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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

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

For the quarterly period ended March 31, 2007

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



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SCICLONE PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 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)



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Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

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

Large accelerated filer ̈Accelerated
filer  x    Non-accelerated filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x

As of April 30, 2007, 46,085,144 shares of the registrants Common Stock, $0.001 par value, were issued and outstanding.



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##### Table of Contents

SCICLONE PHARMACEUTICALS, INC.

INDEX



|           |  |                                                                                                    |  |         
|---------- |  | -------------------------------------------------------------------------------------------------- |  | --------
|           |  |                                                                                                    |  | PAGE NO.
|PART I.    |  | FINANCIAL INFORMATION                                                                              |  |         
|           |  |                                                                                                   
|Item 1.    |  | Condensed Consolidated Financial Statements (Unaudited)                                            |  |         
|           |  | Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006                   |  | 3       
|           |  |                                                                                                   
|           |  | Condensed Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006 |  | 4       
|           |  |                                                                                                   
|           |  | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006 |  | 5       
|           |  |                                                                                                   
|           |  | Notes to Condensed Consolidated Financial Statements                                               |  | 6       
|           |  |                                                                                                   
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations              |  | 13      
|           |  |                                                                                                   
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                         |  | 27      
|           |  |                                                                                                   
|Item 4.    |  | Controls and Procedures                                                                            |  | 27      
|           |  |                                                                                                   
|PART II.   |  | OTHER INFORMATION                                                                                  |  |         
|           |  |                                                                                                   
|Item 1.    |  | Legal Proceedings                                                                                  |  | 28      
|           |  |                                                                                                   
|Item 1A.   |  | Risk Factors                                                                                       |  | 28      
|           |  |                                                                                                   
|Item 6.    |  | Exhibits                                                                                           |  | 29      
|           |  |                                                                                                   
|Signatures |  |                                                                                                    |  | 31      



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



|                                                                                                                                                                            |  |                |              |   |                  |   |              |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------------ | - | ---------------- | - | ------------ | -
|                                                                                                                                                                            |  | March 31, 2007 |              |   | December 31,2006 |  
|ASSETS                                                                                                                                                                      |  | (unaudited)    |              |   |                  |  
|Current assets:                                                                                                                                                             |  |                |              |   |                  |   |              |  
|Cash and cash equivalents                                                                                                                                                   |  | $              | 21,899,000   |   |                  | $ | 25,615,000   |  
|Restricted short-term investments                                                                                                                                           |  |                | 699,000      |   |                  |   | 698,000      |  
|Other short-term investments                                                                                                                                                |  |                | 16,388,000   |   |                  |   | 16,279,000   |  
|Accounts receivable, net of allowance of $50,000 at March 31, 2007 and December 31, 2006                                                                                    |  |                | 15,899,000   |   |                  |   | 13,277,000   |  
|Inventories                                                                                                                                                                 |  |                | 3,559,000    |   |                  |   | 3,232,000    |  
|Prepaid expenses and other current assets                                                                                                                                   |  |                | 1,762,000    |   |                  |   | 1,640,000    |  
|                                                                                                                                                                            |  |                |              |   |                  |   |              |  
|Total current assets                                                                                                                                                        |  |                | 60,206,000   |   |                  |   | 60,741,000   |  
|Property and equipment, net                                                                                                                                                 |  |                | 266,000      |   |                  |   | 297,000      |  
|Intangible assets, net                                                                                                                                                      |  |                | 385,000      |   |                  |   | 402,000      |  
|Other assets                                                                                                                                                                |  |                | 1,083,000    |   |                  |   | 1,144,000    |  
|                                                                                                                                                                            |  |                |              |   |                  |   |              |  
|Total assets                                                                                                                                                                |  | $              | 61,940,000   |   |                  | $ | 62,584,000   |  
|                                                                                                                                                                            |  |                |              |   |                  |   |              |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                        |  |                |              |   |                  |   |              |  
|                                                                                                                                                                            |  |               
|Current liabilities:                                                                                                                                                        |  |                |              |   |                  |   |              |  
|Accounts payable                                                                                                                                                            |  | $              | 2,183,000    |   |                  | $ | 963,000      |  
|Accrued compensation and employee benefits                                                                                                                                  |  |                | 1,024,000    |   |                  |   | 1,813,000    |  
|Accrued professional fees                                                                                                                                                   |  |                | 654,000      |   |                  |   | 754,000      |  
|Other accrued expenses                                                                                                                                                      |  |                | 1,739,000    |   |                  |   | 2,487,000    |  
|Accrued clinical trials expense                                                                                                                                             |  |                | 1,444,000    |   |                  |   | 1,803,000    |  
|Deferred revenue                                                                                                                                                            |  |                | 5,000        |   |                  |   | 62,000       |  
|                                                                                                                                                                            |  |                |              |   |                  |   |              |  
|Total current liabilities                                                                                                                                                   |  |                | 7,049,000    |   |                  |   | 7,882,000    |  
|Other long-term liabilities                                                                                                                                                 |  |                | 97,000       |   |                  |   | 68,000       |  
|Commitments and contingencies                                                                                                                                               |  |                |              |   |                  |   |              |  
|Stockholders equity:                                                                                                                                                       |  |                |              |   |                  |   |              |  
|Preferred stock; $0.001 par value; 10,000,000 shares authorized; no shares outstanding                                                                                      |  |                |             |   |                  |   |             |  
|Common stock; $0.001 par value; 75,000,000 shares authorized; 46,083,749 and 46,001,249 shares issued and outstanding at March 31, 2007
and December 31, 2006, respectively |  |                | 46,000       |   |                  |   | 46,000       |  
|Additional paid-in capital                                                                                                                                                  |  |                | 213,846,000  |   |                  |   | 213,064,000  |  
|Accumulated other comprehensive income                                                                                                                                      |  |                | 80,000       |   |                  |   | 78,000       |  
|Accumulated deficit                                                                                                                                                         |  |                | (159,178,000 | ) |                  |   | (158,554,000 | )
|                                                                                                                                                                            |  |                |              |   |                  |   |              |  
|Total stockholders equity                                                                                                                                                  |  |                | 54,794,000   |   |                  |   | 54,634,000   |  
|                                                                                                                                                                            |  |                |              |   |                  |   |              |  
|Total liabilities and stockholders equity                                                                                                                                  |  | $              | 61,940,000   |   |                  | $ | 62,584,000   |  
|                                                                                                                                                                            |  |                |              |   |                  |   |              |  

See notes to condensed consolidated financial statements.



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SCICLONE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



|                                                                               |  |                              |            |   |      |   |            |  
|------------------------------------------------------------------------------ |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                               |  | Three Months Ended March 31, |           
|                                                                               |  | 2007                         |            |   | 2006 |  
|Product sales                                                                  |  | $                            | 8,644,000  |   |      | $ | 7,789,000  |  
|Contract revenue                                                               |  |                              |           |   |      |   | 90,000     |  
|                                                                               |  |                              |            |   |      |   |            |  
|Total revenues                                                                 |  |                              | 8,644,000  |   |      |   | 7,879,000  |  
|Cost of product sales                                                          |  |                              | 1,628,000  |   |      |   | 1,566,000  |  
|                                                                               |  |                              |            |   |      |   |            |  
|Gross margin                                                                   |  |                              | 7,016,000  |   |      |   | 6,313,000  |  
|                                                                               |  |                              |            |   |      |   |            |  
|Operating expenses:                                                            |  |                              |            |   |      |   |            |  
|Research and development                                                       |  |                              | 2,423,000  |   |      |   | 3,829,000  |  
|Sales and marketing                                                            |  |                              | 3,024,000  |   |      |   | 2,832,000  |  
|General and administrative                                                     |  |                              | 2,610,000  |   |      |   | 2,387,000  |  
|                                                                               |  |                              |            |   |      |   |            |  
|Total operating expenses                                                       |  |                              | 8,057,000  |   |      |   | 9,048,000  |  
|                                                                               |  |                              |            |   |      |   |            |  
|Loss from operations                                                           |  |                              | (1,041,000 | ) |      |   | (2,735,000 | )
|Interest and investment income                                                 |  |                              | 453,000    |   |      |   | 352,000    |  
|Interest and investment expense                                                |  |                              | (10,000    | ) |      |   | (41,000    | )
|Other expense, net                                                             |  |                              | (5,000     | ) |      |   |           |  
|                                                                               |  |                              |            |   |      |   |            |  
|Loss before provision for income tax                                           |  |                              | (603,000   | ) |      |   | (2,424,000 | )
|Provision for income tax                                                       |  |                              | 21,000     |   |      |   |           |  
|                                                                               |  |                              |            |   |      |   |            |  
|Net loss                                                                       |  | $                            | (624,000   | ) |      | $ | (2,424,000 | )
|                                                                               |  |                              |            |   |      |   |            |  
|Basic and diluted net loss per share                                           |  | $                            | (0.01      | ) |      | $ | (0.05      | )
|Weighted average shares used in computing basic and diluted net loss per share |  |                              | 46,073,995 |   |      |   | 45,891,878 |  

See notes to condensed consolidated financial statements.



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SCICLONE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                            |  |                              |            |   |      |   |            |  
|--------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                            |  | Three Months Ended March 31, |           
|                                                                            |  | 2007                         |            |   | 2006 |  
|Operating activities:                                                       |  |                              |            |   |      |   |            |  
|Net loss                                                                    |  | $                            | (624,000   | ) |      | $ | (2,424,000 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                              |            |   |      |   |            |  
|Non-cash expense related to employee stock options                          |  |                              | 588,000    |   |      |   | 674,000    |  
|Depreciation and amortization                                               |  |                              | 54,000     |   |      |   | 64,000     |  
|Changes in operating assets and liabilities:                                |  |                              |            |   |      |   |            |  
|Accounts receivable, net                                                    |  |                              | (2,622,000 | ) |      |   | (1,619,000 | )
|Inventories                                                                 |  |                              | (299,000   | ) |      |   | (508,000   | )
|Prepaid expenses and other assets                                           |  |                              | (61,000    | ) |      |   | 156,000    |  
|Accounts payable and other accrued expenses                                 |  |                              | 472,000    |   |      |   | 1,531,000  |  
|Accrued compensation and employee benefits                                  |  |                              | (789,000   | ) |      |   | (1,130,000 | )
|Accrued clinical trials expenses                                            |  |                              | (359,000   | ) |      |   | 203,000    |  
|Accrued professional fees                                                   |  |                              | (100,000   | ) |      |   | 21,000     |  
|Deferred revenue                                                            |  |                              | (57,000    | ) |      |   | (60,000    | )
|Long-term liabilities                                                       |  |                              | 29,000     |   |      |   | (68,000    | )
|                                                                            |  |                              |            |   |      |   |            |  
|Net cash used in operating activities                                       |  |                              | (3,768,000 | ) |      |   | (3,160,000 | )
|                                                                            |  |                              |            |   |      |   |            |  
|Investing activities:                                                       |  |                              |            |   |      |   |            |  
|Purchases of property and equipment                                         |  |                              | (6,000     | ) |      |   | (11,000    | )
|Sales (purchases) of short-term investments                                 |  |                              | (108,000   | ) |      |   | 1,957,000  |  
|                                                                            |  |                              |            |   |      |   |            |  
|Net cash (used in) provided by investing activities                         |  |                              | (114,000   | ) |      |   | 1,946,000  |  
|                                                                            |  |                              |            |   |      |   |            |  
|Financing activities:                                                       |  |                              |            |   |      |   |            |  
|Proceeds from issuances of common stock                                     |  |                              | 166,000    |   |      |   | 42,000     |  
|Repayment of notes payable                                                  |  |                              |           |   |      |   | (1,600,000 | )
|                                                                            |  |                              |            |   |      |   |            |  
|Net cash provided by (used in) financing activities                         |  |                              | 166,000    |   |      |   | (1,558,000 | )
|                                                                            |  |                              |            |   |      |   |            |  
|Net decrease in cash and cash equivalents                                   |  |                              | (3,716,000 | ) |      |   | (2,772,000 | )
|Cash and cash equivalents, beginning of period                              |  |                              | 25,615,000 |   |      |   | 25,845,000 |  
|                                                                            |  |                              |            |   |      |   |            |  
|Cash and cash equivalents, end of period                                    |  | $                            | 21,899,000 |   |      | $ | 23,073,000 |  
|                                                                            |  |                              |            |   |      |   |            |  

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
|-- | ---------------------

SciClone
Pharmaceuticals, Inc. (SciClone or the Company) was reincorporated in the State of Delaware on July 18, 2003. The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with
generally accepted accounting principles in the United States (GAAP) consistent with those applied in, and should be read in conjunction with, the audited financial statements for the year ended December 31, 2006 included in the
Companys Form 10-K as filed with the Securities and Exchange Commission. The interim financial information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented and are not necessarily indicative of results for subsequent interim periods or for the full year. The condensed consolidated balance sheet data at December 31, 2006 is derived from
the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

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

Use of Estimates

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

Significant Accounting Policies

Revenue Recognition

The Company recognizes revenue from product sales at the time of delivery. There are no significant customer acceptance requirements or post shipment
obligations on the part of the Company. Sales to importing agents or distributors are recognized at time of shipment when title to the product is transferred to them, and they do not have contractual rights of return except under limited terms
regarding product quality. However, the Company is expected to replace products that have expired or are deemed to be damaged or defective when delivered. 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 on the achievement of the milestones, as defined
in the respective agreements and provided that (i) the milestone event is substantive and its achievement is not reasonably assured at the inception of the agreement, and (ii) there are no future performance obligations associated with the
milestone payment.

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

Net Loss Per Share

Net loss per share is computed using the weighted average number of shares of common stock outstanding. Potentially dilutive common shares from stock
options are excluded, as their effect is antidilutive. For the three months ended March 31, 2007 and 2006, approximately 7,115,104 and 6,862,819 shares, respectively, attributable to outstanding stock options were excluded from the calculation
of diluted net loss per share because their inclusion would have been anti-dilutive.



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Recent Accounting Pronouncements

The Company adopted the provisions of Financial Standards Accounting Board Interpretation No. 48 Accounting for Uncertainty in Income Taxes
(FIN 48) an interpretation of FASB Statement No. 109 (SFAS 109) on January 1, 2007. The implementation of FIN 48 had no material impact on the Companys consolidated financial statements. As of January 1,
2007 and March 31, 2007, the Company had no unrecognized tax benefits. The Companys policy is to recognize accrued interest and penalties for unrecognized tax benefits as a component of tax expense. For the three months ended March 2007
and 2006, there were no interest or penalties included as a component of tax expense for unrecognized tax benefits.

The tax years 1996-2005
remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company has not yet filed its 2006 returns.

In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial Assets and Financial
LiabilitiesIncluding an amendment of FASB Statement No. 115 (SFAS No. 159). SFAS No. 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be
carried at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. Under SFAS No. 159, a company may elect to use fair value to measure eligible items at specified election dates and report unrealized gains and losses on items for which the fair
value option has been elected in earnings at each subsequent reporting date. Eligible items include, but are not limited to, accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts
payable, guarantees, issued debt and firm commitments. If elected, SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing whether fair value accounting is appropriate for any of its
eligible items and cannot estimate the impact, if any, on its results of operations and financial position.

In September 2006, the FASB
issued SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures
about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently assessing the impact that
SFAS No. 157 will have on its results of operations and financial position.



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|2. | Marketable Securities
|-- | ---------------------

The following is a
summary of available-for-sale and held-to-maturity securities at March 31, 2007 and December 31, 2006:



|                                |  |                               |            |                        |   |                      |  |   |           
|------------------------------- |  | ----------------------------- | ---------- | ---------------------- | - | -------------------- |  | - | ----------
|                                |  | Available-For-Sale Securities
|                                |  | Amortized Cost                |            | Gross Unrealized Gains |   | Estimated Fair Value
|March 31, 2007:                 |  |                               |            |                        |   |                      |  |   |           
|Certificates of deposit         |  | $                             | 845,000    |                        | $ |                     |  | $ | 845,000   
|Short-term municipal securities |  |                               | 5,600,000  |                        |   |                     |  |   | 5,600,000 
|Corporate equity securities     |  |                               | 51,000     |                        |   | 80,000               |  |   | 131,000   
|                                |  |                               |            |                        |   |                      |  |   |           
|                                |  | $                             | 6,496,000  |                        | $ | 80,000               |  | $ | 6,576,000 
|                                |  |                               |            |                        |   |                      |  |   |           
|December 31, 2006:              |  |                               |            |                        |   |                      |  |   |           
|Certificates of deposit         |  | $                             | 845,000    |                        | $ |                     |  | $ | 845,000   
|Short-term municipal securities |  |                               | 5,600,000  |                        |   |                     |  |   | 5,600,000 
|Corporate equity securities     |  |                               | 51,000     |                        |   | 78,000               |  |   | 129,000   
|                                |  |                               |            |                        |   |                      |  |   |           
|                                |  | $                             | 6,496,000  |                        | $ | 78,000               |  | $ | 6,574,000 
|                                |  |                               |            |                        |   |                      |  |   |           
|                                | 
|                                |  | Held-to-Maturity Securities  
|                                |  | Amortized Cost                |            | Gross Unrealized Gains |   | Estimated Fair Value
|March 31, 2007:                 |  |                               |            |                        |   |                      |  |   |           
|U.S. Treasury securities        |  | $                             | 10,511,000 |                        | $ |                     |  | $ | 10,511,000
|December 31, 2006:              |  |                               |            |                        |   |                      |  |   |           
|U.S. Treasury securities        |  | $                             | 10,403,000 |                        | $ |                     |  | $ | 10,403,000

As of March 31, 2007, there was $699,000 in restricted short-term investments and $5,877,000
in other short-term investments held in available-for-sale securities. As of December 31, 2006, there was $698,000 in restricted short-term investments and $5,876,000 in other short-term investments held in available-for-sale securities. As of
March 31, 2007 and December 31, 2006, the certificates of deposit had maturities of 12 months or less. The short-term municipals are auction rate securities which are highly rated, highly liquid and their interest rate is reset at auction
every 30 days. The Companys interest rate risk associated with the auction rate securities is limited due to this interest rate reset mechanism.

As of March 31, 2007 and December 31, 2006, there was $10,511,000 and $10,403,000, respectively, in other short-term investments classified as held-to-maturity securities. These securities are U. S. Treasury
bills which will mature in May, June and August 2007. The fair market value of the investments approximated their cost at March 31, 2007 and December 31, 2006, respectively.



|3. | Inventories
|-- | -----------

Inventories consisted of the
following:



|                 |  |               |           |                  |   |          
|---------------- |  | ------------- | --------- | ---------------- | - | ---------
|                 |  | March 31,2007 |           | December 31,2006
|Raw materials    |  | $             | 1,569,000 |                  | $ | 573,000  
|Work in progress |  |               | 1,503,000 |                  |   | 1,239,000
|Finished goods   |  |               | 487,000   |                  |   | 1,420,000
|                 |  |               |           |                  |   |          
|                 |  | $             | 3,559,000 |                  | $ | 3,232,000
|                 |  |               |           |                  |   |          



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|4. | Prepaid Expenses and Other Current Assets
|-- | -----------------------------------------

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



|                           |  |               |           |                  |   |          
|-------------------------- |  | ------------- | --------- | ---------------- | - | ---------
|                           |  | March 31,2007 |           | December 31,2006
|Prepaid insurance          |  | $             | 441,000   |                  | $ | 623,000  
|Prepaid rent               |  |               | 110,000   |                  |   | 110,000  
|Prepaid clinical expenses  |  |               | 119,000   |                  |   | 13,000   
|Value added tax receivable |  |               | 682,000   |                  |   | 452,000  
|Other prepaid expenses     |  |               | 410,000   |                  |   | 442,000  
|                           |  |               |           |                  |   |          
|                           |  | $             | 1,762,000 |                  | $ | 1,640,000
|                           |  |               |           |                  |   |          



|5. | Intangible Assets
|-- | -----------------

Intangible assets include
the following:



|                          |  |               |            |   |                  |   |            |  
|------------------------- |  | ------------- | ---------- | - | ---------------- | - | ---------- | -
|                          |  | March 31,2007 |            |   | December 31,2006 |  
|Intangible product rights |  | $             | 2,456,000  |   |                  | $ | 2,456,000  |  
|Accumulated amortization  |  |               | (2,071,000 | ) |                  |   | (2,054,000 | )
|                          |  |               |            |   |                  |   |            |  
|                          |  | $             | 385,000    |   |                  | $ | 402,000    |  
|                          |  |               |            |   |                  |   |            |  

Acquired ZADAXIN product rights are being amortized on a straight-line basis over a period of 14
years. Amortization expenses for each of the three-month periods ended March 31, 2007 and 2006 was $17,500. For the years ending December 31, 2007 through 2012, annual amortization expense is expected to be $70,000. Based upon the progress
in the ZADAXIN clinical trials and the Companys actual experience of product sales, the Company assessed that the acquired product rights will be useful to the Company through 2012 when the European patent for the use of ZADAXIN in the
treatment of hepatitis C expires. The Company reassesses the useful life of these assets in accordance with current facts and circumstances.



|6. | Contract Revenue
|-- | ----------------

In January 2002 and
December 2006, the Company received $2,685,000 and $50,000, respectively, from its European partner, Sigma-Tau, under the terms of its collaborative agreement announced in late December 2001. This revenue was recognized as contract revenue over the
course of the ZADAXIN HCV U.S. clinical program and the period of sharing the clinical data from this program with Sigma-Tau in accordance with the performance requirements under the Companys contract with Sigma-Tau.



|7. | Accrued Expenses
|-- | ----------------

The following is a summary
of other accrued expenses at March 31, 2007 and December 31, 2006:



|                                     |  |               |           |                  |   |          
|------------------------------------ |  | ------------- | --------- | ---------------- | - | ---------
|                                     |  | March 31,2007 |           | December 31,2006
|Accrued royalties                    |  | $             | 586,000   |                  | $ | 529,000  
|Accrued pre-clinical trial expenses  |  |               | 172,000   |                  |   | 232,000  
|Accrued annual reports expense       |  |               | 34,000    |                  |   | 65,000   
|Accrued sales and marketing expenses |  |               | 435,000   |                  |   | 390,000  
|Accrued manufacturing costs          |  |               | 4,000     |                  |   | 478,000  
|Other                                |  |               | 508,000   |                  |   | 793,000  
|                                     |  |               |           |                  |   |          
|                                     |  | $             | 1,739,000 |                  | $ | 2,487,000
|                                     |  |               |           |                  |   |          



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|8. | Other Long-term Liabilities
|-- | ---------------------------

Other long-term
liabilities consisted of $97,000 and $68,000 of accrued compensation and employee benefits at March 31, 2007 and December 31, 2006, respectively.



|9. | Shareholders Equity
|-- | --------------------

Stock Award
Plans

The Company has several stock-based compensation plans (the Plans) that are described in the Companys Annual
Report on Form 10-K for the fiscal year ended December 31, 2006. The Company, under the various equity plans, grants stock options for shares of common stock to employees and directors. In accordance with the Plans, the options expire ten years
from the date of grant. Options are generally granted at fair market value on the date of grant and vest over time, generally four years. Certain options granted under the Plans vest over shorter periods.

The following table summarizes stock option activity during the three-month period ended March 31, 2007 under all option plans:



|                                                 |  |                          |   |  |                     |   |  |                                         |      |                                                  |      |                         |   |          
|------------------------------------------------ |  | ------------------------ | - |  | ------------------- | - |  | --------------------------------------- | ---- | ------------------------------------------------ | ---- | ----------------------- | - | ---------
|                                                 |  |                          |   |  | Options Outstanding
|                                                 |  | SharesAvailableFor Grant |   |  | Number of Shares    |   |  | Weighted-AverageExercise PricePer Share |      | Weighted-AverageRemainingContractualTerm (Years) |      | AggregateIntrinsicValue
|Balance at December 31, 2006                     |  | 2,336,250                |   |  | 7,388,760           |   |  | $                                       | 4.20 |                                                  |      |                         |   |          
|Options cancelled                                |  | 628,376                  |   |  | (628,376            | ) |  | $                                       | 5.36 |                                                  |      |                         |   |          
|Options granted                                  |  | (969,000                 | ) |  | 969,000             |   |  | $                                       | 2.69 |                                                  |      |                         |   |          
|Options exercised                                |  |                         |   |  | (82,500             | ) |  | $                                       | 2.01 |                                                  |      |                         |   |          
|Plan shares expired                              |  | (505,834                 | ) |  |                    |   |  |                                         |     |                                                  |      |                         |   |          
|                                                 |  |                          |   |  |                     |   |  |                                         |      |                                                  |      |                         |   |          
|Balance at March 31, 2007                        |  | 1,489,792                |   |  | 7,646,884           |   |  | $                                       | 3.94 |                                                  | 7.00 |                         | $ | 1,030,000
|                                                 |  |                          |   |  |                     |   |  |                                         |      |                                                  |      |                         |   |          
|Vested and expected to vest after March 31, 2007 |  |                          |   |  | 7,194,150           |   |  | $                                       | 4.02 |                                                  | 6.87 |                         |   |          
|Exercisable at March 31, 2007                    |  |                          |   |  | 4,426,024           |   |  | $                                       | 4.76 |                                                  | 5.47 |                         | $ | 492,000  

The aggregate intrinsic value in the table above represents the value of the Companys closing
stock price on the last trading day of the fiscal quarter ended March 31, 2007, in excess of the exercise price, multiplied by the number of options outstanding or exercisable. The total intrinsic value of options at time of exercise was
approximately $80,000 for the three months ended March 31, 2007. There were no options exercised during the three months ended March 31, 2006.

Stock Based Compensation

Effective January 1, 2006, the Company began recording compensation
expense associated with stock options in accordance with Financial Accounting Standards Board (FASB) Statement No. 123(R), Share-Based Payment, (FAS 123R) using the modified-prospective transition method. Under this
method, compensation cost associated with stock options includes 1) amortization related to the remaining unvested portion of all stock option awards granted prior to January 1, 2006, based on the grant date fair value estimated in accordance
with the original provisions of SFAS 123; and 2) amortization related to all stock option awards granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. Compensation
cost is calculated on the date of grant using the fair value of the option as determined using the Black Scholes option valuation model and the single option approach. The Company amortizes the compensation cost over the vesting period, which is
generally four years, using the straight line attribution method.

Stock-based compensation expense recognized in the Consolidated Statement
of Operations for the three months ended March 31, 2007 and 2006 is based on awards ultimately expected to vest. FAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation only for those awards that are expected to vest.



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The fair value of each stock award is estimated on the date of grant using the Black-Scholes option
valuation model with the weighted average assumptions noted in the following table. The expected term of options granted is derived from historical data on employee exercises and terminations. The risk-free interest rate is based on the U.S.
Treasury yield curve in effect at the time of grant. Expected volatility is based on the historical volatility of the Companys stock. The expected dividend assumption is based on the Companys history and expectations of no dividend
payouts.



|                                                                   |  |                             |       |   |      |   |       |  
|------------------------------------------------------------------ |  | --------------------------- | ----- | - | ---- | - | ----- | -
|                                                                   |  | Three MonthsEnded March 31, |      
|Stock Option Plan                                                  |  | 2007                        |       |   | 2006 |  
|Weighted-average fair value of stock options granted               |  | $                           | 1.61  |   |      | $ | 1.46  |  
|Risk-free interest rate                                            |  |                             | 4.65  | % |      |   | 5.02  | %
|Dividend yield                                                     |  |                             | 0.00  | % |      |   | 0.00  | %
|Volatility factor of the expected market price of our common stock |  |                             | 70.65 | % |      |   | 73.79 | %
|Weighted-average expected life of option (years)                   |  |                             | 4.64  |   |      |   | 4.09  |  

The total compensation cost capitalized in inventory was approximately $28,000 and $29,000 in the
three months ended March 31, 2007 and 2006, respectively. The Company has not recognized, and does not expect to recognize in the near future, any tax benefit related to employee stock-based compensation cost as a result of the full valuation
allowance on its net deferred tax assets including its net operating loss carryforwards.

As of March 31, 2007, unamortized
compensation expense related to unvested options was approximately $4,741,000. The weighted average period over which compensation expense related to these options will be recognized is 2.17 years.

The estimated fair value of shares vested for the three months ended March 31, 2007 and 2006 was $663,000 and $866,000, respectively.

Employee Stock Purchase Plan

The
Company has an employee stock purchase plan (ESPP) under which substantially all employees may purchase common stock through payroll deductions. Prior to January 31, 2006, under the terms of the ESPP, employees could choose to have
up to 15% of their salary withheld to purchase the Companys common stock. The purchase price of the stock was 85% of the lower of the fair market value as of the first and last trading day of each quarterly participation period. In January
2006, the Board of Directors amended the ESPP to provide that, for each Offering Period commencing after January 31, 2006, the purchase price of the stock shall be equal to 95% of the fair market value of a share of the Companys Common
Stock on the Purchase Date (or such other amount as may be established by the Board). Since January 31, 2006, the ESPP has been treated as a non-compensatory plan under FAS 123R; therefore, no fair value calculation was performed for purchases
subsequent to that date. As of March 31, 2007, 282,519 shares were reserved or future issuance under the ESPP.

The fair value of each
stock award was estimated on the date of grant using the Black-Scholes option valuation model with the weighted average assumptions noted in the following table.



|                                                                      |  |                             |   |      |   |       |  
|--------------------------------------------------------------------- |  | --------------------------- | - | ---- | - | ----- | -
|                                                                      |  | Three MonthsEnded March 31, |  
|Employee Stock Purchase Plan                                          |  | 2007                        |   | 2006 |  
|Weighted-average fair value of employee stock purchase plan purchases |  | $                           |  |      | $ | 0.84  |  
|Risk-free interest rate                                               |  |                             |  |      |   | 3.17  | %
|Dividend yield                                                        |  |                             |  |      |   | 0.00  | %
|Volatility factor of the expected market price of our common stock    |  |                             |  |      |   | 60.59 | %
|Weighted-average expected life (years)                                |  |                             |  |      |   | 0.75  |  

Comprehensive Loss

Comprehensive loss is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes net unrealized gains and
losses on the Companys available-for-sale securities. For the three-month periods ended March 31, 2007 and 2006, the Companys total comprehensive loss amounted to ($622,000) and ($2,421,000), respectively.



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|10. | Subsequent Event
|--- | ----------------

On April 26, 2007,
the Company announced that it had acquired the exclusive rights in the United States and Canada to develop and commercialize RP101, a clinical-stage compound for the treatment of cancer. Under the terms of the agreements with Resistys, Inc., a
wholly-owned subsidiary of Avantogen Oncology, Inc., and with RESprotect Gmbh, the Company will pay approximately $1,700,000 in up front fees, a $1,300,000 milestone payment upon initiation of a phase 2 clinical trial, post phase 3 success-based
regulatory and commercial milestone payments up to $22,000,000, and royalties on future sales to Avantogen and RESprotect. The Company intends to initially develop RP101 for the treatment of pancreatic cancer in a combination therapy with
gemcitabine, the standard of care for pancreatic cancer therapy.



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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 Quarterly Report on Form 10-Q contains
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on our current
expectations, estimates and projections about our business, industry, managements beliefs and certain assumptions made by us. Words such as anticipate, expect, intend, plan, believe
or similar expressions are intended to identify forward-looking statements including those statements we make regarding our future financial results; anticipated product sales; the sufficiency of our resources to complete clinical trials and other
new product development initiatives; the timing and outcome of clinical trials; the timing of completion of therapy and observation for our clinical trials; ZADAXINs ability to complement existing therapies; prospects for ZADAXIN and our plans
for its enhancement and commercialization; future size of the worldwide hepatitis C virus market; research and development and other expense levels; cash and other asset levels; and the allocation of financial resources to certain trials and
programs. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those
expressed in any forward-looking statements as a result of various factors including, but not limited to, those described under the caption Risk Factors in this Quarterly Report on Form 10-Q. We undertake no obligation to revise or
update publicly any forward-looking statements for any reason.

Overview

We are a biopharmaceutical company engaged in the development and commercialization of novel therapeutics to treat life-threatening diseases. Our strategy
is to in-license products in the areas of cancer and viral infectious diseases, and to develop them for commercialization in the major pharmaceutical markets with a particular focus on China, one of the worlds fastest growing pharmaceutical
markets. ZADAXIN, our brand of thymalfasin, is one of the largest selling imported drugs in China today, and currently is in late-stage clinical development in Europe for the treatment of malignant melanoma and hepatitis C virus (HCV). We expect our
proprietary compound SCV-07 will enter phase 2 clinical development for viral infectious disease in the second quarter of 2007. We also submitted a regulatory application to the Chinese State Food and Drug Administration (SFDA) in December 2006
related to our June 2006 in-licensing of the Chinese marketing rights to DC Bead, a product for the treatment of liver cancer, or hepatocellular carcinoma (HCC).

On April 26, 2007, we announced that we had acquired the exclusive rights in the United States and Canada to develop and commercialize RP101, a clinical-stage compound for the treatment of cancer. Under the terms
of the agreements with Resistys, Inc., a wholly-owned subsidiary of Avantogen Oncology, Inc., and with RESprotect Gmbh, we will pay approximately $1,700,000 in up front fees, a $1,300,000 milestone payment upon initiation of a phase 2 clinical
trial, post phase 3 success-based regulatory and commercial payments up to $22,000,000, and royalties on future sales to Avantogen and RESprotect. We intend to initially develop RP101 for the treatment of pancreatic cancer in a combination therapy
with gemcitabine, the standard of care for pancreatic cancer therapy.

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

Our
European partner, Sigma-Tau, is conducting a triple therapy combination (ZADAXIN plus pegylated interferon alpha and ribavirin) trial in Europe and enrollment for this trial was completed in December 2006. Also in December 2006, we reported positive
interim survival data from a phase 2 trial treating patients with stage IV malignant melanoma indicating that the addition of 3.2 mg of ZADAXIN to standard dacarbazine (DTIC) chemotherapy increased the median survival to 10.2 months. In addition,
such data show patients treated with thymalfasin and DTIC chemotherapy without interferon alpha achieved more than double the overall tumor response as compared to the control group.

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

From commencement
of operations through March 31, 2007, we have an accumulated deficit of approximately $159,000,000. At least over the next few years, we expect net losses due to increased operating expenses as we expand our research and development and
clinical testing efforts and our sales and marketing capabilities. Our ability to achieve and sustain operating profitability is dependent on expansion of sales of ZADAXIN and securing regulatory approval for DC Bead in China and the execution and
successful completion of ZADAXIN, SCV-07, and RP101 clinical trials and securing



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

We expect net sales to increase in 2007
due to increased sales to China. Primarily due to the level of research and development activities and other operations, we expect a net loss and a reduction in cash, cash equivalents and short-term investments for 2007.

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

Recent Accounting Pronouncements

Recent accounting
pronouncements are detailed in Note 1 to our Condensed Consolidated Financial Statements.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make judgments, estimates and
assumptions in the preparation of our consolidated financial statements and accompanying notes. Actual results could differ from those estimates. We believe there have been no significant changes in our critical accounting policies as discussed in
our Annual Report on Form 10-K for the year ended December 31, 2006.

Results of Operations

Total Revenues

Product sales were
$8,644,000 for the three-month period ended March 31, 2007, as compared to $7,789,000 for the corresponding period in 2006. All product sales in each period were derived from sales of ZADAXIN. The increase was attributable to a higher volume of
product sold as prices have remained stable between the 2007 and 2006 periods. Sales to customers in China are denominated in U.S. dollars and accounted for approximately 92% of product sales for the three-month periods ended March 31, 2007 and
2006.

For the three-month period ended March 31, 2007, sales to three importing agents in China accounted for approximately 57%, 22%
and 12% of our product sales. For the three-month period ended March 31, 2006, sales to two importing agents in China accounted for approximately 73% and 19% of our product sales. The two largest customers were the same importing agents in each
of these periods.

We recognized $90,000 of contract revenue for the three-month period ended March 31, 2006, in connection with the
$2,685,000 payment we received from Sigma-Tau in January 2002. This revenue was recognized as contract revenue over the course of the ZADAXIN hepatitis C U.S. clinical program and the period of sharing the clinical data from this program with
Sigma-Tau in accordance with the performance requirements under our contract with Sigma-Tau.

Cost of Product Sales and Gross Margin on
Product Sales

Gross margin on product sales was 81% for the three-month period ended March 31, 2007, as compared to 80% for the
corresponding period in 2006. We expect cost of product sales, and hence gross margin on product sales, to vary slightly from period to period, depending upon the level of ZADAXIN sales, the absorption of product-related fixed costs, and any charges
associated with excess or expiring finished product inventory.



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Research and Development

Research and development expenses were $2,423,000 for the three-month period ended March 31, 2007, as compared to $3,829,000 for the corresponding
period in 2006. The lower level of research and development expenses was primarily due to a decrease of approximately $763,000 related to clinical trial expenses, a decrease of approximately $369,000 in compensation and benefits, a decrease of
approximately $184,000 in stock based compensation expense, and a decrease of approximately $74,000 in dues and subscription expenses. These decreases primarily relate to the conclusion of our US hepatitis C clinical trials in mid-year 2006 and the
reduction of related expenses in subsequent periods. The initiation and continuation of our clinical development programs has had, and will continue to have, a significant effect on our research and development expenses. Although it is not possible
to determine the total cost expected to be incurred in any particular quarter for each clinical trial due to the uncertain nature of the clinical trial process, we estimate that our future costs through the fourth quarter of 2007 relating to
research and development will be approximately $17,000,000 including upfront costs of approximately $1,700,000 for the acquisition of RP101 rights, a $1,300,000 milestone payment upon initiation of the RP101 phase 2 clinical trial, and other RP101
development costs. In general, we expect research and development expenses to vary substantially from quarter to quarter as we pursue our strategy of initiating additional preclinical and clinical trials and testing, acquiring product rights, and
expanding regulatory activities.

Sales and Marketing

Sales and marketing expenses were $3,024,000 for the three-month period ended March 31, 2007, as compared to $2,832,000 for the corresponding period in 2006. The higher level of sales and marketing expenses was
primarily due to an increase in compensation and travel expenses related to headcount growth and our expanding marketing efforts. We expect that our future sales and marketing expenses through the fourth quarter of 2007 will be approximately
$10,000,000 and that sales and marketing expenses will continue to increase in the next several years if we are successful in expanding our commercialization and marketing efforts.

General and Administrative

General
and administrative expenses were $2,610,000 for the three-month period ended March 31, 2007, as compared to $2,387,000 for the corresponding period in 2006. The higher levels of general and administrative expenses were primarily due to
increased bonus expense of approximately $170,000 and increased stock-based compensation expense of $75,000, both related to our chief executive officers employment agreements. We expect that our future general and administrative expenses will
be approximately $8,000,000 through the fourth quarter of 2007, although these expenses may vary from quarter to quarter.

Interest and
Investment Income and Expense

Interest and investment income was approximately $453,000 for the three-month period ended March 31,
2007, as compared to $352,000 for the corresponding period in 2006. The increase was primarily due to cash balances earning interest at higher rates in the 2007 period. Interest and investment expense was $10,000 for the three-month period ended
March 31, 2007 as compared to $41,000 for the corresponding period in 2006. The decrease in interest and investment expense is attributable to $1,600,000 as full repayment of a note payable in March 2006.

Liquidity and Capital Resources

On
March 31, 2007 and December 31, 2006, we had $38,986,000 and $42,592,000, respectively, in cash, cash equivalents and short-term investments including $699,000 and $698,000, respectively, of restricted short-term investments. Based on our
recent acquisition of the exclusive United States and Canadian rights to RP101 and expected further net loss, we currently estimate cash, cash equivalents and short-term investments at December 31, 2007 will be approximately $26,000,000.

The short-term investments consist primarily of U.S. Treasury securities and highly liquid marketable securities. Our restricted
short-term investments relate to two letters of credit each secured by a certificate of deposit. On March 31, 2007, the letters of credit totaled $699,000 and were comprised of $633,000 under our lease agreement and $66,000 to facilitate our
value added tax filings in Europe.

Net cash used in operating activities amounted to $3,768,000 for the three-month period ended
March 31, 2007 as compared to net cash used in operating activities in the amount of $3,160,000 in the corresponding period in 2006. The change in the 2007 period was primarily due to a decrease in liabilities payable related to operating
activities and an increase in accounts receivable, only partially offset by a decrease in the net loss incurred.



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Net cash used in our investing activities amounted to $114,000 for the three-month period ended
March 31, 2007, as compared to net cash provided by us in investing activities in the amount of $1,946,000 for the corresponding period in 2006. The change in the 2007 period was primarily due to a decrease in proceeds from the sale of
marketable securities as compared to the prior period.

Net cash provided by financing activities amounted to $166,000 for the three-month
period ended March 31, 2007 and consisted of proceeds from issuance of common stock under our employee stock option plan. Net cash used in financing activities amounted to $1,558,000 for the three-month period ended March 31, 2006 and
consisted of the repayment of a $1,600,000 convertible note partially offset by proceeds from issuance of common stock of approximately $42,000 under our employee stock purchase plan.

Our existing capital resources and funds from product sales are sufficient to finance our operations for the immediate future but are not sufficient to
complete our current plans to conduct and complete clinical trials with RP101, SCV-07 and ZADAXIN, and, if we proceed with all the development efforts we are planning, we would need to raise additional financing. The unavailability or the
inopportune timing of any financing could prevent or delay our long-term product development and commercialization programs, either of which would severely hurt our business. We cannot assure you that funds from financings will be sufficient to
complete our current plans to conduct and complete clinical trials. The need, timing and amount of any such financing would depend upon numerous factors, including the level of ZADAXIN sales, the timing and amount of manufacturing costs related to
ZADAXIN, the availability of, and the amount of any investment in, complementary products, technologies and businesses, the initiation and continuation of preclinical and clinical trials and testing, for existing or newly acquired programs, the
timing of regulatory approvals, developments in relationships with existing or future collaborative parties, the status of competitive products, and the condition of the capital markets and the availability of financing for SciClone in particular.

Contractual Obligations

There were no
material changes in the three-month period ended March 31, 2007 to our contractual obligations as disclosed in our Form 10-K for the year ended December 31, 2006.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements in the three-month
period ended March 31, 2007.

Risk Factors

You should carefully consider the risks described below, in addition to the other information in this report on Form 10-Q and our report on Form 10-K for the year ended December 31, 2006, before making an investment decision. Each
of these risk factors could adversely affect our business, financial condition, and operating results as well as adversely affect the value of an investment in our common stock.

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

Our product revenue is highly dependent on the sale of ZADAXIN in foreign countries. If we experience difficulties in our
foreign sales efforts, our business will suffer and our operating results and financial condition will be harmed. For each of the three-month periods ended March 31, 2007 and 2006, approximately 92% of our ZADAXIN sales were to customers in
China. Sales of ZADAXIN in China may be limited due to the low average personal income, lack of patient cost reimbursement, poorly developed infrastructure and existing and potential competition from other products, including generics. ZADAXIN sales
growth in recent years has benefited from the rapidly growing Chinese economy and growing personal disposable income. Sales of ZADAXIN in China could be adversely affected by a slowing or downturn of the Chinese economy. In China, ZADAXIN is
approved only for the treatment of hepatitis B virus (HBV), and as a vaccine adjuvant. We face competition from certain large, global pharmaceutical companies who are aggressively marketing competing products for the treatment of HBV and other
indications where ZADAXIN is used on an off-label basis. In addition, several local companies are selling lower priced locally manufactured generic thymosin, which is a competitive product and is selling in increasing quantities. We expect such
competition to continue and there could be a negative impact on the price and the volume of ZADAXIN sold in China, which would harm our business. Our efforts to in-license other pharmaceutical products for marketing in China and other markets may be
unsuccessful or may not have a meaningful effect on our dependence on ZADAXIN sales in those markets.



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We do not have product sales in the United States, Europe or Japan with which to offset any decrease in
our revenue from ZADAXIN sales in Asia, Latin America and the Middle East, and sales outside of China have not been substantial to date. Some countries in these regions, including China, regulate pharmaceutical prices and pharmaceutical importation.
These regulations may reduce prices for ZADAXIN to levels significantly below those that would prevail in an unregulated market, limit the volume of product which may be imported and sold or place high import duties on the product, any of which may
limit the growth of our revenues or cause them to decline. We believe that the Chinese government is increasing its efforts to reduce overall health care costs, including through pricing controls. Individual provinces in China and, in some cases,
individual hospitals can and have established pricing requirements for a product to be included on formulary lists. These prices may be lower than our distributors have been selling ZADAXIN in which case we have been removed from formulary lists,
which consequently has reduced sales to certain hospitals and could adversely affect our future sales.

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

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

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

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

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

We rely on third parties, who are subject to regulatory oversight, to supply our clinical and commercial
products. The manufacturing of the raw material and the processing to finished product of ZADAXIN is done in few batches in any given three-month period. Manufacturing interruptions or failure or delay of product to meet quality assurance
specifications could adversely affect shipments and recognition of sales of ZADAXIN in any period and impair our relationships with customers and our competitive position. During 2006, we experienced failures and lower yields on production runs from
our sole supplier of bulk product for the manufacture of ZADAXIN for our current markets including China and our current ZADAXIN clinical trials. We have taken and are taking various actions to ensure that our sales are not interrupted; to date
during 2007, our planned inventory levels of finished product have been met by additional production runs and our sales of ZADAXIN and supply of clinical trial product have been unaffected. However, the production run failures and the related costs
incurred in additional production runs are circumstances that have not been economical for our supplier. Our supplier recently has remedied the production problems and has been able to produce our product at targeted yields and costs. Although there
have been production problems, currently we have inventory for the next two quarters. We now believe that the recent production problems have been remedied, however if we suffer future production problems they may cause future interruptions in
product supply that may harm our business. In addition, if sales of ZADAXIN were to increase dramatically, our third-party suppliers



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may not be able to supply ZADAXIN quickly enough, which could limit our ability to satisfy increased demand or could adversely affect the ability of these
suppliers to provide products for our clinical trials. In addition, Biocompatibles is the sole supplier of the DC Bead. If unanticipated deficiencies in these suppliers occur, we could experience delays in our ability to fulfill regulatory
requirements which may adversely affect our sales or prospects for regulatory marketing approvals. We have an exclusive supplier of pegylated interferon alpha for our European phase 3 HCV clinical trial, who also supplied all of the pegylated
interferon used in our U.S. phase 3 HCV clinical trials. Any recall of the manufacturing lots or similar action regarding the pegylated interferon alpha used in our clinical trials could detract from the integrity of the trial data and its potential
use in future regulatory filings.

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

We rely on third parties such as contract research organizations, medical institutions, clinical
investigators, contract laboratories, and collaborative partners in the conduct of clinical trials for our product candidates. If these parties, whom we do not control, do not successfully carry out their contractual duties or regulatory obligations
or meet expected deadlines, if the third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our
preclinical or clinical activities may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize our product candidates.

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

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

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

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

Our ability to achieve and sustain operating profitability
depends in large part on our ability to commence, execute and complete clinical programs and obtain additional regulatory approvals for ZADAXIN and other drug candidates, particularly in the United States and Europe. We are also dependent on our
ability to increase ZADAXIN sales in China and other markets. In particular, our ability to achieve and sustain profitability will depend in large part on our ability to commercialize ZADAXIN for the treatment of HCV or malignant melanoma in the
United States and Europe.

To obtain regulatory approvals, we must, among other requirements, complete carefully controlled and
well-designed clinical trials demonstrating that a particular drug is safe and effective for the applicable disease. We cannot depend on data from prior trial results to predict or demonstrate that our potential drug products are safe and
efficacious under regulatory guidelines to qualify for commercial sale. In December 2005 and June 2006, we reported final results from our two U.S. phase 3 trials evaluating the double therapy combination of ZADAXIN and pegylated interferon alpha to
treat HCV patients who had failed previous therapy. The results from these trials did not demonstrate that ZADAXIN in combination with pegylated interferon alpha provides a statistically significant clinical benefit when compared with pegylated
interferon alpha alone. Although we do not believe that the news of these results had any significant effect on our sales to China in the following periods to date, we cannot assure you that our results will not be harmed if final data from current
clinical trials are negative. Our European partner, Sigma-Tau, is conducting a triple therapy combination (ZADAXIN plus pegylated interferon alpha and ribavirin) trial in Europe. Enrollment of the 553 patients in this trial was completed in December
2006.

The current standard of care for HCV therapy is the combination of pegylated interferon alpha with ribavirin. This combination is
not approved by the FDA or the EMEA for the treatment of non-responders, however, in clinical practice



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pegylated interferon alpha with ribavirin is widely used for the treatment of both treatment naïve and non-responder HCV patients. The European HCV
phase 3 clinical trial being conducted by Sigma-Tau has been designed to compare the efficacy of the triple combination of ZADAXIN, pegylated interferon alpha and ribavirin with the current standard of care. The final results of the European trial
are not expected to be known until late 2008. As with the FDA, the EMEA generally requires two confirmatory phase 3 clinical trials to support their equivalent of an NDA. Therefore, results of the current triple therapy combination trial, even if
positive and statistically significant, would by themselves be insufficient to support an NDA to the EMEA, and results from a second confirmatory phase 3 clinical trial would be needed. At this time, plans for such trial have not been made. We
cannot assure you that we or our European partner, Sigma-Tau, will undertake such trial, that any clinical trial of the triple therapy combination will yield favorable results, that we will receive approval for ZADAXIN for the treatment of HCV in
Europe or the United States or for the treatment of HCV in other countries, or that we will achieve significant levels of sales. If we are unable to do so, our business will be harmed.

In December 2006, we and Sigma-Tau announced positive interim survival data from a phase 2 trial in Europe evaluating ZADAXIN in combination with
dacarbazine (DTIC) chemotherapy with and without low-dose interferon alpha to treat patients with stage IV, the most advanced and imminently fatal form of, malignant melanoma. Data from the first four arms of this ongoing five-arm trial showed that
the addition of 3.2 mg of ZADAXIN to standard DTIC chemotherapy increased the median survival to 10.2 months. These data compare favorably to the median survival of 6.6 months for patients treated with DTIC chemotherapy with interferon alpha. DTIC
is the only approved therapy in the United States for the treatment of advanced melanoma.

In September 2006, we reported overall tumor
response data that showed a distinct ZADAXIN dose-dependent response in combination with DTIC chemotherapy at the 1.6 mg ZADAXIN dose with low-dose interferon and at the 3.2 mg ZADAXIN doses both with and without low-dose interferon alpha.
Preliminary data showed that a lower percentage of evaluated patients in the 6.4 mg ZADAXIN dose with low-dose interferon arm achieved either complete or partial tumor response compared to the evaluated patients in either of the 3.2 mg ZADAXN arms.
Preliminary survival data on the 6.4 mg ZADAXIN arm is expected to be available in late 2007 due to the later initiation of this treatment arm. The trials primary endpoint is overall tumor response.

With the final data from this trial, we, in collaboration with Sigma-Tau, intend to approach the FDA and the EMEA to share these data and to discuss our
plans to initiate phase 3 registration trials. We cannot assure you that the final results of the phase 2 clinical trial will be favorable or support the design and initiation of phase 3 clinical trials, that we or Sigma-Tau will receive approval
for the indication or that we will achieve significant levels of sales. If we are unable to do so, our business will be harmed.

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

In December 2005 and June 2006, we announced results from our two U.S. phase 3 HCV clinical trials. These clinical trials did not demonstrate that the combination of ZADAXIN and pegylated interferon alpha provides a statistically
significant clinical benefit when compared to the use of pegylated interferon alpha alone in non-responder patients. These results may have made Sigma-Taus efforts to fully recruit patients for the currently ongoing ZADAXIN phase 3 HCV triple
therapy combination trial more difficult and take longer than planned. Enrollment of the 553 patients in this trial was completed in December 2006. In addition, HCV clinical trials are lengthy. The trials require patient treatment for 48 weeks and a
follow-up observation period for an additional 24 weeks. Patient dropouts are expected and each of our two phase 3 HCV clinical trials in the United States enrolled more than the planned number of 500 patients, but even then dropouts were higher
than anticipated. A patient who drops out at any point in the 72 weeks of the trial is considered a failure to respond in results of the clinical trial. In general, the fewer patients who complete each trial, the higher the positive
response rate for the group of remaining ZADAXIN treated patients in such trial needs to be in order to demonstrate statistical significance. Therefore, a higher than anticipated dropout rate lowers the chances of proving statistical significance
which could adversely affect clinical trial results. Dropouts did not prevent us from completing our U.S. phase 3 HCV clinical trials. However, dropouts may affect the final results of the European phase 3 HCV triple therapy combination trial.

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

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



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

Our ability to execute on our business strategy has been largely dependent on our
ability to obtain regulatory approval for the use of ZADAXIN, particularly in the United States and Europe. The regulatory approval processes in the United States and Europe are demanding and typically require 12 months or more in the United States
and 18 months or more in Europe from the date of submission of a New Drug Application (NDA). We have committed significant resources, including capital and time, to develop ZADAXIN, and intend to continue to do so, including the initiation and
execution of additional clinical trials, with the goal of obtaining such approvals. If we do not obtain these approvals, we will be unable to achieve any substantial increase in our revenue from ZADAXIN and our ZADAXIN sales in other jurisdictions
could decline.

All new drugs, including our products, which have been developed or are under development, are subject to extensive and
rigorous regulation by the FDA and comparable agencies in state and local jurisdictions and in foreign countries. These regulations govern, among other things, the development, testing, manufacturing, labeling, storage, pre-market approval,
importation, advertising, promotion, sale and distribution of our products. These regulations may change from time to time and new regulations may be adopted.

Obtaining regulatory approval in developing countries also is time-consuming and expensive. In some countries where we are contemplating marketing and selling ZADAXIN, the regulatory approval process often relies on
prior approvals obtained in the United States or in Europe. Without such prior approvals, our ability to obtain regulatory approvals for ZADAXIN in these countries may be delayed or prevented. In addition, to secure these regulatory approvals, we
will need, among other things, to demonstrate favorable results from additional clinical trials of ZADAXIN. Even if we are able to complete the clinical trials we have sponsored or are planning in a timely or cost-effective manner, these trials may
not fulfill the applicable regulatory approval criteria, in which case we will not be able to obtain regulatory approval in these countries, and we have experienced such difficulties and have been unable to meet such regulatory filing requirements.
We cannot assure you that we will ultimately obtain regulatory approvals in our targeted countries in a timely and cost-effective manner or at all. If we fail to obtain the required regulatory approvals to develop, market and sell ZADAXIN in
countries where we currently do not have such rights, our revenues will be limited, and our future prospects will be dependent upon our ability to in-license or to bring earlier stage products to market, any of which will require substantial
financial expenditures.

Satisfaction of government regulations may take several years and the time needed to satisfy them varies
substantially based on the type, complexity and novelty of the pharmaceutical product. As a result, government regulation may cause us to delay the introduction of, or prevent us from marketing, our existing or potential products for a considerable
period of time and impose costly procedures upon our activities. Even if we obtain regulatory approval for our products, such approval may impose limitations on the indicated uses for which our products may be marketed. Unsatisfactory data resulting
from clinical trials may also adversely affect our ability to market and sell ZADAXIN in markets where it is approved for sale.

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

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

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

All of our products, including ZADAXIN, the only one for which we have sales revenue, have been in-licensed by us. We do not conduct product discovery
and typically have in-licensed our products from third parties who have discovered the products and conducted at least some pre-clinical research on them. The competition for attractive products to in-license is



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intense, and we cannot assure you that we will be able to in-license products in the future on acceptable terms, if at all. In addition, we face the risks of
developing the in-licensed products and the risks and uncertainties of conducting clinical trials and seeking regulatory approval to market the in-licensed products, all of which require years of effort and the commitment of significant financial
resources. Our ability to grow our business requires the development and commercialization of additional products. If we are unable to in-license products on acceptable terms and successfully develop and commercialize them, our business could be
harmed.

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

We are highly dependent upon our ability to attract and retain qualified personnel because
of the specialized, scientific and worldwide nature of our business. There is intense competition for qualified management, scientific, clinical, regulatory, and sales and marketing personnel in the pharmaceutical industry, and we may not be able to
attract and retain the qualified personnel we need to grow and develop our business globally. In particular, our efforts to in-license or acquire, develop and commercialize product candidates for China require the addition of clinical and regulatory
personnel and the capabilities to expand our sales and marketing operation. In addition, we assign numerous key responsibilities to a limited number of individuals, and we would experience difficulty in finding immediate replacements for any of
them. If we were unable to attract and retain qualified personnel as needed or promptly replace those employees who are critical to our product development and commercialization, the development and commercialization of our products would be
adversely affected. At this time, we do not maintain key person life insurance on any of our personnel.

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

China uses a tiered method to import and distribute finished pharmaceutical products. At each port of entry, and prior to moving the product forward to the distributors, government-licensed importing agents must
process and evaluate each shipment to determine whether such shipment satisfies Chinas quality assurance requirements. In order to efficiently manage this process, the importing agents typically place large, and therefore relatively few,
orders within any six month period. Therefore, our sales to an importing agent can vary substantially from quarter to quarter depending on the size and timing of the orders, which has in the past and may in the future cause our quarterly results to
fluctuate. We rely on four to six importers, in any given quarter, to supply substantially all of our product in China. Because we use a small number of importing agents in China, our receivables from any one importing agent are material, and if we
were unable to collect receivables from any importer, our business and cash-flow would be adversely affected.

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

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

If we fail to protect our products, technologies and trade secrets, we may not be able to successfully use, manufacture, market or sell our products, or we may fail
to advance or maintain our competitive position, and we have limited intellectual property protection in China.

Our success depends
significantly on our ability to obtain and maintain meaningful patent protection for our products and technologies and to preserve our trade secrets. Our pending patent applications may not result in the issuance of patents in the future. Our
patents or patent applications may not have priority over others applications. Our existing patents and additional patents that may be issued, if any, may not provide a competitive advantage to us or may be invalidated or circumvented by our
competitors. Others may independently develop similar products or design around patents issued or licensed to us. Patents issued to, or patent applications filed by, other companies could harm our ability to use, manufacture, market or sell our
products or maintain our competitive position with respect to our products. Although many of our patents relating to ZADAXIN have expired, including composition of matter patents, we have rights to other patents and patent applications relating to
ZADAXIN and ZADAXIN analogues, including method of use patents with respect to the use of ZADAXIN for certain indications. Additionally, we have received Orphan Drug designation in the United States for thymosin alpha 1 (thymalfasin), the chemical
composition of ZADAXIN, for the treatment of stage IIb through stage IV malignant melanoma. If other parties develop generic forms of ZADAXIN for other indications, including conducting clinical trials for such indications, our patents and other
rights might not be sufficient to prohibit them from marketing and selling such generic forms of ZADAXIN. If other parties develop analogues or derivatives of ZADAXIN, our patents and other rights might not be sufficient to prohibit them from
marketing these analogues or derivatives.



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Pharmaceutical products are either not patentable or have only recently become patentable in some of the
countries in which we market or may market ZADAXIN. We do not have patent protection for ZADAXIN in China, our largest market. Other companies market generic thymosin alpha 1 in China, sometimes in violation of our trademark or other rights which we
defend by informing physicians and hospitals of the practice as well as through the limited legal recourse. Past enforcement of intellectual property rights in many of these countries, including China in particular, has been limited or non-existent.
Future enforcement of patents and proprietary rights in many other countries will likely be problematic or unpredictable. Moreover, the issuance of a patent in one country does not assure the issuance of a similar patent in another country. Claim
interpretation and infringement laws vary by nation, so the extent of any patent protection is uncertain and may vary in different jurisdictions.

If we
are involved in intellectual property claims and litigation, the proceedings may divert our resources and subject us to significant liability for damages, substantial litigation expense and the loss of our proprietary rights.

Our commercial success depends in part on us not infringing valid, enforceable patents or proprietary rights of third parties, and not breaching any
licenses that may relate to our technologies and products. We are aware of a third-party patent that may relate to our products and may cover a method of action used by ZADAXIN. We cannot assure you that our mechanism of action does not infringe on
their claim. In addition, we may not be aware of all patents or patent applications that may impact our ability to make, use or sell any of our potential products. For example, U.S. patent applications may be kept confidential for 12 or more months
while pending in the Patent and Trademark Office, and patent applications filed in foreign countries are often first published six months or more after filing. It is possible that we may unintentionally infringe these patents or other patents or
proprietary rights of third parties. We may in the future receive notices claiming infringement from third parties as well as invitations to take licenses under third-party patents. Any legal action against us or our collaborative partners claiming
damages and seeking to enjoin commercial activities relating to our products and processes affected by third-party rights may require us or our collaborative partners to obtain licenses in order to continue to manufacture or market the affected
products and processes. Our efforts to defend against any of these claims, regardless of merit, would require us to devote resources and attention that could have been directed to our operations and growth plans. In addition, these actions may
subject us to potential liability for damages. We or our collaborative partners may not prevail in a patent action and any license required under a patent may not be made available on commercially acceptable terms, or at all. Any conflicts resulting
from the patent rights of others could significantly reduce the coverage of our patents and limit our ability to obtain meaningful patent protection.

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

We may need to initiate litigation, which could be time-consuming and expensive, to enforce our proprietary rights or to determine the scope and validity of others rights. If litigation results, a court may find
our patents or those of our licensors invalid or may find that we have infringed on a competitors rights. If any of our competitors have filed patent applications in the United States which claim technology we also have invented, the Patent
and Trademark Office may require us to participate in expensive interference proceedings to determine who has the right to a patent for the technology. These actions may subject us to potential liability for damages. We or our collaborative partners
may not prevail in a patent action and any license required under a patent may not be made available on commercially acceptable terms, or at all.

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

To be successful, our products must be manufactured in commercial quantities, in compliance with stringent regulatory requirements and at an acceptable cost. Typically we have at any time only one supplier for each phase of manufacturing of
our product. At present, we are in the process of negotiating a new long-term supply agreement with our sole supplier of bulk product for the manufacture of ZADAXIN for our current markets including China. Failure to secure such agreement, or on
favorable terms, would harm our business. The manufacturing facilities of our suppliers are subject to inspection by regulatory authorities to ensure their compliance with regulatory requirements and standards. Manufacturing interruptions or failure
to comply with regulatory requirements could significantly delay clinical development of potential products and reduce third-party or clinical researcher interest and support of proposed trials. These interruptions or failures could also impede
commercialization of our products, including sales of ZADAXIN in approved markets, and impair our competitive position. Any of these developments would harm our business.



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We are in the process of registering a new supplier for ZADAXIN with regulatory agencies in markets where
ZADAXIN is approved for sale. We have received such registration in China. This process, quality assurance and other steps could cause delays or interruptions of supply in certain other markets. In some countries, a manufacturing change may require
additional regulatory approvals that may delay ZADAXIN marketing approvals in new markets. In addition, manufacturing, supply and quality control problems may arise as we, either alone or with subcontractors, attempt to scale-up our manufacturing
procedures. We may not be able to scale-up in a timely manner or at a commercially reasonable cost, either of which could cause delays or pose a threat to the ultimate commercialization of our products and harm our business.

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

While we have limited sales of ZADAXIN in certain markets, we do not yet have regulatory approval for ZADAXIN
for the key markets of the United States, Europe and Japan and, in this respect, ZADAXIN is still being developed. We recently acquired the rights to distribute the DC Bead in China, but we must receive regulatory approval before we can
commercialize this product. Our only other potential product presently is SCV-07, and it is in an earlier stage of development than ZADAXIN. We may consider and undertake various strategies to expand our portfolio of potential products, including
acquiring product candidate rights through licenses or other relationships, or through other strategic relationships including acquisitions of other companies that may have proprietary rights to other development candidates or the capability to
discover new drug candidates. Such transactions could require a substantial amount of our financial resources, or, if equity is involved, may result in substantial dilution to current stockholders. Strategic transactions also require substantial
management time and effort and are subject to various risks that could adversely affect us or our financial results.

To fully develop our
products, we will need to commit substantial resources to extensive research, development, pre-clinical testing, clinical trials, manufacturing scale-up and regulatory approval prior to the potential products being ready for sale. We cannot assure
that our efforts will produce commercially viable products. We face significant technological risks inherent in developing these products. We may also abandon some or all of our proposed products before they become commercially viable. For the DC
Bead, we are obligated to pay half of the costs in our efforts to obtain regulatory approval in China. If any of our products, even if developed and approved, cannot be successfully commercialized in a timely manner, our business will be harmed and
the price of our stock may decline.

We have not yet sold any product other than ZADAXIN and our sales have been primarily in a single
country, China. Our future revenue growth depends to a great extent on increased market acceptance and commercialization of ZADAXIN in additional countries, particularly in the United States, Europe and Japan. If we fail to successfully market
ZADAXIN, or if we cannot commercialize this drug in the United States and other additional markets, our revenue and operating results will be limited. If unexpected and serious adverse events are reported, or if expected efficacy results are not
achieved, it would have a material adverse effect on our business. Our future revenue will also depend in part on our ability to develop other commercially viable and accepted products, such as the DC Bead. Market acceptance of our products will
depend on many factors, including our ability to convince prospective customers to use our products as an alternative to other treatments and therapies and to convince prospective strategic partners to market our products effectively and to
manufacture our products in sufficient quantities with acceptable quality and at an acceptable cost. In addition, doctors must opt to use treatments involving our products. If doctors elect to use a different course of treatment, demand for our drug
products would be reduced. Failure to do any of the above will lead to an unfavorable outcome on the results of our operations.

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

We believe our existing resources will
be sufficient to fund our operations, including anticipated clinical trials, through 2008. However, we cannot assure you that such funds will be sufficient, or that we will attain profitable operations in that period or in future periods. In
addition to development plans for ZADAXIN, we intend to develop other products and we may need additional funds in the future to support such development and to support future growth and achieve profitability. If we need to raise additional funds in
the future and such funds are not available on reasonable terms, if at all, our commercialization efforts may be impeded, our revenues may be limited and our operating results may suffer.

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

We reported net loss of $624,000 for the three months ended March 31, 2007. In addition, we have experienced significant operating losses in the
past, and as of March 31, 2007, we had an accumulated deficit of approximately $159 million. We expect our operating expenses to increase over the next several years as we plan to dedicate substantially all of our resources to expanding our
development, testing and marketing capabilities, and these losses may increase if we cannot increase or sustain revenue. As a result, we may not achieve profitability in the future.



23



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

Outside of our current principal market of China, we have limited sales, marketing
and distribution capabilities, and we anticipate that we may be relying on third-party collaborators to sell, market and distribute our products for the foreseeable future particularly in the major pharmaceutical markets of the United States, Europe
and Japan should we receive regulatory approval to market our products in those territories. If our arrangements with these third parties are not successful, or if we are unable to enter into additional third-party arrangements, we may need to
substantially expand our sales, marketing and distribution force. Our efforts to expand may not succeed, or we may lack sufficient resources to expand in a timely manner, either of which will harm our future operating results. Moreover, if we are
able to further expand our sales, marketing and distribution capabilities, we will begin competing with other companies that have experienced and well-funded operations. If we cannot successfully compete with these larger companies, our revenues may
not grow and our business may suffer.

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

We depend in part on our distributors and business partners to develop or promote our drugs, and if they are not successful in their efforts or fail to do so, our business will suffer. For example, Sigma-Tau is responsible for the
development and marketing of ZADAXIN in most of Europe and Biocompatibles is primarily responsible for the efforts to obtain regulatory approval in China for the DC Bead. We generally do not have control over the amount and timing of resources that
our business partners devote to our collaborative efforts, 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 or sale of our products could be limited or delayed, which could hurt our business and cause our stock price to decline. In addition, our relationships with these companies may not be successful. Disputes may arise
with our collaborators, including disputes over ownership rights to intellectual property, know-how or technologies developed with our collaborators. We may not be able to negotiate similar additional arrangements in the future to develop and
commercialize ZADAXIN or other products.

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

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

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

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

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

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

We do not
currently maintain hazardous materials at our facilities. While we outsource our research and development programs involving the controlled use of biohazardous materials, if in the future we conduct these programs ourselves, we might be required to
incur significant cost to comply with environmental laws and regulations. Further, in the event of an accident, we would be liable for any damages that result, and the liability could exceed our resources.

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

Competition in the biopharmaceutical industry is intense, and we expect that competition will increase. Our success depends on our ability to compete in
this industry, but we cannot assure you that we will be able to successfully compete with



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our competitors. Increased competitive pressure could lead to intensified price-based competition resulting in lower prices and margins, which would hurt our
operating results. We cannot assure you that we will compete successfully against our competitors or that our competitors, or potential competitors, will not develop drugs or other treatments for our targeted indications that will be superior to
ours.

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

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



| |  |  | progress and results of clinical trials involving ZADAXIN and SCV-07;
| | - |  | ---------------------------------------------------------------------



| |  |  | progress of ZADAXIN through the regulatory process, especially regulatory actions and the adequacy of clinical data and documentation for regulatory purposes in the
United States, Europe and Japan;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



| |  |  | government regulatory action affecting our drug products or our competitors drug products in both the United States and foreign countries;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | developments or disputes concerning patent or proprietary rights;
| | - |  | -----------------------------------------------------------------



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



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



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



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



| |  |  | general stock market conditions and fluctuations for the emerging growth and biopharmaceutical market sectors;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | economic conditions in the United States or abroad; and
| | - |  | -------------------------------------------------------



| |  |  | broad financial market fluctuations in the United States, Europe or Asia.
| | - |  | -------------------------------------------------------------------------

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

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

Our collaborative partner Sigma-Tau and affiliates hold a substantial amount of our stock. The stock is freely
tradeable and Sigma-Tau is not under any obligation to SciClone which would prevent it from selling some or all of the stock it holds.

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

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

Our board of directors has approved an amendment to our trading policy
that permits officers and directors to enter into trading plans that comply with the requirements of Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. Rule 10b5-1 allows corporate officers and directors to adopt written, pre-arranged
stock trading plans when they do not have material, non-public information. Using these plans, officers and directors can gradually diversify their investment portfolios, can spread stock trades out over an extended period of time to reduce any
market impact and can avoid concerns about initiating stock transactions at a time when they might be in possession of material, non-public information. As of March 31, 2007, one director has adopted such a plan, and other directors or officers
may do so in the future. We expect future sales by officers and directors either under 10b5-1 plans or otherwise as a result of their personal financial planning. We do not believe the volume of such sales would affect our trading price; however,
the market could react negatively to sales by our officers and directors, which could affect the trading price of our stock.



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

Certain anti-takeover provisions of Delaware law and our charter documents as
currently in effect may make a change in control of our company more difficult, even if a change in control would be beneficial to our stockholders. Our charter documents contain certain anti-takeover provisions, including provisions in our
certificate of incorporation providing that stockholders may not cumulate votes, stockholders meetings may be called by stockholders only if they hold 25% or more of our common stock and provisions in our bylaws providing that the stockholders
may not take action by written consent. Additionally, our board of directors has the authority to issue 10 million shares of preferred stock and to determine the terms of those shares of stock without any further action by the stockholders. The
rights of holders of our common stock are subject to the rights of the holders of any preferred stock that may be issued. The issuance of preferred stock could make it more difficult for a third-party to acquire a majority of our outstanding voting
stock. Delaware law also prohibits corporations from engaging in a business combination with any holders of 15% or more of their capital stock until the holder has held the stock for three years unless, among other possibilities, the board of
directors approves the transaction. Our board of directors may use these provisions to prevent changes in the management and control of our company. Also, on December 18, 2006, our Board of Directors declared a dividend distribution of one
Preferred Stock Purchase Right (collectively, the Rights) for each outstanding share of our Common Stock, each Right which entitles the registered holder to purchase from the Company one one-thousandth of a share of the Companys
Series D Preferred Stock, $0.001 par value, at a price of $25.00 pursuant to a Rights Agreement dated as of December 19, 2006, between the Company and Mellon Investor Services LLC. The Rights have certain anti-takeover effects. Under certain
circumstances the Rights could cause substantial dilution to a person or group who attempts to acquire the Company on terms not approved by our Board of Directors. Although the Rights should not interfere with an acquisition of the Company approved
by the Board, the Rights may have the effect of delaying and perhaps improving the terms of an acquisition for our stockholders, or deterring an acquisition of the Company. Also, under applicable Delaware law, our board of directors may adopt
additional anti-takeover measures in the future.

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

Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, our business and
operating results could be harmed. We have in the past discovered, and may in the future discover, areas of our internal controls that need improvement. Any failure to implement and maintain controls over our financial reporting, or difficulties
encountered in the implementation of improvements in our controls, could cause us to fail to meet our reporting obligations. Any failure to improve our internal controls or to address identified weaknesses in the future, if they were to occur, could
also cause investors to lose confidence in our reported financial information, which could have a negative impact on the trading price of our stock.

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

Future changes in financial
accounting standards may cause adverse, unexpected fluctuations in the timing of the recognition of revenues or expenses and may affect our financial position or results of operations. New pronouncements and varying interpretations of pronouncements
have occurred with frequency and may occur in the future and this may lead to changes in our accounting policies in the future. One such new pronouncement issued in December 2004 by the Financial Accounting Standards Board (FASB) is FASB Statement
No. 123 (revised 2004), Share-Based Payment (FAS 123R). FAS 123R requires share-based payments to employees and directors, including grants of stock options, to be recognized in the statement of operations based on their fair
values. We adopted FAS 123R on January 1, 2006. Accordingly, the adoption of FAS 123Rs fair value method is having a significant impact on our results of operations, although it has had no impact on our cash or overall financial position.
For the three months ended March 31, 2007, we recognized $588,000 of stock-based compensation expense relating to the adoption of FAS 123R.

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

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



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##### Table of Contents

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

Substantially all of our product sales are denominated in U.S. dollars. Fluctuation in the U.S. dollar exchange rate with local
currency directly affects the customers cost for our product. In particular, a stronger U.S. dollar vis-à-vis the local currency would tend to have an adverse effect on sales and potentially on collection of accounts receivable. The
Chinese currency is no longer pegged to the U.S. dollar and, we are subject to currency exchange rate fluctuations as a result of expenses incurred by our foreign operations. In particular, one of our supply arrangements under which we purchase
finished products is denominated in euros and costs of our operations in China are paid in local currency. Consequently, changes in exchange rates could unpredictably and adversely affect our operating results and could result in exchange losses. To
date, we have not hedged against the risks associated with fluctuations in exchange rates and, therefore, exchange rate fluctuations could have a material adverse impact on our future operating results and stock price.



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

There have been no material changes to our exposures related to market risk as stated in our Annual Report on Form 10-K for the year ended December 31, 2006.



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

Evaluation of Disclosure Controls and
Procedures

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

Changes in Internal Controls

There has been no significant change in our internal control over
financial reporting that occurred during the first quarter of 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

A
control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues, if any, within an organization have been detected. We continue to improve and refine our internal controls and our compliance with existing controls is an ongoing process.



27



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##### Table of Contents

PART II. OTHER INFORMATION



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

None



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

The only material changes in our risk
factors from those previously disclosed in our Form 10-K for the year ended December 31, 2006, were as follows:



| |  |  | We modified our risk factor regarding clinical trial results, the first paragraph of which now reads in full as follows:
| | - |  | ------------------------------------------------------------------------------------------------------------------------

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

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



| |  |  | We modified our risk factor regarding our reliance on third parties, which now reads in full as follows:
| | - |  | --------------------------------------------------------------------------------------------------------

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

We rely on third parties, who are subject to
regulatory oversight, to supply our clinical and commercial products. The manufacturing of the raw material and the processing to finished product of ZADAXIN is done in few batches in any given three-month period. Manufacturing interruptions or
failure or delay of product to meet quality assurance specifications could adversely affect shipments and recognition of sales of ZADAXIN in any period and impair our relationships with customers and our competitive position. During 2006, we
experienced failures and lower yields on production runs from our sole supplier of bulk product for the manufacture of ZADAXIN for our current markets including China and our current ZADAXIN clinical trials. We have taken and are taking various
actions to ensure that our sales are not interrupted; to date during 2007, our planned inventory levels of finished product have been met by additional production runs and our sales of ZADAXIN and supply of clinical trial product have been
unaffected. However, the production run failures and the related costs incurred in additional production runs are circumstances that have not been economical for our supplier. Our supplier recently has remedied the production problems and has been
able to produce our product at targeted yields and costs. Although there have been production problems currently we have inventory for the next two quarters. We now believe that the recent production problems have been remedied, however if we suffer
future production problems they may cause future interruptions in product supply that may harm our business. In addition, if sales of ZADAXIN were to increase dramatically, our third-party suppliers may not be able to supply ZADAXIN quickly enough,
which could limit our ability to satisfy increased demand or could adversely affect the ability of these suppliers to provide products for our clinical trials. In addition, Biocompatibles is the sole supplier of the DC Bead. If unanticipated
deficiencies in these suppliers occur, we could experience delays in our ability to fulfill regulatory requirements which may adversely affect our sales or prospects for regulatory marketing approvals. We have an exclusive supplier of pegylated
interferon alpha for our European phase 3 HCV clinical trial, who also supplied all of the pegylated interferon used in our U.S. phase 3 HCV clinical trials. Any recall of the manufacturing lots or similar action regarding the pegylated interferon
alpha used in our clinical trials could detract from the integrity of the trial data and its potential use in future regulatory filings.



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

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



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We reported net loss of $624,000 for the three months ended March 31, 2007. In addition, we have
experienced significant operating losses in the past, and as of March 31, 2007, we had an accumulated deficit of approximately $159 million. We expect our operating expenses to increase over the next several years as we plan to dedicate
substantially all of our resources to expanding our development, testing and marketing capabilities, and these losses may increase if we cannot increase or sustain revenue. As a result, we may not achieve profitability in the future.



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

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

Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, our business and operating results could be harmed. We have in the past discovered, and may in the
future discover, areas of our internal controls that need improvement. Any failure to implement and maintain controls over our financial reporting, or difficulties encountered in the implementation of improvements in our controls, could cause us to
fail to meet our reporting obligations. Any failure to improve our internal controls or to address identified weaknesses in the future, if they were to occur, could also cause investors to lose confidence in our reported financial information, which
could have a negative impact on the trading price of our stock.



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



|              |  |                                                                                                                                                                                                                                                                                                                                                             
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                 
|3(i).1(1)     |  | Amended and Restated Certificate of Incorporation.                                                                                                                                                                                                                                                                                                          
|              | 
|3(ii).1(1)    |  | Bylaws.                                                                                                                                                                                                                                                                                                                                                     
|              | 
|3(i).2(12)    |  | Certificate of Designation, Preferences and Rights of the Terms of the Series D Preferred Stock, as filed by SciClone Pharmaceuticals, Inc. with the Secretary of State of the State of Delaware
as of December 22, 2006.                                                                                                                                   
|              | 
|4.1(2)        |  | Rights Agreement dated as of July 25, 1997 between the Registrant and Chase Mellon Shareholder Services, LLC.                                                                                                                                                                                                                                               
|              | 
|4.2(1)        |  | First Amendment to Rights Agreement dated as of July 17, 2003 between the Registrant and Mellon Investor Services LLC.                                                                                                                                                                                                                                      
|              | 
|4.3(3)*       |  | 6% Convertible Note dated as of December 7, 2000 by the Registrant in favor of UBS AG, London Branch.                                                                                                                                                                                                                                                       
|              | 
|4.4(3)*       |  | Option Agreement dated as of October 26, 2000 by and between the Registrant and UBS AG, London Branch.                                                                                                                                                                                                                                                      
|              | 
|4.5(3)*       |  | Amendment No. 1 to Option Agreement dated as of December 19, 2000 by and between the Registrant and UBS AG, London Branch.                                                                                                                                                                                                                                  
|              | 
|4.6(4)*       |  | 6% Convertible Note dated as of March 21, 2001 by the Company in favor of UBS AG, London Branch.                                                                                                                                                                                                                                                            
|              | 
|4.7(4)*       |  | Option Agreement dated as of February 16, 2001 by and between the Company and UBS AG, London Branch.                                                                                                                                                                                                                                                        
|              | 
|4.8(4)*       |  | Amendment No.1 to Option Agreement dated as of March 21, 2001 by and between the Company and UBS AG, London Branch.                                                                                                                                                                                                                                         
|              | 
|4.9(13)       |  | Rights Agreement, effective as of December 19, 2006, between the Company and Mellon Investor Services LLC, as rights agent (including as Exhibit A the form of Certificate of Designation,
Preferences and Rights of the Services D Preferred Stock, as Exhibit B the form of Right Certificate, and as Exhibit C the Summary of Terms of Rights Agreement).
|              | 
|10.1(5)       |  | Employment Agreement between SciClone Pharmaceuticals, Inc. and Ira D. Lawrence, M.D. dated as of April 25, 2005.                                                                                                                                                                                                                                           
|              | 
|10.2(5)       |  | Change in Control Agreement between SciClone Pharmaceuticals, Inc. and Ira D. Lawrence, M.D. dated as of April 25, 2005.                                                                                                                                                                                                                                    
|              | 
|10.3(5)       |  | Indemnity Agreement between SciClone Pharmaceuticals, Inc. and Ira D. Lawrence, M.D. dated as of April 25, 2005.                                                                                                                                                                                                                                            



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##### Table of Contents

|          |  |                                                                                                                                                            
|--------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|          | 
|10.4(6)   |  | Amendment of Stock Option Agreement between SciClone Pharmaceuticals, Inc. and Jere E. Goyan, Ph.D. dated as ofMay 29, 2005.                               
|          | 
|10.5(6)   |  | Amendment of Stock Option Agreement between SciClone Pharmaceuticals, Inc. and Edwin C. Cadman, M.D. dated as of May 29, 2005.                             
|          | 
|10.6(7)   |  | SciClone Pharmaceuticals, Inc. 2005 Equity Incentive Plan, as effective as of June 7, 2005.                                                                
|          | 
|10.7(7)   |  | SciClone Pharmaceuticals, Inc. 2004 Outside Directors Stock Option Plan, as amended June 7, 2005.                                                          
|          | 
|10.8(8)   |  | Offer letter dated as of May 21, 2001 between SciClone Pharmaceutical International Ltd. and Hans P. Schmid.                                               
|          | 
|10.9(8)   |  | Amendment to Offer Letter dated as of February 24, 2006 between SciClone Pharmaceutical International Ltd. and Hans P. Schmid.                             
|          | 
|10.10(9)  |  | Consulting Agreement between SciClone Pharmaceuticals, Inc. and Friedhelm Blobel, Ph.D. dated as of April 23, 2006.                                        
|          | 
|10.11(9)  |  | Employment Agreement between SciClone Pharmaceuticals, Inc. and Friedhelm Blobel, Ph.D. dated as of April 23, 2006 and effective as of June 2, 2006.       
|          | 
|10.12(9)  |  | Change in Control Agreement between SciClone Pharmaceuticals, Inc. and Friedhelm Blobel, Ph.D. dated as of April 23, 2006 and effective as of June 2, 2006.
|          | 
|10.13(9)  |  | Agreement Regarding Consulting, Resignation and General Release of Claims between Registrant and Ira D. Lawrence dated as of April 23, 2006.               
|          | 
|10.14(10) |  | Contractor Services Agreement between Registrant and Ira D. Lawrence dated as of June 2, 2006.                                                             
|          | 
|10.15(10) |  | Indemnity Agreement between Registrant and Friedhelm Blobel, Ph.D. dated as of June 2, 2006.                                                               
|          | 
|10.16(11) |  | Confidential Separation Agreement and Release of Claims between SciClone Pharmaceuticals, Inc. and Alfred Rudolph, M.D., executed as of November 20, 2006. 
|          | 
|31.1(14)  |  | Rule 13a-14(a) Certification of Chief Executive Officer.                                                                                                   
|          | 
|31.2(14)  |  | Rule 13a-14(a) Certification of Chief Financial Officer.                                                                                                   
|          | 
|32.1(14)  |  | Section 1350 Certification of Chief Executive Officer.                                                                                                     
|          | 
|32.2(14)  |  | Section 1350 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 Current Report on Form 8-K filed on July 28, 2003.
|--- | -----------------------------------------------------------------------------------------------

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

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

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

|(5) | Incorporated by reference from the Companys Current Report on Form 8-K filed on April 29, 2005.
|--- | ------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference from the Companys Current Report on Form 8-K filed on June 1, 2005.
|--- | ----------------------------------------------------------------------------------------------

|(7) | Incorporated by reference from the Companys Current Report on Form 8-K filed on June 17, 2005.
|--- | -----------------------------------------------------------------------------------------------

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

|(9) | Incorporated by reference from the Companys Current Report on Form 8-K filed on April 25, 2006.
|--- | ------------------------------------------------------------------------------------------------

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

|(11) | Incorporated by reference from the Companys Current Report on Form 8-K filed on November 27, 2006.
|---- | ---------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference from the Companys Current Report on Form 8-K filed on December 28, 2006.
|---- | ---------------------------------------------------------------------------------------------------

|(13) | Incorporated by reference from the Companys Current Report on Form 8-K filed on December 22, 2006.
|---- | ---------------------------------------------------------------------------------------------------

|(14) | Filed herewith.
|---- | ---------------



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SIGNATURES

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



|                  |  |                                                     
|----------------- |  | ----------------------------------------------------
|                  |  | SCICLONE PHARMACEUTICALS, INC.                      
|                  |  | (Registrant)                                        
|                  | 
|Date: May 8, 2007 |  | /s/ Richard A. Waldron                              
|                  |  | Richard A. Waldron                                  
|                  |  | Executive Vice President and Chief Financial Officer



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##### Table of Contents

INDEX TO EXHIBITS



|               |  |                                                                                                                                                                                                                                                                                                                                                            
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibit                                                                                                                                                                                                                                                                                                                                                    
|3(i).1(1)      |  | Amended and Restated Certificate of Incorporation                                                                                                                                                                                                                                                                                                          
|               | 
|3(ii).1(1)     |  | Bylaws                                                                                                                                                                                                                                                                                                                                                     
|               | 
|3(i).2(12)     |  | Certificate of Designation, Preferences and Rights of the Terms of the Series D Preferred Stock, as filed by SciClone Pharmaceuticals, Inc. with the Secretary of State of the State of Delaware
as of December 22, 2006                                                                                                                                   
|               | 
|4.1(2)         |  | Rights Agreement dated as of July 25, 1997 between the Registrant and Chase Mellon Shareholder Services, LLC.                                                                                                                                                                                                                                              
|               | 
|4.2(1)         |  | First Amendment to Rights Agreement dated as of July 17, 2003 between the Registrant and Mellon Investor Services LLC.                                                                                                                                                                                                                                     
|               | 
|4.3(3)*        |  | 6% Convertible Note dated as of December 7, 2000 by the Registrant in favor of UBS AG, London Branch                                                                                                                                                                                                                                                       
|               | 
|4.4(3)*        |  | Option Agreement dated as of October 26, 2000 by and between the Registrant and UBS AG, London Branch                                                                                                                                                                                                                                                      
|               | 
|4.5(3)*        |  | Amendment No. 1 to Option Agreement dated as of December 19, 2000 by and between the Registrant and UBS AG, London Branch                                                                                                                                                                                                                                  
|               | 
|4.6(4)*        |  | 6% Convertible Note dated as of March 21, 2001 by the Company in favor of UBS AG, London Branch                                                                                                                                                                                                                                                            
|               | 
|4.7(4)*        |  | Option Agreement dated as of February 16, 2001 by and between the Company and UBS AG, London Branch                                                                                                                                                                                                                                                        
|               | 
|4.8(4)*        |  | Amendment No. 1 to Option Agreement dated as of March 21, 2001 by and between the Company and UBS AG, London Branch                                                                                                                                                                                                                                        
|               | 
|4.9(13)        |  | Rights Agreement, effective as of December 19, 2006, between the Company and Mellon Investor Services LLC, as rights agent (including as Exhibit A the form of Certificate of Designation,
Preferences and Rights of the Services D Preferred Stock, as Exhibit B the form of Right Certificate, and as Exhibit C the Summary of Terms of Rights Agreement)
|               | 
|10.1(5)        |  | Employment Agreement between SciClone Pharmaceuticals, Inc. and Ira D. Lawrence, M.D. dated as of April 25, 2005                                                                                                                                                                                                                                           
|               | 
|10.2(5)        |  | Change in Control Agreement between SciClone Pharmaceuticals, Inc. and Ira D. Lawrence, M.D. dated as of April 25, 2005                                                                                                                                                                                                                                    
|               | 
|10.3(5)        |  | Indemnity Agreement between SciClone Pharmaceuticals, Inc. and Ira D. Lawrence, M.D. dated as of April 25, 2005                                                                                                                                                                                                                                            
|               | 
|10.4(6)        |  | Amendment of Stock Option Agreement between SciClone Pharmaceuticals, Inc. and Jere E. Goyan, Ph.D. dated as of May 29, 2005                                                                                                                                                                                                                               
|               | 
|10.5(6)        |  | Amendment of Stock Option Agreement between SciClone Pharmaceuticals, Inc. and Edwin C. Cadman, M.D. dated as of May 29, 2005                                                                                                                                                                                                                              
|               | 
|10.6(7)        |  | SciClone Pharmaceuticals, Inc. 2005 Equity Incentive Plan, as effective as of June 7, 2005                                                                                                                                                                                                                                                                 
|               | 
|10.7(7)        |  | SciClone Pharmaceuticals, Inc. 2004 Outside Directors Stock Option Plan, as amended June 7, 2005                                                                                                                                                                                                                                                           
|               | 
|10.8(8)        |  | Offer letter dated as of May 21, 2001 between SciClone Pharmaceutical International Ltd. and Hans P. Schmid                                                                                                                                                                                                                                                
|               | 
|10.9(8)        |  | Amendment to Offer Letter dated as of February 24, 2006 between SciClone Pharmaceutical International Ltd. and Hans P. Schmid                                                                                                                                                                                                                              



32



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##### Table of Contents

|               |  |                                                                                                                                                           
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibit                                                                                                                                                   
|10.10(9)       |  | Consulting Agreement between SciClone Pharmaceuticals, Inc. and Friedhelm Blobel, Ph.D. dated as of April 23, 2006                                        
|               | 
|10.11(9)       |  | Employment Agreement between SciClone Pharmaceuticals, Inc. and Friedhelm Blobel, Ph.D. dated as of April 23, 2006 and effective as of June 2, 2006       
|               | 
|10.12(9)       |  | Change in Control Agreement between SciClone Pharmaceuticals, Inc. and Friedhelm Blobel, Ph.D. dated as of April 23, 2006 and effective as of June 2, 2006
|               | 
|10.13(9)       |  | Agreement Regarding Consulting, Resignation and General Release of Claims between Registrant and Ira D. Lawrence dated as of April 23, 2006               
|               | 
|10.14(10)      |  | Contractor Services Agreement between Registrant and Ira D. Lawrence dated as of June 2, 2006                                                             
|               | 
|10.15(10)      |  | Indemnity Agreement between Registrant and Friedhelm Blobel, Ph.D. dated as of June 2, 2006                                                               
|               | 
|10.16(11)      |  | Confidential Separation Agreement and Release of Claims between SciClone Pharmaceuticals, Inc. and Alfred Rudolph M.D., executed as of November 20, 2006  
|               | 
|31.1(14)       |  | Rule 13a-14(a) Certification of Chief Executive Officer                                                                                                   
|               | 
|31.2(14)       |  | Rule 13a-14(a) Certification of Chief Financial Officer                                                                                                   
|               | 
|32.1(14)       |  | Section 1350 Certification of Chief Executive Officer                                                                                                     
|               | 
|32.2(14)       |  | Section 1350 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 Current Report on Form 8-K filed on July 28, 2003.
|--- | -----------------------------------------------------------------------------------------------

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

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

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

|(5) | Incorporated by reference from the Companys Current Report on Form 8-K filed on April 29, 2005.
|--- | ------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference from the Companys Current Report on Form 8-K filed on June 1, 2005.
|--- | ----------------------------------------------------------------------------------------------

|(7) | Incorporated by reference from the Companys Current Report on Form 8-K filed on June 17, 2005.
|--- | -----------------------------------------------------------------------------------------------

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

|(9) | Incorporated by reference from the Companys Current Report on Form 8-K filed on April 25, 2006.
|--- | ------------------------------------------------------------------------------------------------

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

|(11) | Incorporated by reference from the Companys Current Report on Form 8-K filed on November 27, 2006.
|---- | ---------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference from the Companys Current Report on Form 8-K filed on December 28, 2006.
|---- | ---------------------------------------------------------------------------------------------------

|(13) | Incorporated by reference from the Companys Current Report on Form 8-K filed on December 22, 2006.
|---- | ---------------------------------------------------------------------------------------------------

|(14) | Filed herewith.
|---- | ---------------



33