners in the conduct of clinical trials for our product candidates. If these parties, whom we do not control, do not successfully carry out their contractual duties or regulatory obligations or meet expected
deadlines or choose not to continue their relationship with us, if the third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory
requirements or for other reasons, our pre-clinical or clinical activities may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize our product candidates. We are in
discussions with Sigma-Tau regarding the sharing of expenditures for future thymalfasin trials and have not determined responsibilities for the various trials. The outcome of these negotiations will affect our future operating results including the
timing of proceeding with such trials.



21



---

##### Table of Contents

If third-party reimbursement is not available or patients cannot otherwise pay for ZADAXIN, the DC Bead, or RP101, we
may not be able to successfully market them.

Significant uncertainty exists as to the reimbursement status of new therapeutic
products, such as ZADAXIN, the DC Bead and RP101. We cannot assure you that third-party insurance coverage and reimbursement will be available for therapeutic products we might develop. We cannot assure you that we will be able to maintain or
increase third-party payments for ZADAXIN or obtain third-party payments for the DC Bead in China. The failure to obtain or maintain third-party reimbursement for our products would harm our business. Further, we cannot assure you that additional
limitations will not be imposed in the future in the United States or elsewhere on drug coverage and reimbursement due to proposed health care reforms. Our commercial rights to RP101 are limited to the United States and Canada. 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 would reduce our gross margins and may harm our business.

Additional clinical trials will be required for the successful U.S. and European commercialization of ZADAXIN and for the continued success of our commercialization efforts in China and other markets. If the
results of clinical trials are not favorable, we will be unable to obtain regulatory approval for the intended indications we are evaluating and our sales efforts in China and other markets where ZADAXIN is approved 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 and Europe. We are also dependent on our ability to increase ZADAXIN sales in China and other 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 or malignant melanoma in the United States and Europe and RP101 in the United States and Canada.

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. In December 2005 and June 2006, we reported final results from our two U.S. phase 3 trials evaluating the double therapy combination of ZADAXIN and pegylated interferon alpha to treat HCV patients who had failed previous therapy.
The results from these trials did not demonstrate that ZADAXIN in combination with pegylated interferon alpha provides a statistically significant clinical benefit when compared with pegylated interferon alpha alone. Although we do not believe that
the news of these results had any significant effect on our sales to China, we cannot assure you that our results will not be harmed if final data from current clinical trials are negative. Our European partner, Sigma-Tau, is conducting a triple
therapy combination (ZADAXIN plus pegylated interferon alpha and ribavirin) HCV clinical trial in Europe. We expect to report final data from this 553 patient phase 3 clinical trial in the fourth quarter of 2008.

The current standard of care for HCV therapy is the combination of pegylated interferon alpha with ribavirin. This combination is not approved by the FDA
or the EMEA for the treatment of non-responders, however, in clinical practice pegylated interferon alpha with ribavirin is widely used for the treatment of both treatment naïve and non-responder HCV patients. The European HCV phase 3 clinical
trial being conducted by Sigma-Tau has been designed to compare the efficacy of the triple combination of thymalfasin, pegylated interferon alpha and ribavirin with the current standard of care. As with the FDA, the EMEA generally requires two
confirmatory phase 3 clinical trials to support their equivalent of a New Drug Application (NDA). Therefore, results of the current triple therapy combination trial, even if positive and statistically significant, would by themselves likely be
insufficient to support an NDA to the EMEA, and results from a second confirmatory phase 3 clinical trial would be needed. We cannot assure you that we or our European partner, Sigma-Tau, will undertake such trial, that any clinical trial of the
triple therapy combination will yield favorable results, that we will receive approval for ZADAXIN for the treatment of HCV in Europe or the United States or for the treatment of HCV in other countries, or that we will achieve significant levels of
sales. If we are unable to do so, our business will be harmed.

In June 2007, we reported positive data from a phase 2 trial, also
conducted by Sigma-Tau, treating patients with stage IV malignant melanoma indicating that thymalfasin in combination with dacarbazine (DTIC) chemotherapy and low dose interferon alpha met its primary endpoint by reaching the tumor response rate
required to reject the null hypothesis. In fact, two of the thymalfasin treated groups had a tripled overall response rate compared to malignant melanoma patients treated with DTIC, the current standard of care, and low dose interferon alpha. In
addition, survival, a key secondary endpoint, was extended by nearly 3 months.



22



---

##### Table of Contents

We and Sigma-Tau are planning the design of a phase 3 melanoma trial and our regulatory strategy
including a Special Protocol Assessment (SPA) to be filed with the FDA. Thymalfasin phase 3 clinical development and commercialization plans for HCV and melanoma have potentially significantly different timelines, costs, and sales potential, and the
markets for these two products differ in terms of competitive products and other factors. Consequently, before proceeding with a further melanoma trial, we expect that we and Sigma-Tau will review the final results for the current HCV clinical trial
anticipated in the fourth quarter of 2008 in order to determine the next steps for an optimal thymalfasin development program.

We cannot
assure you that the final design of any trial that is approved will meet our expectations, that we or Sigma-Tau will receive approval for the indication or that we will achieve significant levels of sales. Further, we have not reached agreement on
expense sharing for the trial, and our future expenses and ability to proceed with the trial are dependent in part on the conclusion of such discussions. If we cannot proceed with the trial for any reason or the trial is unsuccessful, or even if
successful, if we do not achieve commercially meaningful results, our business will be harmed.

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

In December 2005 and
June 2006, we announced results from our two U.S. phase 3 HCV clinical trials. These clinical trials did not demonstrate that the combination of ZADAXIN and pegylated interferon alpha provides a statistically significant clinical benefit when
compared to the use of pegylated interferon alpha alone in non-responder patients. These results made Sigma-Taus efforts to fully recruit patients for the currently ongoing ZADAXIN phase 3 HCV triple therapy combination trial more difficult
and enrollment took longer than planned. Enrollment of the 553 patients in this trial was completed in December 2006. In addition, HCV clinical trials are lengthy. The trials require patient treatment for 48 weeks and a follow-up observation period
for an additional 24 weeks. Patient dropouts are expected and each of our two phase 3 HCV clinical trials in the United States enrolled more than the planned number of 500 patients, but even then dropouts were 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. In general, the fewer patients who complete each trial, the higher the positive response rate for the group of
remaining thymalfasin treated patients in such trial needs to be in order to demonstrate statistical significance. Therefore, a higher than anticipated dropout rate lowers the chances of proving statistical significance which could adversely affect
clinical trial results. Dropouts did not prevent us from completing our U.S. phase 3 HCV clinical trials. However, dropouts may affect the final results of the European phase 3 HCV triple therapy combination trial and may affect the pancreatic
cancer phase 2 clinical trial for RP101 and other trials we conduct.

We cannot predict the safety profile of the use of thymalfasin, RP101 or SCV-07
when used in combination with other drugs.

Many of our trials involve the use of thymalfasin in combination with other drugs and our
pancreatic cancer clinical trial involves RP101 in combination with gemcitabine. SCV-07 may be developed to be used in combination with other drugs. Some of these drugs, particularly pegylated interferon alpha, ribavirin, non-pegylated interferon
alpha, dacarbazine and gemcitabine are known to cause adverse patient reactions. We cannot predict how ZADAXIN, RP101 or SCV-07 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 thymalfasin, RP101 or SCV-07 when used in certain combination therapies.

If we do not obtain regulatory
approval for thymalfasin or RP101 for the intended indications that we are evaluating, our revenues will be limited and we may never become profitable.

Our ability to execute on our business strategy is largely dependent on our ability to obtain regulatory approval for the use of thymalfasin, particularly in the United States and Europe, and for the use of RP101 in
the United States. 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 an NDA. We have committed
significant resources, including capital and time, to develop these products, and intend to continue to do so, including the initiation and execution of additional clinical trials, with the goal of obtaining such approvals. If we do not obtain these
approvals, we will be unable to achieve any revenue from these products in these major markets and our thymalfasin 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 thymalfasin, 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 thymalfasin 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
thymalfasin. 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 such difficulties and have been unable to meet such regulatory filing requirements. We cannot assure



23



---

##### Table of Contents

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 thymalfasin in countries where we currently do not have such rights, our revenues will be limited, and our future prospects will be dependent upon our ability to in-license or to bring
earlier stage products to market, any of which will require substantial financial expenditures.

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 thymalfasin in markets where it is approved for sale.

Regulatory approval is necessary to permit us to market the DC Bead in China. If we are unable to secure regulatory approval in China, we will be unable to market the
DC Bead in China and our future sales potential in this market could be harmed.

In June 2006, we announced our agreement with
Biocompatibles International plc. (Biocompatibles) to become the exclusive distributor in China of the DC Bead, a chemotherapeutic drug delivery embolic agent designed to be used in the treatment of liver cancer. While the DC Bead is approved in
Europe for the use in the treatment of malignant hypervascularized tumors, it has not yet received regulatory approval in China. Biocompatibles is responsible, with our assistance and financial support of 50% of all costs, for seeking and obtaining
the regulatory approval for marketing the product in China. We, on behalf of Biocompatibles, filed a regulatory submission in China in December 2006; however, we cannot give assurance that such submission will be approved by the regulatory
authorities. If clinical trials in China are required as part of the regulatory process, the regulatory submission for marketing approval could be delayed for a considerable period of time, and there can be no assurance that the results of clinical
trials would support a regulatory submission or that the regulatory authorities would approve the product to be commercialized and sold in China. To the extent that additional information or clinical trials are required by the regulatory
authorities, or we do not receive regulatory approval in China, our future sales potential in China could be harmed.

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 and the failure to
manage, retain, or timely replace our suppliers would harm our business. The manufacturing facilities of our suppliers are subject to inspection by regulatory authorities to ensure their compliance with regulatory requirements and standards.
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 thymalfasin in approved markets, and impair our competitive position. Any of these developments would harm our business.

We are in the process of registering new suppliers for ZADAXIN with regulatory agencies in markets where thymalfasin is approved for sale. This process,
quality assurance and other steps could cause delays or interruptions of supply in certain other markets. In some countries, a manufacturing change may require additional regulatory approvals that may delay thymalfasin 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.

Our
business strategy is dependent on our ability to in-license or otherwise acquire the rights to develop and commercialize products. If we fail to acquire such rights or are unsuccessful in our efforts to develop such products and obtain regulatory
approval to market and successfully commercialize them, our business will suffer.

All of our products, including thymalfasin, the only
one for which we have sales revenue, have been in-licensed by us. We do not conduct product discovery and typically have in-licensed our products from third parties who have discovered the products and conducted at least some pre-clinical research
on them. The competition for attractive products to in-license is intense, and we cannot assure you that we will be able to in-license products in the future on acceptable terms, if at all. In addition, we face the risks of developing the
in-licensed products and the risks and uncertainties of conducting clinical trials and seeking regulatory approval to market the in-licensed products, all of which require years of effort and the commitment of significant financial resources. Our
ability to grow our business requires the development and commercialization of additional products. If we are unable to in-license products on acceptable terms and successfully develop and commercialize them, our business could be harmed.



24



---

##### Table of Contents

If we lose key personnel or are unable to attract and retain additional, highly skilled and experienced 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. There is intense competition for qualified management, scientific, clinical, regulatory, and sales and marketing 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 particular, our efforts to in-license or acquire, develop and commercialize product candidates for China require the
addition of clinical and regulatory personnel and the capabilities to expand our sales and marketing operation. 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. In April 2008, our former Executive Vice President and Chief Financial Officer departed the Company and we are currently searching for a replacement. 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 for any of our personnel.

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 three 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.

Changes in Chinas political, social and economic environment may affect our financial performance.

Our financial performance may be affected by changes in Chinas political, social and economic environment. The role of the Chinese
central and local governments in the Chinese economy is significant. Chinese policies toward economic liberalization, and laws and policies affecting foreign companies, currency exchange rates and other matters could change, resulting in greater
restrictions on our ability to do business in China. Any imposition of surcharges or any increase in Chinese tax rates could hurt our operating results. The Chinese government could revoke, terminate or suspend our license for national security and
similar reasons without compensation to us. If the government of China were to take any of these actions, we would be prevented from conducting all or part of our business. Any failure on our part to comply with governmental regulations could result
in the loss of our ability to market our products in China.

Our sales of thymalfasin 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 thymalfasin 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 thymalfasin. Although we do not market thymalfasin for use in treating such epidemic diseases, if thymalfasin 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, and we have limited intellectual property protection in China.

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 thymalfasin have expired, including composition of matter patents, we have rights to other patents and patent applications relating
to thymalfasin and thymalfasin analogues, including method of use patents with respect to the use of thymalfasin for certain indications. Additionally, thymosin alpha 1 (thymalfasin), the chemical composition of thymalfasin, has received Orphan Drug
designation in the United States for the treatment of stage IIb through stage IV malignant melanoma. If other



25



---

##### Table of Contents

parties develop generic forms of thymalfasin 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 thymalfasin. If other parties develop analogues or derivatives of thymalfasin, 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 thymalfasin. We do not have patent protection for thymalfasin 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 thymalfasin. 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 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 thymalfasin in certain markets, we do not yet have regulatory approval for
thymalfasin for the key markets of the United States, Europe and Japan and, in this respect, thymalfasin is still being developed. In 2006 we acquired the rights to distribute the DC Bead in China, but we must receive regulatory approval before we
can commercialize this product. Our only other potential products presently are SCV-07 and RP101, and each of them is in an earlier stage of development than thymalfasin. 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.



26



---

##### Table of Contents

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 the potential products 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. For the DC Bead, we are obligated to pay half of the costs in our efforts to obtain
regulatory approval in China. For RP101, we are obligated to make milestone payments if a phase 3 trial is successful. 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 thymalfasin and our sales have been
primarily in a single country, China. Our future revenue growth depends to a great extent on increased market acceptance and commercialization of thymalfasin in additional countries, particularly in the United States and Europe. If we fail to
successfully market thymalfasin, or if we cannot commercialize this drug in the United States and other additional markets, our revenue and operating results will be limited. 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, such as the DC Bead and RP101. 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 have a history of operating losses and an accumulated deficit. We expect to incur losses in the near term and may not be profitable in the future.

We reported net loss of $5,978,000 for the six months ended June 30, 2008. In addition, we have experienced significant operating losses in the past, and as of June 30, 2008, we had an accumulated deficit of
approximately $174 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, and these losses may
increase if we cannot increase or sustain revenue. As a result, we may not achieve profitability in the future.

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

Outside
of our current principal market of China, we 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
particularly in the major pharmaceutical markets of the United States, Europe and Japan should we receive regulatory approval to market our products in those territories. 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. We may receive approvals permitting us to sell in additional markets but not have the financial resources to
fund sales and marketing efforts. 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 future 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.

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.



27



---

##### Table of Contents

Any reoccurrence of Severe Acute Respiratory Syndrome (SARS) or the outbreak of a different contagious disease such as
the Avian Flu may adversely impact our operations and some of our key customers.

The 2003 SARS outbreak was most notable in China and
a small number of cases were reported in 2004. There was no significant impact to our ability to fill customer orders. However, if there were to be another outbreak of SARS or a different contagious disease, such as Avian Flu, and if our employees
contracted the disease or were restricted from performing routine sales activities, our business could be materially harmed. Finally, if one of our key customers is required to close for an extended period, we might not be able to ship product to
them, our revenue would decline and our financial performance would suffer.

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.

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 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 our targeted indications that will be superior to ours.

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 thymalfasin, RP101 and SCV-07;
| | - |  | --------------------------------------------------------------------------------



| |  |  | progress of thymalfasin 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | progress of the DC Bead through the regulatory process, especially regulatory actions and the adequacy of clinical data and documentation for regulatory purposes in
China;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | timing and achievement of milestones;
| | - |  | -------------------------------------



| |  |  | changes in our agreements or relationships with collaborative partners;
| | - |  | -----------------------------------------------------------------------



| |  |  | announcements of technological innovations or new products by us or our competitors;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | announcement and completion of corporate acquisition, merger, licensing or marketing arrangements, or sales of assets;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | 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 the composition of our management team or board of directors;
| | - |  | ------------------------------------------------------------------------



| |  |  | changes in company assessments or financial estimates by securities analysts;
| | - |  | -----------------------------------------------------------------------------



| |  |  | actual or anticipated fluctuations in our quarterly operating results;
| | - |  | ----------------------------------------------------------------------



| |  |  | changes in assessments of our internal controls over financial reporting;
| | - |  | -------------------------------------------------------------------------



| |  |  | 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.
| | - |  | -------------------------------------------------------------------------



28



---

##### Table of Contents

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 equity in our subsidiaries or the
exercise or conversion of options or convertible securities may impact the market price of our common stock.

Our collaborative partner
Sigma-Tau and affiliates hold a substantial amount of our stock. The stock is freely tradeable and Sigma-Tau is not under any obligation to SciClone which would prevent it from selling some or all of the stock it holds except for applicable U.S.
insider trading regulations with respect to possession of material non-public information by Sigma-Tau or its officers and directors.

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 or sell equity in a subsidiary, the percentage ownership of our present stockholders of the respective entities will be reduced and the price of our common stock may fall.

Sales of our common stock by officers and directors 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 Exchange Act of
1934, as amended. 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 June 30, 2008, no director or officer has such a plan however an officer or director may do so in the future. 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 our stockholders. Our charter documents 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, on December 18, 2006, our Board of Directors declared a dividend distribution of one Preferred Stock Purchase Right (collectively, the Rights)
for each outstanding share of our Common Stock, each Right which entitles the registered holder to purchase from the Company one one-thousandth of a share of the Companys Series D Preferred Stock, $0.001 par value, at a price of $25.00
pursuant to a Rights Agreement dated as of December 19, 2006, between the Company and Mellon Investor Services LLC. The Rights have certain anti-takeover effects. Under certain circumstances the Rights could cause substantial dilution to a
person or group who attempts to acquire the Company on terms not approved by our Board of Directors. Although the Rights should not interfere with an acquisition of the Company approved by the Board, the Rights may have the effect of delaying and
perhaps improving the terms of an acquisition for our stockholders, or deterring an acquisition of the Company. Also, under applicable Delaware law, our board of directors may adopt additional anti-takeover measures in the future.

Our investments are subject to certain risks which could materially adversely affect our overall financial position.

We invest our cash in accordance with an established internal policy and customarily in instruments which historically have been highly liquid and
carried relatively low risk. However, with recent turmoil in the credit markets, similar types of investments have experienced losses in value or liquidity issues which differ from their historical pattern. For example, we routinely have
invested in money market funds with large financial institutions. One or more of these funds could experience losses or liquidity problems and, although to date some of the largest financial institutions who sponsor such funds have offset



29



---

##### Table of Contents

similar losses, there is no assurance that our financial institutions would either not incur losses or would offset any losses were they to
occur. Further, we hold auction rate securities (ARS) which are collateralized by student loans with most of such collateral in the aggregate being guaranteed by the U.S. government. These ARS are intended to provide
liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, usually every month. As of June 30, 2008, we held $1,679,000 of auction rate security investments and all of these had
experienced failed auctions since February 2008. As a result, our ability to liquidate these investments and fully recover the carrying value of these investments in the near term may be limited or not exist. An auction failure means that the
parties wishing to sell securities could not. When an auction fails, the interest rate on such securities resets to a default rate which is usually higher and would require payment by the issuer, affecting its creditworthiness and
therefore potentially its ability to redeem such obligations and therefore avoid the higher interest payments. Although we believe we will be able to liquidate our investments without significant loss within the next year and we further believe
these securities are not significantly impaired, primarily due to the federal government guarantee underlying the securities, it is possible that we would not be able to realize the recorded value of our investments until the final maturity of the
underlying notes. The final maturities of these securities range from 22 to 34 years. We have not written down any of our ARS investments as of June 30, 2008; however, we have reclassified these holdings to long-term. Should any of our cash
investments permanently lose value or have their liquidity impaired, it would have a material and adverse effect on our overall financial position by imperiling our ability to fund our operations and forcing us to seek additional financing
sooner than we would otherwise and such financing may not be available on commercially attractive terms.

If we fail to maintain an effective
system of internal controls, we may not be able to accurately report our financial results. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our
stock.

Effective internal controls are necessary for us to provide reliable financial reports and to protect from fraudulent, illegal
or unauthorized transactions. If we cannot provide effective controls and reliable financial reports, our business and operating results could be harmed. Moreover, as a United States-based corporation doing business in China, these controls often
need to satisfy the requirements of Chinese law as well as the requirements of United States law which frequently differ in certain aspects. We have in the past discovered, and may in the future discover, areas of our internal controls that need
improvement. Any failure to implement and maintain controls over our financial reporting, or difficulties encountered in the implementation of improvements in our controls, could cause us to fail to meet our reporting obligations. Any failure to
improve our internal controls or to address identified weaknesses in the future, if they were to occur, could also cause investors to lose confidence in our reported financial information, which could have a negative impact on the trading price of
our stock.

New accounting pronouncements may impact our 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. 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 (FAS 123R). FAS 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 adopted FAS 123R on January 1, 2006. Accordingly, the adoption of FAS 123R had a significant impact on
our results of operations, although it has no impact on our cash or overall financial position. For the six months ended June 30, 2008 and 2007, we recognized $992,000 and $1,158,000, respectively, of stock-based compensation expense in
accordance with FAS 123R.

New legislation may impact our 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 The NASDAQ Stock 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. In July 2005, China shifted
its currency policy by establishing a 2% revaluation of the renminbi and referenced the renminbi to a basket of currencies, with a daily trading band of +/-0.3%. Depending on market conditions and the state of the Chinese economy, it is possible
that China will make further adjustments, including moving to a managed float system, with opportunistic



30



---

##### Table of Contents

interventions. This reserve diversification may negatively impact the United States dollar and U.S. interest rates. A trend to a stronger U.S. dollar would
erode margins earned by our Chinese importers and prompt them to ask us to lower our prices. 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 and costs of our operations in China are paid in local currency. 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.

Our business and operations are especially subject to the risks of earthquakes and other natural catastrophic disasters.

Our corporate headquarters are located in the Silicon Valley area of Northern California, a region known for seismic activity. Although we maintain a
disaster recovery policy that includes storage of important corporate data in a different geographic region of the United States, all of our significant corporate data is stored in our headquarters facility and accordingly, a significant natural
disaster, such as an earthquake, could have a material adverse impact on our business, operating results, and financial condition.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in money market funds, certificates of deposit,
and U.S. Treasury, or U.S. government agency notes. In the past, we also invested in highly-rated, auction rate securities. The auction rate securities are classified as available-for-sale and consequently are recorded on the balance sheet at fair
value with unrealized gains or losses reported as a separate component of accumulated other comprehensive (loss) income. All of our investments mature within one year from date of purchase except for the auction rate securities whose ultimate
maturities range from 22 to 34 years. Our holdings in investments, of any one issue, do not exceed 2% of our cash, cash equivalents and investments. Our investments in our investment securities are subject to interest rate risk. If interest rates
rise, the market value of our investments may decline, which could result in a realized loss if we are forced to sell an investment before its scheduled maturity. 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 $19,000 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 June 30, 2008. Actual results may differ materially. We do not hold any derivative financial instruments to manage our interest rate risks.

As of June 30, 2008, we held approximately $1,679,000 in auction rate securities, classified as long-term assets, with an auction rate feature whose
underlying assets are generally student loans which are substantially backed by the federal government. In February 2008, auctions began to fail for these securities and each auction has failed since February 2008. Effective January 1, 2008, we
determined the fair market values of our financial instruments based on the fair value hierarchy established in SFAS 157 which requires an entity to maximize the use of observable inputs (Level 1 and Level 2 inputs) and minimize the use of
unobservable inputs (Level 3 inputs) when measuring fair value. Given the current failures in the auction markets to provide quoted market prices of the securities as well as the lack of any correlation to these instruments to other observable
market data, we valued these securities using a pricing model with the most significant inputs categorized as Level 3. Significant inputs that went into the model were the credit quality of the issuer, the percentage and types of guarantees (such as
Federal Family Education Loan Program-FFELP), the probability of the auction succeeding or the security being called, an illiquidity discount factor, and tax status. Changes in the assumptions of the model based on dynamic market conditions could
have a significant impact on the valuation of these securities, which may lead us in the future to take an impairment charge for these securities.

Substantially all our sales and most of our manufacturing costs to date have been in U.S. dollars. However, our purchases from one of our contract manufacturers are denominated in euros and costs of our marketing efforts in China are paid
in local currency. In addition, we have certain cash balances denominated in euros. As a result, we are exposed to foreign currency rate fluctuations, and we do not hedge against the risk associated with such fluctuations. Consequently, changes in
exchange rates could unpredictably, materially and adversely affect our operating results and stock price and could result in exchange losses, although such losses have been insignificant to date.



31



---

##### Table of Contents

|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Acting Chief
Financial Officer, 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 Executive
Officer and Acting Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Changes in Internal Controls

There have been no changes in our internal control over financial
reporting that occurred during the second quarter of 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations of the Effectiveness of Internal Controls

A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of inherent limitations in any control systems, no evaluation of controls can provide absolute assurance that all
control issues, if any, within a Company have been detected. We are continuously seeking to improve the efficiency and effectiveness of our operations and of our internal controls. This results in refinements to processes throughout our
organization. Notwithstanding these limitations, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Our Chief Executive Officer and Acting Chief Financial Officer has concluded that our
disclosure controls and procedures are, in fact, effective at the reasonable assurance level.

PART II.
OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

None



|Item 1A. | Risk Factors
|-------- | ------------

The only material changes in our risk
factors from those previously disclosed in our Form 10-K for the year ended December 31, 2007, were as follows:



| |  |  | We modified our risk factor regarding revenue being dependent on the sale of ZADAXIN in foreign countries, particularly China, the third paragraph which now reads
in full as follows:
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 operating results and financial condition will be harmed.

We have received regulatory
approvals to market ZADAXIN in China and to manufacture ZADAXIN and export the product from Italy. In order to continue our sales to China, we need to maintain these approvals. Our license to import ZADAXIN into China needs to be renewed every five
years and the next renewal is required in 2013. Although we have been successful in obtaining renewal earlier this year, there is no assurance that we will receive renewals in the future when applied for or that the renewals will not be conditioned
or limited in ways that limit our ability to conduct business in China. Further, our licenses to manufacture and export ZADAXIN from Italy are dependent upon our continuing compliance with regulations in Italy. Our business would be adversely
affected if we are not able to maintain these approvals.



| |  |  | We modified our risk factor regarding additional clinical trials being required for the successful U.S. and European commercialization of ZADAXIN and for the
continued success of our commercialization efforts in China and other markets, the fourth, fifth and six paragraphs which now read in full as follows:
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Additional clinical trials will be required for the successful U.S. and European commercialization of ZADAXIN and for the continued success of our commercialization efforts in China and other markets. If the
results of clinical trials are not favorable, we will be unable to obtain regulatory approval for the intended indications we are evaluating and our sales efforts in China and other markets where ZADAXIN is approved will be harmed.



32



---

##### Table of Contents

In June 2007, we reported positive data from a phase 2 trial, also conducted by Sigma-Tau, treating
patients with stage IV malignant melanoma indicating that thymalfasin in combination with dacarbazine (DTIC) chemotherapy and low dose interferon alpha met its primary endpoint by reaching the tumor response rate required to reject the null
hypothesis. In fact, two of the thymalfasin treated groups had a tripled overall response rate compared to malignant melanoma patients treated with DTIC, the current standard of care, and low dose interferon alpha. In addition, survival, a key
secondary endpoint, was extended by nearly 3 months.

We and Sigma-Tau are planning the design of a phase 3 melanoma trial and our
regulatory strategy including a Special Protocol Assessment (SPA) to be filed with the FDA. Thymalfasin phase 3 clinical development and commercialization plans for HCV and melanoma have potentially significantly different timelines, costs, and
sales potential, and the markets for these two products differ in terms of competitive products and other factors. Consequently, before proceeding with a further melanoma trial, we expect that we and Sigma-Tau will review the final results for the
current HCV clinical trial anticipated in the fourth quarter of 2008 in order to determine the next steps for an optimal thymalfasin development program.

We cannot assure you that the final design of any trial that is approved will meet our expectations, that we or Sigma-Tau will receive approval for the indication or that we will achieve significant levels of sales.
Further, we have not reached agreement on expense sharing for the trial, and our future expenses and ability to proceed with the trial are dependent in part on the conclusion of such discussions. If we cannot proceed with the trial for any reason or
the trial is unsuccessful, or even if successful, if we do not achieve commercially meaningful results, our business will be harmed.



| |  |  | We modified our risk factor regarding key personnel, which now reads in full as follows:
| | - |  | ----------------------------------------------------------------------------------------

If we lose key personnel or are unable to attract and retain additional, highly skilled and experienced 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. There is intense competition for qualified management, scientific, clinical, regulatory, and sales and marketing 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 particular, our efforts to in-license or acquire, develop and commercialize product candidates for China require the addition of clinical and regulatory personnel and the
capabilities to expand our sales and marketing operation. 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. In April 2008,
our former Executive Vice President and Chief Financial Officer departed the Company and we are currently searching for a replacement. 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 for any of our personnel.



| |  |  | We modified our risk factor regarding successfully developing or commercializing our products, the second paragraph of which now reads in full as follows:
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

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.

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 the potential products 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. For the DC Bead, we are obligated to pay half of the costs in our efforts
to obtain regulatory approval in China. For RP101, we are obligated to make milestone payments if a phase 3 trial is successful. 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 modified our risk factor regarding operating losses, which now reads in full as follows:
| | - |  | -------------------------------------------------------------------------------------------

We have a history of operating losses and an accumulated deficit. We expect to incur losses in the near term and may not be profitable in the future.

We reported net loss of $5,978,000 for the six months ended June 30, 2008. In addition, we have experienced significant operating losses in the
past, and as of June 30, 2008, we had an accumulated deficit of approximately $174 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, and these losses may increase if we cannot increase or sustain revenue. As a result, we may not achieve profitability in the future.



33



---

##### Table of Contents

| |  |  | We modified our risk factor regarding that we have limited sales, marketing and distribution capabilities outside of China, which now reads in full as follows:
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Outside of our current principal market of China, we 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 particularly in the major pharmaceutical markets of the United States, Europe and
Japan should we receive regulatory approval to market our products in those territories. 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. We may receive approvals permitting us to sell in additional markets but not have the financial resources to fund sales and marketing efforts. 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 future 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.



| |  |  | We modified our risk factor regarding our ability to establish and maintain adequate manufacturing relationships, which now reads in full as follows:
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

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 and the failure to manage, retain, or timely replace our suppliers would harm our business. The manufacturing
facilities of our suppliers are subject to inspection by regulatory authorities to ensure their compliance with regulatory requirements and standards. 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
thymalfasin in approved markets, and impair our competitive position. Any of these developments would harm our business.

We are in the
process of registering new suppliers for ZADAXIN with regulatory agencies in markets where thymalfasin is approved for sale. This process, quality assurance and other steps could cause delays or interruptions of supply in certain other markets. In
some countries, a manufacturing change may require additional regulatory approvals that may delay thymalfasin 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 modified our risk factor regarding our investments being subject to certain risks, which now reads in full as follows:
| | - |  | -------------------------------------------------------------------------------------------------------------------------

Our investments are subject to certain risks which could materially adversely affect our overall financial position.

We invest our cash in accordance with an established internal policy and customarily in instruments which historically have been highly liquid and
carried relatively low risk. However, with recent turmoil in the credit markets, similar types of investments have experienced losses in value or liquidity issues which differ from their historical pattern. For example, we routinely have
invested in money market funds with large financial institutions. One or more of these funds could experience losses or liquidity problems and, although to date some of the largest financial institutions who sponsor such funds have offset
similar losses, there is no assurance that our financial institutions would either not incur losses or would offset any losses were they to occur. Further, we hold auction rate securities (ARS) which are collateralized by student
loans with most of such collateral in the aggregate being guaranteed by the U.S. government. These ARS are intended to provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar
intervals, usually every month. As of June 30, 2008, we held $1,679,000 of auction rate security investments and all of these had experienced failed auctions since February 2008. As a result, our ability to liquidate these investments
and fully recover the carrying value of these investments in the near term may be limited or not exist. An auction failure means that the parties wishing to sell securities could not. When an auction fails, the interest rate on such securities
resets to a default rate which is usually higher and would require payment by the issuer, affecting its creditworthiness and therefore potentially its ability to redeem such obligations and therefore avoid the higher interest
payments. Although we believe we will be able to liquidate our investments without significant loss within the next



34



---

##### Table of Contents

year and we further believe these securities are not significantly impaired, primarily due to the federal government guarantee underlying the securities, it
is possible that we would not be able to realize the recorded value of our investments until the final maturity of the underlying notes. The final maturities of these securities range from 22 to 34 years. We have not written down any of our ARS
investments as of June 30, 2008; however, we have reclassified these holdings to long-term. Should any of our cash investments permanently lose value or have their liquidity impaired, it would have a material and adverse effect on our overall
financial position by imperiling our ability to fund our operations and forcing us to seek additional financing sooner than we would otherwise and such financing may not be available on commercially attractive terms.



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

We held our Annual Meeting of Stockholders on June 10, 2008 to elect seven (7) directors and to ratify the appointment of Ernst & Young LLP as the Companys independent registered public accounting firm for fiscal
year 2008.

At the Annual Meeting of Stockholders, all of the director nominees were elected by the following number of votes:



|                        |  |            |  |               |  |              |  |            |  |                
|----------------------- |  | ---------- |  | ------------- |  | ------------ |  | ---------- |  | ---------------
|                        |  | For        |  | VotesWithheld |  | VotesAgainst |  | Abstaining |  | Broker NonVotes
|Dean S. Woodman         |  | 32,101,441 |  | 2,748,696     |  |              |  |            |  |                
|John D. Baxter, M.D.    |  | 32,216,610 |  | 2,633,527     |  |             |  |           |  |               
|Friedhelm Blobel, Ph.D. |  | 32,191,342 |  | 2,658,795     |  |             |  |           |  |               
|Richard J. Hawkins      |  | 32,215,283 |  | 2,634,854     |  |             |  |           |  |               
|Rolf H. Henel           |  | 32,209,912 |  | 2,640,225     |  |             |  |           |  |               
|Ira D. Lawrence, M.D.   |  | 32,135,820 |  | 2,714,317     |  |             |  |           |  |               
|Jon S. Saxe             |  | 32,096,910 |  | 2,753,227     |  |             |  |           |  |               

Stockholders ratified the appointment of Ernst & Young LLP as the Companys
independent registered public accounting firm for fiscal year 2008 by the following number of votes: 34,198,686 for; 420,600 against; 230,851 abstaining; 0 withheld; and 0 broker non-votes.



35



---

##### Table of Contents

|Item 6. | Exhibits
|------- | --------



|               |  |                                                                                                                                                                                                                                                                                                                                                             
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                                 
|               | 
|3(i).1(1)      |  | Amended and Restated Certificate of Incorporation.                                                                                                                                                                                                                                                                                                          
|               | 
|3(ii).1(1)     |  | Bylaws.                                                                                                                                                                                                                                                                                                                                                     
|               | 
|3(i).2(10)     |  | Certificate of Designation, Preferences and Rights of the Terms of the Series D Preferred Stock, as filed by SciClone Pharmaceuticals, Inc. with the Secretary of State of the State of Delaware
as of December 22, 2006.                                                                                                                                   
|               | 
|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.                                                                                                                                                                                                                                      
|               | 
|4.4(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.                                                                                                                                                                                                                                  
|               | 
|4.7(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.                                                                                                                                                                                                                                         
|               | 
|4.9(11)        |  | Rights Agreement, effective as of December 19, 2006, between the Company and Mellon Investor Services LLC, as rights agent (including as Exhibit A the form of Certificate of Designation,
Preferences and Rights of the Services D Preferred Stock, as Exhibit B the form of Right Certificate, and as Exhibit C the Summary of Terms of Rights Agreement).
|               | 
|10.6(5)        |  | SciClone Pharmaceuticals, Inc. 2005 Equity Incentive Plan, as effective as of June 7, 2005.                                                                                                                                                                                                                                                                 
|               | 
|10.7(5)        |  | SciClone Pharmaceuticals, Inc. 2004 Outside Directors Stock Option Plan, as amended June 7, 2005.                                                                                                                                                                                                                                                           
|               | 
|10.8(6)        |  | Offer letter dated as of May 21, 2001 between SciClone Pharmaceutical International Ltd. and Hans P. Schmid.                                                                                                                                                                                                                                                
|               | 
|10.9(6)        |  | Amendment to Offer Letter dated as of February 24, 2006 between SciClone Pharmaceutical International Ltd. and Hans P. Schmid.                                                                                                                                                                                                                              
|               | 
|10.11(7)       |  | Employment Agreement between SciClone Pharmaceuticals, Inc. and Friedhelm Blobel, Ph.D. dated as of April 23, 2006 and effective as of June 2, 2006.                                                                                                                                                                                                        
|               | 
|10.12(7)       |  | Change in Control Agreement between SciClone Pharmaceuticals, Inc. and Friedhelm Blobel, Ph.D. dated as of April 23, 2006 and effective as of June 2, 2006.                                                                                                                                                                                                 
|               | 
|10.13(7)       |  | Agreement Regarding Consulting, Resignation and General Release of Claims between Registrant and Ira D. Lawrence dated as of April 23, 2006.                                                                                                                                                                                                                
|               | 
|10.14(8)       |  | Contractor Services Agreement between Registrant and Ira D. Lawrence dated as of June 2, 2006.                                                                                                                                                                                                                                                              
|               | 
|10.15(8)       |  | Indemnity Agreement between Registrant and Friedhelm Blobel, Ph.D. dated as of June 2, 2006.                                                                                                                                                                                                                                                                
|               | 
|10.16(9)       |  | Confidential Separation Agreement and Release of Claims between SciClone Pharmaceuticals, Inc. and Alfred Rudolph, M.D., executed as of November 20, 2006.                                                                                                                                                                                                  
|               | 
|10.17(12)      |  | Consulting and Resignation Agreement and General Release of All Claims, between SciClone Pharmaceuticals, Inc. and Richard Waldron executed April 4, 2008.                                                                                                                                                                                                  
|               | 
|10.18(12)      |  | Description of 2008 Executive Incentive Plan.                                                                                                                                                                                                                                                                                                               
|               | 
|10.19(13)*     |  | Manufacturing Supply Agreement Between SciClone Pharmaceuticals International, Ltd. and Lonza Sales Ltd.                                                                                                                                                                                                                                                    
|               | 
|31.1(13)       |  | Rule 13a-14(a) Certification of Chief Executive Officer and Acting Chief Financial Officer.                                                                                                                                                                                                                                                                 
|               | 
|32.1(13)       |  | Section 1350 Certification of Chief Executive Officer and Acting Chief Financial Officer.                                                                                                                                                                                                                                                                   



|* | 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.
|--- | --------------------------------------------------------------------------------------------------



36



---

##### Table of Contents

|(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) | Incorporated by reference from the Companys Current Report on Form 8-K filed on June 17, 2005.
|--- | -----------------------------------------------------------------------------------------------



|(6) | Incorporated by reference from the Companys Current Report on Form 8-K filed on February 28, 2006.
|--- | ---------------------------------------------------------------------------------------------------



|(7) | Incorporated by reference from the Companys Current Report on Form 8-K filed on April 25, 2006.
|--- | ------------------------------------------------------------------------------------------------



|(8) | Incorporated by reference from the Companys Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------



|(9) | Incorporated by reference from the Companys Current Report on Form 8-K filed on November 27, 2006.
|--- | ---------------------------------------------------------------------------------------------------



|(10) | Incorporated by reference from the Companys Current Report on Form 8-K filed on December 28, 2006.
|---- | ---------------------------------------------------------------------------------------------------



|(11) | Incorporated by reference from the Companys Current Report on Form 8-K filed on December 22, 2006.
|---- | ---------------------------------------------------------------------------------------------------



|(12) | Incorporated by reference from the Companys Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008.
|---- | -------------------------------------------------------------------------------------------------------------------------



|(13) | Filed herewith.
|---- | ---------------



37



---

##### Table of Contents

SIGNATURE

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: August 1, 2008 |  |  |  | /s/ Friedhelm Blobel, PH.D.                                                                           
|                     |  |  |  | Friedhelm Blobel, PH.D.                                                                               
|                     |  |  |  | President and Chief Executive Officer and Acting Chief Financial Officer (Principal Financial Officer)



38



---

##### Table of Contents

INDEX TO EXHIBITS



|               |  |                                                                                                                                                                                                                                                                                                                                                             
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibit                                                                                                                                                                                                                                                                                                                                                     
|               | 
|3(i).1(1)      |  | Amended and Restated Certificate of Incorporation.                                                                                                                                                                                                                                                                                                          
|               | 
|3(ii).1(1)     |  | Bylaws.                                                                                                                                                                                                                                                                                                                                                     
|               | 
|3(i).2(10)     |  | Certificate of Designation, Preferences and Rights of the Terms of the Series D Preferred Stock, as filed by SciClone Pharmaceuticals, Inc. with the Secretary of State of the State of Delaware
as of December 22, 2006.                                                                                                                                   
|               | 
|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.                                                                                                                                                                                                                                      
|               | 
|4.4(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.                                                                                                                                                                                                                                  
|               | 
|4.7(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.                                                                                                                                                                                                                                        
|               | 
|4.9(11)        |  | Rights Agreement, effective as of December 19, 2006, between the Company and Mellon Investor Services LLC, as rights agent (including as Exhibit A the form of Certificate of Designation,
Preferences and Rights of the Services D Preferred Stock, as Exhibit B the form of Right Certificate, and as Exhibit C the Summary of Terms of Rights Agreement).
|               | 
|10.6(5)        |  | SciClone Pharmaceuticals, Inc. 2005 Equity Incentive Plan, as effective as of June 7, 2005.                                                                                                                                                                                                                                                                 
|               | 
|10.7(5)        |  | SciClone Pharmaceuticals, Inc. 2004 Outside Directors Stock Option Plan, as amended June 7, 2005.                                                                                                                                                                                                                                                           
|               | 
|10.8(6)        |  | Offer letter dated as of May 21, 2001 between SciClone Pharmaceutical International Ltd. and Hans P. Schmid.                                                                                                                                                                                                                                                
|               | 
|10.9(6)        |  | Amendment to Offer Letter dated as of February 24, 2006 between SciClone Pharmaceutical International Ltd. and Hans P. Schmid.                                                                                                                                                                                                                              
|               | 
|10.11(7)       |  | Employment Agreement between SciClone Pharmaceuticals, Inc. and Friedhelm Blobel, Ph.D. dated as of April 23, 2006 and effective as of June 2, 2006.                                                                                                                                                                                                        
|               | 
|10.12(7)       |  | Change in Control Agreement between SciClone Pharmaceuticals, Inc. and Friedhelm Blobel, Ph.D. dated as of April 23, 2006 and effective as of June 2, 2006.                                                                                                                                                                                                 
|               | 
|10.13(7)       |  | Agreement Regarding Consulting, Resignation and General Release of Claims between Registrant and Ira D. Lawrence dated as of April 23, 2006.                                                                                                                                                                                                                
|               | 
|10.14(8)       |  | Contractor Services Agreement between Registrant and Ira D. Lawrence dated as of June 2, 2006.                                                                                                                                                                                                                                                              
|               | 
|10.15(8)       |  | Indemnity Agreement between Registrant and Friedhelm Blobel, Ph.D. dated as of June 2, 2006.                                                                                                                                                                                                                                                                
|               | 
|10.16(9)       |  | Confidential Separation Agreement and Release of Claims between SciClone Pharmaceuticals, Inc. and Alfred Rudolph, M.D., executed as of November 20, 2006.                                                                                                                                                                                                  
|               | 
|10.17(12)      |  | Consulting and Resignation Agreement and General Release of All Claims between SciClone Pharmaceuticals, Inc. and Richard Waldron, executed April 4, 2008.                                                                                                                                                                                                  
|               | 
|10.18(12)      |  | Description of 2008 Executive Incentive Plan.                                                                                                                                                                                                                                                                                                               



39



---

##### Table of Contents

|               |  |                                                                                                         
|-------------- |  | --------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibit                                                                                                 
|               | 
|10.19(13)*     |  | Manufacturing Supply Agreement Between SciClone Pharmaceuticals International, Ltd. and Lonza Sales Ltd.
|               | 
|31.1(13)       |  | Rule 13a-14(a) Certification of Chief Executive Officer and Acting Chief Financial Officer.             
|               | 
|32.1(13)       |  | Section 1350 Certification of Chief Executive Officer and Acting Chief Financial Officer.               



|* | 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) | Incorporated by reference from the Companys Current Report on Form 8-K filed on June 17, 2005.
|--- | -----------------------------------------------------------------------------------------------



|(6) | Incorporated by reference from the Companys Current Report on Form 8-K filed on February 28, 2006.
|--- | ---------------------------------------------------------------------------------------------------



|(7) | Incorporated by reference from the Companys Current Report on Form 8-K filed on April 25, 2006.
|--- | ------------------------------------------------------------------------------------------------



|(8) | Incorporated by reference from the Companys Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------



|(9) | Incorporated by reference from the Companys Current Report on Form 8-K filed on November 27, 2006.
|--- | ---------------------------------------------------------------------------------------------------



|(10) | Incorporated by reference from the Companys Current Report on Form 8-K filed on December 28, 2006.
|---- | ---------------------------------------------------------------------------------------------------



|(11) | Incorporated by reference from the Companys Current Report on Form 8-K filed on December 22, 2006.
|---- | ---------------------------------------------------------------------------------------------------



|(12) | Incorporated by reference from the Companys Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008.
|---- | -------------------------------------------------------------------------------------------------------------------------



|(13) | Filed herewith.
|---- | ---------------



40