##### 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 September 30, 2002

OR



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

For the transition period from _____________ to _____________

Commission file number: 0-19825

SCICLONE PHARMACEUTICALS, INC.




(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|California                                                     |  | 94-3116852                          
|                                                               |  |                                     
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. employer
Identification no.)

|                                                             |  |           
|------------------------------------------------------------ |  | ----------
|901 Mariners Island Blvd., Suite 205, San Mateo, California |  | 94404     
|                                                             |  |           
|(Address of principal executive offices)                     |  | (Zip code)

(650) 358-3456
(Registrants telephone number, including area code)

Not Applicable




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


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

Yes [X]  No [   ]

As of September 30, 2002, 36,876,397 shares of the registrants Common
Stock, no par value, were issued and outstanding.





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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Condensed Consolidated Financial Statements                                          
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                              |                                                                                               | Notes to Condensed Consolidated Financial Statements
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                              | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION   
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   
|CERTIFICATIONS               
|Exhibit 99.1                 
|Exhibit 99.2                 



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SCICLONE PHARMACEUTICALS, INC.

INDEX

|               |                                                                                       |                                                                                                                              |          |   |  | 
|-------------- | ------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | -------- | - |  | 
|               |                                                                                       |                                                                                                                              | PAGE NO.
|               |                                                                                       |                                                                                                                              |         
|PART I.        | FINANCIAL INFORMATION                                                                 |                                                                                                                              |          |  
|              
|              
|              
|              
|Item 1.        | Condensed Consolidated Financial Statements (Unaudited)                               |                                                                                                                              |          |   | 
|               |                                                                                       | Condensed Consolidated Balance Sheets as of September 30,
2002 and December 31, 2001                                         |          | 3 |  | 
|              
|              
|              
|              
|               |                                                                                       | Condensed Consolidated Statements of Operations for the
Three-month and Nine-month periods ended September 30,
2002 and 2001 |          | 4 |  | 
|              
|              
|              
|              
|               |                                                                                       | Condensed Consolidated Statements of Cash Flows for the
Nine-month periods ended September 30, 2002 and 2001                 |          | 5 |  | 
|              
|              
|              
|              
|               |                                                                                       | Notes to Condensed Consolidated Financial Statements                                                                         |          | 6 |  | 
|              
|              
|              
|              
|Item 2.        | Managements Discussion and Analysis of Financial
Condition and Results of Operations |                                                                                                                              | 9        |   | 
|              
|              
|              
|              
|Item 3.        | Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                                              | 26       |   | 
|              
|              
|              
|              
|Item 4.        | Controls and Procedures                                                               |                                                                                                                              | 26       |   | 
|              
|              
|              
|              
|PART II.       | OTHER INFORMATION                                                                     |                                                                                                                              |          |   | 
|              
|              
|              
|              
|Item 6.        | Exhibits and Reports on Form 8-K                                                      |                                                                                                                              | 27       |   | 
|              
|              
|              
|              
|Signatures     |                                                                                       | 29                                                                                                                           |          |  
|              
|              
|              
|              
|Certifications |                                                                                       | 29                                                                                                                           |          |  

2



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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. Condensed Consolidated Financial Statements




SCICLONE PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

|                                           |                                                                                                                                                                             |   |               |              |              |   |            |              |  
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | ------------ | ------------ | - | ---------- | ------------ | -
|                                           |                                                                                                                                                                             |   | September 30, |              | December 31,
|                                           |                                                                                                                                                                             |   | 2002          |              | 2001        
|                                           |                                                                                                                                                                             |   |               |              |             
|                                           |                                                                                                                                                                             |   | (unaudited)   |              | (Note 1)    
|Current assets:                            |                                                                                                                                                                             |   |               |              |              |   |            |             
|                                           | Cash and cash equivalents                                                                                                                                                   |   | $             | 23,528,000   |              |   | $          | 15,518,000   |  
|                                           | Restricted short-term investments                                                                                                                                           |   |               | 633,000      |              |   |            | 633,000      |  
|                                           | Other short-term investments                                                                                                                                                |   |               | 345,000      |              |   |            | 317,000      |  
|                                           | Accounts receivable, net                                                                                                                                                    |   |               | 9,009,000    |              |   |            | 8,792,000    |  
|                                           | Inventories                                                                                                                                                                 |   |               | 3,326,000    |              |   |            | 4,059,000    |  
|                                           | Prepaid expenses and other current assets                                                                                                                                   |   |               | 897,000      |              |   |            | 1,333,000    |  
|                                           |                                                                                                                                                                             |   |               |              |              |   |            |             
|Total current assets                       |                                                                                                                                                                             |   | 37,738,000    |              |              |   | 30,652,000 |             
|Property and equipment, net                |                                                                                                                                                                             |   | 119,000       |              |              |   | 167,000    |             
|Intangible assets, net                     |                                                                                                                                                                             |   | 785,000       |              |              |   | 1,091,000  |             
|Other assets                               |                                                                                                                                                                             |   | 169,000       |              |              |   | 186,000    |             
|                                           |                                                                                                                                                                             |   |               |              |              |   |            |             
|Total assets                               |                                                                                                                                                                             | $ | 38,811,000    |              |              | $ | 32,096,000 |             
|                                           |                                                                                                                                                                             |   |               |              |              |   |            |             
|                                          
|                                          
|                                          
|                                          
|LIABILITIES AND SHAREHOLDERS EQUITY      
|                                          
|                                          
|                                          
|                                          
|Current liabilities:                       |                                                                                                                                                                             |   |               |              |              |   |            |             
|                                           | Accounts payable                                                                                                                                                            |   | $             | 2,533,000    |              |   | $          | 1,575,000    |  
|                                           | Accrued compensation and employee benefits                                                                                                                                  |   |               | 841,000      |              |   |            | 960,000      |  
|                                           | Accrued clinical trials expense                                                                                                                                             |   |               | 771,000      |              |   |            | 296,000      |  
|                                           | Accrued professional fees                                                                                                                                                   |   |               | 645,000      |              |   |            | 633,000      |  
|                                           | Deferred revenue                                                                                                                                                            |   |               | 895,000      |              |   |            |             |  
|                                           | Other accrued expenses                                                                                                                                                      |   |               | 298,000      |              |   |            | 258,000      |  
|                                           |                                                                                                                                                                             |   |               |              |              |   |            |             
|Total current liabilities                  |                                                                                                                                                                             |   | 5,983,000     |              |              |   | 3,722,000  |             
|Deferred revenue                           |                                                                                                                                                                             |   | 1,342,000     |              |              |   |           |             
|Convertible notes payable                  |                                                                                                                                                                             |   | 5,600,000     |              |              |   | 5,600,000  |             
|Shareholders equity:                      |                                                                                                                                                                             |   |               |              |              |   |            |             
|                                           | Common stock, no par value; 75,000,000
shares authorized; 36,876,397 and
32,474,150 shares issued and outstanding at
September 30, 2002 and December 31, 2001,
respectively |   |               | 156,240,000  |              |   |            | 145,713,000  |  
|                                           | Accumulated other comprehensive income                                                                                                                                      |   |               | 45,000       |              |   |            | 39,000       |  
|                                           | Accumulated deficit                                                                                                                                                         |   |               | (130,399,000 | )            |   |            | (122,978,000 | )
|                                           |                                                                                                                                                                             |   |               |              |              |   |            |             
|Total shareholders equity                 |                                                                                                                                                                             |   | 25,886,000    |              |              |   | 22,774,000 |             
|                                           |                                                                                                                                                                             |   |               |              |              |   |            |             
|Total liabilities and shareholders equity |                                                                                                                                                                             | $ | 38,811,000    |              |              | $ | 32,096,000 |             
|                                           |                                                                                                                                                                             |   |               |              |              |   |            |             

See notes to condensed consolidated financial statements

3



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SCICLONE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

|                                                                               |                            |   |                    |           |                   |   |            |           |      |   |            |           |  |   |            |           | 
|------------------------------------------------------------------------------ | -------------------------- | - | ------------------ | --------- | ----------------- | - | ---------- | --------- | ---- | - | ---------- | --------- |  | - | ---------- | --------- | 
|                                                                               |                            |   | Three months ended |           | Nine months ended
|                                                                               |                            |   | September 30,      |           | September 30,    
|                                                                               |                            |   |                    |           |                  
|                                                                               |                            |   | 2002               |           | 2001              |   | 2002       |           | 2001
|                                                                               |                            |   |                    |           |                   |   |            |           |     
|Product sales                                                                  |                            | $ | 4,298,000          |           |                   | $ | 3,580,000  |           |      | $ | 12,294,000 |           |  | $ | 9,943,000  |          
|Contract revenue                                                               |                            |   | 224,000            |           |                   |   |           |           |      |   | 448,000    |           |  |   |           |          
|                                                                               |                            |   |                    |           |                   |   |            |           |      |   |            |           |  |   |            |          
|Total revenue                                                                  |                            |   | 4,522,000          |           |                   |   | 3,580,000  |           |      |   | 12,742,000 |           |  |   | 9,943,000  |          
|Cost of product sales                                                          |                            |   | 918,000            |           |                   |   | 714,000    |           |      |   | 2,525,000  |           |  |   | 1,948,000  |          
|                                                                               |                            |   |                    |           |                   |   |            |           |      |   |            |           |  |   |            |          
|Gross profit                                                                   |                            |   | 3,604,000          |           |                   |   | 2,866,000  |           |      |   | 10,217,000 |           |  |   | 7,995,000  |          
|Operating expenses:                                                            |                            |   |                    |           |                   |   |            |           |      |   |            |           |  |   |            |          
|                                                                               | Research and development   |   |                    | 2,110,000 |                   |   |            | 3,390,000 |      |   |            | 8,407,000 |  |   |            | 6,717,000 | 
|                                                                               | Sales and marketing        |   |                    | 2,217,000 |                   |   |            | 2,256,000 |      |   |            | 6,291,000 |  |   |            | 7,184,000 | 
|                                                                               | General and administrative |   |                    | 960,000   |                   |   |            | 749,000   |      |   |            | 2,907,000 |  |   |            | 2,532,000 | 
|                                                                               |                            |   |                    |           |                   |   |            |           |      |   |            |           |  |   |            |          
|Total operating expenses                                                       |                            |   | 5,287,000          |           |                   |   | 6,395,000  |           |      |   | 17,605,000 |           |  |   | 16,433,000 |          
|                                                                               |                            |   |                    |           |                   |   |            |           |      |   |            |           |  |   |            |          
|Loss from operations                                                           |                            |   | (1,683,000         | )         |                   |   | (3,529,000 | )         |      |   | (7,388,000 | )         |  |   | (8,438,000 | )        
|Interest and investment income                                                 |                            |   | 100,000            |           |                   |   | 174,000    |           |      |   | 252,000    |           |  |   | 672,000    |          
|Interest and investment expense                                                |                            |   | (91,000            | )         |                   |   | (90,000    | )         |      |   | (271,000   | )         |  |   | (243,000   | )        
|Other income (expense), net                                                    |                            |   | 2,000              |           |                   |   | 3,272,000  |           |      |   | (13,000    | )         |  |   | 3,492,000  |          
|                                                                               |                            |   |                    |           |                   |   |            |           |      |   |            |           |  |   |            |          
|Net loss                                                                       |                            | $ | (1,672,000         | )         |                   | $ | (173,000   | )         |      | $ | (7,420,000 | )         |  | $ | (4,517,000 | )        
|                                                                               |                            |   |                    |           |                   |   |            |           |      |   |            |           |  |   |            |          
|Basic and diluted net loss per share                                           |                            | $ | (0.05              | )         |                   | $ | (0.01      | )         |      | $ | (0.22      | )         |  | $ | (0.14      | )        
|                                                                               |                            |   |                    |           |                   |   |            |           |      |   |            |           |  |   |            |          
|Weighted average shares used in computing
basic and diluted net loss per share |                            |   | 36,869,133         |           |                   |   | 32,429,345 |           |      |   | 34,365,118 |           |  |   | 32,272,682 |          
|                                                                               |                            |   |                    |           |                   |   |            |           |      |   |            |           |  |   |            |          

See notes to condensed consolidated financial statements

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SCICLONE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

|                                                                            |                                                                |                                             |            |                   |           |      |            |           |          |  
|--------------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------------------------------- | ---------- | ----------------- | --------- | ---- | ---------- | --------- | -------- | -
|                                                                            |                                                                |                                             |            | Nine months ended
|                                                                            |                                                                |                                             |            | September 30,    
|                                                                            |                                                                |                                             |            |                  
|                                                                            |                                                                |                                             |            | 2002              |           | 2001
|                                                                            |                                                                |                                             |            |                   |           |     
|Operating activities:                                                       |                                                                |                                             |            |                   |           |      |            |          
|Net loss                                                                    |                                                                | $                                           | (7,420,000 | )                 |           | $    | (4,517,000 | )        
|Adjustments to reconcile net loss to net cash used in
operating activities: |                                                                |                                             |            |                   |           |      |            |          
|                                                                            | Depreciation and amortization                                  |                                             |            | 421,000           |           |      |            | 399,000   |         
|                                                                            | Changes in operating assets and liabilities:                   |                                             |            |                   |           |      |            |           |         
|                                                                            |                                                                | Accounts receivable, net                    |            |                   | (217,000  | )    |            |           | (606,000 | )
|                                                                            |                                                                | Inventories                                 |            |                   | 733,000   |      |            |           | (575,000 | )
|                                                                            |                                                                | Prepaid expenses and other current assets   |            |                   | 436,000   |      |            |           | (358,000 | )
|                                                                            |                                                                | Accounts payable and other accrued expenses |            |                   | 998,000   |      |            |           | (868,000 | )
|                                                                            |                                                                | Accrued compensation and employee benefits  |            |                   | (119,000  | )    |            |           | (51,000  | )
|                                                                            |                                                                | Accrued clinical trials expense             |            |                   | 475,000   |      |            |           | 772,000  |  
|                                                                            |                                                                | Accrued professional fees                   |            |                   | 12,000    |      |            |           | (15,000  | )
|                                                                            |                                                                | Deferred revenue                            |            |                   | 2,237,000 |      |            |           |         |  
|                                                                            |                                                                |                                             |            |                   |           |      |            |          
|Net cash used in operating activities                                       |                                                                |                                             | (2,444,000 | )                 |           |      | (5,819,000 | )        
|                                                                            |                                                                |                                             |            |                   |           |      |            |          
|Investing activities:                                                       |                                                                |                                             |            |                   |           |      |            |          
|                                                                            | Purchase of property and equipment                             |                                             |            | (49,000           | )         |      |            | (45,000   | )       
|                                                                            | Payment on purchase of marketable securities                   |                                             |            | (23,000           | )         |      |            | (343,000  | )       
|                                                                            |                                                                |                                             |            |                   |           |      |            |          
|Net cash used in investing activities                                       |                                                                |                                             | (72,000    | )                 |           |      | (388,000   | )        
|                                                                            |                                                                |                                             |            |                   |           |      |            |          
|Financing activities:                                                       |                                                                |                                             |            |                   |           |      |            |          
|                                                                            | Proceeds from issuance of convertible note                     |                                             |            |                  |           |      |            | 1,600,000 |         
|                                                                            | Proceeds from issuance of common stock, net of
financing costs |                                             |            | 10,526,000        |           |      |            | 849,000   |         
|                                                                            |                                                                |                                             |            |                   |           |      |            |          
|Net cash provided by financing activities                                   |                                                                |                                             | 10,526,000 |                   |           |      | 2,449,000  |          
|                                                                            |                                                                |                                             |            |                   |           |      |            |          
|Net increase (decrease) in cash and cash equivalents                        |                                                                |                                             | 8,010,000  |                   |           |      | (3,758,000 | )        
|Cash and cash equivalents, beginning of period                              |                                                                |                                             | 15,518,000 |                   |           |      | 21,981,000 |          
|                                                                            |                                                                |                                             |            |                   |           |      |            |          
|Cash and cash equivalents, end of period                                    |                                                                | $                                           | 23,528,000 |                   |           | $    | 18,223,000 |          
|                                                                            |                                                                |                                             |            |                   |           |      |            |          

See notes to condensed consolidated financial statements

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SCICLONE PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements
(unaudited)



|1. |  | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The accompanying unaudited condensed consolidated financial statements
have been prepared in conformity with generally accepted accounting
principles consistent with those applied in, and should be read in
conjunction with, the audited financial statements for the year ended
December 31, 2001 included in the Companys Form 10-K as filed with the
Securities and Exchange Commission. The interim financial information
reflects all normal recurring adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for the
interim periods presented 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, 2001 is derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. Certain prior year amounts
have been reclassified to conform to the current period presentation.                                                                                                                                                                                                                                                                                                                                  
|  
|2. |  | Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | The Company recognizes revenue from product sales at the time of shipment
and recognizes contract/grant revenue when services have been performed.
There are no significant customer acceptance requirements or post
shipment obligations on the part of the Company. Sales to importing
agents or distributors are recognized at time of shipment when title to
the product is transferred to them, and they do not have contractual
rights of return except under limited terms regarding product quality.
However, the Company will replace products that have expired or are
deemed to be damaged or defective when delivered. Payments by the
importing agents and distributors are not contingent upon sale to the end
user by the importing agents or distributors. Contract revenue for
research and development is recorded as earned based on the performance
requirements of the contract. Nonrefundable contract fees for which no
further performance obligations exist, and there is no continuing
involvement by the Company, are recognized on the earlier of when the
payments are received or when collection is assured. Revenue associated
with substantive performance milestones is recognized based upon the
achievement of the milestones, as defined in the respective agreements.
Revenue under research and development cost reimbursement contracts is
recognized as the related costs are incurred.
|  
|   |  | Net Loss Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Net loss per share is computed using the weighted average number of
shares of common stock outstanding. Common equivalent shares from stock
options and warrants are excluded, as their effect is antidilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

6



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|   |  | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                          
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company adopted Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets, on January 1, 2002. There has been no impact on the Companys
operating results from the adoption of this standard.                                                 
|  
|3. |  | Comprehensive Loss                                                                                                                                                                                                                                                                                                        
|  
|   |  | For the three-month periods ended September 30, 2002 and 2001, the
Companys total comprehensive loss amounted to $(1,690,000) and
$(223,000), respectively. For the nine-month periods ended September 30,
2002 and 2001, the Companys total comprehensive loss amounted to
$(7,414,000) and $(4,503,000), respectively.
|  
|4. |  | Available-For-Sale Securities                                                                                                                                                                                                                                                                                             
|  
|   |  | The following is a summary of available-for sale securities at September
30, 2002 and December 31, 2001:                                                                                                                                                                                                                  

|                    |                             |   |            |            |            |   |        |        |           |   |            |            | 
|------------------- | --------------------------- | - | ---------- | ---------- | ---------- | - | ------ | ------ | --------- | - | ---------- | ---------- | 
|                    |                             |   |            |            |            |   | Gross  |        | Estimated
|                    |                             |   | Amortized  |            | Unrealized |   | Fair  
|                    |                             |   | Cost       |            | Gains      |   | Value 
|                    |                             |   |            |            |            |   |       
|September 30, 2002: |                             |   |            |            |            |   |        |        |           |   |            |           
|                    | Certificate of deposit      |   | $          | 882,000    |            |   | $      |       |           |   | $          | 882,000    | 
|                    | U.S. government obligations |   |            | 17,447,000 |            |   |        |       |           |   |            | 17,447,000 | 
|                    | Corporate equity securities |   |            | 51,000     |            |   |        | 45,000 |           |   |            | 96,000     | 
|                    |                             |   |            |            |            |   |        |        |           |   |            |           
|                    |                             | $ | 18,380,000 |            |            | $ | 45,000 |        |           | $ | 18,425,000 |           
|                    |                             |   |            |            |            |   |        |        |           |   |            |           
|December 31, 2001:  |                             |   |            |            |            |   |        |        |           |   |            |           
|                    | Certificate of deposit      |   | $          | 865,000    |            |   | $      |       |           |   | $          | 865,000    | 
|                    | Corporate obligations       |   |            | 10,858,000 |            |   |        | 6,000  |           |   |            | 10,864,000 | 
|                    | Corporate equity securities |   |            | 51,000     |            |   |        | 33,000 |           |   |            | 84,000     | 
|                    |                             |   |            |            |            |   |        |        |           |   |            |           
|                    |                             | $ | 11,774,000 |            |            | $ | 39,000 |        |           | $ | 11,813,000 |           
|                    |                             |   |            |            |            |   |        |        |           |   |            |           



|   |  | As of September 30, 2002, the available-for-sale securities are included
as follows: $17,447,000 in cash and cash equivalents; $633,000 in
restricted short-term investments and $345,000 in other short-term
investments.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|5. |  | Inventories                                                                                                                                                                                                               
|  
|   |  | The following is a summary of inventories at September 30, 2002 and
December 31, 2001:                                                                                                                                    

|                 |  |               |           |              |  |   |           |  
|---------------- |  | ------------- | --------- | ------------ |  | - | --------- | -
|                 |  | September 30, |           | December 31,
|                 |  | 2002          |           | 2001        
|                 |  |               |           |             
|Raw materials    |  | $             | 2,464,000 |              |  | $ | 2,759,000 |  
|Work in progress |  |               | 478,000   |              |  |   | 1,269,000 |  
|Finished goods   |  |               | 464,000   |              |  |   | 431,000   |  
|Reserve          |  |               | (80,000   | )            |  |   | (400,000  | )
|                 |  |               |           |              |  |   |           |  
|                 |  | $             | 3,326,000 |              |  | $ | 4,059,000 |  
|                 |  |               |           |              |  |   |           |  

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|6. |  | Prepaid Expenses                                                                                                                                                                     
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Companys prepaid expenses consist of payments to third party
institutions conducting or managing our clinical trials and to insurance
companies for business liability coverage.
|  
|7. |  | Intangible Assets                                                                                                                                                                    
|  
|   |  | The following is a summary of intangible assets at September 30, 2002 and
December 31, 2001:                                                                                         

|                          |  |               |            |              |  |   |            |  
|------------------------- |  | ------------- | ---------- | ------------ |  | - | ---------- | -
|                          |  | September 30, |            | December 31,
|                          |  | 2002          |            | 2001        
|                          |  |               |            |             
|Intangible product rights |  | $             | 2,456,000  |              |  | $ | 2,456,000  |  
|Accumulated amortization  |  |               | (1,671,000 | )            |  |   | (1,365,000 | )
|                          |  |               |            |              |  |   |            |  
|                          |  | $             | 785,000    |              |  | $ | 1,091,000  |  
|                          |  |               |            |              |  |   |            |  



|   |  | ZADAXIN® product rights that the Company acquired are being amortized
over six years beginning in September 1998. Amortization expense for the
three-month and nine-month periods ended September 30, 2002 and 2001 was
$102,000 and $307,000, respectively, for both years. Amortization expense
for the years ended December 31, 2002, 2003 and 2004 is expected to be
$409,000, $409,000 and $273,000, respectively. The Company reassesses the
useful life of these assets in accordance with current facts and
circumstances. The Companys policy is to identify and record impairment
losses, as circumstances dictate, on intangible product rights when
events and circumstances indicate that the assets might be impaired and
the undiscounted cash flows estimated to be generated by those assets are
less than the carrying amounts of those assets. The Company to date has
not identified any changes in useful life or impairment losses on these
assets.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|8. |  | Minimum Purchase Requirements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | The Company does not have any minimum purchase requirements under its
contract manufacturing supply agreements for ZADAXIN and CPX.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|9. |  | Deferred Revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | In January 2002, the Company received $2,685,000 from its European
partner, Sigma-Tau under the terms of our collaborative agreement
announced in late December 2001. This receipt has been recorded as
deferred revenue and will be recognized as contract revenue over the next
three years starting in April 2002, the estimated time to complete the
ZADAXIN hepatitis C U.S. clinical program and anticipated FDA regulatory
filings. For the three-month and nine-month periods ended September 30,
2002, the Company recognized $224,000 and $448,000, respectively as
contract revenue.                                                                                                                                                                                                                                                                                                                                                                           

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

Special Note Regarding Forward-Looking Statements

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

Overview

SciClone Pharmaceuticals, Inc. (SciClone or the Company) is a
biopharmaceutical company and its lead product ZADAXIN, an Immune System
Enhancer, is in two phase 3 hepatitis C clinical trials in the U.S., a phase 3
hepatitis B clinical trial in Japan, a phase 2 malignant melanoma clinical
trial in Europe, and two phase 2 liver cancer trials in the U.S. ZADAXIN has
been approved for sale by the ministries of health in over 30 countries and is
marketed in China and selected other countries outside the U.S. ZADAXIN has
been administered to more than 10,000 patients in both clinical and commercial
use, alone and in combination with anti-viral and anti-cancer drugs, without
producing any ZADAXIN related significant side effects or toxicities.

Results of Operations

Total Revenue

Product sales were $4,298,000 and $12,294,000 for the three-month and
nine-month periods ended September 30, 2002, as compared to $3,580,000 and
$9,943,000 for the corresponding periods in 2001. The growth was largely due to
increased sales of ZADAXIN to our importers in China.

Contract revenue was $224,000 and $448,000 for the three-month and
nine-month periods ended September 30, 2002, respectively, as compared to none
in 2001. The contract revenue we recognized in 2002 was in connection with
funds we received from Sigma-Tau. These funds have been recorded as deferred
revenue and are being recognized as contract revenue over three years starting
in April 2002, the estimated time to complete the ZADAXIN U.S. hepatitis C
clinical trial program and anticipated FDA regulatory filings.

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For the three-month and nine-month periods ended September 30, 2002, all
of our product sales were derived from sales of ZADAXIN, and in each period,
China accounted for approximately 88% of this revenue. Sales emphasis is concentrated in
China because, as our most developed market, marketing expenditures are more
likely to result in sales and profits compared to newer markets, which require
investment and development spending.

Cost of Product Sales

Cost of product sales were $918,000 and $2,525,000 for the three-month and
nine-month periods ended September 30, 2002 as compared to $714,000 and
$1,948,000 for the corresponding periods in 2001 with the increase being
primarily due to higher product sales. We expect cost of product sales to vary
from quarter to quarter, depending upon the level of ZADAXIN sales, the
absorption of fixed product-related costs, and any charges associated with
excess or expiring finished product inventory.

Research and Development

Research and development expenses were $2,110,000 and $8,407,000 for the
three-month and nine-month periods ended September 30, 2002, as compared to
$3,390,000 and $6,717,000 for the corresponding periods in 2001. The decrease
in the three-month period ended September 30, 2002 was primarily due to higher
expenses in 2001 for the clinical trial in Japan and the impact of the
refinement of our clinical trial accrual estimates relating to our U.S. ZADAXIN
hepatitis C trials. The revisions to our estimates reduced research and
development expenses in the third quarter of 2002 by $625,000. The increase in
the nine-month period ended September 30, 2002 related to higher expenses in
2002 for our late-stage clinical programs for ZADAXIN in the U.S. The
initiation and continuation of ZADAXIN clinical trials have had, and will
continue to have, the largest and most significant effect on our research and
development expenses. Expenses related to grants to institutions that conduct
the clinical trials on our behalf are accrued based on the level of patient
enrollment and activity according to the protocol. In general, these expenses
will be higher for the initial and final months of a patients scheduled 18
months of treatment and observation. Fees to the clinical research
organization (CRO) managing the trials and laboratory and other direct expenses
are recognized in the period they are incurred. We expect that the current
level of spending on and the projected costs to complete our ZADAXIN clinical
trials in the U.S. will require us to seek additional capital resources. Our
research and development spending is focused almost exclusively on ZADAXIN, and
we expect this to continue unless and until we obtain additional resources
which could be applied to our other product candidates. In general, we expect
product research and development expenses to increase in absolute dollars over
the next several years and to vary quarter to quarter as we pursue our strategy
of initiating additional preclinical and clinical trials and testing, acquiring
product rights, and expanding regulatory activities.

Sales and Marketing

Sales and marketing expenses were $2,217,000 and $6,291,000 for the
three-month and nine-month periods ended September 30, 2002, as compared to
$2,256,000 and $7,184,000 for the corresponding periods in 2001. The decrease
in the 2002 nine-month period was related to lower promotional and advertising
expenses. We expect our sales and marketing expenses to

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vary quarter to quarter and to increase in the next several years as we
expect to expand our commercialization and marketing efforts and pursue
additional strategic collaborations.

General and Administrative

General and administrative expenses were $960,000 and $2,907,000 for the
three-month and nine-month periods ended September 30, 2002, as compared to
$749,000 and $2,532,000 for the corresponding periods in 2001. The increases
were primarily related to increased legal expenses. In the near term, we
expect general and administrative expenses to vary quarter to quarter and to
increase over the next several years as we augment our general and
administrative activities and resources to support increased expenditures on
preclinical and clinical trials and testing, and regulatory,
pre-commercialization and marketing activities.

Interest and Investment Income

Interest and investment income was $100,000 and $252,000 for the
three-month and nine-month periods ended September 30, 2002, as compared to
$174,000 and $672,000 for the corresponding periods in 2001. The decrease was
primarily due to lower interest rates.

Interest and Investment Expense

Interest and investment expense was $91,000 and $271,000 for the
three-month and nine-month periods ended September 30, 2002, as compared to
$90,000 and $243,000 for the corresponding periods in 2001.

Other Income (Expense), net

Other income (expense), net, was $2,000 and $(13,000) for the three-month
and nine-month periods ended September 30, 2002, as compared to $3,272,000 and
$3,492,000 for the corresponding periods in 2001. The higher other income
amount in 2001 was due to a repayment of a loan that had previously been
written off.

Liquidity and Capital Resources

At September 30, 2002 and 2001, we had $24,506,000 and $19,096,000,
respectively, in cash, cash equivalents and short-term investments, $633,000 of
which was restricted cash at each date. Our short-term investments consist
primarily of short term U.S. government and agency obligations.

Net cash used by us in operating activities amounted to $2,444,000 for the
nine-month period ended September 30, 2002. Net cash used in operating
activities in the 2002 period was less than our net loss for that period
primarily due to the receipt of a payment from Sigma-Tau of $2,685,000 for a
clinical trial collaboration which increased deferred revenue balances by
$2,237,000, depreciation and amortization, increases in accrued clinical trials
expense, increases in accounts payable and decreases in prepaid expenses and
inventories, partially offset by increases in accounts receivable.

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Net cash used by us in investing activities amounted to $72,000 for the
nine-month period ended September 30, 2002 and related primarily to the
purchase of $49,000 in property and equipment.

Net cash provided by financing activities amounted to $10,526,000 for the
nine-month period ended September 30, 2002. Net cash provided by financing
activities consisted of $494,000 related to exercises of outstanding options
under our employee stock option plans, $118,000 for the issuance of common
stock under our employee stock purchase plan and gross proceeds of $10,630,000
from the offering of our common stock in June 2002, less $716,000 in
financing-related costs.

Our contractual obligations and other commitments as of September 30, 2002
were as follows:

|                                   |  |                        |            |      |  |             |           |           |  |               |           |  |  |   |           |  |  |   |   | 
|---------------------------------- |  | ---------------------- | ---------- | ---- |  | ----------- | --------- | --------- |  | ------------- | --------- |  |  | - | --------- |  |  | - | - | 
|                                   |  | Payments Due by Period
|                                   |  |                       
|Contractual                        |  |                        |            |      |  | Less than 1 |           |           |  |               |           |  |  |   |           |  |  |  
|Obligations                        |  | Total                  |            | year |  | 1-3 years   |           | 4-5 years |  | After 5 years
|                                   |  |                        |            |      |  |             |           |           |  |              
|Long Term Debt                     |  | $                      | 5,600,000  |      |  | $           |          |           |  | $             |          |  |  | $ | 5,600,000 |  |  | $ |  | 
|Operating Leases                   |  |                        | 5,347,000  |      |  |             | 1,339,000 |           |  |               | 2,712,000 |  |  |   | 1,296,000 |  |  |   |  | 
|                                   |  |                        |            |      |  |             |           |           |  |               |           |  |  |   |           |  |  |   |   | 
|Total Contractual Cash Obligations |  | $                      | 10,947,000 |      |  | $           | 1,339,000 |           |  | $             | 2,712,000 |  |  | $ | 6,896,000 |  |  | $ |  | 

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

None of our officers or directors were involved in any related party
transactions with the Company in the three-month and nine-month periods ended
September 30, 2002.

Management intends to give priority use of the Companys financial
resources to ZADAXIN clinical programs in the United States. Management
believes our existing capital resources and interest on funds available are
adequate to maintain our current and planned operations through 2003. We will
need to obtain additional capital to support our long-term product development.
Assuming approval of ZADAXIN by the U.S. FDA and other regulatory authorities,
we may also require additional capital for our commercialization programs. The
need, timing and amount of additional funding will depend upon numerous
factors, including the level of ZADAXIN sales, the timing and amount of
manufacturing costs related to ZADAXIN, the availability of complementary
products, technologies and businesses, the initiation and continuation of
preclinical and clinical trials and testing, particularly ZADAXIN trials in the
U.S. and Japan, the timing of regulatory approvals, developments in
relationships with existing or future collaborative parties and the status of
competitive products. In the event we need to raise additional financing, the
unavailability or the inopportune timing of any financing could prevent or
delay our long-term product development and commercialization programs, either
of which would severely hurt our business.

Risk Factors

You should carefully consider the risks described below, in addition to
the other information in this report on Form 10-Q, before making an investment
decision. Each of these

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

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

Currently, there is no U.S. FDA approved therapy for hepatitis C patients
who have failed to respond to prior therapy with interferon plus ribavirin or
with interferon alone. We designed phase 3 clinical trials based on the use of
ZADAXIN in combination with pegylated interferon to address this medical need.
There can be no assurances that the results from our previous hepatitis C
studies which enabled us to produce this design will carryover to the trials
involving a combination of ZADAXIN and pegylated interferon and any resulting
data may be insufficient or inadequate to demonstrate appropriate efficacy
under FDA guidelines. In addition, insufficient data resulting from the
clinical trials would also adversely affect our ability to market and sell
ZADAXIN in markets where it is approved for sale. We have begun enrolling
patients in both of the phase 3 trials in our hepatitis C clinical program in
the U.S.; however, there are trials being conducted by competitors seeking to
enroll similar patients and competition for appropriate patients for these clinical trials is
significant. We may not be able to enroll patients quickly enough to meet our
timing expectations for completing the trial which would delay the preparation
of a new drug application (NDA); or we may not be able to fully enroll the
studies or patient drop out rates could be higher than anticipated, either of
which could weaken the quality of an NDA. Our hepatitis C clinical trials have
been designed to show that the combination of ZADAXIN and pegylated interferon
adds a significant clinical benefit when compared to the use of pegylated
interferon alone in the treatment of hepatitis C. However, the independent use
of the pegylated form of interferon may perform better than anticipated which
could weaken the quality of an NDA. ZADAXIN has been used both clinically and
commercially in thousands of patients without producing any reported ZADAXIN
related significant side effects or toxicities, and the pegylated interferon
used in the clinical trials has been approved by the FDA and has documented
adverse side effects. Should the combination therapy of ZADAXIN and pegylated
interferon cause significant new or to a greater degree the same adverse side
effects, our clinical trials could be delayed, patients may drop out at a
greater than anticipated rate, we may be forced to halt the trials, or the FDA
may reject an NDA on safety issues. If any of the foregoing occurs, our
efforts to market and sell ZADAXIN in combination with pegylated interferon
will be impaired, and our business will suffer.

We rely on third parties to manufacture our clinical trial product.
Deficiencies in their work could delay or harm our trials or the approval
process and harm our business.

We manufacture the ZADAXIN used in our phase 3 trials under cGMP
guidelines and under our direct manufacturing and quality control using third
party cGMP manufacturers and suppliers. If unanticipated deficiencies in these
manufacturers or suppliers occur, this could create a delay in the assembling
of a timely and acceptable NDA. Although all of the ZADAXIN and pegylated
interferon planned to be used in the hepatitis C clinical trials has already
been manufactured and received, any recall of either product by a manufacturer
could delay the clinical trials or detract from the integrity of the trial
data. If any of the foregoing occurs, our

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efforts to market and sell ZADAXIN in combination with pegylated
interferon will be impaired, and our business will suffer.

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

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

We have not yet sold any product other than ZADAXIN. We have experienced
difficulties with the formulation of CPX which has delayed its further
development. Our future revenue growth depends on increased market acceptance
and commercialization of ZADAXIN in additional countries, particularly in the
U.S., Europe and Japan. If we fail to successfully market ZADAXIN, or if we
cannot commercialize this drug in the U.S. and other additional markets, our
revenue and operating results will suffer. Our future revenue will also depend
in part on our ability to develop other commercially viable and accepted
products; however, until we obtain additional resources, substantially all of
our resources are focused on the development of ZADAXIN. Market acceptance of
our products will depend on many factors, including our ability to convince
prospective customers and prospective strategic partners that our products are
an attractive alternative to other treatments and therapies, and manufacture
products in sufficient quantities with acceptable quality and at an acceptable
cost. Failure to do so will hurt our operations.

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

All new drugs, including our products, which have been developed or are
under development, are subject to extensive and rigorous regulation by the FDA,
and comparable agencies in state and local jurisdictions and in foreign
countries. These regulations govern, among other things, the development,
testing, manufacturing, labeling, storage, pre-market approval, importation,
advertising, promotion, sale and distribution of our products. These
regulations change from time to time and new regulations may be adopted. For
example, in prior years, legislation has been introduced in the U.S. Congress
that would restrict the duration of the marketing exclusivity of an orphan
drug. There can be no assurances that this type of legislation will not be
reintroduced and passed into law, or that the benefits of the existing statute
will remain in effect. Our failure to satisfy and comply with regulations
adopted by the FDA, and comparable agencies in state and local jurisdictions
and in foreign countries, may delay or stop approval of our drugs. In
particular, such failure can, among other things, result in warning

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letters, fines, suspensions of regulatory approvals, product recalls or
seizures, operating restrictions, injunctions, total or partial suspension of
production, civil penalties, and criminal prosecutions. Furthermore, additional
government regulation may be established or imposed by legislation or
otherwise, which could prevent or delay regulatory approval of ZADAXIN or any
of our other future products. Adverse events related to our products in any of
our existing or future markets could cause regulatory authorities to withdraw
market approval for such products, if any, or prevent us from receiving market
approval in the future. There is no assurance that ZADAXIN, or any of our other
products, will demonstrate efficacy sufficient to obtain approval by the FDA or
its counterpart regulatory agencies in other countries.

Satisfaction of government regulations may take several years and the time
needed to satisfy them varies substantially, based on the type, complexity and
novelty of the pharmaceutical product. As a result, government regulation may
cause us to delay the introduction of, or prevent us from marketing, our
existing or potential products for a considerable period of time and to impose
costly procedures upon our activities. If regulatory approval of our products
is granted, such approval may impose limitations on the indicated uses for
which our products may be marketed.

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

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

In addition, adverse results that occur in our clinical trials could
result in restrictions on the use of ZADAXIN, which may also hurt our business.

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

Our ability to achieve and sustain operating profitability depends in
large part on our ability to commence, execute and complete clinical programs
for, and obtain additional

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regulatory approvals for ZADAXIN and other drug candidates, particularly
in the U.S., Europe and Japan, increase ZADAXIN sales in existing markets, and
launch ZADAXIN in new markets. We cannot assure you that we will ever achieve
more significant levels of sales or that we will receive additional ZADAXIN
market approvals.

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

The amount of capital we will need will depend on many factors, including:
the timing, location, scope and results of ongoing and planned preclinical
studies and clinical trials; the cost of manufacturing or obtaining preclinical
and clinical materials; the timing and cost involved in applying for and
obtaining FDA and international regulatory approvals; whether we elect to
establish additional partnering arrangements for development, sales,
manufacturing, and marketing of our products; the level of future ZADAXIN
sales; expense levels for our international sales and marketing efforts; our
ability to establish and maintain strategic arrangements for development,
sales, manufacturing and marketing of our products; competing technological and
market developments; the costs involved in filing, prosecuting and enforcing
patent claims; whether any or all of our outstanding convertible notes are
converted to common stock; and whether any or all of our outstanding common
stock warrants are exercised and the timing and amount of these exercises.

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

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

We have experienced significant operating losses since our inception and
as of September 30, 2002, we had an accumulated deficit of approximately $130
million. We expect our operating expenses to increase over the next several
years as we plan to dedicate substantially all of our resources to expanding
our development, testing and marketing capabilities, particularly in the U.S.,
and we may never achieve profitability. Our failure to achieve profitability
may cause our stock price to decline.

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

Our product revenue in the near term is highly dependent on the sale of
ZADAXIN in foreign countries. If we experience difficulties in our foreign
sales efforts, our business will suffer and our financial condition will be
harmed. Substantially all of our ZADAXIN sales are to customers in China. Sales
of ZADAXIN in China may be limited due to its low average personal income, lack
of patient cost reimbursement, poorly developed infrastructure, and existing
and potential competition from other products, including generics. We are
currently in the process of renewing our importation permit to allow us to
continue to sell our product to the importers in China. Our business would be
severely harmed if we were unable to renew the permit or if the renewal process
were prolonged and we were not granted an exemption to make periodic shipments
into China. In China ZADAXIN is sold as an imported finished product. The
attractiveness of the ZADAXIN market may encourage local companies to introduce
lower priced locally manufactured generic competitive products. If this
occurs, there could be a negative impact on the price and the volume of ZADAXIN
sold to this country and this would harm our business.

In addition, our ZADAXIN sales and operations in other parts of Asia, as
well as in Latin America and the Middle East, are subject to a number of risks,
including: difficulties and delays in obtaining pricing approvals and
reimbursement, product health registrations and importation permits; unexpected
changes in regulatory requirements; difficulties in staffing and managing
foreign operations; long payment cycles; difficulties in accounts receivable
collection; difficulties in enforcing our proprietary rights; currency
fluctuations; adverse or deteriorating economic conditions; and potential
adverse tax consequences.

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

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 place relatively few orders from time to time over any six
month period and each order is typically for large quantities. Therefore, our
sales to an importing agent can vary substantially from quarter to quarter
depending on the size and timing of the orders, which has in the past and may
in the future cause our quarterly results to fluctuate. Because we use four
importing agents in China, our account receivable from any one importing agent
is

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material and if we were unable to collect receivables from any importer,
our business and cash-flow would be adversely affected, at least in the short
term.

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

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

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

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

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

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

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

We are only actively pursuing clinical development of ZADAXIN at this
time. If we do not devote additional resources to CPX or advance SCV-07 and
DAX, the other products to which we have in-licensed rights, from preclinical
into clinical development, we may lose the

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rights to these products. We may also have a shortage of drugs to develop
and commercialize if we do not license or otherwise acquire rights to
additional drugs. Any shortage in the number of drugs that we are able to
develop and commercialize may reduce our prospects for future revenue.

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

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

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

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

Our commercial success also depends in part on us not infringing valid,
enforceable patents or proprietary rights of third parties, and not breaching
any licenses that may relate to our technologies and products. We are aware of
third-party patents that may relate to our products. It 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

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collaborative partners to obtain licenses in order to continue to
manufacture or market the affected products and processes. Our efforts to
defend against any of these claims, even if unmeritorious, would require us to
devote resources and attention that could have been directed to our operations
and growth plans. In addition, these actions may subject us to potential
liability for damages. We or our collaborative partners may not prevail in a
patent action and any license required under a patent may not be made available
on commercially acceptable terms, or at all.

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

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

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

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

Competition in the biopharmaceutical industry is intense and we expect
that competition to increase. Our success depends on our ability to compete. We
believe that the principal competitive factors in this industry include the
efficacy, safety, price, therapeutic regimen, manufacturing quality assurance,
and patents associated with a given drug. Our competitors include
biopharmaceutical companies, biotechnology firms, universities and other
research institutions, both in the U.S. and abroad, that are actively engaged
in research and development of products in the therapeutic areas we are
pursuing, particularly hepatitis C, hepatitis B, and cancer. Competitors are
currently marketing drugs for hepatitis C, hepatitis B and cancer, or have
products in late-stage clinical trials.

Most of our competitors, particularly large biopharmaceutical companies,
have substantially greater financial, technical, regulatory, manufacturing,
marketing and human resource capabilities than we do. Most of them also have
extensive experience in undertaking the preclinical and clinical testing and in
obtaining the regulatory approvals necessary to market

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drugs. Additional mergers and acquisitions in the pharmaceutical industry
may result in even more resources being concentrated with our competitors.
Where comparable products are marketed by other companies, price is a
competitive factor. Increased competitive pressure could lead to intensified
price-based competition resulting in lower prices and margins, which would hurt
our operating results.

We currently rely on sales of ZADAXIN outside of the U.S. as a treatment
for hepatitis C and hepatitis B and certain cancers as our primary source of
product revenue. Several large biopharmaceutical companies have substantial
commitments to alpha interferon, an approved drug for treating hepatitis B and
hepatitis C, and to lamivudine, an approved drug to treat hepatitis B. We
cannot assure you that we will compete successfully against our competitors or
that our competitors, or potential competitors, will not develop drugs or other
treatments for hepatitis C, hepatitis B, cancer, and other diseases that will
be superior to ours.

In the U.S., our product ZADAXIN is being evaluated in combination with
pegylated interferon for the treatment of hepatitis C patients who have failed
to respond to prior therapy with interferon plus ribavirin or with interferon
alone. Other companies are researching, developing, or marketing other products
for use in combination with pegylated interferons for clinical indications
including HCV and HBV. Such competitive products include ribavirin, allegedly
improved ribavirin molecules and other products not yet in late stage clinical
trials such as therapeutic vaccines and reverse transcriptase inhibitors. Our
clinical trials may not show ZADAXIN to have advantages over such existing or
future competitive products nor to have clinically significant synergistic
value.

We believe that we can position ZADAXIN as a complementary rather than
competitive drug to many therapies, but cannot guarantee that we will be
successful in this endeavor. We expect continuing advancements in and
increasing awareness of the use of immune system enhancer therapy to fight
cancer and infectious diseases and that this development may create new
competitors. We cannot assure you that we will be able to successfully compete
with any such competitors.

Legislative actions, higher insurance cost and potential new accounting
pronouncements are likely to impact our future financial position and results
of operations.

There have been regulatory changes, including the Sarbanes-Oxley Act, and
there may be potential new accounting pronouncements or regulatory rulings,
which will have an impact on our future financial position and results of
operations. The Sarbanes-Oxley Act and other rule changes and proposed
legislative initiatives following the Enron bankruptcy are likely to increase
general and administrative costs. In addition, insurers are likely to increase
rates as a result of high claims rates over the past year and our rates for our
various insurance policies are likely to increase. Further, proposed
initiatives could result in changes in accounting rules, including legislative
and other proposals to account for employee stock options as an expense. These
and other potential changes could materially increase the expenses we report
under generally accepted accounting principles, and adversely affect our
operating results.

Future changes in financial accounting standards may cause adverse unexpected
revenue fluctuations and affect our reported results of operations.

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A change in accounting policies can have a significant effect on our
reported results and may even affect our reporting of transactions completed
before the change is effective. New pronouncements and varying interpretations
of pronouncements have occurred with frequency and may occur in the future.
Changes to existing rules or the questioning of current practices may adversely
affect our reported financial results or the way we conduct our business.

Compliance with changing regulation of corporate governance and public
disclosure may result in additional expenses.

Changing laws, regulations and standards relating to corporate governance
and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC
regulations and Nasdaq Stock Market rules, are creating uncertainty for
companies such as ours. 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 may result in increased general and administrative expenses and a
diversion of management time and attention from revenue-generating activities
to compliance activities.

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

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

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

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

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

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

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

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

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

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

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

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

U.S. and global economies have weakened due to the effects and
uncertainties caused by the events of September 2001 which may result in a
decrease in our revenues and cause our stock price to decline. Further, high
profile corporate governance and accounting problems and resulting corporate
failures have eroded investor confidence. In the wake of these events, U.S. and
global capital markets have experienced a period of extreme volatility, and
this may continue for some time.

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

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

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

Our indebtedness may result in future liquidity problems.

As of September 30, 2002, we had $5.6 million in convertible notes
payable, of which $4.0 million were issued in the quarter ended December 31,
2000 and $1.6 million were issued in the quarter ended March 31, 2001. This
indebtedness, or additional debt we may incur to fund our operations, may make
it more difficult for us to obtain additional financing. The outstanding notes
are payable five years after issuance unless converted into common stock at the
sole discretion of the holder. If we are unable to satisfy our debt service
requirements, substantial liquidity problems could result which would
negatively impact our future prospects. As of September 30, 2002 we had cash,
cash equivalents and short-term investments of $24.5 million.

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

As of September 30, 2002, stock options for 5,115,282 shares of common
stock were outstanding, of which options for 3,595,474 shares were exercisable.
Also outstanding as of the

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

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

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

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

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The primary objective of our investment activities is to preserve
principal while at the same time maximizing yields without significantly
increasing risk. To achieve this objective, we invest in highly liquid and
high quality U.S. government and agency obligations. Our investments in U.S.
government and agency obligations are subject to interest rate risk. To
minimize the exposure due to an adverse shift in interest rates, we invest in
short term securities and maintain an average maturity of less than one year.
A hypothetical 60 basis point increase in interest rates would result in an
approximate $82,791 decrease (0.6%) in fair value of our available-for-sale
securities.

The potential change noted above is based on sensitivity analyses
performed on our financial positions at September 30, 2002. Actual results may
differ materially.




Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our filings under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commissions rules and
forms, and that such information is accumulated and communicated to management,
including the Chief Executive Officer and the Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.

Our Chief Executive Officer and the Chief Financial Officer, with the
assistance of other members of our management, have evaluated our disclosure
controls and procedures as defined in Rule 13a-14(c) under the Securities
Exchange Act of 1934, within 90 days of the filing date of this report, and
have concluded based on that evaluation that those disclosure controls and
procedures are effective. Since the date of that evaluation, there have been
no significant changes (including corrective actions with regard to significant
deficiencies or material weaknesses) in our internal controls or in other
factors that could significantly affect those controls.

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PART II. OTHER INFORMATION




Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

|               |  |                                                                                                                           
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                               
|               |  |                                                                                                                           
|3(i).1(1)      |  | Restated Articles of Incorporation.                                                                                       
|3(i).2(2)      |  | Certificate of Amendment of Restated Articles of Incorporation.                                                           
|3(i).3(3)      |  | Certificate of Determination.                                                                                             
|3(i).4(4)      |  | Certificate of Determination Regarding the terms of the Series C
Preferred Stock.                                         
|3(ii).1(1)     |  | Bylaws.                                                                                                                   
|3(ii).2(2)     |  | Certificate of Amendment of Bylaws.                                                                                       
|4.1(3)         |  | Rights Agreement dated as of July 25, 1997 between the Registrant and
Chase Mellon Shareholder Services, L.L.C.           
|4.2(5)*        |  | 6% Convertible Note dated as of December 7, 2000 by the Registrant in
favor of UBS AG, London Branch.                     
|4.3(5)*        |  | Option Agreement dated as of October 26, 2000 by and between the
Registrant and UBS AG, London Branch.                    
|4.4(5)*        |  | Amendment No. 1 to Option Agreement dated as of December 19, 2000 by
and between the Registrant and UBS AG, London Branch.
|4.5(6)*        |  | 6% Convertible Note dated as of March 21, 2001 by the Company in favor
of UBS AG, London Branch.                          
|4.6(6)*        |  | Option Agreement dated as of February 16, 2001 by and between the
Company and UBS AG, London Branch.                      
|4.7(6)*        |  | Amendment No. 1 to Option Agreement dated as of March 21, 2001 by and
between the Company and UBS AG, London Branch.      
|99.1(7)        |  | Certification of Chief Executive Officer.                                                                                 
|99.2(7)        |  | Certification of 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 Registration Statement on
Form S-l (No. 33-45446), declared effective by the Commission on March 17,
1992.                                                                      
|   
|   
|   
|   
|(2) |  | Incorporated by reference from the Companys Registration Statement on
Form S-8 (No. 33-66832) filed with the Commission on August 3, 1993.                                                                                  
|   
|   
|   
|   
|(3) |  | Incorporated by reference from the Companys current Report on Form 8-K
filed on October 14, 1997.                                                                                                                           

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|(4) |  | Incorporated by reference from the Companys Annual Report on Form 10-K
for the year ended December 31, 1997.
|--- |  | -------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(5) |  | Incorporated by reference from the Companys Annual Report on Form 10-K
for the year ended December 31, 2000.
|   
|   
|   
|   
|(6) |  | Incorporated by reference from the Companys Quarterly Report on Form
10-Q on May 15, 2001.                  
|   
|   
|   
|   
|(7) |  | Filed herewith.                                                                                              



|(b) |  | Reports on Form 8-K
|--- |  | -------------------

None.

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SIGNATURES

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



| | SCICLONE PHARMACEUTICALS, INC.
(Registrant)
| | -------------------------------------------



|Date: November 7, 2002 | /s/ Richard A. Waldron
Richard A. Waldron
Chief Financial Officer
(Principal Financial & Accounting Officer)
|---------------------- | ------------------------------------------------------------------------------------------------------------

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CERTIFICATIONS

I, Donald R. Sellers, certify that:

1. I have reviewed this quarterly report on Form 10-Q of SciClone
Pharmaceuticals, Inc. (the registrant);

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

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5. The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.



|Date: November 7, 2002 | /s/ Donald R. SellersDonald R. Sellers
Chief Executive Officer
|---------------------- | --------------------------------------------------------------

I, Richard A. Waldron, certify that:

1. I have reviewed this quarterly report on Form 10-Q of SciClone
Pharmaceuticals, Inc. (the registrant);

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

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c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.



|Date: November 7, 2002 | /s/ Richard A. Waldron
Richard A. Waldron
Chief Financial Officer
(Principal Financial & Accounting Officer)
|---------------------- | ------------------------------------------------------------------------------------------------------------

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