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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 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

SCICLONE PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)



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



|                                                   |  |           
|-------------------------------------------------- |  | ----------
|950 Tower Lane, Suite 900, Foster City, California |  | 94404     
|(Address of principal executive offices)           |  | (Zip code)

(650) 358-3456

(Registrants telephone number, including area code)

Not Applicable

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

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

Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, 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 October 31, 2007, 46,114,562 shares of the
registrants Common Stock, $0.001 par value, were issued and outstanding.



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SCICLONE PHARMACEUTICALS, INC.

INDEX



|          |  |                                                                                                                        |  |         
|--------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | --------
|          |  |                                                                                                                        |  | PAGE NO.
|PART I.   |  | FINANCIAL INFORMATION                                                                                                  |  |         
|          |  |                                                                                                                       
|Item 1.   |  | Condensed Consolidated Financial Statements (Unaudited)                                                                |  |         
|          |  |                                                                                                                       
|          |  | Condensed Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006                                   |  | 3       
|          |  |                                                                                                                       
|          |  | Condensed Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2007 and 2006 |  | 4       
|          |  |                                                                                                                       
|          |  | Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 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                                  |  | 15      
|          |  |                                                                                                                       
|Item 3.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                             |  | 31      
|          |  |                                                                                                                       
|Item 4.   |  | Controls and Procedures                                                                                                |  | 31      
|          |  |                                                                                                                       
|PART II.  |  | OTHER INFORMATION                                                                                                      |  |         
|          |  |                                                                                                                       
|Item 1.   |  | Legal Proceedings                                                                                                      |  | 32      
|          |  |                                                                                                                       
|Item 1A.  |  | Risk Factors                                                                                                           |  | 32      
|          |  |                                                                                                                       
|Item 6.   |  | Exhibits                                                                                                               |  | 37      
|          | 
|Signature |  | 39                                                                                                                    



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PART I. FINANCIAL INFORMATION



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

SCICLONE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                |  |                   |              |   |                  |   |              |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------------ | - | ---------------- | - | ------------ | -
|                                                                                                                                                                                |  | September 30,2007 |              |   | December 31,2006 |  
|                                                                                                                                                                                |  | (unaudited)       |              |   |                  |  
|ASSETS                                                                                                                                                                          |  |                   |              |   |                  |   |              |  
|Current assets:                                                                                                                                                                 |  |                   |              |   |                  |   |              |  
|Cash and cash equivalents                                                                                                                                                       |  | $                 | 30,506,000   |   |                  | $ | 25,615,000   |  
|Restricted short-term investments                                                                                                                                               |  |                   | 704,000      |   |                  |   | 698,000      |  
|Other short-term investments                                                                                                                                                    |  |                   | 6,306,000    |   |                  |   | 16,279,000   |  
|Accounts receivable, net of allowance of $15,000 at September 30, 2007 and $50,000 at December 31, 2006                                                                         |  |                   | 13,719,000   |   |                  |   | 13,277,000   |  
|Inventories                                                                                                                                                                     |  |                   | 4,184,000    |   |                  |   | 3,232,000    |  
|Prepaid expenses and other current assets                                                                                                                                       |  |                   | 1,811,000    |   |                  |   | 1,865,000    |  
|                                                                                                                                                                                |  |                   |              |   |                  |   |              |  
|Total current assets                                                                                                                                                            |  |                   | 57,230,000   |   |                  |   | 60,966,000   |  
|Property and equipment, net                                                                                                                                                     |  |                   | 770,000      |   |                  |   | 297,000      |  
|Intangible assets, net                                                                                                                                                          |  |                   | 350,000      |   |                  |   | 402,000      |  
|Other assets                                                                                                                                                                    |  |                   | 1,023,000    |   |                  |   | 919,000      |  
|Restricted long-term investment                                                                                                                                                 |  |                   | 414,000      |   |                  |   |             |  
|                                                                                                                                                                                |  |                   |              |   |                  |   |              |  
|Total assets                                                                                                                                                                    |  | $                 | 59,787,000   |   |                  | $ | 62,584,000   |  
|                                                                                                                                                                                |  |                   |              |   |                  |   |              |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                            |  |                   |              |   |                  |   |              |  
|Current liabilities:                                                                                                                                                            |  |                   |              |   |                  |   |              |  
|Accounts payable                                                                                                                                                                |  | $                 | 2,442,000    |   |                  | $ | 963,000      |  
|Accrued compensation and employee benefits                                                                                                                                      |  |                   | 1,486,000    |   |                  |   | 1,813,000    |  
|Accrued professional fees                                                                                                                                                       |  |                   | 971,000      |   |                  |   | 754,000      |  
|Other accrued expenses                                                                                                                                                          |  |                   | 2,011,000    |   |                  |   | 2,487,000    |  
|Accrued clinical trials expense                                                                                                                                                 |  |                   | 2,160,000    |   |                  |   | 1,803,000    |  
|Deferred revenue                                                                                                                                                                |  |                   |             |   |                  |   | 62,000       |  
|Other current liabilities                                                                                                                                                       |  |                   | 32,000       |   |                  |   |             |  
|                                                                                                                                                                                |  |                   |              |   |                  |   |              |  
|Total current liabilities                                                                                                                                                       |  |                   | 9,102,000    |   |                  |   | 7,882,000    |  
|Long-term liabilities                                                                                                                                                           |  |                   | 340,000      |   |                  |   | 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; 46,114,562 and 46,001,249 shares issued and outstanding at September 30,
2007 and December 31, 2006, respectively |  |                   | 46,000       |   |                  |   | 46,000       |  
|Additional paid-in capital                                                                                                                                                      |  |                   | 215,070,000  |   |                  |   | 213,064,000  |  
|Accumulated other comprehensive income                                                                                                                                          |  |                   | 119,000      |   |                  |   | 78,000       |  
|Accumulated deficit                                                                                                                                                             |  |                   | (164,890,000 | ) |                  |   | (158,554,000 | )
|                                                                                                                                                                                |  |                   |              |   |                  |   |              |  
|Total stockholders equity                                                                                                                                                      |  |                   | 50,345,000   |   |                  |   | 54,634,000   |  
|                                                                                                                                                                                |  |                   |              |   |                  |   |              |  
|Total liabilities and stockholders equity                                                                                                                                      |  | $                 | 59,787,000   |   |                  | $ | 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 EndedSeptember 30, |            |   | Nine Months EndedSeptember 30, |  
|                                              |  | 2007                            |            |   | 2006                           |   |            | 2007 |  |   | 2006       |  
|Product sales                                 |  | $                               | 9,421,000  |   |                                | $ | 8,270,000  |      |  | $ | 27,020,000 |   |  | $ | 23,969,000 |  
|Contract revenue                              |  |                                 | 20,000     |   |                                |   | 26,000     |      |  |   | 20,000     |   |  |   | 170,000    |  
|                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total revenues                                |  |                                 | 9,441,000  |   |                                |   | 8,296,000  |      |  |   | 27,040,000 |   |  |   | 24,139,000 |  
|Cost of product sales                         |  |                                 | 1,663,000  |   |                                |   | 1,616,000  |      |  |   | 4,978,000  |   |  |   | 4,555,000  |  
|                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Gross margin                                  |  |                                 | 7,778,000  |   |                                |   | 6,680,000  |      |  |   | 22,062,000 |   |  |   | 19,584,000 |  
|                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Operating expenses:                           |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Research and development                      |  |                                 | 4,793,000  |   |                                |   | 3,167,000  |      |  |   | 11,928,000 |   |  |   | 10,897,000 |  
|Sales and marketing                           |  |                                 | 3,805,000  |   |                                |   | 3,011,000  |      |  |   | 9,968,000  |   |  |   | 8,686,000  |  
|General and administrative                    |  |                                 | 2,594,000  |   |                                |   | 2,283,000  |      |  |   | 7,648,000  |   |  |   | 6,964,000  |  
|                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total operating expenses                      |  |                                 | 11,192,000 |   |                                |   | 8,461,000  |      |  |   | 29,544,000 |   |  |   | 26,547,000 |  
|                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Loss from operations                          |  |                                 | (3,414,000 | ) |                                |   | (1,781,000 | )    |  |   | (7,482,000 | ) |  |   | (6,963,000 | )
|Interest and investment income                |  |                                 | 408,000    |   |                                |   | 492,000    |      |  |   | 1,280,000  |   |  |   | 1,290,000  |  
|Interest and investment expense               |  |                                 |           |   |                                |   | (9,000     | )    |  |   | (20,000    | ) |  |   | (72,000    | )
|Other income (expense) , net(1)               |  |                                 | (8,000     | ) |                                |   | (8,000     | )    |  |   | (24,000    | ) |  |   | 7,975,000  |  
|                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|(Loss) income before provision for income tax |  |                                 | (3,014,000 | ) |                                |   | (1,306,000 | )    |  |   | (6,246,000 | ) |  |   | 2,230,000  |  
|Provision for income tax                      |  |                                 | 41,000     |   |                                |   |           |      |  |   | 90,000     |   |  |   |           |  
|                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net (loss) income                             |  | $                               | (3,055,000 | ) |                                | $ | (1,306,000 | )    |  | $ | (6,336,000 | ) |  | $ | 2,230,000  |  
|                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|(Loss) earnings per share:                    |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Basic net (loss) income per share             |  | $                               | (0.07      | ) |                                | $ | (0.03      | )    |  | $ | (0.14      | ) |  | $ | 0.05       |  
|Diluted net (loss) income per share           |  | $                               | (0.07      | ) |                                | $ | (0.03      | )    |  | $ | (0.14      | ) |  | $ | 0.05       |  
|Weighted average shares used in computing:    |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Basic net (loss) income per share             |  |                                 | 46,114,562 |   |                                |   | 45,899,874 |      |  |   | 46,094,152 |   |  |   | 45,897,162 |  
|Diluted net (loss) income per share           |  |                                 | 46,114,562 |   |                                |   | 45,899,874 |      |  |   | 46,094,152 |   |  |   | 46,057,217 |  



|(1) | For the nine-month period
ended September 30, 2006, other income included $8,000,000 from the settlement of a clinical trial dispute.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

See notes to condensed consolidated financial statements.



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SCICLONE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                     |  |                                |            |   |       |   |             |  
|------------------------------------------------------------------------------------ |  | ------------------------------ | ---------- | - | ----- | - | ----------- | -
|                                                                                     |  | Nine Months EndedSeptember 30, |           
|                                                                                     |  | 2007                           |            |   | 2006* |  
|Operating activities:                                                                |  |                                |            |   |       |   |             |  
|Net (loss) income                                                                    |  | $                              | (6,336,000 | ) |       | $ | 2,230,000   |  
|Adjustments to reconcile net (loss) income to net cash used in operating activities: |  |                                |            |   |       |   |             |  
|Non-cash expense related to employee stock options                                   |  |                                | 1,712,000  |   |       |   | 1,864,000   |  
|Amortization of interest on investments held-to-maturity                             |  |                                | 48,000     |   |       |   | (86,000     | )
|Depreciation and amortization                                                        |  |                                | 175,000    |   |       |   | 173,000     |  
|Loss from disposal of property and equipment                                         |  |                                | 1,000      |   |       |   |            |  
|Changes in operating assets and liabilities:                                         |  |                                |            |   |       |   |             |  
|Accounts receivable, net                                                             |  |                                | (442,000   | ) |       |   | (3,940,000  | )
|Inventories                                                                          |  |                                | (883,000   | ) |       |   | 338,000     |  
|Prepaid expenses and other assets                                                    |  |                                | (50,000    | ) |       |   | 529,000     |  
|Accounts payable and other accrued expenses                                          |  |                                | 1,003,000  |   |       |   | 596,000     |  
|Accrued compensation and employee benefits                                           |  |                                | (327,000   | ) |       |   | (540,000    | )
|Accrued clinical trials expenses                                                     |  |                                | 357,000    |   |       |   | (34,000     | )
|Accrued professional fees                                                            |  |                                | 217,000    |   |       |   | 416,000     |  
|Other current liabilities                                                            |  |                                | 2,000      |   |       |   |            |  
|Deferred revenue                                                                     |  |                                | (62,000    | ) |       |   | (177,000    | )
|Long-term liabilities                                                                |  |                                | 96,000     |   |       |   | (29,000     | )
|                                                                                     |  |                                |            |   |       |   |             |  
|Net cash (used in) provided by operating activities                                  |  |                                | (4,489,000 | ) |       |   | 1,340,000   |  
|                                                                                     |  |                                |            |   |       |   |             |  
|Investing activities:                                                                |  |                                |            |   |       |   |             |  
|Purchases of property and equipment                                                  |  |                                | (391,000   | ) |       |   | (68,000     | )
|Purchases of short-term investments                                                  |  |                                | (8,881,000 | ) |       |   | (17,961,000 | )
|Proceeds from maturities of short-term investments                                   |  |                                | 18,810,000 |   |       |   | 17,757,000  |  
|Purchase of restricted long-term investment                                          |  |                                | (400,000   | ) |       |   |            |  
|                                                                                     |  |                                |            |   |       |   |             |  
|Net cash provided by (used in) investing activities                                  |  |                                | 9,138,000  |   |       |   | (272,000    | )
|                                                                                     |  |                                |            |   |       |   |             |  
|Financing activities:                                                                |  |                                |            |   |       |   |             |  
|Proceeds from issuances of common stock                                              |  |                                | 225,000    |   |       |   | 44,000      |  
|Repayment of notes payable                                                           |  |                                |           |   |       |   | (1,600,000  | )
|                                                                                     |  |                                |            |   |       |   |             |  
|Net cash provided by (used in) financing activities                                  |  |                                | 225,000    |   |       |   | (1,556,000  | )
|                                                                                     |  |                                |            |   |       |   |             |  
|Effect of exchange rate changes on cash and cash equivalents                         |  |                                | 17,000     |   |       |   |            |  
|                                                                                     |  |                                |            |   |       |   |             |  
|Net increase (decrease) in cash and cash equivalents                                 |  |                                | 4,891,000  |   |       |   | (488,000    | )
|Cash and cash equivalents, beginning of period                                       |  |                                | 25,615,000 |   |       |   | 25,845,000  |  
|                                                                                     |  |                                |            |   |       |   |             |  
|Cash and cash equivalents, end of period                                             |  | $                              | 30,506,000 |   |       | $ | 25,357,000  |  
|                                                                                     |  |                                |            |   |       |   |             |  



|* | Certain prior year amounts have been reclassified to conform to the current year presentation.
|- | ----------------------------------------------------------------------------------------------

See notes to condensed consolidated financial statements.



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SCICLONE PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements (unaudited)



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

The accompanying
unaudited condensed consolidated financial statements of SciClone Pharmaceuticals, Inc. (SciClone or the Company) have been prepared in conformity with generally accepted accounting principles in the United States
(GAAP) consistent with those applied in, and should be read in conjunction with, the audited financial statements for the year ended December 31, 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 Company reclassified $225,000 from other assets to prepaid expenses and other current assets in the
consolidated balance sheet as of December 31, 2006 to conform to the current period presentation.

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

Use of Estimates

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

Significant Accounting Policies

Revenue Recognition

The Company recognizes revenue from product sales at the time of delivery. There are no significant
customer acceptance requirements or post shipment obligations on the part of the Company. Sales to importing agents or distributors are recognized at time of shipment when title to the product is transferred to them, and they do not have contractual
rights of return except under limited terms regarding product quality. However, the Company is expected to replace products that have expired or are deemed to be damaged or defective when delivered. The Company estimates expected returns primarily
on historical patterns. Historically, the Company has had no product returns of damaged, defective or expired product. As such, no amount was accrued for product returns as of September 30, 2007 or December 31, 2006 in the Condensed
Consolidated Balance Sheets. Payments by the importing agents and distributors are not contingent upon sale to the end user by the importing agents or distributors.

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.



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Net (Loss) Income Per Share

Basic net (loss) income per share has been computed by dividing net (loss) income by the weighted-average number of shares of common stock outstanding for
the period. Diluted net (loss) income per share is computed by dividing net (loss) income by the weighted-average number of common equivalent shares outstanding for the period. Diluted net (loss) income per share includes any dilutive impact from
stock options outstanding using the treasury stock method.

The following is a reconciliation of the numerator and denominators of the
basic and diluted net (loss) income per share computations:



|                                                                                                                 |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |           
|---------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ------------------------------ | - | ---------- | ---- |  | - | ---------- | - |  | - | ----------
|                                                                                                                 |  | Three Months EndedSeptember 30, |            |   | Nine Months EndedSeptember 30,
|                                                                                                                 |  | 2007                            |            |   | 2006                           |   |            | 2007 |  |   | 2006      
|Numerator:                                                                                                       |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |           
|Net (loss) income                                                                                                |  | $                               | (3,055,000 | ) |                                | $ | (1,306,000 | )    |  | $ | (6,336,000 | ) |  | $ | 2,230,000 
|Denominator:                                                                                                     |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |           
|Weighted-average shares outstanding used to compute basic (loss) earnings per share                              |  |                                 | 46,114,562 |   |                                |   | 45,899,874 |      |  |   | 46,094,152 |   |  |   | 45,897,162
|Effect of dilutive stock options                                                                                 |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   | 160,055   
|                                                                                                                 |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |           
|Weighted-average shares outstanding and dilutive stock options used to compute diluted (loss) earnings per share |  |                                 | 46,114,562 |   |                                |   | 45,899,874 |      |  |   | 46,094,152 |   |  |   | 46,057,217
|                                                                                                                 |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |           

For the three months ended September 30, 2007 and 2006, approximately 7,402,281 and 7,769,000
shares, respectively, prior to the application of the treasury stock method, attributable to outstanding stock options were excluded from the calculation of diluted net (loss) income per share because their inclusion would have been anti-dilutive.
For the nine months ended September 30, 2007 and 2006, approximately 7,339,532 and 6,851,000 shares, respectively, prior to the application of the treasury stock method, attributable to outstanding stock options were excluded from the
calculation of diluted net (loss) income per share because their inclusion would have been anti-dilutive.

Recent Accounting
Pronouncements

In July 2007, the Financial Accounting Standards Board (FASB) released Emerging Issues Task Force Issue
No. 07-3 (EITF 07-3), Accounting for Nonrefundable Advance Payments for Goods or Services to be used in Future Research and Development Activities. In accordance with EITF 07-3, nonrefundable advance payments for goods
or services to be received in the future for use in research and development activities should be deferred and capitalized. The capitalized amounts should be expensed as the related goods are delivered or the services are performed. EITF 07-3 is
effective for new contracts entered into during fiscal years beginning after December 15, 2007, including interim periods within those fiscal years. The Company is currently assessing the impact that EITF 07-3 will have on its results of
operations and financial position.

In September 2006, the FASB issued Statement of Financial Accounting Standards (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.

In February 2007, the FASB issued 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.



7



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##### Table of Contents

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

The following is a
summary of available-for-sale and held-to-maturity securities at September 30, 2007 and December 31, 2006:



|                                |  |                               |            |                       |   |                     |  |   |           
|------------------------------- |  | ----------------------------- | ---------- | --------------------- | - | ------------------- |  | - | ----------
|                                |  | Available-For-Sale Securities
|                                |  | AmortizedCost                 |            | GrossUnrealizedGains1 |   | EstimatedFair Value
|September 30, 2007:             |  |                               |            |                       |   |                     |  |   |           
|Certificates of deposit         |  | $                             | 871,000    |                       | $ |                    |  | $ | 871,000   
|Short-term municipal securities |  |                               | 2,850,000  |                       |   |                    |  |   | 2,850,000 
|Italian state bonds             |  |                               | 410,000    |                       |   | 4,000               |  |   | 414,000   
|Corporate equity securities     |  |                               | 51,000     |                       |   | 88,000              |  |   | 139,000   
|                                |  |                               |            |                       |   |                     |  |   |           
|                                |  | $                             | 4,182,000  |                       | $ | 92,000              |  | $ | 4,274,000 
|                                |  |                               |            |                       |   |                     |  |   |           
|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  
|                                |  | AmortizedCost                 |            | GrossUnrealizedGains1 |   | EstimatedFair Value
|September 30, 2007:             |  |                               |            |                       |   |                     |  |   |           
|U.S. Treasury securities        |  | $                             | 3,150,000  |                       | $ |                    |  | $ | 3,150,000 
|December 31, 2006:              |  |                               |            |                       |   |                     |  |   |           
|U.S. Treasury securities        |  | $                             | 10,403,000 |                       | $ |                    |  | $ | 10,403,000



|1 | As of September 30, 2007 and December 31, 2006, none of the
Companys available-for-sale or held-to-maturity securities were in a net loss position.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------

As of
September 30, 2007, there was $704,000 in restricted short-term investments, $414,000 in restricted long-term investments, and $3,156,000 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 September 30, 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 September 30, 2007 and December 31, 2006, there was $3,150,000 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 November and December 2007. The fair market value of the investments approximated
their cost at September 30, 2007 and December 31, 2006, respectively.



8



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##### Table of Contents

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

Inventories consisted of the
following:



|                 |  |                   |           |                  |   |          
|---------------- |  | ----------------- | --------- | ---------------- | - | ---------
|                 |  | September 30,2007 |           | December 31,2006
|Raw materials    |  | $                 | 1,559,000 |                  | $ | 573,000  
|Work in progress |  |                   | 400,000   |                  |   | 1,239,000
|Finished goods   |  |                   | 2,225,000 |                  |   | 1,420,000
|                 |  |                   |           |                  |   |          
|                 |  | $                 | 4,184,000 |                  | $ | 3,232,000
|                 |  |                   |           |                  |   |          



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

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



|                               |  |                   |           |                  |   |          
|------------------------------ |  | ----------------- | --------- | ---------------- | - | ---------
|                               |  | September 30,2007 |           | December 31,2006
|Prepaid manufacturing costs    |  | $                 | 480,000   |                  | $ |         
|Prepaid clinical trial expense |  |                   | 376,000   |                  |   | 13,000   
|Value added tax receivable     |  |                   | 332,000   |                  |   | 452,000  
|Prepaid royalties              |  |                   | 244,000   |                  |   | 225,000  
|Prepaid insurance              |  |                   | 56,000    |                  |   | 623,000  
|Prepaid pre-clinical expenses  |  |                   | 38,000    |                  |   |         
|Prepaid rent                   |  |                   |          |                  |   | 110,000  
|Other prepaid expenses         |  |                   | 285,000   |                  |   | 442,000  
|                               |  |                   |           |                  |   |          
|                               |  | $                 | 1,811,000 |                  | $ | 1,865,000
|                               |  |                   |           |                  |   |          



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

Intangible assets include
the following:



|                          |  |                   |            |   |                  |   |            |  
|------------------------- |  | ----------------- | ---------- | - | ---------------- | - | ---------- | -
|                          |  | September 30,2007 |            |   | December 31,2006 |  
|Intangible product rights |  | $                 | 2,456,000  |   |                  | $ | 2,456,000  |  
|Accumulated amortization  |  |                   | (2,106,000 | ) |                  |   | (2,054,000 | )
|                          |  |                   |            |   |                  |   |            |  
|                          |  | $                 | 350,000    |   |                  | $ | 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 September 30, 2007 and 2006 was $17,500 and for each of the nine-month periods ended September 30, 2007 and 2006 was approximately $52,000. 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 earliest granted 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.



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##### Table of Contents

|6. | Other Assets
|-- | ------------

The following is a summary of
other assets:



|                          |  |                   |           |                  |   |        
|------------------------- |  | ----------------- | --------- | ---------------- | - | -------
|                          |  | September 30,2007 |           | December 31,2006
|Prepaid royalties         |  | $                 | 588,000   |                  | $ | 775,000
|Prepaid clinical expenses |  |                   | 232,000   |                  |   |       
|Lease deposits            |  |                   | 186,000   |                  |   | 123,000
|Other assets              |  |                   | 17,000    |                  |   | 21,000 
|                          |  |                   |           |                  |   |        
|                          |  | $                 | 1,023,000 |                  | $ | 919,000
|                          |  |                   |           |                  |   |        



|7. | 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 hepatitis C virus (HCV) U.S. clinical program which ended in 2006 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.

During the three months ended September 30, 2007, the Company received a $20,000 partial license fee for
ZADAXIN from a third party.



|8. | Accrued Expenses
|-- | ----------------

The following is a summary
of other accrued expenses:



|                                     |  |                   |           |                  |   |          
|------------------------------------ |  | ----------------- | --------- | ---------------- | - | ---------
|                                     |  | September 30,2007 |           | December 31,2006
|Accrued royalties                    |  | $                 | 698,000   |                  | $ | 529,000  
|Accrued sales and marketing expenses |  |                   | 554,000   |                  |   | 390,000  
|Accrued pre-clinical trial expenses  |  |                   | 76,000    |                  |   | 232,000  
|Accrued annual reports expense       |  |                   | 75,000    |                  |   | 65,000   
|Accrued manufacturing costs          |  |                   | 4,000     |                  |   | 478,000  
|Other                                |  |                   | 604,000   |                  |   | 793,000  
|                                     |  |                   |           |                  |   |          
|                                     |  | $                 | 2,011,000 |                  | $ | 2,487,000
|                                     |  |                   |           |                  |   |          



|9. | Long-term Liabilities
|-- | ---------------------

The following is a
summary of long-term liabilities:



|                                           |  |                   |         |                  |   |       
|------------------------------------------ |  | ----------------- | ------- | ---------------- | - | ------
|                                           |  | September 30,2007 |         | December 31,2006
|Accrued compensation and employee benefits |  | $                 | 155,000 |                  | $ | 68,000
|Long-term deferred rent                    |  |                   | 185,000 |                  |   |      
|                                           |  |                   |         |                  |   |       
|                                           |  | $                 | 340,000 |                  | $ | 68,000
|                                           |  |                   |         |                  |   |       

Long-term deferred rent relates to the Companys non-cancelable office lease agreement
entered into in May 2007. Refer to note 13 Commitments for further information on this matter.



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##### Table of Contents

|10. | 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 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 nine-month period ended September 30, 2007 under all option plans:



|                                                         |  |                          |   |  |                     |   |  |                                         |      |                                                  |      |                         |   |        
|-------------------------------------------------------- |  | ------------------------ | - |  | ------------------- | - |  | --------------------------------------- | ---- | ------------------------------------------------ | ---- | ----------------------- | - | -------
|                                                         |  |                          |   |  | Options Outstanding
|                                                         |  | SharesAvailable ForGrant |   |  | NumberofShares      |   |  | Weighted-AverageExercise PricePer Share |      | Weighted-AverageRemainingContractualTerm (Years) |      | AggregateIntrinsicValue
|Balance at January 1, 2007                               |  | 2,336,250                |   |  | 7,388,760           |   |  | $                                       | 4.20 |                                                  |      |                         |   |        
|2004 Outside Directors Stock Option Plan shares reserved |  | 750,000                  |   |  |                    |   |  |                                         |     |                                                  |      |                         |   |        
|2005 Stock Option Plan shares reserved                   |  | 3,000,000                |   |  |                    |   |  |                                         |     |                                                  |      |                         |   |        
|Options cancelled                                        |  | 1,147,193                |   |  | (1,147,193          | ) |  | $                                       | 5.39 |                                                  |      |                         |   |        
|Options granted                                          |  | (1,229,000               | ) |  | 1,229,000           |   |  | $                                       | 2.66 |                                                  |      |                         |   |        
|Options exercised                                        |  |                         |   |  | (113,313            | ) |  | $                                       | 1.99 |                                                  |      |                         |   |        
|Plan shares expired                                      |  | (873,735                 | ) |  |                    |   |  |                                         |     |                                                  |      |                         |   |        
|                                                         |  |                          |   |  |                     |   |  |                                         |      |                                                  |      |                         |   |        
|Balance at September 30, 2007                            |  | 5,130,708                |   |  | 7,357,254           |   |  | $                                       | 3.79 |                                                  | 6.72 |                         | $ | 122,214
|                                                         |  |                          |   |  |                     |   |  |                                         |      |                                                  |      |                         |   |        
|Vested and expected to vest after September 30, 2007     |  |                          |   |  | 6,878,820           |   |  | $                                       | 3.88 |                                                  | 6.58 |                         | $ | 122,062
|Exercisable at September 30, 2007                        |  |                          |   |  | 4,405,720           |   |  | $                                       | 4.51 |                                                  | 5.44 |                         | $ | 121,164

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 three months ended September 30, 2007, in excess of the exercise price, multiplied by the number of options outstanding, vested and expected to vest after September 30, 2007, and
exercisable. The total intrinsic value of options at time of exercise was approximately $112,000 for the nine-months ended September 30, 2007, respectively. There were no options exercised during the three months ended September 30, 2007
or during the three and nine months ended September 30, 2006.

Stock Based Compensation

Effective January 1, 2006, the Company began recording compensation expense associated with stock options in accordance with 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 and nine months ended September 30, 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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##### Table of Contents

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 Months EndedSeptember 30, |       |   | Nine Months EndedSeptember 30, |  
|Stock Option Plan                                                  |  | 2007                            |       |   | 2006                           |   |       | 2007 |  |   | 2006  |  
|Weighted-average fair value of stock options granted               |  | $                               | 1.32  |   |                                | $ | 1.25  |      |  | $ | 1.59  |   |  | $ | 1.36  |  
|Risk-free interest rate                                            |  |                                 | 4.49  | % |                                |   | 4.86  | %    |  |   | 4.63  | % |  |   | 4.73  | %
|Dividend yield                                                     |  |                                 |      |   |                                |   |      |      |  |   |      |   |  |   |      |  
|Volatility factor of the expected market price of our common stock |  |                                 | 67.96 | % |                                |   | 70.50 | %    |  |   | 70.08 | % |  |   | 73.25 | %
|Weighted-average expected life of option (years)                   |  |                                 | 4.64  |   |                                |   | 4.09  |      |  |   | 4.64  |   |  |   | 3.85  |  

The total compensation cost capitalized in inventory was approximately $19,000 and $26,000 in the
three months ended September 30, 2007 and 2006, respectively. The total compensation cost capitalized in inventory was approximately $69,000 and $82,000 in the nine months ended September 30, 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 September 30, 2007, unamortized compensation expense related to unvested options was approximately $3,857,000.
The weighted average period over which compensation expense related to these options will be recognized is 3.45 years.

The estimated fair
value of shares vested for the three months ended September 30, 2007 and 2006 was $347,000 and $441,000, respectively. The estimated fair value of shares vested for the nine months ended September 30, 2007 and 2006 was $1,391,000 and
$1,964,000, 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 September 30, 2007, 282,519 shares were reserved for 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 Months EndedSeptember 30, |   | Nine Months EndedSeptember 30, |  
|Employee Stock Purchase Plan                                         |  | 2007                            |   | 2006                           |   | 2007 |  | 2006 |  
|Weighted-average fair value of employee stock purchase plan purchase |  | $                               |  |                                | $ |     |  | $    |  |  | $ | 0.84  |  
|Risk-free interest rate                                              |  |                                 |  |                                |   |     |  |      |  |  |   | 3.17  | %
|Dividend yield                                                       |  |                                 |  |                                |   |     |  |      |  |  |   |      |  
|Volatility factor of the expected market price of our common stock   |  |                                 |  |                                |   |     |  |      |  |  |   | 60.59 | %
|Weighted-average expected life (years)                               |  |                                 |  |                                |   |     |  |      |  |  |   | 0.75  |  



12



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##### Table of Contents

Comprehensive (Loss) Income

The following table summarizes components of total comprehensive (loss) income during the three and nine-month periods ended September 30, 2007 and
2006:



|                                                                                                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |          
|------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ------------------------------ | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------
|                                                                                                                          |  | Three Months EndedSeptember 30, |            |   | Nine Months EndedSeptember 30,
|                                                                                                                          |  | 2007                            |            |   | 2006                           |   |            | 2007 |  |   | 2006      
|Net (loss) income                                                                                                         |  | $                               | (3,055,000 | ) |                                | $ | (1,306,000 | )    |  | $ | (6,336,000 | ) |  | $ | 2,230,000
|Other comprehensive (loss) income:                                                                                        |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |          
|Net change in unrealized gains/losses on available-for- sale securities                                                   |  |                                 | 11,000     |   |                                |   | (3,000     | )    |  |   | 10,000     |   |  |   | 15,000   
|Net change in unrealized gains and foreign currency translation gain on foreign-denominated available-for-sale securities |  |                                 | 14,000     |   |                                |   |           |      |  |   | 14,000     |   |  |   |         
|Change in foreign currency translation                                                                                    |  |                                 | 17,000     |   |                                |   |           |      |  |   | 17,000     |   |  |   |         
|                                                                                                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |          
|Total comprehensive (loss) income                                                                                         |  | $                               | (3,013,000 | ) |                                | $ | (1,309,000 | )    |  | $ | (6,295,000 | ) |  | $ | 2,245,000
|                                                                                                                          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |          

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



|                                                                                                                |  |                   |         |                  |   |       
|--------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | ---------------- | - | ------
|                                                                                                                |  | September 30,2007 |         | December 31,2006
|Net unrealized gains on available-for-sale securities                                                           |  | $                 | 88,000  |                  | $ | 78,000
|Net unrealized gains and foreign currency translation gain on foreign-denominated available-for-sale securities |  |                   | 14,000  |                  |   |      
|Cumulative foreign currency translation                                                                         |  |                   | 17,000  |                  |   |      
|                                                                                                                |  |                   |         |                  |   |       
|Accumulated other comprehensive income                                                                          |  | $                 | 119,000 |                  | $ | 78,000
|                                                                                                                |  |                   |         |                  |   |       



|11. | Other Income
|--- | ------------

On April 3, 2006, the
Company announced the resolution of its dispute with Schering Plough KK (SPKK) concerning clinical trials conducted in Japan with ZADAXIN. Under the terms of the settlement, SPKK paid SciClone $8,000,000 on April 18, 2006 which was
recorded as income during the three months ended June 30, 2006.



|12. | Income Taxes
|--- | ------------

The Company adopted the
provisions of FASB 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. From January 1, 2007 through September 30, 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 and nine-month periods ended September 30, 2007 and 2006, there were no interest or penalties included as a component of tax expense for unrecognized tax
benefits.

The tax years 1996-2006 remain open to examination by the major taxing jurisdictions to which the Company is subject.



|13. | Commitments
|--- | -----------

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 (RESprotect), the Company will pay 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. 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, and has entered into and amended an agreement with



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##### Table of Contents

Pharmaceuticals Research Associates, Inc. (PRA) to assume the terms of a certain agreement for Clinical Trials Management Services, for a
randomized, double blind, placebo controlled, phase 2 study evaluating the efficacy and safety of RP101, previously entered into by and between Avantogen Oncology, Inc. and PRA. The estimated cost of PRAs management services and pass-through
costs is $8,000,000 and $4,000,000, respectively, of which $750,000 had been paid to PRA by the Company and another $1,164,000 was due and payable as of September 30, 2007. The Company has also entered into a supply agreement with RESprotect to
purchase RP101 from RESprotect for clinical trials and for commercial purposes following regulatory approval. Under the terms of the supply agreement, the Company and RESprotect will share the scale-up costs required to manufacture RP101 prior to
and after FDA approval. The Companys share of the scale-up costs is estimated to be 1,448,000 through June 2010, of which 455,000 was paid by the Company to RESprotect through September 30, 2007.

In May 2007, the Company entered into a non-cancelable operating lease agreement for its main office facility (the lease) to lease space from
July 1, 2007 through June 30, 2014. Under the terms of the lease, the Company was provided an allowance in the amount of approximately $206,000 towards the cost of its leasehold improvements. In accordance with FASB Technical Bulletin
88-1, the Company has recorded the allowance as deferred rent and is amortizing this amount over the lease term as a reduction of rent expense. The lease requires the Company to pay insurance and taxes and its pro-rata share of operating expenses.
The Company also leases various office facilities abroad and equipment under non-cancelable lease agreements. Minimum future rental payments under facility and equipment operating leases agreements as of September 30, 2007, amount to a total of
$4,581,000 which consists of $233,000 remaining in 2007, $919,000 in 2008, $715,000 in 2009, $572,000 in 2010, $595,000 in 2011, $608,000 in 2012, and $939,000 thereafter.

The Companys lease for its previous office facility expired in September 2007. There were no further obligations arising from the expiration of the
lease. The Company moved to its new main office facility in September 2007.



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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 and other markets; research and development and other expense levels; cash and other asset levels; and the allocation of financial resources to certain trials and programs. These statements are not
guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking
statements as a result of various factors including, but not limited to, those described under the caption Risk Factors in this Quarterly Report on Form 10-Q. We undertake no obligation to revise or update publicly any forward-looking
statements for any reason.

Overview

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). Our proprietary compound SCV-07 entered phase 2 clinical development for viral infectious
disease in June 2007. We also submitted a regulatory application to the Chinese State Food and Drug Administration (SFDA) in December 2006 related to DC Bead, a product for the treatment of liver cancer, or hepatocellular carcinoma (HCC), for
which we obtained Chinese marketing rights in June 2006.

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 paid approximately $1,700,000 in up front fees, and will pay 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. We expect to initiate phase 2 clinical development for RP101 in the fourth quarter of 2007. 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 opportunity to develop and commercialize such products in China. Also, we intend to use our clinical work in China to support and
accelerate regulatory applications in the United States and Europe.

Our European partner, Sigma-Tau, is conducting a triple therapy
combination (ZADAXIN plus pegylated interferon alpha and ribavirin) hepatitis C clinical trial in Europe and enrollment for this trial was completed in December 2006. We expect the results of the trial in the second half of 2008. In June 2007, we
reported positive survival data from a phase 2 trial, also conducted by Sigma-Tau, treating patients with stage IV malignant melanoma indicating that thymalfasin in combination with dacarbazine (DTIC) chemotherapy tripled the overall response rate
and extended overall survival by nearly 3 months compared to malignant melanoma patients treated with DTIC, the current standard of care, and interferon alpha. In collaboration with Sigma-Tau, in October 2007, we shared the melanoma clinical data
with and received approval from, the United States Federal Food and Drug Administration (FDA) to initiate phase 3 registration trials. We also intend to approach the FDAs European equivalent, the EMEA, to discuss our plans to initiate phase 3
registration trials.

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.



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From commencement of operations through September 30, 2007, we have an accumulated deficit of
approximately $165,000,000. 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, the execution and successful completion of ZADAXIN, SCV-07, and RP101 clinical trials and securing
regulatory approvals for these products in the major pharmaceutical markets of the United States, 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 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 are expecting a net loss for 2007 and a reduction in cash, cash equivalents and short-term investments as of December 31, 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 pre-clinical and clinical trials of
our products, market acceptance of ZADAXIN, and potentially of SCV-07, DC Bead, and RP101, and the timing of orders for ZADAXIN from international markets, particularly China, the regulatory approval process, the timing of FDA or international
regulatory approvals, and the acquisition of additional product rights and the funding, if any, provided as a result of corporate partnering arrangements.

Recent Accounting Pronouncements

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 $9,421,000 and $27,020,000 for the three and nine-month periods ended September 30,
2007, respectively, as compared to $8,270,000 and $23,969,000 for the corresponding periods in 2006. All product sales in each period were derived from sales of ZADAXIN. The increases were 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 both the three and nine-month periods ended September 30, 2007, as
compared to approximately 91% of product sales for both the three and nine-month periods ended September 30, 2006.

For the
three-month period ended September 30, 2007, sales to two importing agents in China accounted for approximately 70% and 22% of our product sales. For the nine-month period ended September 30, 2007, sales to three importing agents in China
accounted for approximately 61%, 21% and 10% of our product sales. The two largest customers were the same importing agents in each of these periods.

During the three months ended September 30, 2007, we recognized $20,000 in contract revenue for a partial license fee for ZADAXIN from a third party. There was no similar revenue for the three month period ended
September 30, 2006. We recognized $26,000 and $170,000 of contract revenue for the three and nine-month periods ended September 30, 2006, respectively, 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.



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Cost of Product Sales and Gross Margin on Product Sales

Gross margin on product sales was 82% for both the three and nine-month periods ended September 30, 2007, as compared to 80% and 81%, respectively,
for both the corresponding periods 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.

Research and Development

Research and development expenses were $4,793,000 and $11,928,000 for the three and nine-month periods ended September 30, 2007, respectively, as
compared to $3,167,000 and $10,897,000 for the corresponding periods in 2006. The $1,626,000 increase in research and development expenses for the three months ended September 30, 2007, compared to the three months ended September 30,
2006, was due to an increase of approximately $1,481,000 in clinical trial expenses mainly related to our phase 2 trial for RP101 and an increase of approximately $432,000 in drug development expenses for the ZADAXIN phase 3 trial for melanoma.
These increases were partially offset by a decrease of approximately $341,000 in pre-clinical and toxicology expenses for the three months ended September 30, 2007, as compared to the prior year period.

Research and development expenses increased by $1,031,000 for the nine months ended September 30, 2007, compared to the nine months ended
September 30, 2006. The increase in research and development expenses was primarily due to a $2,200,000 increase in acquisition and legal costs incurred in April 2007 related to the acquisition of the exclusive rights in the United States and
Canada to develop and commercialize RP101, an increase of approximately $1,481,000 in clinical trial expenses mainly related to our phase 2 trial for RP101, and a $484,000 increase in drug development expenses mainly for the proposed phase 3 trial
for melanoma. These increases were offset partially by decreases of approximately $2,296,000 related to clinical and pre-clinical trial expenses, relating primarily to the conclusion of our US hepatitis C clinical trials in mid-year 2006 and the
reduction of related expenses in subsequent periods, $349,000 in compensation and benefits, net of consulting expenses, and $452,000 in stock based compensation expense.

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 for the fourth quarter of 2007 relating to research and development will be
approximately $10,300,000, including a $1,300,000 milestone payment upon initiation of the RP101 phase 2 clinical trial, and other RP101 and SCV-07 development costs. The actual costs incurred in future periods will vary depending in particular upon
timeline and design of our planned ZADAXIN phase 3 melanoma clinical trial and final decisions regarding timing and expense sharing arrangements for the trial. In general, we expect research and development expenses to vary substantially from
quarter to quarter as we pursue our strategy of initiating additional pre-clinical and clinical trials and testing, acquiring product rights, and expanding regulatory activities.

Sales and Marketing

Sales and
marketing expenses were $3,805,000 and $9,968,000 for the three and nine-month periods ended September 30, 2007, respectively, as compared to $3,011,000 and $8,686,000, respectively, for the corresponding periods in 2006. The higher level of
sales and marketing expenses for both the three and nine-month periods was primarily due to increases in sales and marketing personnel, promotional activities and operating expenses related to our expanding sales and marketing efforts. We expect
that our future sales and marketing expenses for the fourth quarter of 2007 will be approximately $3,400,000 and sales and marketing expenses may 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 $2,594,000 and $7,648,000 for the three and nine-month periods ended September 30, 2007, respectively, as compared to $2,283,000 and $6,964,000, respectively, for the
corresponding periods in 2006. The $311,000 increase in general and administrative expenses for the three months ended September 30, 2007, compared to the three months ended September 30, 2006, was mainly due to a $206,000 increase in
compensation and benefits expenses and a $76,000 increase in moving expenses related to the relocation of our corporate office.

The
increase of $684,000 in general and administrative expenses for the nine months ended September 30, 2007, compared to the nine months ended September 30, 2006, was mainly due to an increase of approximately $474,000 in compensation and
bonus expense and a $205,000 increase in stock-based compensation expense, related to our chief executive officers employment agreements and other fluctuations in headcount year over year. We expect that our general and administrative expenses
will be approximately $2,300,000 for the fourth quarter of 2007, although these expenses may vary in subsequent periods.



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Interest and Investment Income and Expense

Interest and investment income was approximately $408,000 and $1,280,000, respectively, for the three and nine-month periods ended September 30,
2007, as compared to $492,000 and $1,290,000, respectively, for the corresponding periods in 2006. The decrease of $84,000 and $10,000 for the three and nine-month periods ended September 30, 2007 resulted from reduced interest earned on cash
balances due to lower cash balances, partially offset by higher interest rates in the 2007 periods.

Interest and investment expense was $0
and $20,000 for the three and nine-month periods ended September 30, 2007, respectively, as compared to $9,000 and $72,000, respectively, for the corresponding periods in 2006. The decrease in interest and investment expense is attributable to
a decrease in investment transaction fees incurred as a result of lower U.S. Treasury securities balances in the three and nine-month periods ended September 30, 2007, compared to the corresponding periods of 2006, and to the full repayment of
a $1,600,000 note payable in March 2006.

Other Income (Expense)

Other income (expense), net, was ($8,000) and ($24,000) for the three and nine-month periods ended September 30, 2007, respectively, compared to
($8,000) and $7,975,000 for the three and nine-month periods ended September 30, 2006, respectively. In April 2006, we received $8,000,000 for the resolution of our dispute concerning clinical trials conducted in Japan with ZADAXIN. There was
no similar income received during the three or nine-month periods ended September 30, 2007.

Liquidity and Capital Resources

Days sales outstanding in accounts receivable increased from 132 days during nine months ended September 30, 2006 to 145 days
during the nine months ended September 30, 2007. The majority of our sales are to customers in the Peoples Republic of China, where our accounts receivable collections have standard credit terms of 180 days. During both the nine month
periods ended September 30, 2007 and 2006, such receivables were collected within these terms. Days sales outstanding increased during the nine months ended September 30, 2007, compared to the prior year period, due to normal
fluctuations in the timing of customer payments received.

On September 30, 2007 and December 31, 2006, we had $37,516,000 and
$42,592,000, respectively, in cash, cash equivalents and short-term investments including $704,000 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 $26,500,000.

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 certificates of deposit. On September 30, 2007, the restricted short-term investments of $704,000 were comprised of $633,000 under our previous office lease agreement which expired and has been
terminated subsequent to September 30, 2007, and $71,000 to facilitate our value added tax filings in Europe.

As of
September 30, 2007, our restricted long-term investment consisted of Italian state bonds purchased to facilitate our value added tax filings in Europe.

Cash used by operating activities of $4,489,000 for the nine-months ended September 30, 2007 was comprised primarily of net loss of $6,336,000 which was adjusted for non-cash items such as stock-based
compensation expense of $1,712,000 and depreciation and amortization of $175,000, and $89,000 of net cash outflow related to changes in operating assets and liabilities. Such changes included an increase in our accounts receivable of $442,000
related to an increase in sales and an increase in inventory levels of $883,000 as our supplier of bulk Active Pharmaceutical Ingredient (API) product for the manufacture of ZADAXIN was able to produce higher yields on production runs, enabling us
to increase our inventory levels, compared to the lower than expected inventory levels in the prior year period. These outflows were partially offset by an increase in accounts payable and accrued expenses and accrued clinical trials expenses of
$1,360,000 mainly related to our phase 2 RP101 clinical trial.



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Cash provided by operating activities of $1,340,000 for the nine-months ended September 30, 2006 was
comprised primarily of net income of $2,230,000 which was adjusted for non-cash items such as stock-based compensation expense of $1,864,000 and depreciation and amortization of $173,000, partially offset by $2,841,000 of net cash outflow related to
changes in operating assets and liabilities. During the nine-months ended September 30, 2006, net income included $8,000,000 we received for the resolution of our dispute concerning ZADAXIN clinical trials conducted in Japan.

Net cash provided by our investing activities amounted to $9,138,000 for the nine-month period ended September 30, 2007, as compared to net cash
used by investing activities of $272,000 for the corresponding period in 2006. The change in the 2007 period was primarily due to a net increase in proceeds from the sale of marketable securities as compared to the prior period, offset partially by
$391,000 in purchases of property and equipment for leasehold improvements and furniture and fixtures mainly related to the relocation of our corporate offices in September 30, 2007.

Net cash provided by financing activities amounted to $225,000 for the nine-month period ended September 30, 2007 and consisted of proceeds from
issuance of common stock under our employee stock option plans. Net cash used in financing activities amounted to $1,556,000 for the nine-month period ended September 30, 2006 and consisted of the repayment of a $1,600,000 convertible note
partially offset by proceeds from issuance of common stock of approximately $44,000 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 pre-clinical 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. We are exploring various alternatives for financing in addition to sales of equity of SciClone, including a line of credit,
debt financing and financing of our Chinese operations either through debt, equity or joint venture transactions, but we have not determined the timing or structure of any transaction.

Contractual Obligations

The following table summarizes our contractual obligations and other
commitments as of September 30, 2007.



|                         |  |                        |            |             |   |           |  |           |           |                  |   |           |  |   |          
|------------------------ |  | ---------------------- | ---------- | ----------- | - | --------- |  | --------- | --------- | ---------------- | - | --------- |  | - | ---------
|                         |  | Payments Due by Period
|Contractual Obligations  |  | Total                  |            | Less than 1 |   | 1-3 years |  | 3-5 years |           | Morethan 5 years
|Operating leases(1)      |  | $                      | 4,581,000  |             | $ | 233,000   |  | $         | 1,634,000 |                  | $ | 1,167,000 |  | $ | 1,547,000
|Purchase obligations(2)  |  |                        | 2,000,000  |             |   | 500,000   |  |           | 1,500,000 |                  |   |          |  |   |         
|Royalty obligations(3)   |  |                        | 3,370,000  |             |   | 830,000   |  |           | 1,040,000 |                  |   | 1,000,000 |  |   | 500,000  
|Long-term liabilities(4) |  |                        | 155,000    |             |   |          |  |           | 155,000   |                  |   |          |  |   |         
|                         |  |                        |            |             |   |           |  |           |           |                  |   |           |  |   |          
|Total                    |  | $                      | 10,106,000 |             | $ | 1,563,000 |  | $         | 4,329,000 |                  | $ | 2,167,000 |  | $ | 2,047,000
|                         |  |                        |            |             |   |           |  |           |           |                  |   |           |  |   |          

---

|(1) | These are future minimum rental commitments for office space and copiers leased under non-cancelable operating lease arrangements.
|--- | ----------------------------------------------------------------------------------------------------------------------------------



|(2) | This amount is payable to our European marketing and development partner, Sigma-Tau, to conduct and complete an HCV clinical trial in Europe.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------



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|(3) | This includes minimum royalty payments to the U.S. Army through 2010 and to Wayne State University (WSU) through 2012. Additionally upon regulatory approval of ZADAXIN and
commercialization of the product in certain countries, we are obligated to pay the U.S. Army and WSU the greater of the respective minimum annual royalty or a royalty based on a percentage of ZADAXIN sales.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | This amount represents a discretionary accrued long-term bonus payable to our CEO as of September 30, 2007 based on performance targets over the years 2006-2008.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition to the above commitments, we, as a result of our acquisition of the exclusive rights in the United States and
Canada to develop and commercialize RP101, will pay 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
of RP101. We also have assumed and amended the terms of a certain agreement for clinical trials management services, for a randomized, double blind, placebo controlled, phase 2 study evaluating the efficacy and safety of RP101, previously entered
into by and between Avantogen Oncology, Inc. and Pharmaceutical Research Associates, Inc. (PRA). The estimated cost of PRAs management services and pass-through costs is $8,000,000 and $4,000,000, respectively, of which we had paid $750,000 to
PRA as of September 30, 2007, $1,164,000 was paid in October 2007, and the remaining amounts are expected to be paid to PRA as incurred, through 2009. We have also entered into a supply agreement with RESprotect GmbH (RESprotect) to purchase
RP101 from RESprotect for clinical trials and for commercial purposes following regulatory approval. Under the terms of the supply agreement, we will share the scale-up costs required to manufacture RP101 with RESprotect prior to and after FDA
approval. Our share of the scale-up costs is estimated to be 1,448,000 through June 2010, of which we had paid 455,000 to RESprotect through September 30, 2007.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements in the nine-month period
ended September 30, 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 nine-month periods ended September 30, 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.

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,



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individual hospitals can and have established pricing requirements for a product to be included on formulary lists. These prices may be lower than our
distributors have been selling ZADAXIN in which case we have been removed from formulary lists, which consequently has reduced sales to certain hospitals and could adversely affect our future sales.

We have received regulatory approvals to market ZADAXIN in China and to manufacture ZADAXIN and export the product from Italy. In order to continue our
sales to China, we need to maintain these approvals. Our license to import ZADAXIN into China needs to be renewed every five years and the next renewal is required in the first half of 2008. Although we have been successful in obtaining a prior
renewal, there is no assurance that we will receive renewals when applied for or that the renewals will not be conditioned or limited in ways that limit our ability to conduct business in China. Further, our licenses to manufacture and export
ZADAXIN from Italy are dependent upon our continuing compliance with regulations in Italy. Our business would be adversely affected if we are not able to maintain these approvals.

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

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

We
believe we will need to raise additional capital in 2008 to fund our operations, including anticipated clinical trials, beyond 2008. However, we cannot assure you that such funds will be sufficient, or that we will attain profitable operations in
future periods. In addition to development plans for ZADAXIN, SCV-07 and RP101, we intend to develop other products and we may need additional funds in the future to support such development and to support future growth and achieve profitability. If
we need to raise additional funds in the future and such funds are not available on reasonable terms, if at all, our commercialization efforts may be impeded, our revenues may be limited and our operating results may suffer.

Final results from our ongoing clinical trials for ZADAXIN, SCV-07, and RP101 may differ materially from interim or pre-clinical trial results. These clinical trials
could be affected by the future actions of our partners, unexpected delays, unanticipated patient drop out rates or adverse side effects, future actions by the United States Food and Drug Administration (FDA) or equivalent regulatory authorities in
Europe or 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 results of our ZADAXIN phase 2 melanoma clinical trial does not necessarily predict
future clinical or commercial success. SCV-07 and RP101 pre-clinical and phase 1 trial results also do not predict clinical or commercial success.

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 our clinical trial may be higher than anticipated; the FDA, its
European equivalent EMEA or the Chinese State Food and Drug Administration (SFDA) may not approve our products for commercialization or may require additional clinical trial data prior to approving our products.

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



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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 is working to remedy the production problems, but has not been able to produce our product at targeted yields and costs. Until the production problems are remedied, we may
suffer production problems that may cause future interruptions in product supply that may harm our business. In addition, if sales of ZADAXIN were to increase dramatically, our third-party suppliers may not be able to supply ZADAXIN quickly enough,
which could limit our ability to satisfy increased demand or could adversely affect the ability of these suppliers to provide products for our clinical trials. In addition, Biocompatibles is the sole supplier of the DC Bead. If unanticipated
deficiencies in these suppliers occur, we could experience delays in our ability to fulfill regulatory requirements which may adversely affect our sales or prospects for regulatory marketing approvals. We have an exclusive supplier of pegylated
interferon alpha for our European phase 3 HCV clinical trial, who also supplied all of the pegylated interferon used in our U.S. phase 3 HCV clinical trials, and RESprotect is the exclusive supplier of RP101 for our phase 2 study evaluating the
safety and efficacy of RP101. Any unanticipated deficiencies in these suppliers, recall of the manufacturing lots or similar action regarding the pegylated interferon alpha or RP101 used in our clinical trials could delay the trials and 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 or choose not to continue their relationship with us, if the third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to
the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our pre-clinical or clinical activities may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for, or
successfully commercialize our product candidates. We are negotiating with Sigma-Tau regarding expenses for future ZADAXIN trials and have not determined responsibilities for the various trials including the proposed phase 3 malignant melanoma
clinical trial. The outcome of these negotiations will affect our future operating results including the timing of proceeding with such phase 3 trial.

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.



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To obtain regulatory approvals, we must, among other requirements, complete carefully controlled and
well-designed clinical trials demonstrating that a particular drug is safe and effective for the applicable disease. We cannot depend on data from prior trial results to predict or demonstrate that our potential drug products are safe and
efficacious under regulatory guidelines to qualify for commercial sale. In December 2005 and June 2006, we reported final results from our two U.S. phase 3 trials evaluating the double therapy combination of ZADAXIN and pegylated interferon alpha to
treat HCV patients who had failed previous therapy. The results from these trials did not demonstrate that ZADAXIN in combination with pegylated interferon alpha provides a statistically significant clinical benefit when compared with pegylated
interferon alpha alone. Although we do not believe that the news of these results had any significant effect on our sales to China, we cannot assure you that our results will not be harmed if final data from current clinical trials are negative. Our
European partner, Sigma-Tau, is conducting a triple therapy combination (ZADAXIN plus pegylated interferon alpha and ribavirin) HCV clinical trial in Europe. 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 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 the second half of 2008. As with the FDA, the EMEA generally requires two confirmatory phase 3 clinical trials to support their equivalent of a New Drug Application (NDA). Therefore, results of the current triple therapy
combination trial, even if positive and statistically significant, would by themselves be insufficient to support an NDA to the EMEA, and results from a second confirmatory phase 3 clinical trial would be needed. We cannot assure you that we or our
European partner, Sigma-Tau, will undertake such trial, that any clinical trial of the triple therapy combination will yield favorable results, that we will receive approval for ZADAXIN for the treatment of HCV in Europe or the United States or for
the treatment of HCV in other countries, or that we will achieve significant levels of sales. If we are unable to do so, our business will be harmed.

In June 2007, we and Sigma-Tau announced positive 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. The data indicated that thymalfasin in combination with DTIC chemotherapy tripled the overall response rate, the trials primary endpoint, and extended
overall survival by nearly 3 months compared to patients treated with DTIC, the current standard of care, and interferon alpha. DTIC is the only approved therapy in the United States for the treatment of advanced melanoma.

We, in collaboration with Sigma-Tau, in October 2007, shared the melanoma clinical data and received approval from the FDA to initiate phase 3
registration trials. We also intend to approach the EMEA to discuss our plans to initiate phase 3 registration trials. We cannot assure you that the final design of any trial that is approved will meet our expectations, that we or Sigma-Tau will
receive approval for the indication or that we will achieve significant levels of sales. Further, we have not reached agreement on expense sharing for the trial, and our future expenses and ability to proceed with the trial are dependent in part on
the conclusion of such discussions. If we can not proceed with the trial for any reason or the trial is unsuccessful, or even if successful, if we do not achieve commercially meaningful results, our business will be harmed.

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

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



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

Many of our trials involve the use of ZADAXIN in combination with other drugs and our pancreatic cancer clinical trial involves RP101
in combination with gemcitabin. SCV-07 may be developed to be used in combination with other drugs. Some of these drugs, particularly pegylated interferon alpha, ribavirin, non-pegylated interferon alpha, lamivudine, and dacarbazine are known to
cause adverse patient reactions. We cannot predict how ZADAXIN, RP101 or SCV-07 will work with other drugs, including causing possible adverse side effects not directly attributable to the other drugs that could compromise the safety profile of
ZADAXIN, RP101 or SCV-07 when used in certain combination therapies.

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 an 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.



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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 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 three to six importers, in any given quarter, to
supply substantially all of our product in China. Because we use a small number of importing agents in China, our receivables from any one importing agent are material, and if we were unable to collect receivables from any importer, our business and
cash-flow would be adversely affected.

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



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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, thymosin alpha 1 (thymalfasin), the chemical composition of ZADAXIN, has received Orphan Drug designation in the United States 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.

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



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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.

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. In 2006 we acquired the rights to distribute the DC Bead in China, but we must receive regulatory approval before we can commercialize
this product. Our only other potential products presently are SCV-07 and RP101, and each of them is in an earlier stage of development than 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. For RP101, we are obligated to make a $1,300,000 milestone payment upon commencement of a phase 2 clinical trial and to make additional
milestone payments if a phase 3 trial is successful. If any of our products, even if developed and approved, cannot be successfully commercialized in a timely manner, our business will be harmed and the price of our stock may decline.

We have not yet sold any product other than 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 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 $6,336,000 for the nine months ended
September 30, 2007. In addition, we have experienced significant operating losses in the past, and as of September 30, 2007, we had an accumulated deficit of approximately $165 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
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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. Biocompatibles is primarily responsible for the efforts to obtain regulatory approval in China for the DC Bead, and RESprotect is primarily responsible for the scale-up of production for RP101.
We generally do not have control over the amount and timing of resources that our business partners devote to our collaborative efforts, and 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, RP101 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;
| | - |  | -------------------------------------



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



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



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



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



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



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



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



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



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



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



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



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

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 September 30, 2007, no director or officer has such a plan however an officer or
director may do so in the future. We expect future sales by officers and directors either under 10b5-1 plans or otherwise as a result of their personal financial planning. We do not believe the volume of such sales would affect our trading price;
however, the market could react negatively to sales by our officers and directors, which could affect the trading price of our stock.



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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 nine months ended September 30, 2007, we recognized $1,712,000 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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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 the margins earned by our importers are affected by changes in the currency exchange rate. A trend to a stronger U.S. dollar would erode their margins and give reason for the importers to ask for
us to lower our price to them. 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
|------- | ----------------------------------------------------------

The primary objective of our
investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in U.S. Treasury or U.S. government agency notes and highly-rated, highly liquid
short-term municipal securities. Our investments in these notes are subject to interest rate risk. To minimize the exposure due to an adverse shift in interest rates, we invest in short-term notes and maintain an average maturity of less than one
year. In addition, our restricted long-term investment is invested in Italian state bonds which are subject to interest rate risk. A hypothetical 60 basis point increase in interest rates would result in an approximate $97,000 decrease (0.6%) in
fair value of our available-for-sale and held-to-maturity securities. This potential change is based on sensitivity analyses performed on our financial position at September 30, 2007. Actual results may differ materially.

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



|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 third 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.



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PART II. OTHER INFORMATION



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

None



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

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



| |  |  | We modified our risk factor regarding our revenue being dependent on sales in foreign countries, the third and fourth paragraphs of which now read in full as
follows:
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

We have received regulatory approvals to
market ZADAXIN in China and to manufacture ZADAXIN and export the product from Italy. In order to continue our sales to China, we need to maintain these approvals. Our license to import ZADAXIN into China needs to be renewed every five years and the
next renewal is required in the first half of 2008. Although we have been successful in obtaining a prior renewal, there is no assurance that we will receive renewals when applied for or that the renewals will not be conditioned or limited in ways
that limit our ability to conduct business in China. Further, our licenses to manufacture and export ZADAXIN from Italy are dependent upon our continuing compliance with regulations in Italy. Our business would be adversely affected if we are not
able to maintain these approvals.

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



| |  |  | We moved our risk factor regarding our need to obtain additional capital so that it immediately precedes our risk factor regarding clinical trial results, and we
also modified the risk factor, which now reads in full as follows:
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

We believe we will need to raise additional capital in 2008 to fund our
operations, including anticipated clinical trials, beyond 2008. However, we cannot assure you that such funds will be sufficient, or that we will attain profitable operations in future periods. In addition to development plans for ZADAXIN, SCV-07
and RP101, 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 modified our risk factor regarding clinical trial results, which now reads in full as follows:
| | - |  | -------------------------------------------------------------------------------------------------

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



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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 results of our ZADAXIN phase 2 melanoma clinical trial does not necessarily predict
future clinical or commercial success. SCV-07 and RP101 pre-clinical and phase 1 trial results also do not predict clinical or commercial success.

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 our clinical trial may be higher than anticipated; the FDA, its
European equivalent EMEA or the Chinese State Food and Drug Administration (SFDA) may not approve our products for commercialization or may require additional clinical trial data prior to approving our products.



| |  |  | We modified our risk factor regarding our reliance on third parties to supply products, 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 is working to remedy the production problems, but has not
been able to produce our product at targeted yields and costs. Until the production problems are remedied, we may suffer production problems that may cause future interruptions in product supply that may harm our business. In addition, if sales of
ZADAXIN were to increase dramatically, our third-party suppliers may not be able to supply ZADAXIN quickly enough, which could limit our ability to satisfy increased demand or could adversely affect the ability of these suppliers to provide products
for our clinical trials. In addition, Biocompatibles is the sole supplier of the DC Bead. If unanticipated deficiencies in these suppliers occur, we could experience delays in our ability to fulfill regulatory requirements which may adversely affect
our sales or prospects for regulatory marketing approvals. We have an exclusive supplier of pegylated interferon alpha for our European phase 3 HCV clinical trial, who also supplied all of the pegylated interferon used in our U.S. phase 3 HCV
clinical trials, and RESprotect is the exclusive supplier of RP101 for our phase 2 study evaluating the safety and efficacy of RP101. Any unanticipated deficiencies in these suppliers, recall of the manufacturing lots or similar action regarding the
pegylated interferon alpha or RP101 used in our clinical trials could delay the trials and detract from the integrity of the trial data and its potential use in future regulatory filings.



| |  |  | We modified our risk factor regarding our reliance on third parties and corporate collaborators to conduct clinical trials, which now reads in full as follows:
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

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 or choose not to continue their relationship with us, if the third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or
regulatory requirements or for other reasons, our pre-clinical or clinical activities may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize our product candidates.
We are negotiating with Sigma-Tau regarding expenses for future ZADAXIN trials and have not determined responsibilities for the various trials including the proposed phase 3 malignant melanoma clinical trial. The outcome of these negotiations will
affect our future operating results including the timing of proceeding with such phase 3 trial.



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| |  |  | We modified our risk factor regarding additional clinical trials and the results of clinical trials, the third, fourth and fifth paragraphs of which now read in
full as follows:
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

In June 2007, we and Sigma-Tau announced positive 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. The data indicated that thymalfasin in combination with DTIC chemotherapy
tripled the overall response rate, the trials primary endpoint, and extended overall survival by nearly 3 months compared to patients treated with DTIC, the current standard of care, and interferon alpha. DTIC is the only approved therapy in
the United States for the treatment of advanced melanoma.

We, in collaboration with Sigma-Tau, in October 2007, shared the melanoma
clinical data and received approval from the FDA to initiate phase 3 registration trials. We also intend to approach the EMEA to discuss our plans to initiate phase 3 registration trials. We cannot assure you that the final design of any trial that
is approved will meet our expectations, that we or Sigma-Tau will receive approval for the indication or that we will achieve significant levels of sales. Further, we have not reached agreement on expense sharing for the trial, and our future
expenses and ability to proceed with the trial are dependent in part on the conclusion of such discussions. If we can not proceed with the trial for any reason or the trial is unsuccessful, or even if successful, if we do not achieve commercially
meaningful results, our business will be harmed.



| |  |  | We modified our risk factor regarding the safety profile of our drugs, which now reads in full as follows:
| | - |  | ----------------------------------------------------------------------------------------------------------

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

Many of our trials involve the use of ZADAXIN in combination with other drugs and our pancreatic cancer clinical trial involves RP101 in combination with
gemcitabin. SCV-07 may be developed to be used in combination with other drugs. Some of these drugs, particularly pegylated interferon alpha, ribavirin, non-pegylated interferon alpha, lamivudine, and dacarbazine are known to cause adverse patient
reactions. We cannot predict how ZADAXIN, RP101 or SCV-07 will work with other drugs, including causing possible adverse side effects not directly attributable to the other drugs that could compromise the safety profile of ZADAXIN, RP101 or SCV-07
when used in certain combination therapies.



| |  |  | We modified the fifth sentence in our risk factor regarding Chinas tiered method of importing and distributing finished pharmaceutical products, which now
reads as follows:
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

We rely on three to six importers, in any given quarter, to supply
substantially all of our product in China



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



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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. In 2006, we acquired the rights to distribute the DC Bead in China, but we must
receive regulatory approval before we can commercialize this product. Our only other potential products presently are SCV-07 and RP101, and each of them is in an earlier stage of development than 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. For RP101, we are obligated
to make a $1,300,000 milestone payment upon commencement of a phase 2 clinical trial and to make additional milestone payments if a phase 3 trial is successful. If any of our products, even if developed and approved, cannot be successfully
commercialized in a timely manner, our business will be harmed and the price of our stock may decline.



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

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

We reported net loss of $6,336,000 for the nine months ended September 30, 2007. In addition, we have experienced significant operating losses in
the past, and as of September 30, 2007, we had an accumulated deficit of approximately $165 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 commercialization of some of our products depending on collaborations with others, which now reads in full as follows:
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

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. Biocompatibles is primarily responsible for the efforts to obtain regulatory approval in China for the DC Bead, and RESprotect is primarily responsible for the scale-up of production for RP101. We generally do not have control over
the amount and timing of resources that our business partners devote to our collaborative efforts, and 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 modified our risk factor regarding our stock price volatility to add one bullet point and modify another bullet point, which now read as follows:
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

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;



35



---

##### Table of Contents

| |  |  | progress and results of clinical trials involving ZADAXIN, RP101 and SCV-07;
| | - |  | ----------------------------------------------------------------------------



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



| |  |  | We modified our risk factor regarding sales of our common stock by officers and directors, which now reads as follows:
| | - |  | ----------------------------------------------------------------------------------------------------------------------

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 September 30, 2007, no director or officer has such a plan however an officer or director may do so in the future. We expect future sales by officers and directors either under 10b5-1 plans or otherwise as a result of their personal
financial planning. We do not believe the volume of such sales would affect our trading price; however, the market could react negatively to sales by our officers and directors, which could affect the trading price of our stock.



| |  |  | 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.



| |  |  | We modified our risk factor regarding currency exchange rate fluctuations, which now reads in full as follows:
| | - |  | --------------------------------------------------------------------------------------------------------------

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 the margins earned by our importers are affected by changes in the currency exchange rate. A trend to a stronger U.S. dollar would erode their margins and give reason for the importers to ask for us to lower our price
to them. 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.



36



---

##### Table of Contents

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



|              |  |                                                                                                                                                                                                                                                                                                                                                             
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                 
|              | 
|3(i).1(1)     |  | Amended and Restated Certificate of Incorporation.                                                                                                                                                                                                                                                                                                          
|              | 
|3(ii).1(1)    |  | Bylaws.                                                                                                                                                                                                                                                                                                                                                     
|              | 
|3(i).2(11)    |  | 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(12)       |  | 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(13)      |  | SciClone Pharmaceuticals, Inc. 2005 Equity Incentive Plan, effective as of June 7, 2005, as amended on February 22, 2007.                                                                                                                                                                                                                                   
|              | 
|10.7(13)      |  | SciClone Pharmaceuticals, Inc. 2004 Outside Directors Stock Option Plan, as amended on June 7, 2005 and as further amended on February 22, 2007.                                                                                                                                                                                                            
|              | 
|10.8(7)       |  | Offer letter dated as of May 21, 2001 between SciClone Pharmaceutical International Ltd. and Hans P. Schmid.                                                                                                                                                                                                                                                
|              | 
|10.9(7)       |  | Amendment to Offer Letter dated as of February 24, 2006 between SciClone Pharmaceutical International Ltd. and Hans P. Schmid.                                                                                                                                                                                                                              
|              | 
|10.10(8)      |  | Consulting Agreement between SciClone Pharmaceuticals, Inc. and Friedhelm Blobel, Ph.D. dated as of April 23, 2006.                                                                                                                                                                                                                                         
|              | 
|10.11(8)      |  | 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(8)      |  | 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(8)      |  | Agreement Regarding Consulting, Resignation and General Release of Claims between Registrant and Ira D. Lawrence dated as of April 23, 2006.                                                                                                                                                                                                                



37



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##### Table of Contents

|           |  |                                                                                                                                                                        
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.14(9)   |  | Contractor Services Agreement between Registrant and Ira D. Lawrence dated as of June 2, 2006.                                                                         
|           | 
|10.15(9)   |  | Indemnity Agreement between Registrant and Friedhelm Blobel, Ph.D. dated as of June 2, 2006.                                                                           
|           | 
|10.16(10)  |  | Confidential Separation Agreement and Release of Claims between SciClone Pharmaceuticals, Inc. and Alfred Rudolph, M.D., executed as of November 20, 2006.             
|           | 
|10.17(14)  |  | Assignment and Purchase Agreement among Avantogen Limited, Avantogen Oncology, Inc., and Resistys, Inc. and SciClone Pharmaceuticals, Inc., dated as of April 25, 2007.
|           | 
|10.18(13)* |  | Amended and Restated License Agreement between RESprotect GmbH and SciClone Pharmaceuticals, Inc., dated as of April 25, 2007.                                         
|           | 
|10.19(13)* |  | Supply Agreement for Licensed Product between RESprotect GmbH and SciClone Pharmaceuticals, Inc., dated as of April 25, 2007.                                          
|           | 
|31.1(15)   |  | Rule 13a-14(a) Certification of Chief Executive Officer.                                                                                                               
|           | 
|31.2(15)   |  | Rule 13a-14(a) Certification of Chief Financial Officer.                                                                                                               
|           | 
|32.1(15)   |  | Section 1350 Certification of Chief Executive Officer.                                                                                                                 
|           | 
|32.2(15)   |  | 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 February 28, 2006.
|--- | ---------------------------------------------------------------------------------------------------



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



|(9) | Incorporated by reference
from the Companys Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006 filed on August 9, 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------



|(10) | Incorporated by reference
from the Companys Current Report on Form 8-K filed on November 27, 2006.
|---- | ---------------------------------------------------------------------------------------------------



|(11) | Incorporated by reference
from the Companys Current Report on Form 8-K filed on December 28, 2006.
|---- | ---------------------------------------------------------------------------------------------------



|(12) | Incorporated by reference
from the Companys Current Report on Form 8-K filed on December 22, 2006.
|---- | ---------------------------------------------------------------------------------------------------



|(13) | Incorporated by reference
from the Companys Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007 filed on August 8, 2007.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------



|(14) | Incorporated by reference
from the Companys Quarterly Report on Form 10-Q/A for the quarterly period ended June 30, 2007 filed on October 3, 2007.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------



|(15) | Filed herewith.
|---- | ---------------



38



---

##### Table of Contents

SIGNATURE

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



|                       |  |  |  |                                                     
|---------------------- |  |  |  | ----------------------------------------------------
|                       |  |  |  | SCICLONE PHARMACEUTICALS, INC.                      
|                       |  |  |  | (Registrant)                                        
|                       |  | 
|Date: November 9, 2007 |  |  |  | /s/ Richard A. Waldron                              
|                       |  |  |  | Richard A. Waldron                                  
|                       |  |  |  | Executive Vice President and Chief Financial Officer



39



---

##### Table of Contents

INDEX TO EXHIBITS



|              |  |                                                                                                                                                                                                                                                                                                                                                             
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit                                                                                                                                                                                                                                                                                                                                                     
|              | 
|3(i).1(1)     |  | Amended and Restated Certificate of Incorporation.                                                                                                                                                                                                                                                                                                          
|              | 
|3(ii).1(1)    |  | Bylaws.                                                                                                                                                                                                                                                                                                                                                     
|              | 
|3(i).2(11)    |  | 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(12)       |  | 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(13)      |  | SciClone Pharmaceuticals, Inc. 2005 Equity Incentive Plan, effective as of June 7, 2005, as amended on February 22, 2007.                                                                                                                                                                                                                                   
|              | 
|10.7(13)      |  | SciClone Pharmaceuticals, Inc. 2004 Outside Directors Stock Option Plan, as amended June 7, 2005 and as further amended on February 22, 2007.                                                                                                                                                                                                               
|              | 
|10.8(7)       |  | Offer letter dated as of May 21, 2001 between SciClone Pharmaceutical International Ltd. and Hans P. Schmid.                                                                                                                                                                                                                                                
|              | 
|10.9(7)       |  | Amendment to Offer Letter dated as of February 24, 2006 between SciClone Pharmaceutical International Ltd. and Hans P. Schmid.                                                                                                                                                                                                                              



40



---

##### Table of Contents

|              |  |                                                                                                                                                                        
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit                                                                                                                                                                
|              | 
|10.10(8)      |  | Consulting Agreement between SciClone Pharmaceuticals, Inc. and Friedhelm Blobel, Ph.D. dated as of April 23, 2006.                                                    
|              | 
|10.11(8)      |  | 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(8)      |  | 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(8)      |  | Agreement Regarding Consulting, Resignation and General Release of Claims between Registrant and Ira D. Lawrence dated as of April 23, 2006.                           
|              | 
|10.14(9)      |  | Contractor Services Agreement between Registrant and Ira D. Lawrence dated as of June 2, 2006.                                                                         
|              | 
|10.15(9)      |  | Indemnity Agreement between Registrant and Friedhelm Blobel, Ph.D. dated as of June 2, 2006.                                                                           
|              | 
|10.16(10)     |  | Confidential Separation Agreement and Release of Claims between SciClone Pharmaceuticals, Inc. and Alfred Rudolph, M.D., executed as of November 20, 2006.             
|              | 
|10.17(14)     |  | Assignment and Purchase Agreement among Avantogen Limited, Avantogen Oncology, Inc., and Resistys, Inc. and SciClone Pharmaceuticals, Inc., dated as of April 25, 2007.
|              | 
|10.18(13)*    |  | Amended and Restated License Agreement between RESprotect GmbH and SciClone Pharmaceuticals, Inc., dated as of April 25, 2007.                                         
|              | 
|10.19(13)*    |  | Supply Agreement for Licensed Product between RESprotect GmbH and SciClone Pharmaceuticals, Inc., dated as of April 25, 2007.                                          
|              | 
|31.1(15)      |  | Rule 13a-14(a) Certification of Chief Executive Officer.                                                                                                               
|              | 
|31.2(15)      |  | Rule 13a-14(a) Certification of Chief Financial Officer.                                                                                                               
|              | 
|32.1(15)      |  | Section 1350 Certification of Chief Executive Officer.                                                                                                                 
|              | 
|32.2(15)      |  | 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 February 28, 2006.
|--- | ---------------------------------------------------------------------------------------------------



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



|(9) | Incorporated by reference
from the Companys Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006 filed on August 9, 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------



|(10) | Incorporated by reference
from the Companys Current Report on Form 8-K filed on November 27, 2006.
|---- | ---------------------------------------------------------------------------------------------------



|(11) | Incorporated by reference
from the Companys Current Report on Form 8-K filed on December 28, 2006.
|---- | ---------------------------------------------------------------------------------------------------



|(12) | Incorporated by reference
from the Companys Current Report on Form 8-K filed on December 22, 2006.
|---- | ---------------------------------------------------------------------------------------------------



|(13) | Incorporated by reference
from the Companys Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007 filed on August 8, 2007.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------



|(14) | Incorporated by reference
from the Companys Quarterly Report on Form 10-Q/A for the quarterly period ended June 30, 2007 filed on October 3, 2007.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------



|(15) | Filed herewith.
|---- | ---------------



41