##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended March 31, 2009

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   ̈    No   ̈

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

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

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

Yes   ̈    No  x

As of May 7, 2009, 46,219,562 shares of the registrants Common Stock, $0.001 par value, were issued and outstanding.









---

##### Table of Contents

SCICLONE PHARMACEUTICALS, INC.

INDEX



|          |  |                                                                                                    |  |         
|--------- |  | -------------------------------------------------------------------------------------------------- |  | --------
|          |  |                                                                                                    |  | PAGE NO.
|PART I.   |  | FINANCIAL INFORMATION                                                                              |  |         
|          |  |                                                                                                   
|Item 1.   |  | Condensed Consolidated Financial Statements (Unaudited)                                            |  |         
|          |  |                                                                                                   
|          |  | Condensed Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008                   |  | 3       
|          |  |                                                                                                   
|          |  | Condensed Consolidated Statements of Operations for the three months ended March 31, 2009 and 2008 |  | 4       
|          |  |                                                                                                   
|          |  | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2008 |  | 5       
|          |  |                                                                                                   
|          |  | Notes to Condensed Consolidated Financial Statements                                               |  | 6       
|          |  |                                                                                                   
|Item 2.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations              |  | 17      
|          |  |                                                                                                   
|Item 3.   |  | Quantitative and Qualitative Disclosures About Market Risk                                         |  | 23      
|          |  |                                                                                                   
|Item 4.   |  | Controls and Procedures                                                                            |  | 24      
|          |  |                                                                                                   
|PART II.  |  | OTHER INFORMATION                                                                                  |  |         
|          |  |                                                                                                   
|Item 1.   |  | Legal Proceedings                                                                                  |  | 25      
|          |  |                                                                                                   
|Item 1A.  |  | Risk Factors                                                                                       |  | 25      
|          |  |                                                                                                   
|Item 2.   |  | Unregistered Sales of Equity Securities and Use of Proceeds                                        |  | 37      
|          |  |                                                                                                   
|Item 3.   |  | Defaults Upon Senior Securities                                                                    |  | 37      
|          |  |                                                                                                   
|Item 4.   |  | Submission of Matters to a Vote of Security Holders                                                |  | 37      
|          |  |                                                                                                   
|Item 5.   |  | Other Information                                                                                  |  | 37      
|          |  |                                                                                                   
|Item 6.   |  | Exhibits                                                                                           |  | 38      
|          | 
|Signature |  | 39                                                                                                



2



---

##### Table of Contents

PART I. FINANCIAL INFORMATION



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

SCICLONE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                               |  |               |              |   |                  |   |              |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------------ | - | ---------------- | - | ------------ | -
|                                                                                                                                               |  | March 31,2009 |              |   | December 31,2008 |  
|                                                                                                                                               |  | (unaudited)   |              |   |                  |  
|ASSETS                                                                                                                                         |  |               |              |   |                  |   |              |  
|Current assets:                                                                                                                                |  |               |              |   |                  |   |              |  
|Cash and cash equivalents                                                                                                                      |  | $             | 22,078,000   |   |                  | $ | 27,673,000   |  
|Restricted short-term investments                                                                                                              |  |               | 66,000       |   |                  |   | 69,000       |  
|Other short-term investments                                                                                                                   |  |               | 28,000       |   |                  |   | 100,000      |  
|Accounts receivable, net of allowance of $0 at March 31, 2009 and December 31, 2008                                                            |  |               | 17,158,000   |   |                  |   | 11,927,000   |  
|Inventories                                                                                                                                    |  |               | 5,808,000    |   |                  |   | 6,056,000    |  
|Prepaid expenses and other current assets                                                                                                      |  |               | 2,023,000    |   |                  |   | 2,191,000    |  
|                                                                                                                                               |  |               |              |   |                  |   |              |  
|Total current assets                                                                                                                           |  |               | 47,161,000   |   |                  |   | 48,016,000   |  
|Property and equipment, net                                                                                                                    |  |               | 879,000      |   |                  |   | 861,000      |  
|Intangible assets, net                                                                                                                         |  |               | 245,000      |   |                  |   | 262,000      |  
|Long-term investments                                                                                                                          |  |               | 1,584,000    |   |                  |   | 1,485,000    |  
|Restricted long-term investments                                                                                                               |  |               | 378,000      |   |                  |   | 388,000      |  
|Other assets                                                                                                                                   |  |               | 766,000      |   |                  |   | 893,000      |  
|                                                                                                                                               |  |               |              |   |                  |   |              |  
|Total assets                                                                                                                                   |  | $             | 51,013,000   |   |                  | $ | 51,905,000   |  
|                                                                                                                                               |  |               |              |   |                  |   |              |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                           |  |               |              |   |                  |   |              |  
|Current liabilities:                                                                                                                           |  |               |              |   |                  |   |              |  
|Accounts payable                                                                                                                               |  | $             | 1,708,000    |   |                  | $ | 2,195,000    |  
|Accrued compensation and employee benefits                                                                                                     |  |               | 1,336,000    |   |                  |   | 2,578,000    |  
|Accrued professional fees                                                                                                                      |  |               | 689,000      |   |                  |   | 727,000      |  
|Other accrued expenses                                                                                                                         |  |               | 2,980,000    |   |                  |   | 2,966,000    |  
|Accrued clinical trials expense                                                                                                                |  |               | 612,000      |   |                  |   | 315,000      |  
|Accrued clinical trials expense due to related party                                                                                           |  |               | 1,471,000    |   |                  |   | 1,442,000    |  
|Deferred revenue                                                                                                                               |  |               | 10,000       |   |                  |   |             |  
|                                                                                                                                               |  |               |              |   |                  |   |              |  
|Total current liabilities                                                                                                                      |  |               | 8,806,000    |   |                  |   | 10,223,000   |  
|Long-term liabilities                                                                                                                          |  |               | 907,000      |   |                  |   | 779,000      |  
|Commitments and contingencies (see Note 14)                                                                                                    |  |               |              |   |                  |   |              |  
|Stockholders equity:                                                                                                                          |  |               |              |   |                  |   |              |  
|Preferred stock; $0.001 par value; 10,000,000 shares authorized; no shares outstanding                                                         |  |               |             |   |                  |   |             |  
|Common stock; $0.001 par value; 75,000,000 shares authorized; 46,219,562 shares issued and outstanding at March 31, 2009 and
December 31, 2008 |  |               | 46,000       |   |                  |   | 46,000       |  
|Additional paid-in capital                                                                                                                     |  |               | 218,065,000  |   |                  |   | 217,704,000  |  
|Accumulated other comprehensive (loss) income                                                                                                  |  |               | (57,000      | ) |                  |   | 3,000        |  
|Accumulated deficit                                                                                                                            |  |               | (176,754,000 | ) |                  |   | (176,850,000 | )
|                                                                                                                                               |  |               |              |   |                  |   |              |  
|Total stockholders equity                                                                                                                     |  |               | 41,300,000   |   |                  |   | 40,903,000   |  
|                                                                                                                                               |  |               |              |   |                  |   |              |  
|Total liabilities and stockholders equity                                                                                                     |  | $             | 51,013,000   |   |                  | $ | 51,905,000   |  
|                                                                                                                                               |  |               |              |   |                  |   |              |  

See notes to condensed consolidated financial statements.



3



---

##### Table of Contents

SCICLONE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



|                                              |  |                             |            |   |      |   |            |  
|--------------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | ---------- | -
|                                              |  | Three Months EndedMarch 31, |           
|                                              |  | 2009                        |            |   | 2008 |  
|Product sales                                 |  | $                           | 15,069,000 |   |      | $ | 10,634,000 |  
|Cost of product sales                         |  |                             | 2,544,000  |   |      |   | 1,967,000  |  
|                                              |  |                             |            |   |      |   |            |  
|Gross margin                                  |  |                             | 12,525,000 |   |      |   | 8,667,000  |  
|                                              |  |                             |            |   |      |   |            |  
|Operating expenses:                           |  |                             |            |   |      |   |            |  
|Research and development                      |  |                             | 4,965,000  |   |      |   | 7,422,000  |  
|Related party research and development        |  |                             | 29,000     |   |      |   | 127,000    |  
|Sales and marketing                           |  |                             | 4,228,000  |   |      |   | 3,948,000  |  
|General and administrative                    |  |                             | 3,040,000  |   |      |   | 3,021,000  |  
|                                              |  |                             |            |   |      |   |            |  
|Total operating expenses                      |  |                             | 12,262,000 |   |      |   | 14,518,000 |  
|                                              |  |                             |            |   |      |   |            |  
|Income (loss) from operations                 |  |                             | 263,000    |   |      |   | (5,851,000 | )
|Interest and investment income                |  |                             | 65,000     |   |      |   | 261,000    |  
|Interest and investment expense               |  |                             | (49,000    | ) |      |   |           |  
|Other (expense) income, net                   |  |                             | (23,000    | ) |      |   | 37,000     |  
|                                              |  |                             |            |   |      |   |            |  
|Income (loss) before provision for income tax |  |                             | 256,000    |   |      |   | (5,553,000 | )
|Provision for income tax                      |  |                             | 160,000    |   |      |   | 106,000    |  
|                                              |  |                             |            |   |      |   |            |  
|Net income (loss)                             |  | $                           | 96,000     |   |      | $ | (5,659,000 | )
|                                              |  |                             |            |   |      |   |            |  
|Basic net income (loss) per share             |  | $                           | 0.00       |   |      | $ | (0.12      | )
|Diluted net income (loss) per share           |  | $                           | 0.00       |   |      | $ | (0.12      | )
|Weighted average shares used in computing:    |  |                             |            |   |      |   |            |  
|Basic net income (loss) per share             |  |                             | 46,219,562 |   |      |   | 46,190,046 |  
|Diluted net income (loss) per share           |  |                             | 46,234,942 |   |      |   | 46,190,046 |  

See notes to condensed consolidated financial statements.



4



---

##### Table of Contents

SCICLONE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                     |  |                             |            |   |      |   |            |  
|------------------------------------------------------------------------------------ |  | --------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                     |  | Three Months EndedMarch 31, |           
|                                                                                     |  | 2009                        |            |   | 2008 |  
|Operating activities:                                                                |  |                             |            |   |      |   |            |  
|Net income (loss)                                                                    |  | $                           | 96,000     |   |      | $ | (5,659,000 | )
|Adjustments to reconcile net income (loss) to net cash used in operating activities: |  |                             |            |   |      |   |            |  
|Non-cash expense related to employee stock options                                   |  |                             | 357,000    |   |      |   | 497,000    |  
|Depreciation and amortization                                                        |  |                             | 139,000    |   |      |   | 76,000     |  
|Realized gain on auction rate securities                                             |  |                             | (99,000    | ) |      |   |           |  
|Other non-cash expense                                                               |  |                             | 122,000    |   |      |   |           |  
|Changes in operating assets and liabilities:                                         |  |                             |            |   |      |   |            |  
|Accounts receivable, net                                                             |  |                             | (5,231,000 | ) |      |   | (1,428,000 | )
|Inventories                                                                          |  |                             | 252,000    |   |      |   | 125,000    |  
|Prepaid expenses and other assets                                                    |  |                             | 124,000    |   |      |   | 72,000     |  
|Accounts payable and other accrued expenses                                          |  |                             | (473,000   | ) |      |   | (759,000   | )
|Accrued compensation and employee benefits                                           |  |                             | (1,242,000 | ) |      |   | (556,000   | )
|Accrued clinical trials expense                                                      |  |                             | 297,000    |   |      |   | (301,000   | )
|Accrued clinical trials expense due to related party                                 |  |                             | 29,000     |   |      |   | 127,000    |  
|Accrued professional fees                                                            |  |                             | (38,000    | ) |      |   | 83,000     |  
|Deferred revenue                                                                     |  |                             | 10,000     |   |      |   | (11,000    | )
|Long-term liabilities                                                                |  |                             | 128,000    |   |      |   | (138,000   | )
|                                                                                     |  |                             |            |   |      |   |            |  
|Net cash used in operating activities                                                |  |                             | (5,529,000 | ) |      |   | (7,872,000 | )
|Investing activities:                                                                |  |                             |            |   |      |   |            |  
|Purchases of property and equipment                                                  |  |                             | (91,000    | ) |      |   | (15,000    | )
|Proceeds from maturities of short-term investments                                   |  |                             | 42,000     |   |      |   | 1,925,000  |  
|Purchases of short-term investments                                                  |  |                             |           |   |      |   | (900,000   | )
|                                                                                     |  |                             |            |   |      |   |            |  
|Net cash (used in) provided by investing activities                                  |  |                             | (49,000    | ) |      |   | 1,010,000  |  
|Financing activities:                                                                |  |                             |            |   |      |   |            |  
|Proceeds from issuances of common stock, net                                         |  |                             |           |   |      |   | 146,000    |  
|                                                                                     |  |                             |            |   |      |   |            |  
|Net cash provided by financing activities                                            |  |                             |           |   |      |   | 146,000    |  
|Effect of exchange rate changes on cash and cash equivalents                         |  |                             | (17,000    | ) |      |   | 56,000     |  
|                                                                                     |  |                             |            |   |      |   |            |  
|Net decrease in cash and cash equivalents                                            |  |                             | (5,595,000 | ) |      |   | (6,660,000 | )
|Cash and cash equivalents, beginning of year                                         |  |                             | 27,673,000 |   |      |   | 31,817,000 |  
|                                                                                     |  |                             |            |   |      |   |            |  
|Cash and cash equivalents, end of year                                               |  | $                           | 22,078,000 |   |      | $ | 25,157,000 |  
|                                                                                     |  |                             |            |   |      |   |            |  
|Supplemental disclosures of cash flow information:                                   |  |                             |            |   |      |   |            |  
|Income taxes paid related to foreign operations                                      |  | $                           | 118,000    |   |      | $ | 106,000    |  

See notes to condensed consolidated financial statements.



5



---

##### Table of Contents

SCICLONE PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)



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

The accompanying
unaudited condensed consolidated financial statements of SciClone Pharmaceuticals, Inc. (SciClone or the Company) have been prepared in conformity with generally accepted accounting principles in
the United States (GAAP) consistent with those applied in, and should be read in conjunction with, the audited financial statements for the year ended December 31, 2008 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, 2008 is derived from the audited financial statements
at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

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

Use of Estimates

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

Significant Accounting Policies

Revenue Recognition

The Company recognizes revenue from product sales at the time of delivery. There are no significant
customer acceptance requirements or post shipment obligations on the part of the Company, except for sales to a new market where acceptance requirements have to be met. 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 not had product returns of damaged, defective or expired product. As such, no amount was accrued for product
returns as of March 31, 2009 or December 31, 2008 in the condensed consolidated balance sheets. Payments by the importing agents and distributors are not contingent upon sale to the end user by the importing agents or distributors.

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

Net Income (Loss) Per Share

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



6



---

##### Table of Contents

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



|                                                                                        |  |                             |            |      |   |            |  
|--------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | ---- | - | ---------- | -
|                                                                                        |  | Three Months EndedMarch 31, |           
|                                                                                        |  | 2009                        |            | 2008 |  
|Numerator:                                                                              |  |                             |            |      |   |            |  
|Net income (loss)                                                                       |  | $                           | 96,000     |      | $ | (5,659,000 | )
|Denominator:                                                                            |  |                             |            |      |   |            |  
|Weighted-average shares outstanding used to compute basic net income (loss) per share   |  |                             | 46,219,562 |      |   | 46,190,046 |  
|Effect of dilutive warrants                                                             |  |                             | 9,757      |      |   |           |  
|Effect of dilutive stock options                                                        |  |                             | 5,623      |      |   |           |  
|                                                                                        |  |                             |            |      |   |            |  
|Weighted-average shares outstanding used to compute diluted net income (loss) per share |  |                             | 46,234,942 |      |   | 46,190,046 |  
|Basic net income (loss) per share                                                       |  | $                           | 0.00       |      | $ | (0.12      | )
|Diluted net income (loss) per share                                                     |  | $                           | 0.00       |      | $ | (0.12      | )

For the three months ended March 31, 2009 and 2008, 8,704,598 and 7,264,959 shares,
respectively, attributable to outstanding stock options were excluded from the calculation of diluted net income (loss) per share because their inclusion would have been anti-dilutive.

Recent Accounting Pronouncements

In December 2007, EITF No. 07-1, Accounting
for Collaborative Arrangements (EITF 07-1) was issued. EITF 07-1 provides guidance concerning: determining whether an arrangement constitutes a collaborative arrangement within the scope of the Issue; how costs
incurred and revenue generated on sales to third parties and how payments between parties to the collaborative arrangement should be reported in the income statement; how an entity should characterize payments on the income statement; and what
participants should disclose in the notes to the financial statements about a collaborative arrangement. EITF 07-1 is effective the Companys fiscal year beginning January 1, 2009. The adoption of EITF 07-1 did not have a material impact
on the Companys financial statements.

On October 10, 2008, the FASB issued FSP No. 157-3, Determining the Fair
Value of a Financial Asset When the Market for That Asset is Not Active, (FSP 157-3) that clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the market for that financial assets is not active. FSP 157-3 is applicable to the valuation of auction-rate securities held by the Company for which there was no active market
as of March 31, 2009. FSP 157-3 is effective upon issuance, including prior periods for which the financial statements have not been issued. The adoption of FSP 157-3 did not have a material impact on the Companys consolidated results of
operations or financial condition.

In April 2009, the FASB issued Statement of Financial Position (FSP FAS)
No. 115-2 and No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, and is effective for the Company beginning July 1, 2009. FSP FAS No. 115-2 and No. 124-2 amend the
other-than-temporary impairment guidance in US GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments debt and equity securities. The Company does not
expect the adoption of FSP FAS No. 115-2 and No. 124-2 to have a material effect on its consolidated financial statements.



7



---

##### Table of Contents

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

The
following is a summary of cash, cash equivalents, available-for-sale, and trading securities at March 31, 2009 and December 31, 2008:



|                                                          |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|--------------------------------------------------------- |  | ----------------- | ---------- | --------------- | - | ---------------- |  | - | ------------------- | - |  | - | ----------
|                                                          |  | March 31, 2009   
|                                                          |  | AmortizedCost     |            | UnrealizedGains |   | UnrealizedLosses |  |   | EstimatedFair Value
|Cash and cash equivalents:                                |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Cash                                                      |  | $                 | 4,163,000  |                 | $ |                 |  | $ |                    |   |  | $ | 4,163,000 
|Money market funds                                        |  |                   | 1,983,000  |                 |   |                 |  |   |                    |   |  |   | 1,983,000 
|U.S. term deposits                                        |  |                   | 15,932,000 |                 |   |                 |  |   |                    |   |  |   | 15,932,000
|                                                          |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Total cash and cash equivalents                           |  | $                 | 22,078,000 |                 | $ |                 |  | $ |                    |   |  | $ | 22,078,000
|                                                          |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Available-for-sale investments:                           |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Certificates of deposit maturing within 1 year            |  | $                 | 76,000     |                 | $ |                 |  | $ |                    |   |  | $ | 76,000    
|Restricted long-term Italian state bonds maturing in 2013 |  |                   | 449,000    |                 |   |                 |  |   | (71,000             | ) |  |   | 378,000   
|Corporate equity securities                               |  |                   | 51,000     |                 |   |                 |  |   | (33,000             | ) |  |   | 18,000    
|                                                          |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Total available-for-sale investments                      |  | $                 | 576,000    |                 | $ |                 |  | $ | (104,000            | ) |  | $ | 472,000   
|                                                          |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Long-term trading security investments:                   |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Long-term auction rate securities maturing after 20 years |  | $                 | 1,584,000  |                 | $ |                 |  | $ |                    |   |  | $ | 1,584,000 
|                                                          |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Total long-term trading security investments              |  | $                 | 1,584,000  |                 | $ |                 |  | $ |                    |   |  | $ | 1,584,000 
|                                                          |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|                                                          | 
|                                                          |  | December 31, 2008
|                                                          |  | AmortizedCost     |            | UnrealizedGains |   | UnrealizedLosses |  |   | EstimatedFair Value
|Cash and cash equivalents:                                |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Cash                                                      |  | $                 | 9,277,000  |                 | $ |                 |  | $ |                    |   |  | $ | 9,277,000 
|Money market funds                                        |  |                   | 1,969,000  |                 |   |                 |  |   |                    |   |  |   | 1,969,000 
|U.S. term deposits                                        |  |                   | 16,427,000 |                 |   |                 |  |   |                    |   |  |   | 16,427,000
|                                                          |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Total cash and cash equivalents                           |  | $                 | 27,673,000 |                 | $ |                 |  | $ |                    |   |  | $ | 27,673,000
|                                                          |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Available-for-sale investments:                           |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Certificates of deposit maturing within 1 year            |  | $                 | 120,000    |                 | $ |                 |  | $ |                    |   |  | $ | 120,000   
|Restricted long-term Italian state bonds maturing in 2013 |  |                   | 448,000    |                 |   |                 |  |   | (60,000             | ) |  |   | 388,000   
|Corporate equity securities                               |  |                   | 51,000     |                 |   |                 |  |   | (2,000              | ) |  |   | 49,000    
|                                                          |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Total available-for-sale investments                      |  | $                 | 619,000    |                 | $ |                 |  | $ | (62,000             | ) |  | $ | 557,000   
|                                                          |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Long-term trading security investments:                   |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Long-term auction rate securities maturing after 20 years |  | $                 | 1,485,000  |                 | $ |                 |  | $ |                    |   |  | $ | 1,485,000 
|                                                          |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           
|Total long-term trading security investments              |  | $                 | 1,485,000  |                 | $ |                 |  | $ |                    |   |  | $ | 1,485,000 
|                                                          |  |                   |            |                 |   |                  |  |   |                     |   |  |   |           

As of March 31, 2009, available-for-sale securities included $66,000 in restricted short-term
investment, $28,000 in other short-term investments and $378,000 in restricted long-term investments. As of December 31, 2008, available-for-sale securities included $69,000 in restricted short-term investment, $100,000 in other short-term
investments and $388,000 in restricted long-term investments. The Company believes the unrealized losses on its available-for-sale investments are temporary and attributable to recent economic slowdown. The Company intends to hold the investments
until recovery.

As of March 31, 2009, the Company held $1,584,000 in fair value of auction rate securities
(ARS) as trading securities. The ARS are investments with contractual maturities generally between 0 and 34 years whose underlying assets are student loans that are substantially backed by the federal
government with interest rates resetting



8



---

##### Table of Contents

approximately every 30 days through an auction process. At the end of each reset period, investors may sell or continue to hold the securities at par. All of
the Companys ARS are rated by one or more of the major independent rating agencies as either AAA or Aaa, except for one holding that has a credit rating of A3.

The recent and current disruptions in the credit markets have adversely affected the auction market for ARS. The Company classified its ARS trading securities as long-term assets on its Condensed Consolidated Balance
Sheets because of its inability to determine when the investments in ARS would settle. While recent failures in the auction process have affected the ability to access these funds in the near term, the Company does not believe that the underlying
securities or collateral have been permanently affected.

In November 2008, the Company accepted an Auction Rate Securities Rights Offer
(the Settlement Agreement) from UBS AG under which, in return for a general release of claims and the grant of a right to UBS AG to purchase the Companys ARS at any time for full par value, the Company
received the right to require UBS AG to purchase the Companys ARS beginning in 2010 (the Rights). The Company held approximately $1,800,000, at par value, of eligible ARS with UBS as of March 31,
2009. By entering into the Settlement Agreement, the Company (1) received the right (Put Option) to sell these auction rate securities back to the investment firm at par, at its sole discretion, anytime during the
period from June 30, 2010 through July 2, 2012, and (2) gave the investment firm the right to purchase these auction rate securities or sell them on the Companys behalf at par anytime after the execution of the Settlement
Agreement through July 2, 2012. The Company elected to measure the Put Option under the fair value option of Financial Accounting Standards Board (FASB) Statement No. 159 The Fair Value Option for
Financial Assets and Financial Liabilities (SFAS 159) and has recorded the Put Option in other assets in its consolidated balance sheet. SFAS 159 allows an entity the irrevocable option to elect fair value for the
initial and subsequent measurement for specified financial assets and liabilities on a contract-by-contract basis. The Companys fair value election was intended to create accounting symmetry with its fair value accounting of the ARS.

The recording of the fair value changes to the Put Option and the recording of the fair value changes of the ARS trading securities
resulted in a net $23,000 realized loss to our condensed consolidated statements of operations for the three month period ended March 31, 2009. As of March 31, 2009 the combined fair value of the Put Option and ARS was $1,747,000 which
represented 97% of the par value of the ARS. The Company anticipates that future changes in the fair value of the Put Option will approximate fair value movements in the related ARS. Further, the Company expects to receive the ARS par value of
$1,800,000 subsequent to June 29, 2010 related to its Settlement Agreement.



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

The Company
determines fair value in accordance with FASB Statement No. 157, Fair Value Measurements (SFAS No. 157). Where quoted prices are available in an active market, fair value is based upon quoted
market prices, and are classified in level 1 of the valuation hierarchy. If quoted market price are not available, fair value is based upon observable inputs such as quoted prices for similar assets or liabilities; quoted prices in markets that are
not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities and are classified in level 2 of the valuation hierarchy. When quoted prices and observable
inputs are unavailable, fair values are based on internally developed cash flow models and are classified in level 3 of the valuation hierarchy. The internally developed cash flow models primarily use, as inputs, estimates for interest rates and
discount rates including yields of comparable traded instruments adjusted for illiquidity and other risk factors, amount of cash flows and expected holding periods of the assets. These inputs reflect our own assumptions about the assumptions market
participants would use in pricing the assets including assumptions about risk developed based on the best information available in the circumstances.



9



---

##### Table of Contents

The following financial instruments were measured at fair value on a recurring basis as of March 31,
2009:



|                                         |  |                                                            |            |                                           |   |                                        |  |                            |           |  |   |           
|---------------------------------------- |  | ---------------------------------------------------------- | ---------- | ----------------------------------------- | - | -------------------------------------- |  | -------------------------- | --------- |  | - | ----------
|                                         |  | Fair Value Measurements at March 31, 2009 Using           
|Description                              |  | Quoted Prices inActive MarketsforIdentical Assets(Level 1) |            | SignificantOtherObservableInputs(Level 2) |   | SignificantUnobservableInputs(Level 3) |  | Balanceas ofMarch 31, 2009
|Money market funds                       |  | $                                                          | 1,983,000  |                                           | $ |                                       |  | $                          |          |  | $ | 1,983,000 
|U.S. term deposits                       |  |                                                            | 15,932,000 |                                           |   |                                       |  |                            |          |  |   | 15,932,000
|Certificates of deposit                  |  |                                                            |           |                                           |   | 76,000                                 |  |                            |          |  |   | 76,000    
|Corporate equity securities              |  |                                                            | 18,000     |                                           |   |                                       |  |                            |          |  |   | 18,000    
|Restricted long-term Italian state bonds |  |                                                            | 378,000    |                                           |   |                                       |  |                            |          |  |   | 378,000   
|Long-term auction rate securities        |  |                                                            |           |                                           |   |                                       |  |                            | 1,584,000 |  |   | 1,584,000 
|Put Option                               |  |                                                            |           |                                           |   |                                       |  |                            | 163,000   |  |   | 163,000   
|                                         |  |                                                            |            |                                           |   |                                        |  |                            |           |  |   |           
|Total                                    |  | $                                                          | 18,311,000 |                                           | $ | 76,000                                 |  | $                          | 1,747,000 |  | $ | 20,134,000
|                                         |  |                                                            |            |                                           |   |                                        |  |                            |           |  |   |           

The following table provides a summary of changes in fair value of the Companys Level 3
financial assets during the three months ended March 31, 2009:



|                                                  |  |                        |           |           |   |          |  
|------------------------------------------------- |  | ---------------------- | --------- | --------- | - | -------- | -
|                                                  |  | Auction RateSecurities |           | PutOption |  
|Balance at December 31, 2008                      |  | $                      | 1,485,000 |           | $ | 285,000  |  
|Total realized gain (loss) included in net income |  |                        | 99,000    |           |   | (122,000 | )
|                                                  |  |                        |           |           |   |          |  
|Balance at March 31, 2009                         |  | $                      | 1,584,000 |           | $ | 163,000  |  
|                                                  |  |                        |           |           |   |          |  

The Company had no unrealized losses for the three months ended March 31, 2009 relating to
those assets for which the Company utilized Level 3 inputs to determine fair value that were still held by the Company at March 31, 2009.

Other financial instruments, including accounts receivable, accounts payable and accrued liabilities, are carried at cost, which we believe approximates fair value because of the short-term maturity of these instruments.



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

Inventories consisted of the
following:



|                 |  |               |           |                  |   |          
|---------------- |  | ------------- | --------- | ---------------- | - | ---------
|                 |  | March 31,2009 |           | December 31,2008
|Raw materials    |  | $             | 3,398,000 |                  | $ | 1,605,000
|Work in progress |  |               | 659,000   |                  |   | 1,525,000
|Finished goods   |  |               | 1,751,000 |                  |   | 2,926,000
|                 |  |               |           |                  |   |          
|                 |  | $             | 5,808,000 |                  | $ | 6,056,000
|                 |  |               |           |                  |   |          



10



---

##### Table of Contents

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

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



|                               |  |               |           |                  |   |          
|------------------------------ |  | ------------- | --------- | ---------------- | - | ---------
|                               |  | March 31,2009 |           | December 31,2008
|Prepaid clinical trial expense |  | $             | 590,000   |                  | $ | 625,000  
|Prepaid insurance              |  |               | 464,000   |                  |   | 658,000  
|Value added tax receivable     |  |               | 432,000   |                  |   | 432,000  
|Prepaid rent                   |  |               | 99,000    |                  |   | 45,000   
|Prepaid interest and dividends |  |               | 15,000    |                  |   | 36,000   
|Other prepaid expenses         |  |               | 423,000   |                  |   | 395,000  
|                               |  |               |           |                  |   |          
|                               |  | $             | 2,023,000 |                  | $ | 2,191,000
|                               |  |               |           |                  |   |          



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

The following is a
summary of other assets:



|                          |  |               |         |                  |   |        
|------------------------- |  | ------------- | ------- | ---------------- | - | -------
|                          |  | March 31,2009 |         | December 31,2008
|Lease deposits            |  | $             | 235,000 |                  | $ | 232,000
|Prepaid clinical expenses |  |               | 232,000 |                  |   | 232,000
|Put option                |  |               | 163,000 |                  |   | 285,000
|Other assets              |  |               | 136,000 |                  |   | 144,000
|                          |  |               |         |                  |   |        
|                          |  | $             | 766,000 |                  | $ | 893,000
|                          |  |               |         |                  |   |        



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

The following is a summary
of other accrued expenses:



|                                     |  |               |           |                  |   |          
|------------------------------------ |  | ------------- | --------- | ---------------- | - | ---------
|                                     |  | March 31,2009 |           | December 31,2008
|Accrued sales and marketing expenses |  | $             | 1,141,000 |                  | $ | 1,228,000
|Accrued manufacturing costs          |  |               | 596,000   |                  |   | 657,000  
|Accrued taxes                        |  |               | 294,000   |                  |   | 241,000  
|Accrued royalties                    |  |               | 231,000   |                  |   | 266,000  
|Accrued annual reports expense       |  |               | 113,000   |                  |   | 115,000  
|Short-term deferred rent             |  |               | 113,000   |                  |   | 113,000  
|Other                                |  |               | 492,000   |                  |   | 346,000  
|                                     |  |               |           |                  |   |          
|                                     |  | $             | 2,980,000 |                  | $ | 2,966,000
|                                     |  |               |           |                  |   |          



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

The following is a
summary of long-term liabilities:



|                                           |  |               |         |                  |   |        
|------------------------------------------ |  | ------------- | ------- | ---------------- | - | -------
|                                           |  | March 31,2009 |         | December 31,2008
|Long-term deferred rent                    |  | $             | 859,000 |                  | $ | 768,000
|Long-term lease deposit                    |  |               | 11,000  |                  |   | 11,000 
|Accrued compensation and employee benefits |  |               | 37,000  |                  |   |       
|                                           |  |               |         |                  |   |        
|                                           |  | $             | 907,000 |                  | $ | 779,000
|                                           |  |               |         |                  |   |        



11



---

##### Table of Contents

|9. | Line-of-Credit
|-- | --------------

In November 2008, the
Company and its subsidiaries, SciClone Pharmaceuticals International Ltd (SPIL) and SciClone Pharmaceuticals International China Holding Ltd (SPIL China) as borrowers, entered into a loan and
security agreement and an unconditional guaranty and security agreement with Silicon Valley Bank under which the Company may borrow up to $6,000,000 (the Credit Facility). The Credit Facility is a line-of-credit that
permits borrowing up to $6,000,000 for a term of 36 months, subject to certain sublimits, including $2,500,000 for letters of credit. The Credit Facility is secured by a first priority secured interest in all of the Companys assets, other than
intellectual property, and a credit insurance policy insuring certain foreign account receivable assets. The Company, as the parent of SPIL and SPIL China, is the guarantor of the Credit Facility.

The line of credit bears interest at the banks prime rate (4%) plus 1.75% (5.75% at March 31, 2009) on outstanding balances. Subsequent
to November 14, 2009, the Company will be subject to an unused line fee and minimum monthly interest. The Company is required to meet certain financial covenants, including minimum consolidated revenue, and minimum consolidated earnings before
interest and income tax, as defined. The Company is also required to meet certain operating covenants that limit its ability to incur liabilities, create liens, make capital expenditures, pay dividends or distributions, make investments, and dispose
of assets. The Company capitalized $210,000 in costs associated with the origination of the facility, which are being amortized to other expense over the term of the loan agreement. The Company also capitalized $126,000 in credit insurance premiums
related to the line of credit that are being amortized over the policy period. The line of credit expires in November 2011, and upon termination all amounts borrowed must be repaid in full.

As of March 31, 2009, there were no outstanding borrowings under the line of credit, and there was $6,000,000 available for future borrowing.



|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 fiscal year ended December 31, 2008. The Company, under the various equity plans, grants stock options for shares of common stock to employees and directors. In accordance with the Plans, the options expire
ten years from the date of grant. Options are generally granted at fair market value on the date of grant and vest over time, generally four years. Certain options granted under the Plans vest over shorter periods.

Stock Based Compensation

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



|                                                                   |  |                             |   |  |       |  
|------------------------------------------------------------------ |  | --------------------------- | - |  | ----- | -
|                                                                   |  | Three Months EndedMarch 31, |  
|                                                                   |  | 2009                        |   |  | 2008  |  
|Risk-free interest rate                                            |  | 1.72                        | % |  | 2.70  | %
|Dividend yield                                                     |  |                            |   |  |      |  
|Volatility factor of the expected market price of our common stock |  | 70.19                       | % |  | 66.53 | %
|Weighted-average expected life of option (years)                   |  | 4.83                        |   |  | 4.83  |  

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

The Company amortizes the compensation cost over the vesting period, which is
generally four years, using the straight-line attribution method. Stock-based compensation expense recognized in the Consolidated Statement of Operations for the three months ended March 31, 2009 and 2008 is based on awards expected to
ultimately vest. FASB Statement No. 123(R) Share-Based Payment (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.



12



---

##### Table of Contents

On March 6, 2009, the Company granted a total of 340,000 shares of the Companys common stock
as performance-based options. The options have an exercise price of $1.08 and will fully vest upon the grantees meeting agreed upon performance goals on or before December 31, 2011. If the performance goal is met, each option has a ten year
term measured from the date of grant. If the performance goal is not met on or before December 31, 2011, the option expires in its entirety. The grant date fair value per share of each of the awards is $0.62 and has been calculated using the
Black-Scholes option pricing model with the following assumptions, risk-free interest rate of 1.72%; dividend yield of 0%; volatility factor of 70.19% and expected term of 4.83 years. For the three months ended March 31, 2009, the Company has
not recorded option expense related to these awards. The Company will only recognize such option expense in the event that the Company determines that it is probable that the performance goal(s) will be achieved.

As of March 31, 2009, unamortized compensation expense related to unvested options was approximately $3,416,000. The weighted average period over
which compensation expense related to these options will be recognized is 3.64 years. The weighted-average fair value per share of options granted during the three months ended March 31, 2009 and 2008 was $0.63 and $1.03, respectively. The
total fair value of the shares that vested during the three months ended March 31, 2009 and 2008 was $473,000 and $676,000, respectively.



|11. | Comprehensive Loss/Income
|--- | -------------------------

The following
table summarizes components of total comprehensive income (loss):



|                                                                                                                    |  |                             |         |   |      |   |            |  
|------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ---------- | -
|                                                                                                                    |  | Three Months EndedMarch 31, |        
|                                                                                                                    |  | 2009                        |         |   | 2008 |  
|Net income (loss)                                                                                                   |  | $                           | 96,000  |   |      | $ | (5,659,000 | )
|Other comprehensive income (loss):                                                                                  |  |                             |         |   |      |   |            |  
|Net change in unrealized loss and foreign currency translation on foreign-denominated available-for-sale securities |  |                             | (12,000 | ) |      |   |           |  
|Net change in unrealized gains/losses on available for sale securities                                              |  |                             | (31,000 | ) |      |   | (116,000   | )
|Foreign currency translation                                                                                        |  |                             | (17,000 | ) |      |   | 56,000     |  
|                                                                                                                    |  |                             |         |   |      |   |            |  
|Total comprehensive income (loss)                                                                                   |  | $                           | 36,000  |   |      | $ | (5,719,000 | )
|                                                                                                                    |  |                             |         |   |      |   |            |  

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



|                                                                                                                     |  |               |         |   |                  |   |         |  
|-------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                     |  | March 31,2009 |         |   | December 31,2008 |  
|Net unrealized losses on available-for-sale securities                                                               |  | $             | (33,000 | ) |                  | $ | (2,000  | )
|Net unrealized loss and foreign currency translation adjustment on foreign-denominated available-for-sale securities |  |               | (71,000 | ) |                  |   | (60,000 | )
|Cumulative foreign currency translation adjustment                                                                   |  |               | 47,000  |   |                  |   | 65,000  |  
|                                                                                                                     |  |               |         |   |                  |   |         |  
|Accumulated other comprehensive (loss) income                                                                        |  | $             | (57,000 | ) |                  | $ | 3,000   |  
|                                                                                                                     |  |               |         |   |                  |   |         |  



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

Provision for income tax of
$160,000 and $106,000 for the three months ended March 31, 2009 and 2008, respectively, related to the Companys foreign operations in the Peoples Republic of China. The Companys statutory tax rate in the Peoples Republic
of China is 18%.



|13. | Related Party Transactions
|--- | --------------------------

The Company has
licensed to Sigma-Tau exclusive ZADAXIN (thymalfasin or thymosin alpha 1) development and marketing rights that cover all countries in the European Union as defined on January 1, 1995, in addition to Iceland, Norway and Switzerland. Sigma-Tau
and affiliated persons were stockholders of the Company at the time this transaction was entered into, and are currently the Companys largest shareholder. Under the agreement with Sigma-



13



---

##### Table of Contents

Tau, Sigma-Tau conducted a multi-center phase 3 hepatitis C triple therapy clinical trial in Europe with 553 patients. The objective of the European trial
was to provide data on ZADAXINs use as part of a triple therapy in treating HCV patients. The Company paid Sigma-Tau approximately $2,509,000 through December 31, 2008 of funding support during the course of patient enrollment and trial
period. The Company will also pay a $1,500,000 milestone payment upon completion of the final report. The Companys accounting policy for recording funding amounts due to Sigma-Tau is to record the amounts to research and development expense
over the trial period including the period of completion of the final report. Based on the level of activity in this trial, the Company has recorded approximately $29,000 and $127,000 of research and development expense related to this trial for the
three months ended March 31, 2009 and 2008, respectively. As of March 31, 2009 and December 31, 2008, the Company had accrued clinical trial expenses of $1,471,000 and $1,442,000, respectively, due to Sigma-Tau.

On March 30, 2009, the Company entered into a settlement agreement (the Settlement Agreement) with the affiliates of
Sigma-Tau (the Sigma-Tau Group). The Company issued a press release on March 31, 2009 (the Press Release), announcing the execution of the Settlement Agreement and a commercial agreement
referred to herein as the ZADAXIN Agreement, as well as certain actions that the Company has taken to implement the provisions of the Settlement Agreement. The Press Release, Settlement Agreement and ZADAXIN Agreement are
exhibits to the Companys Current Report on Form 8-K which the Company filed with the Securities and Exchange Commission on April 1, 2009.

Under the Settlement Agreement, the Company (i) increased the size of the Board from seven (7) to ten (10) members and (ii) appointed Dr. Roberto Camerini, Dr. Trevor Jones and
Mr. Gregg Lapointe to fill the vacancies on the Board. The Company also agreed that the Board and the applicable committees of the Board will nominate no more than eight members (8) for election to the Board at the 2009 Annual Meeting and
will:



| |  |  | reduce the size of the Board to eight (8) members effective at the 2009 Annual Meeting of Stockholders;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | nominate Dr. Camerini, Dr. Jones and Mr. Lapointe, together with Mr. Dean Woodman, Dr. Friedhelm Blobel, Mr. Richard Hawkins,
Dr. Ira Lawrence and Mr. Jon Saxe, for election to the Board at the 2009 Annual Meeting, with terms expiring at SciClones 2010 Annual Meeting of Stockholders;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | recommend, and reflect such recommendation in the Companys definitive proxy statement in connection with the 2009 Annual Meeting of Stockholders, that the
Companys stockholders vote to elect Dr. Camerini, Dr. Jones and Mr. Lapointe at the 2009 Annual Meeting of Stockholders;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | solicit and use its reasonable best efforts to obtain proxies in favor of the election of Dr. Camerini, Dr. Jones and Mr. Lapointe at the 2009 Annual
Meeting of Stockholders, in the same manner as for the other director nominees;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ensure that Dr. Camerini, Dr. Jones and Mr. Lapointe will be nominated to serve on the committees of the Board as set forth in the Settlement
Agreement; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adopt an exemption to the Rights Agreement to permit Dr. Camerini, Dr. Jones and Mr. Lapointe to receive the equity compensation awards customarily
offered to all of the Companys non-employee directors.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company also agreed to hold the 2009 Annual Meeting of
Stockholders no later than June 15, 2009 and the 2010 Annual Meeting of Stockholders during the second week of June 2010, subject only to those reasonable delays, if any, which are necessitated by the selection by the Sigma-Tau Group of any
replacement directors, as described in the next paragraph.

Additionally, the Company agreed that, while any of Dr. Camerini,
Dr. Jones or Mr. Lapointe remain in office, if any of them resign or is otherwise unable to serve as a director or is removed for cause as a director, the Sigma-Tau Group will have the right to designate and substitute a person or persons
for appointment to the Board as a replacement director, subject to evaluation and approval by the Companys Nominating and Corporate Governance Committee in good faith.

SciClone and Sigma-Tau Industrie Farmaceutiche Riunite S.p.A. (STI), a subsidiary of Sigma-Tau, signed the ZADAXIN Agreement in
connection with their pre-existing license agreement relating to thymosin alpha 1. Under the ZADAXIN Agreement, STI will, at its cost, lead all future development activities for thymosin alpha 1 for treating Hepatitis C Virus
(HCV) in the territory defined in the pre-existing license agreement (which, as amended, is collectively identified as Exhibits 10.23 through 10.26 to the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2008) and exclusively interact with European regulatory agencies responsible for the approval of thymosin alpha 1 for the treatment of HCV.

The ZADAXIN Agreement also provides that the Company and SciClone Pharmaceuticals International Ltd., a SciClone subsidiary, will work together with STI, at their respective costs, to find one or more third parties
willing to fund further development and commercialization activities for thymosin alpha 1 in the United States and Europe (other than in Italy, where STI retains its pre-existing exclusive license) for treating malignant melanoma and will cooperate
in developing mutually acceptable licensing or other agreements for such third party development and commercialization.



14



---

##### Table of Contents

|14. | Commitments
|--- | -----------

In April 2007, the Company
acquired the exclusive rights in the United States and Canada to develop and commercialize RP101, a clinical-stage compound for the treatment of cancer. Under the terms of the agreements with Resistys, Inc., a wholly-owned subsidiary of Avantogen
Oncology, Inc., and with RESprotect GmbH (RESprotect), the Company may be obligated to pay post phase 3 success-based regulatory and commercial milestone payments up to $22,000,000, and royalties on future sales. The
Company has entered into an agreement with Pharmaceuticals Research Associates, Inc. (PRA) for Clinical Trials Management Services, for a randomized, double blind, placebo controlled, phase 2 study evaluating the efficacy
and safety of RP101 for the treatment of pancreatic cancer. The estimated cost of PRAs management services and pass-through costs is $8,500,000 and $3,000,000, respectively, of which $7,824,000 had been paid to PRA by the Company and another
$250,000 was due and payable as of March 31, 2009. 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 1,228,000 ($1,878,000) was paid by the Company to RESprotect through March 31, 2009, leaving a balance of approximately 220,000 ($292,000 at March 31, 2009 conversion rates).

In May 2007, the Company entered into a non-cancelable operating lease agreement for its main office facility (the Lease)
effective from July 1, 2007 through June 30, 2014. In September 2008, the Company entered into an amendment to the Lease for additional office space (the Expansion Agreement) that also expires on June 30,
2014. Both the Lease and Expansion Agreement contain rent escalations of approximately 4% and 6% per year, respectively. The Company is recognizing the rental expense on a straight-line basis over the lease terms. Under the terms of the Lease
and the Expansion Agreement, the Company was provided allowances in the amounts of approximately $206,000 and $482,000, respectively, towards the cost of its leasehold improvements and as an incentive to rent, respectively. In accordance with FASB
Technical Bulletin 88-1, Issues Relating to Accounting for Leases: Time Pattern of the Physical Use of the Property in an Operating Lease, Lease Incentives in an Operating Lease, Applicability of Leveraged Lease Accounting to Existing Assets
of the Lessor, Money-Over-Money Lease Transactions, Wrap Lease Transactions, the Company has recorded these allowances as deferred rent which are being amortized over the lease terms as a reduction of rent expense. The leases require the
Company to pay insurance and taxes and its pro-rata share of operating expenses.

As of March 31, 2009, the Company recorded $113,000
and $859,000 in short-term and long-term deferred rent respectively. As of December 31, 2008, the Company recorded $113,000 and $768,000 in short-term and long-term deferred rent respectively.

The Company also leases various office facilities abroad and equipment under non-cancelable lease agreements and subleases certain real property to a
third party. Future minimum lease payments and sublease rental income under facility and equipment operating lease agreements as of March 31, 2009, were as follows:



|            |  |                       |           |                       |   |                           |  |   |          
|----------- |  | --------------------- | --------- | --------------------- | - | ------------------------- |  | - | ---------
|Year ended: |  | Minimum LeasePayments |           | Sublease RentalIncome |   | Net MinimumLease Payments
|2009        |  | $                     | 1,181,000 |                       | $ | 94,000                    |  | $ | 1,087,000
|2010        |  |                       | 1,535,000 |                       |   | 121,000                   |  |   | 1,414,000
|2011        |  |                       | 1,580,000 |                       |   |                          |  |   | 1,580,000
|2012        |  |                       | 1,437,000 |                       |   |                          |  |   | 1,437,000
|2013        |  |                       | 1,432,000 |                       |   |                          |  |   | 1,432,000
|Thereafter  |  |                       | 744,000   |                       |   |                          |  |   | 744,000  
|            |  |                       |           |                       |   |                           |  |   |          
|            |  | $                     | 7,909,000 |                       | $ | 215,000                   |  | $ | 7,694,000
|            |  |                       |           |                       |   |                           |  |   |          



|15. | Subsequent Event
|--- | ----------------

On April 30, 2009,
the Company was approved for a Credit Line Agreement (the UBS Credit Line) with UBS Bank USA (UBS Bank) that will provide up to an aggregate amount of $1,100,000 in the form of an uncommitted,
demand, revolving line of credit. The Company intends to enter into the UBS Credit Line in connection with its previous acceptance of an offer from UBS AG and its affiliates (UBS) of certain rights to require UBS to
repurchase $1,800,000 (par value) of auction rate securities that UBS had previously sold to the Company. The UBS Credit Line will be secured only by such auction rate securities and proceeds from sales of the auction rate securities will be
applied to repayment of the UBS Credit Line.



15



---

##### Table of Contents

Advances under the UBS Credit Line will be made on a no net cost basis, meaning that the
interest paid by the Company on such advances will not exceed the interest or dividends paid to the Company by the issuer of the auction rate securities.

The UBS Credit Line will also provide, among other things, that UBS Bank may demand full or partial repayment of the UBS Credit Line or terminate and cancel the UBS Credit Line at its sole discretion and without cause
at any time; provided that in such case UBS Bank would be required to provide the Company alternative financing on substantially similar terms or repurchase the auction rate securities at par, unless the demand right was exercised as a result of
certain specified events or the customer relationship between UBS Bank and the Company is terminated for cause by UBS Bank.



16



---

##### Table of Contents

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

Special Note Regarding Forward-Looking Statements

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

Overview

SciClone Pharmaceuticals (NASDAQ: SCLN) is a profit driven,
global pharmaceutical company with a substantial international business and a product portfolio of novel therapies for cancer and infectious diseases. Our objective, which we believe we will achieve, is profitability for the full year 2009 through a
combination of international sales growth, a cost-containing clinical development strategy, and focused expense management. ZADAXIN®, our brand of thymalfasin or thymosin alpha 1 and our
primary product, is sold in over 30 countries for the treatment of the hepatitis B virus (HBV) and the hepatitis C virus (HCV), certain cancers and as a vaccine adjuvant. In addition, our DC Bead
product is awaiting approval in the Peoples Republic of China (China), for the treatment of liver cancer. Our current cash position, $6.0 million line of credit, and the profit margin from our product sales provide the
financial resources for continued growth in our international business and for development of our pipeline of phase 2 drug candidates, including: RP101 for the treatment of pancreatic cancer and SCV-07 for the treatment of HCV and for oral
mucositis.

We plan to expand our commercial operations, currently primarily located
in China, with the goal of becoming a significant pharmaceutical company in this rapidly growing pharmaceutical market. A key part of our strategy is to leverage our decade of experience in China and to grow our international business by adding
commercial stage or near term commercial stage products to our portfolio. For example, after having acquired the Chinese marketing rights to DC BeadTMfor liver cancer, we are pursuing its regulatory approval and, if approved, intend to launch this product in 2009. We believe we are well-positioned to in-license additional therapeutics for our international business with a focus on
China, in part because of our opportunity to commercialize these products utilizing our well established sales and marketing organization in China.

SciClone continues its clinical development program potential with three product candidates being studied in four indications. Our latest stage opportunity is ready for phase 3 which will evaluate thymalfasin as a therapy for stage IV
melanoma. We estimate that this is a $200 million market opportunity worldwide. If the targeted patient group can be extended to the adjuvant setting through additional clinical trials, we believe the global market opportunity could increase by
approximately $500 million. We are in the process of seeking a partner for this phase 3 trial prior to initiating enrollment.

In addition
to thymalfasin, we are developing RP101 for the treatment of life-threatening diseases. We are conducting a multi-center, randomized, double-blind, placebo controlled phase 2 clinical trial using RP101 in combination with gemcitabine chemotherapy in
approximately 167 patients with unresectable stage III and IV pancreatic cancer. We announced March 9, 2009 that we completed enrollment of this trial ahead of schedule and expect to report results in the first half of 2010.

Our third product candidate, SCV-07, is being studied in two indications. In September 2008, we reported what we believe are promising results from our
proof-of-concept phase 2a clinical trial using SCV-07 as a sole agent administered to patients chronically infected with HCV. The trial was designed to evaluate the effect of SCV-07 on hepatitis C viral load, as well as on other measures of immune
response. SCV-07 demonstrated activity in some treated patients in the higher dosage groups, and the decrease in viral load in these patients was accompanied by an increase in a biomarker which is usually correlated with an immunological response
against HCV. Additionally, SCV-07 was shown to be generally safe and well-tolerated with no dose limiting toxicities or serious adverse events reported. We are planning to initiate a phase 2b trial for SCV-07 in HCV in 2009.

During the fourth quarter of 2008, SCV-07 also entered phase 2 clinical development to assess the safety and efficacy of SCV-07 for the delay to onset of
severe oral mucositis in subjects receiving chemoradiation therapy for the treatment of cancers of the head and neck. In this multi-center, randomized, double-blind, placebo-controlled dose-ranging study, we plan to enroll approximately 60 patients
and expect to complete enrollment of this trial before the end of 2009 and we expect to report results in the first half of 2010.



17



---

##### Table of Contents

We manufacture ZADAXIN, RP101 and SCV-07 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.

We believe our cash on hand, ongoing revenue generating business operations and $6 million line of credit will be sufficient to fund our current business activities for the foreseeable future. During this period, our results may fluctuate
from quarter to quarter and we may report quarterly losses. Our ability to sustain operating profitability will be impacted by numerous factors including expansion of our sales efforts for ZADAXIN, the regulatory approval process including the
timing of United States Food and Drug Administration (FDA) or international regulatory approvals, 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, the timing of orders for ZADAXIN from international markets, particularly China, and the acquisition of additional product rights and the funding, if any, provided as a result of corporate partnering
arrangements.

Recent Accounting Pronouncements

In December 2007, EITF Issue No. 07-1, Accounting for Collaborative Arrangements (EITF 07-1) was issued. EITF 07-1 provides guidance concerning: determining whether an arrangement
constitutes a collaborative arrangement within the scope of the Issue; how costs incurred and revenue generated on sales to third parties and how payments between parties to the collaborative arrangement should be reported in the income statement;
how an entity should characterize payments on the income statement; and what participants should disclose in the notes to the financial statements about a collaborative arrangement. EITF 07-1 is effective our fiscal year beginning January 1,
2009. The adoption of EITF 07-1 did not have a material impact on our financial statements.

On October 10, 2008, the FASB issued
Statement of Financial Position No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active, (FSP 157-3) that clarifies the application of SFAS 157 in a
market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial assets is not active. FSP 157-3 is applicable to the valuation of our
auction-rate securities held for which there was no active market as of March 31, 2009. FSP 157-3 is effective upon issuance, including prior periods for which the financial statements have not been issued. The adoption of FSP 157-3 did not
have a material impact on our consolidated results of operations or financial condition.

In April 2009, the FASB issued Statement of
Financial Position (FSP FAS) No. 115-2 and No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, and is effective for the Company beginning July 1, 2009. FSP FAS
No. 115-2 and No. 124-2 amends the other-than-temporary impairment guidance in US GAAP for the debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments
debt and equity securities. We do not expect the adoption of FSP FAS No. 115-2 and No. 124-2 to have a material effect on our consolidated financial statements.

Critical Accounting Estimates and Assumptions

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, 2008.

Results of Operations

Total Revenues

For the three months ended March 31, 2009 and 2008 product sales were $15,069,000 and $10,634,000, respectively. Our revenue growth was attributable
to higher volume of ZADAXIN sold primarily due to further market penetration in China and a modest increase in prices from the 2008 to 2009 periods. For the three months ended March 31, 2009 and 2008, product sales to China were $14,589,000 and
$9,990,000, or 97% and 94% of sales, respectively. All product sales in each period were derived from sales of ZADAXIN.

For the
three-month period ended March 31, 2009, sales to two importing agents in China accounted for approximately 65% and 32% of our product sales. For the three-month period ended March 31, 2008, sales to two importing agents in China accounted
for approximately 68% and 26% of our product sales. The two largest customers were the same importing agents in each of these periods.



18



---

##### Table of Contents

Cost of Product Sales and Gross Margin on Product Sales

Gross margin on product sales was 83% for the three-month period ended March 31, 2009, as compared to 82% for the corresponding period in 2008. We
expect cost of product sales, and hence gross margin on product sales, to vary slightly from period to period, depending upon the level of ZADAXIN sales, the absorption of product-related fixed costs, and any charges associated with excess or
expiring finished product inventory. For the three-month periods ended March 31, 2009 and 2008, no charges were recorded by us associated with excess or expiring finished product inventory.

Research and Development

Research
and development expenses were $4,994,000 for the three-month period ended March 31, 2009, as compared to $7,549,000 for the corresponding period in 2008. During the three-months ended March 31, 2008, research and development expenses
included $1,320,000 related to a milestone payment upon first patient dosing in the RP101 phase 2 clinical trial and we incurred drug development and manufacturing costs of approximately $1,990,000 mainly related to the scale up and manufacture of
RP101 and purchase of Gemcitabine, the current standard of care and a companion drug for RP101 in our RP101 clinical trial. There were no similar expenses for the corresponding period of 2009. Research and development expenses also decreased during
the three months ended March 31, 2009 as a result of a decrease of $217,000 in recruitment fees, a decrease of $218,000 in preclinical pharmacology costs, and a decrease of $132,000 in travel and entertainment expenses. These decreases were
partially offset by increased clinical trial expenses of approximately $948,000 related to our RP101 and SCV-07 mucositis clinical trials as a result of increased enrollment in these trials during the 2009 period, and by an increase of approximately
$288,000 in compensation and benefits expense. The initiation and continuation of our clinical development programs has had, and will continue to have, a significant effect on our research and development expenses.

Although it is not possible to determine the total cost expected to be incurred in any particular year for each clinical trial due to the uncertain
nature of the clinical trial process, we estimate that our costs for 2009 relating to research and development will decrease compared to 2008 due to reduced spending related to our phase 2 clinical trial for RP101. In general, we expect research and
development expenses to vary substantially from quarter to quarter as we pursue our strategy of initiating additional preclinical and clinical trials and testing, acquiring product rights, and expanding regulatory activities.

Sales and Marketing

Sales and
marketing expenses were $4,228,000 for the three-month period ended March 31, 2009, as compared to $3,948,000 for the corresponding period in 2008. The increased level of sales and marketing expenses was primarily due to $262,000 of additional
conference expense as a result of increased local seminar participation and sales meetings as we continued to expand sales efforts for ZADAXIN for the 2009 period. We expect sales and marketing expenses for 2009 to be higher than those incurred in
2008 due to increased sales efforts associated with our growing international business.

General and Administrative

General and administrative expenses were $3,040,000 for the three-month period ended March 31, 2009, as compared to $3,021,000 for the corresponding
period in 2008. We believe that general and administrative expense for 2009 will remain at a comparable level to 2008, although these expenses may vary from quarter to quarter.

Interest and Investment Income and Other Income (Expense)

Interest and investment income was $65,000 for the three-month period ended March 31, 2009, as compared to $261,000 for the corresponding period in 2008. The decrease was primarily due to lower cash and
investment balances in the 2009 period and lower interest earned on cash balances.

Interest and investment expense was $49,000 for the
three-month period ended March 31, 2009 and relates to amortization of loan origination fees related to our line of credit. There was no interest and investment expense recorded for the three-month period ended March 31, 2008.

Other expense was $23,000 for the three-month period ended March 31, 2009 and related to the recording of the fair value changes to our Put
Option and ARS trading securities. Other income of $37,000 for the corresponding period in 2008 related to foreign currency transaction gain on cash denominated in euros.

Provision for Income Tax

Provision for income tax was $160,000 for the three-month period ended
March 31, 2009, compared to $106,000 for the corresponding period in 2008, and relates to our foreign operations in China. The increase in the 2009 period related to increased operating activity in China.



19



---

##### Table of Contents

Liquidity and Capital Resources

Days sales outstanding in accounts receivable, using the average receivables method, were 100 and 126 days for the three-month periods ended
March 31, 2009 and 2008, respectively. The majority of our sales are to customers in the Peoples Republic of China where our accounts receivable collections have standard credit terms ranging from 90 to 180 days. During the fourth quarter
of 2008, our largest customer in the Peoples Republic of China agreed to payment terms of 90 days instead of 180 days in order to procure from us increased volume of ZADAXIN and a volume discount. This change resulted in a reduction in our
days sales outstanding for the three-month period ended March 31, 2009, compared the corresponding period in 2008.

At
March 31, 2009 and December 31, 2008, we had $22,172,000 and $27,842,000, respectively, in cash, cash equivalents and short-term investments. The decrease in cash for the three months ended March 31, 2009 mainly related to an increase
of $5,231,000 in our accounts receivable. We currently estimate cash, cash equivalents and short-term investments at December 31, 2009 will be lower than the balance at December 31, 2008. The expected decrease in this balance is primarily
attributable to cash expected to be used in operations.

The short-term investments consist primarily of highly liquid marketable
securities. Our restricted short-term investment of $66,000 as of March 31, 2009 relates to a letter of credit secured by a certificate of deposit to facilitate our value added tax filings in Europe.

Our restricted long-term investment of $378,000 at March 31, 2009 consists of Italian state bonds purchased to facilitate our value added tax
filings in Europe.

As of March 31, 2009, we held at fair value $1,584,000 of auction rate securities
(ARS) as trading securities. The ARS are investments with contractual maturities generally between 0 and 34 years whose underlying assets are student loans that are substantially backed by the federal
government with interest rates resetting approximately every 30 days through an auction process. At the end of each reset period, investors may sell or continue to hold the securities at par. All of our ARS are rated by one or more of the major
independent rating agencies as either AAA or Aaa, except for one holding that has a rating of A3.

Historically, our ARS were highly
liquid, using a Dutch auction process that reset the applicable interest rate at predetermined intervals, typically every 30 days, which in turn provided liquidity at par value. However, as a result of liquidity issues in the global
credit and capital markets, the auctions for all of our ARS failed beginning in February 2008 when sell orders exceeded buy orders. As of March 31, 2009 there continues to be no auction market for our ARS. The failures of these auctions do not
affect the value of the collateral underlying the ARS, and we continue to earn interest on our ARS. Because of the failure of auctions, we will not be able to liquidate our ARS until the issuer calls the security, a successful auction occurs, a
buyer is found outside of the auction process or the security matures. Based on this, we classified the ARS as long-term investments on our consolidated balance sheet as of March 31, 2009.

In November 2008, we accepted an Auction Rate Securities Rights Offer (the Rights Offer) from UBS AG under which,
in return for a general release of claims and the grant of a right to UBS AG to purchase our ARS at any time for full par value, we received the right to require UBS AG to purchase at par value our ARS beginning in June 2010 (the
Rights). The Rights are non-transferable. Upon acceptance, we granted UBS AG the sole discretion and right to sell or dispose of, and/or enter orders in the auction process with respect to the eligible ARS on
our behalf without prior notification to us from UBS AG, as long as we receive a payment at par upon any sale or disposition. We expect to sell our ARS under the Rights. However, if the Rights are not exercised before July 2, 2012, they will
expire and UBS will have no further rights or obligation to buy our ARS.

The enforceability of the Rights results in the creation of an
asset akin to a put option (the Put Option). We have the right to put the ARS back to UBS at some specified date for a payment equal to the par value of the ARS. The Put Option is a free standing
asset separate from the ARS. We recorded a net loss of $23,000 in other expense related to the net fair value changes of our Put Option and ARS included in our results of operations for the three months ended March 31, 2009.

We will continue to classify the ARS investments as long-term on our consolidated balance sheet until such time the investments become short-term. We
believe that even with the possible requirement to hold all such securities until June 30, 2010, our remaining cash and cash equivalents, short-term investments and line of credit will be sufficient to meet our anticipated cash needs for at
least the next twelve months.

Net cash used in operating activities totaled ($5,529,000) and ($7,872,000) for the three months ended
March 31, 2009 and 2008, respectively. Net cash used in operating activities of $5,529,000 for the three months ended March 31, 2009 was comprised primarily of net income of $96,000 which was adjusted for non-cash items such as stock-based
compensation expense of $357,000, depreciation and amortization of $139,000, and $6,144,000 of net cash outflow related to changes in operating assets and liabilities. Such changes included an increase of $5,231,000 in accounts receivable due to
normal fluctuations in the timing of payments received from customers, and a net decrease of $1,242,000 in accrued compensation and benefits primarily as a result of the payment of our fiscal year 2008 incentive bonus payments to employees occurring
during the three months ended March 31, 2009.



20



---

##### Table of Contents

Net cash used in operating activities amounted to $7,872,000 for the three-month period ended
March 31, 2008. The $7,872,000 of net cash used in operating activities for the three-month period ended March 31, 2008 was comprised primarily of net loss of $5,659,000 which was adjusted for non-cash items such as stock-based
compensation expense of $497,000 and depreciation and amortization of $76,000, and $2,786,000 of net cash outflow related to changes in operating assets and liabilities. Such changes included an increase of $1,428,000 in our accounts receivable due
to an increase in sales and fluctuations in the timing of customer payments received, a decrease of $556,000 in accrued compensation and employee benefits primarily related to the payment of the 2007 bonus to our employees, a $759,000 decrease in
accounts payable and other accrued expenses, and a $301,000 decrease in our accrued clinical trials expense. The decreases in accounts payable and other accrued expenses and our accrued clinical trials expense related primarily to payments made to
vendors during the three months ended March 31, 2008 related to the phase 2 RP101 and SCV-07 clinical trials, and to the development plans for a phase 3 melanoma clinical trial.

Net cash used in investing activities amounted to $49,000 for the three-month period ended March 31, 2009, compared to cash provided by investing
activities of $1,010,000 for the three-month period ended March 31, 2008. The change in the 2009 period was primarily due to a decrease in net proceeds from the sales and purchases of marketable securities as compared to the prior year period.

There was no cash provided or used in financing activities for the three-month period ended March 31, 2009. Net cash provided by
financing activities amounted to $146,000 for the three-month period ended March 31, 2008 and consisted of proceeds from issuance of common stock under our employee stock option plan.

To provide us additional flexibility in managing our operations and funding our clinical trials, in November 2008, SciClone and its subsidiaries,
SciClone Pharmaceuticals International Ltd (SPIL) and SciClone Pharmaceuticals International China Holding Ltd (SPIL China) as borrowers, entered into a loan and security agreement and an
unconditional guaranty and security agreement with Silicon Valley Bank under which we may borrow up to $6,000,000 (the Credit Facility). The Credit Facility is a line-of-credit that permits borrowing up to $6,000,000 for a
term of 36 months, subject to certain sublimits, including $2,500,000 for letters of credit. The Credit Facility is secured by a first priority secured interest in all of our assets, other than intellectual property, and a credit insurance policy
insuring certain foreign account receivable assets. SciClone Pharmaceuticals, Inc., as the parent of SPIL and SPIL China, is the guarantor of the Credit Facility.

The line of credit bears interest at the banks prime rate (4%) plus 1.75% (5.75% at March 31, 2009) on outstanding balances. Subsequent to November 14, 2009, we will be subject to an unused line
fee and minimum monthly interest. We are required to meet certain financial covenants, including minimum consolidated revenue, and minimum consolidated earnings before interest and income tax, as defined. We are also required to meet certain
operating covenants that limit our ability to incur liabilities, create liens, make capital expenditures, pay dividends or distributions, make investments, and dispose of assets. The line of credit expires in November 2011, and upon termination all
amounts borrowed must be repaid in full. As of March 31, 2009, there were no outstanding borrowings under the line of credit, and there was $6,000,000 available for future borrowing.

We believe our cash on hand, ongoing revenue generating business operations and line of credit will be sufficient to fund current business activities for
the foreseeable future. However, we intend to continue to explore alternatives for financing to provide additional flexibility in managing our operations and funding our clinical trials. The unavailability or the inopportune timing of any financing
could prevent or delay our long-term product development and commercialization programs, either of which could hurt our business. We cannot assure you that funds from financings will be sufficient to conduct and complete further 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 complementary products, technologies and
businesses, the initiation and continuation of preclinical and clinical trials and testing, the timing of regulatory approvals, developments in relationships with existing or future collaborative parties, the status of competitive products, and
various alternatives for financing. We have not determined the timing or structure of any transaction.

Contractual Obligations

During the three month period ended March 31, 2009, we renewed our operating lease agreement for our Shanghai office facility to extend the term of
the lease through April 25, 2012. Minimum future rental payments under facility and equipment operating lease agreements, net of sublease income, at March 31, 2009 amount to a total of $1,087,000 remaining in 2009, $1,414,000 in 2010,
$1,580,000 in 2011, $1,437,000 in 2012, $1,432,000 in 2013, and $744,000 in 2014.

There were no other material changes during the
three-month period ended March 31, 2009 to our contractual obligations as disclosed in our Form 10-K for the year ended December 31, 2008.



21



---

##### Table of Contents

Related Party Transactions

None of our officers or directors, other than Dr. Camerini, Dr. Jones and Mr. Lapointe, as set forth below, were involved in related party transactions in the three-month period ended March 31,
2009.

We have licensed to Sigma-Tau exclusive ZADAXIN development and marketing rights that cover all countries in the European Union as
defined on January 1, 1995, in addition to Iceland, Norway and Switzerland. Sigma-Tau and affiliated persons were our stockholders at the time this transaction was entered into, and are currently our largest shareholder. Under our agreement
with Sigma-Tau, Sigma-Tau conducted a multi-center phase 3 hepatitis C triple therapy clinical trial in Europe with 553 patients. The objective of the European trial was to provide data on thymalfasins use as part of a triple therapy in
treating HCV patients. We paid Sigma-Tau approximately $2,509,000 of funding support during the course of patient enrollment and trial period through March 31, 2009. We will also pay a $1,500,000 milestone payment upon completion of the final
report, expected later in 2009. Our accounting policy for recording funding amounts due to Sigma-Tau is to record the amounts to research and development expense over the trial period including the period of completion of the final report. Based on
the level of activity in this trial, we have recorded approximately $29,000 and $127,000 of research and development expense related to this trial in the three months ended March 31, 2009 and 2008, respectively. As of March 31, 2009 and
December 31, 2008, we had accrued clinical trial expenses of $1,471,000 and $1,442,000, respectively, due to Sigma-Tau.

On
March 30, 2009, we entered into a settlement agreement (the Settlement Agreement) with the affiliates of Sigma-Tau (the Sigma-Tau Group). SciClone issued a press release on March 31, 2009
(the Press Release), announcing the execution of the Settlement Agreement and a commercial agreement referred to herein as the ZADAXIN Agreement, as well as certain actions that we have taken to
implement the provisions of the Settlement Agreement. The Press Release, Settlement Agreement and ZADAXIN Agreement are exhibits to our Current Report on Form 8-K which we filed with the SEC on April 1, 2009.

Under the Settlement Agreement, we (i) increased the size of the Board from seven (7) to ten (10) members and (ii) appointed
Dr. Roberto Camerini, Dr. Trevor Jones and Mr. Gregg Lapointe to fill the vacancies on the Board. SciClone also agreed that the Board and the applicable committees of the Board will nominate no more than eight members (8) for
election to the Board at the 2009 Annual Meeting and will:



| |  |  | reduce the size of the Board to eight (8) members effective at the 2009 Annual Meeting of Stockholders;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | nominate Dr. Camerini, Dr. Jones and Mr. Lapointe, together with Mr. Dean Woodman, Dr. Friedhelm Blobel, Mr. Richard Hawkins,
Dr. Ira Lawrence and Mr. Jon Saxe, for election to the Board at the 2009 Annual Meeting, with terms expiring at SciClones 2010 Annual Meeting of Stockholders;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | recommend, and reflect such recommendation in SciClones definitive proxy statement in connection with the 2009 Annual Meeting of Stockholders, that
SciClones stockholders vote to elect Dr. Camerini, Dr. Jones and Mr. Lapointe at the 2009 Annual Meeting of Stockholders;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | solicit and use its reasonable best efforts to obtain proxies in favor of the election of Dr. Camerini, Dr. Jones and Mr. Lapointe at the 2009 Annual
Meeting of Stockholders, in the same manner as for the other director nominees;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ensure that Dr. Camerini, Dr. Jones and Mr. Lapointe will be nominated to serve on the committees of the Board as set forth in the Settlement
Agreement; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adopt an exemption to the Rights Agreement to permit Dr. Camerini, Dr. Jones and Mr. Lapointe to receive the equity compensation awards customarily
offered to all of SciClones non-employee directors.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SciClone also agreed to hold the 2009 Annual Meeting of
Stockholders no later than June 15, 2009 and the 2010 Annual Meeting of Stockholders during the second week of June 2010, subject only to those reasonable delays, if any, which are necessitated by the selection by the Sigma-Tau Group of any
replacement directors, as described in the next paragraph.

Additionally, SciClone agreed that, while any of Dr. Camerini,
Dr. Jones or Mr. Lapointe remain in office, if any of them resign or is otherwise unable to serve as a director or is removed for cause as a director, the Sigma-Tau Group will have the right to designate and substitute a person or persons
for appointment to the Board as a replacement director, subject to evaluation and approval by SciClones Nominating and Corporate Governance Committee in good faith.

SciClone and Sigma-Tau Industrie Farmaceutiche Riunite S.p.A. (STI), a subsidiary of Sigma-Tau, signed the ZADAXIN Agreement in connection with their pre-existing license agreement relating
to thymosin alpha 1. Under the ZADAXIN Agreement, STI will, at its cost, lead all future development activities for thymosin alpha 1 for treating Hepatitis C Virus (HCV) in the territory defined in the pre-existing license
agreement (which, as amended, is collectively identified as Exhibits 10.23 through 10.26 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2008) and exclusively interact with European regulatory agencies responsible
for the approval of thymosin alpha 1 for the treatment of HCV.



22



---

##### Table of Contents

The ZADAXIN Agreement also provides that SciClone and SciClone Pharmaceuticals International Ltd., a
SciClone subsidiary, will work together with STI, at their respective costs, to find one or more third parties willing to fund further development and commercialization activities for thymosin alpha 1 in the United States and Europe (other than in
Italy, where STI retains its pre-existing exclusive license) for treating malignant melanoma and will cooperate in developing mutually acceptable licensing or other agreements for such third party development and commercialization.

Off-Balance Sheet Arrangements

There were no
off-balance sheet arrangements in the three-month period ended March 31, 2009.



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

The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in money market funds, certificates of deposit,
and U.S. Treasury, or U.S. government agency notes. In the past, we also invested in highly-rated, auction rate securities. The auction rate securities are classified as trading securities as of March 31, 2009, and consequently, are recorded on
the balance sheet at fair value with realized gains or losses reported as income (loss). All of our investments mature within one year from date of purchase except for the auction rate securities whose ultimate maturities range from 22 to 34 years,
and our Italian state bonds that mature in 2013. Our holdings in investments, of any one issue, do not exceed 2% of our cash, cash equivalents and investments. Our investments in our investment securities are subject to interest rate risk. If
interest rates rise, the market value of our investments may decline, which could result in a realized loss if we are forced to sell an investment before its scheduled maturity. To minimize the exposure due to an adverse shift in interest rates, we
invest in short-term notes and maintain an average maturity of less than one year. A hypothetical 60 basis point increase in interest rates would result in an approximate $14,000 decrease (0.6%) in fair value of our available-for-sale and trading
securities. This potential change is based on sensitivity analyses performed on our financial position at March 31, 2009. Actual results may differ materially. We do not hold any derivative financial instruments to manage our interest rate
risks.

As of March 31, 2009, we held $1,800,000 at cost in auction rate securities, classified as long-term assets, with an auction
rate feature whose underlying assets are generally student loans that are substantially backed by the federal government. In February 2008, auctions began to fail for these securities and each auction has failed since February 2008. Effective
January 1, 2008, we determined the fair market values of our financial instruments based on the fair value hierarchy established in SFAS 157 that requires an entity to maximize the use of observable inputs (Level 1 and Level 2 inputs) and
minimize the use of unobservable inputs (Level 3 inputs) when measuring fair value. Given the current failures in the auction markets to provide quoted market prices of the ARS securities as well as the lack of any correlation to these instruments
to other observable market data, we valued these securities using a pricing model with the most significant inputs categorized as Level 3. Significant inputs that went into the model were the credit quality of the issuer, the percentage and types of
guarantees (such as Federal Family Education Loan Program-FFELP), the probability of the auction succeeding or the security being called, an illiquidity discount factor, and tax status. At March 31, 2009, the ARS were recorded at their
determined fair value of $1,584,000 fair value, and the loss of $216,000 had been realized in our financial statements. Changes in the assumptions of the model based on dynamic market conditions could have a significant impact on the valuation of
these securities, which may lead us in the future to take further losses or gains for these securities.

We have recorded our Put Option at
its fair value of $163,000 in other assets in the accompanying consolidated balance sheet as of March 31, 2009. We estimate the fair value of the Put Option based on a discounted cash flow model. The assumptions used in preparing the discounted
cash flow model include estimates for interest rates, estimates for discount rates using yields of comparable traded instruments adjusted for illiquidity and other risk factors, and amount of cash flows for the expected holding period. These inputs
reflect our assumptions about risk, developed based on the best information available in the circumstances. Changes in the assumptions of the model based on dynamic market conditions could have a significant impact on the valuation of this asset,
which may lead us in the future to record gains or losses for this asset.

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



23



---

##### Table of Contents

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

Evaluation of Disclosure Controls and
Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), 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 CEO and CFO 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

As of December 31,
2008, we carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures in ensuring that material information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, has been made known to them in a timely
fashion. Based on this evaluation, our President and Chief Executive Officer and Senior Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2008 because we
failed to expense approximately $540,000 in research and development costs related to changes in the scope of activities performed by our clinical research organization during 2008 with respect to our RP101 clinical trial. We therefore made certain
adjustments to our research and development expenses for the year ended December 31, 2008 and prepaid and other current asset balances as of December 31, 2008. This control failure was discovered prior to both the public announcement of
our earnings and the completion of the audit of our financial statements by Ernst & Young LLP for the fiscal year ended December 31, 2008.

As a result of the material weakness, subsequent to December 31, 2008, we have significantly strengthened our disclosure controls and procedures and internal control over financial reporting to remediate the
deficiencies that gave rise to the material weakness. Specifically, we implemented the following internal control improvements in the first quarter of 2009.



| |  |  | Changes in scope activities related to clinical trials are required to be formally documented and executed through change orders processed on a timely basis.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our finance department is now required to review all material clinical contracts (including amendments) and evaluate the underlying clinical expense estimations
against the financial terms of the contract on a quarterly basis.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A finance-department representative will meet with a representative of our clinical development department to validate the completeness of the agreements, including
informal or in process agreements.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A communication or confirmation with our contracted Clinical Research Organizations will occur quarterly regarding work performed.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------

As required by Rule 13a-15(d) of the Exchange Act, our management, including our CEO and CFO, conducted an
evaluation of our internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) to determine whether any changes in our internal control over financial reporting occurred during the first quarter of fiscal 2009
that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, other than as described above, there have been no such changes during the first quarter of fiscal 2009.

Limitations of the Effectiveness of Internal Controls

Our management, including the CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met. Our controls and procedures are designed to provide reasonable assurance that our control systems objective
will be met and our CEO and CFO have concluded that our disclosure controls and procedures are effective at the reasonable assurance level. The design of a control system must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any



24



---

##### Table of Contents

system of controls is based in part on certain assumptions about the likelihood of future events. Projections of any evaluation of the effectiveness of
controls in future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Notwithstanding these limitations, our disclosure
controls and procedures are designed to provide reasonable assurance of achieving their objectives. Our CEO and CFO have concluded that our disclosure controls and procedures are, in fact, effective at the reasonable assurance level.

PART II. OTHER INFORMATION



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

None



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

Our risk factors are set forth below
in their entirety. We have made material changes from those risk factors included with our Annual Report on Form 10-K for the year ended December 31, 2008 for those risk factors pertaining to:



| |  |  | Our sales of ZADAXIN (thymalfasin or thymosin alpha 1) may fluctuate due to seasonality of product orders;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | Our stock price may be volatile;
| | - |  | --------------------------------



| |  |  | Final results from our proposed or ongoing clinical trials for thymalfasin, SCV-07 and RP 101 may differ materially from interim or pre-clinical trial results;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We contract with third parties who may be our sole source suppliers for our clinical trial and commercial products;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | We need to obtain regulatory approval for thymalfasin, RP101, SCV-07 and DCBead for the intended indications that we are evaluating;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We are subject to currency rate fluctuations;
| | - |  | ---------------------------------------------



| |  |  | Any recurrence of Severe Acute Respiratory Syndrome (SARS) or the outbreak of a different contagious disease may effect us;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | Our investments are subject to certain risks; and
| | - |  | -------------------------------------------------



| |  |  | We may be subject to intellectual property claims and litigation.
| | - |  | -----------------------------------------------------------------

We also added a risk factor regarding risks should we engage in acquisitions and a risk factor regarding relying on third parties for development of our products.

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

While we have sales of ZADAXIN (thymalfasin or thymalfasin alpha 1) in certain markets, regulatory approval does not exist at this time 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 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 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.



25



---

##### Table of Contents

We have not yet sold any product other than ZADAXIN and our sales have been primarily to a single
country, China. Our future revenue growth depends to a great extent on increased market acceptance and commercialization of ZADAXIN in additional countries, as well as our ability to increase sales in China. 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, RP101 and SCV-07. 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.

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 providing SciClone with the necessary supporting documents to obtain
regulatory approval in China for the DC Bead, and RESprotect is primarily responsible for the scale-up of production for RP101. We generally do not have control over the amount and timing of resources that our business partners devote to our
collaborative efforts, and some have not always performed as or when expected. If they do not perform their obligations as we expect, particularly obligations regarding clinical trials, our development expenses would increase and the development or
sale of our products could be limited or delayed, which could hurt our business and cause our stock price to decline. In addition, our relationships with these companies may not be successful. Disputes may arise with our collaborators, including
disputes over ownership rights to intellectual property, know-how or technologies developed with our collaborators. We may not be able to negotiate similar additional arrangements in the future to develop and commercialize ZADAXIN or other products.

Our revenue is dependent on our 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 the three month periods ended March 31, 2009 and
2008, approximately 97% and 94%, respectively, of our ZADAXIN sales were to customers in China. Sales of ZADAXIN in China may be limited due to the low average personal income, lack of patient cost reimbursement, poorly developed infrastructure and
existing and potential competition from other products, including generics. ZADAXIN sales growth in recent years has benefited from the rapidly growing Chinese economy and growing personal disposable income. Sales of ZADAXIN in China could be
adversely affected by a slowing or downturn of the Chinese economy, which may be more likely to occur with the global economic slowdown currently taking place.

In China, ZADAXIN is approved only for the treatment of hepatitis B virus (HBV) and as a vaccine adjuvant. We face competition from certain large, global pharmaceutical companies who are aggressively marketing
competing products for the treatment of HBV and other indications where ZADAXIN is used on an off-label basis. In addition, several local companies are selling lower-priced, locally manufactured generic thymosin, which is a competitive product and
is selling in substantial and increasing quantities. While generic products outsell ZADAXIN in unit volumes, we have been able to maintain an advantage through the reputation of our imported, branded product. We expect such competition to continue
and there could be a negative impact on the price and the volume of ZADAXIN sold in China, which would harm our business. Our efforts to in-license or acquire other pharmaceutical products for marketing in China and other markets may be unsuccessful
or even if successful 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, Eastern Europe, Latin America and the Middle East, and sales outside of China have not been substantial to date. Some countries in
these regions, including China, regulate pharmaceutical prices and pharmaceutical importation. These regulations may reduce prices for ZADAXIN to levels significantly below those that would prevail in an unregulated market, limit the volume of
product which may be imported and sold or place high import duties on the product, any of which may limit the growth of our revenues or cause them to decline. We believe that the Chinese government is increasing its efforts to reduce overall health
care costs, including through pricing controls. Individual provinces in China and, in some cases, individual hospitals can and have established pricing requirements for a product to be included on formulary lists. In some cases, these prices have
been 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.



26



---

##### Table of Contents

We have received regulatory approvals to market ZADAXIN in China and to manufacture ZADAXIN and export
the product from Italy. In order to continue our sales to China, we need to maintain these approvals. Our license to import ZADAXIN into China needs to be renewed every five years and the next renewal is required in 2013. Although we were successful
in obtaining a renewal in 2008, there is no assurance that we will receive renewals in the future when applied for or that the renewals will not be conditioned or limited in ways that limit our ability to sell ZADAXIN 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 China and the world 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 and the adverse effect of any of
these issues on our business could be increased due to the concentration of our business with a small number of distributors. Problems with collections from, or sales to, any one of those distributors could materially adversely affect our results.
Operations in foreign countries also exposes us to risks relating to difficulties in enforcing our proprietary rights, currency fluctuations and adverse or deteriorating economic conditions. If we experience problems with obtaining registrations,
complying with reimbursement rules or compliance with foreign country or applicable U.S. laws, adverse or mixed outcome of clinical studies anywhere in the world, or if we experience difficulties in payments or intellectual property matters in
foreign jurisdictions, or if significant political, economic or regulatory changes occur, our results could be adversely affected. Moreover, our operations throughout the world including in particular across China, are potentially subject to the
laws and regulations of the United States including the Foreign Corrupt Practices Act, in addition to the laws and regulations of the local countries. Regulation in China of the activities in the pharmaceutical industry has recently increased and
may continue to undergo significant and unanticipated changes. If we fail to comply with regulations or to carry out controls on our Chinese or other foreign operations in a manner that satisfy all applicable laws, our business would be harmed.

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 epidemic diseases such as SARS or Influenza A (H1N1), if ZADAXIN is purchased in connection with 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.

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

Competition in the pharmaceutical industry is intense, and we expect that competition will increase. Our success depends on our ability to compete in this industry, but we cannot assure you that we will be able to
successfully compete with our competitors. Increased competitive pressure could lead to intensified price-based competition resulting in lower prices and margins, which would hurt our operating results. We cannot assure you that we will compete
successfully against our competitors or that our competitors, or potential competitors, will not develop drugs or other treatments for our targeted indications that will be superior to ours.

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

Effective internal controls are necessary for us to provide reliable financial reports and to protect from fraudulent, illegal or unauthorized transactions. If we cannot provide effective controls and reliable financial reports, our
business and operating results could be harmed. Moreover, as a United States-based corporation doing business in China, these controls often need to satisfy the requirements of Chinese law as well as the requirements of United States law which
frequently differ in certain aspects. We have in the past discovered, and may in the future discover, areas of our internal controls that need improvement. For example, our management has determined that as of December 31, 2008 we had a
material weakness in our internal controls related to our failure to expense approximately $540,000 in research and development costs related to changes in the scope of activities performed by our clinical research organization during 2008. Although
we have since taken steps to rectify



27



---

##### Table of Contents

this material weakness, there can be no assurance that we will be successful in this regard. 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, including with respect to our clinical research expenses, 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.

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 or acquire products on acceptable terms and successfully develop and commercialize them, our business could be harmed.

Our stock price may be volatile, and an investment in our stock could suffer a decline in value. If we do not continue to comply with certain NASDAQ Global Market (NASDAQ) listing requirements, our common stock may be delisted which
would make it more difficult to sell our common stock.

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



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



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



| |  |  | finding a partner for the phase 3 trial of thymalfasin for malignant melanoma;
| | - |  | ------------------------------------------------------------------------------



| |  |  | 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 pharmaceutical market sectors;
| | - |  | -----------------------------------------------------------------------------------------------------------



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



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

Our common stock is listed on NASDAQ. As of May 7, 2009, the closing bid price of our common stock was $1.77. On March 23, 2009, the NASDAQ
suspended its requirement to maintain a minimum bid price of $1.00 and also suspended the rules requiring a minimum market value of publicly held shares through Friday, July 17, 2009. However, these rules will be reinstated Monday,
July 20, 2009. If we fail to meet NASDAQs listing criteria our common stock may be delisted. Our common stock would thereafter be traded in the non-NASDAQ, over-the-counter market. If our common stock were delisted, it may be more
difficult to dispose of, or get an accurate market value of, our common stock. This could severely limit our common shareholders ability to sell our common stock in the secondary market.



28



---

##### Table of Contents

We have a history of operating losses and an accumulated deficit. Although we reported net income of
$96,000 for the three months ended March 31, 2009, we have experienced significant operating losses in the past, and as of March 31, 2009, we had an accumulated deficit of approximately $177 million. If our operating expenses were to
increase or if we were not able to increase or sustain revenue over the next few years, we may not achieve profitability in the future.

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

We
believe our cash on hand and ongoing business operations as well as our $6 million line of credit will be sufficient to fund current business activities for the foreseeable future. However, our ability to achieve and sustain operating profitability
is dependent on numerous factors including our ability to achieve our goal of increasing sales of ZADAXIN, securing regulatory approval for DC Bead in China, the execution and successful completion of ZADAXIN, SCV-07, and RP101 clinical trials and
securing partnerships for those programs that lead to regulatory approvals in major pharmaceutical markets. We cannot assure you that such funds from operating activities will be sufficient, or that we will attain profitable operations in future
periods. In addition, we intend to develop other products and we may need additional funds in the future to support such development and to support future growth and achieve profitability. If we need to raise additional funds in the future and such
funds are not available on reasonable terms, if at all, our commercialization efforts may be impeded, our revenues may be limited and our operating results may suffer.

Substantial sales of equity in our subsidiaries or 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 except for applicable U.S. insider trading regulations with respect to possession of material non-public information by Sigma-Tau or its officers and
directors.

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

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

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 in Europe and other major markets. 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, through partnering, ZADAXIN for the treatment of melanoma in the United States, Europe and other major markets, RP101 in the United States and Canada, and SCV-07 in major markets, excluding Russia.

Clinical trials are inherently risky and may reveal that our product candidates are ineffective or have unanticipated side effects and/or drug
interactions that may significantly decrease the likelihood of regulatory approval. On November 5, 2008, we announced the top-line results from a large, randomized, phase 3 clinical trial evaluating thymalfasin in combination with pegylated
interferon alpha-2a (peg-IFN-2a) and ribavirin (RBV) as a treatment for patients with hepatitis C virus (HCV) who have not responded to prior therapy consisting of peg-IFN and RBV alone (current standard of care). The thymalfasin treated group did
not achieve statistical significance for the primary end point of sustained virological response (SVR) as assessed in the primary analysis population, i.e. the intent-to-treat population. In the prospectively defined secondary population of patients
who completed the full course of 48 weeks of treatment with thymalfasin in addition to peg-IFN-2a and RBV (Completer Population), the primary endpoint was achieved with statistical significance. These results did not meet our expectations based upon
prior clinical trials. Similarly, the results of our thymalfasin phase 2 melanoma clinical trial do not necessarily predict future clinical or commercial success. Finally, the results of studies in SCV-07, including a phase 2a for HCV, 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 candidate clinical trials may not prove statistical significance; negative or inconclusive clinical trial results may
require us to conduct further testing or we may choose to abandon projects that we had been expecting to complete; clinical trials may be halted due to safety reasons; patient drop out



29



---

##### Table of Contents

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; and/or our future expenses and ability to proceed with a trial may be dependent in part on finding a partner. Moreover,
if the outcome of any of these trials is unsuccessful, or even if successful, does not achieve commercially meaningful results, our business could be harmed.

We rely on third parties who are our sole source suppliers for our clinical trial and commercial products and their inability to deliver products that meet our quality-control standards 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. For example, Biocompatibles is the sole supplier of DC Bead, RESprotect is the sole supplier of RP101 and Solvay Peptides S.A. is our sole supplier of
SCV-07. Any unanticipated deficiencies in these suppliers, and/or recall of the manufacturing lots or similar action regarding the pegylated interferon alpha, ribavirin or gemcitabine used in our clinical trials could delay the trials or detract
from the integrity of the trial data and its potential use in future regulatory filings. In addition, manufacturing interruptions or failure to comply with regulatory requirements by any of these suppliers 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 and impair our competitive position.

Further, any deficiencies or shortages in supply of our commercial products would adversely affect our ability to realize our sales plans.
For example, 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 and any manufacturing errors have the potential to require a product recall. During 2006, we
experienced failures and lower yields on production runs from our sole supplier of bulk API product for the manufacture of ZADAXIN for our current markets, including China. During 2009, we have experienced quality-control problems with a component
of our ZADAXIN kit. Although we are taking steps to ensure that such problems do not continue, there is no assurance that we will either be successful in doing so with our current supplier or be able to timely and cost-effectively qualify a new
supplier for this component. 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.

We are in the process of registering new suppliers for ZADAXIN with regulatory agencies in markets
where thymalfasin is approved for sale. This process, quality assurance and other steps could cause delays or interruptions of supply in certain other markets. In some countries, a manufacturing change may require additional regulatory approvals
that may delay thymalfasin marketing approvals in new markets. In addition, if sales of ZADAXIN were to increase dramatically, our third-party suppliers may not be able to supply ZADAXIN either quickly enough or at a commercially reasonable cost,
which could limit our ability to satisfy increased demand or could adversely affect the ability of these suppliers to provide products for our clinical trials. If any of our suppliers are unable to match our need for supply, either because of
product defects, inability to increase supply in the face of increased demand, or maintain financially viable businesses, our ability to effect our sales and protect our brand reputation would be materially impaired, thereby materially and adversely
affecting our sales and results of operations.

We rely on third parties for development of our products and the inability of any of
these parties to reliably, timely or cost-effectively provide us with their obligated services could materially harm the timing of bringing our products to market and accordingly adversely affect our business.

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

We may engage in acquisitions and must successfully integrate any acquired products or companies in order to avoid a material disruption to our
business and materially adverse effects to our financial results.

We may engage in one or more acquisitions of products or companies.
Acquisitions involve numerous risks, including the following:



| |  |  | difficulties and costs in integrating the operations, technologies, products and personnel of the acquired businesses;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | inadequate internal control procedures and disclosure controls to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or poor
integration of a target companys or businesses procedures and controls;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | diversion of managements attention from normal daily operations of the business;
| | - |  | ---------------------------------------------------------------------------------



30



---

##### Table of Contents

| |  |  | potential difficulties in completing projects associated with in-process research and development;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | insufficient net revenue to offset increased expenses associated with acquisitions;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | potential loss of key employees of the acquired companies; and
| | - |  | --------------------------------------------------------------



| |  |  | difficulty in forecasting revenues and margins.
| | - |  | -----------------------------------------------

Acquisitions may also cause us to:



| |  |  | issue common stock that would dilute our current shareholders percentage ownership;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | assume liabilities, some of which may be unknown at the time of such acquisitions;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | record goodwill and intangible assets that will be subject to impairment testing and potential periodic impairment charges;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | incur amortization expenses related to certain intangible assets;
| | - |  | -----------------------------------------------------------------



| |  |  | incur large and immediate write-offs of in-process research and development costs; or
| | - |  | -------------------------------------------------------------------------------------



| |  |  | become subject to litigation.
| | - |  | -----------------------------

Mergers and acquisitions of biotechnology companies inherently entail risk, and no assurance can be given that any future acquisitions will be successful or will not adversely affect our business, operating results, or financial condition.
Failure to manage and successfully integrate acquisitions could harm our business and operating results in a material way. Even when an acquired company has already developed and marketed products, there can be no assurance of the continued
prospects or success of such products or that pre-acquisition due diligence will have identified all possible issues that might arise with respect to such products.

If third-party reimbursement is not available or patients cannot otherwise pay for ZADAXIN, the DC Bead, SCV-07 or RP101, we may not be able to successfully market them.

Significant uncertainty exists as to the reimbursement status of new therapeutic products, such as ZADAXIN, and once commercialized, the DC Bead, SCV-07
and RP101. We cannot assure you that third-party insurance coverage and reimbursement will be available for therapeutic products we might develop. We cannot assure you that we will be able to maintain or increase third-party payments for ZADAXIN or
obtain third-party payments for the DC Bead in China. The failure to obtain or maintain third-party reimbursement for our products would harm our business. Further, we cannot assure you that additional limitations will not be imposed in the future
in the United States or elsewhere on drug coverage and reimbursement due to proposed health care reforms. Our commercial rights to RP101 are limited to the United States and Canada. In many emerging markets where we have marketing rights to ZADAXIN,
but where government resources and per capita income may be so low that our products will be prohibitively expensive, we may not be able to market our products on economically favorable terms, if at all.

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

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 ZADAXIN phase 3 HCV triple therapy combination trial, ongoing at that time, more difficult and enrollment took longer than planned. Enrollment of the 553 patients in this trial was completed in December 2006. A patient who
drops out at any point during a 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 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 may affect the pancreatic cancer phase 2 clinical trial for RP101, the oral mucositis phase 2 clinical trial for SCV-07, or our anticipated HCV phase 2 trial for SCV-07 and other trials we conduct.



31



---

##### Table of Contents

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

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

If we do not obtain
regulatory approval for thymalfasin, RP101, SCV-07 or the DC Bead for the intended indications that we are evaluating, our revenues will be limited and our operating results may be materially affected.

Our ability to execute on our business strategy is largely dependent on our ability to obtain regulatory approval for the use of thymalfasin in major
markets, for the use of RP101 in the United States, for the use of SCV-07 in major markets, excluding Russia, and for the use of the DC Bead in China. The regulatory approval processes in the United States and Europe are demanding and typically
require 12 months or more in the United States and 18 months or more in Europe from the date of submission of an NDA. We have committed significant resources, including capital and time, to develop these products, and intend to continue to do so,
including the initiation and execution of additional clinical trials, with the goal of obtaining such approvals. If we do not obtain these approvals, we will be unable to achieve any revenue from these products in these major markets and our
thymalfasin sales in other jurisdictions could decline.

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 for 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.

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 U.S. state and local jurisdictions and in foreign countries. These regulations govern, among other things, the development, testing,
manufacturing, labeling, storage, pre-market approval, importation, advertising, promotion, sale and distribution of our products. These regulations may change from time to time and new regulations may be adopted.

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

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



32



---

##### Table of Contents

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

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

We depend on international sales, and global conditions could negatively affect our operating results as may our limited sales, marketing and
distribution capacities outside of China. Changes in Chinas political, social and economic environment may affect our financial performance.

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

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

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 nine 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 nine 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.

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. China currently maintains the
value of the renminbi in a narrow currency trading band that may or may not fluctuate based upon government policy. Depending on market conditions and the state of the Chinese economy, it is possible that China could make future adjustments,
including moving to a managed float system, with opportunistic interventions. This reserve diversification may



33



---

##### Table of Contents

negatively impact the United States dollar and U.S. interest rates. A trend to a stronger U.S. dollar would erode margins earned by our Chinese importers and
prompt them to ask us to lower our prices. We are subject to currency exchange rate fluctuations as a result of expenses incurred by our foreign operations. In particular, one of our supply arrangements under which we purchase finished products is
denominated in euros and costs of our operations in China are paid in local currency. Consequently, changes in exchange rates could unpredictably and adversely affect our operating results and could result in exchange losses. To date, we have not
hedged against the risks associated with fluctuations in exchange rates and, therefore, exchange rate fluctuations could have a material adverse impact on our future operating results and stock price.

Any recurrence of SARS or the outbreak of a different contagious disease such as the Avian Flu, Influenza A (H1N1) or similar pandemic may adversely
impact our operations and some of our key customers.

The 2003 SARS outbreak was most notable in China and a small number of cases were
reported in 2004. There was no significant impact to our ability to fill customer orders. However, if there were to be another outbreak of SARS or a different contagious disease, such as Avian Flu or Influenza A (H1N1), and if our employees
contracted the disease or were restricted from performing routine sales activities, our business could be materially harmed. Finally, if one of our key customers is required to close for an extended period, we might not be able to ship product to
them, our revenue would decline and our financial performance would suffer.

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

We invest our cash in accordance with an established internal policy
and customarily in instruments which historically have been highly liquid and carried relatively low risk. However, with recent turmoil in the credit markets, similar types of investments have experienced losses in value or liquidity issues
which differ from their historical pattern. For example, we routinely have invested in money market funds with large financial institutions. One or more of these funds could experience losses or liquidity problems and, although to date
some of the largest financial institutions who sponsor such funds have offset similar losses, there is no assurance that our financial institutions would either not incur losses or would offset any losses were they to occur. Further, we hold
auction rate securities (ARS) which are collateralized by student loans with most of such collateral in the aggregate being guaranteed by the U.S. government. These ARS are intended to provide liquidity via an auction
process that resets the applicable interest rate at predetermined calendar intervals, usually every month. As of March 31, 2009, we held $1,584,000 of auction rate security investments and all of these had experienced failed auctions
since February 2008. An auction failure means that the parties wishing to sell securities could not. When an auction fails, the interest rate on such securities resets to a default rate which is usually higher and would require
payment by the issuer, affecting its creditworthiness and therefore potentially its ability to redeem such obligations and therefore avoid the higher interest payments.

In November 2008, we accepted an Auction Rate Securities Rights Offer (Rights Offer) from UBS AG under which, in return for a general release of claims and the grant of a right to UBS AG to purchase our ARS at any
time for full par value, we received the right to require UBS AG to purchase at par value our ARS beginning in 2010 (the Rights). The Rights are non-transferable. Upon acceptance, we granted UBS AG the sole discretion and right to sell or dispose
of, and/or enter orders in the auction process with respect to the eligible ARS on our behalf-without prior notification to us from UBS AG, as long as we receive a payment at par upon any sale or disposition.

As a result, our ability to liquidate these investments and fully recover the carrying value of these investments in the near term is limited or may not
exist. We have written down our ARS investments $216,000 as of March 31, 2009, and we have reclassified these holdings to long-term. Should our ARS investments continue to lose value, or should any of our other cash investments permanently lose
value or have their liquidity impaired, it would have a material and adverse effect on our overall financial position by imperiling our ability to fund our operations and forcing us to seek additional financing sooner than we would otherwise
and such financing may not be available on commercially attractive terms.

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 pronouncement was issued in December 2004 by the Financial Accounting Standards Board (FASB) is FASB Statement No. 123 (revised 2004), Share-Based Payment (FAS
123R). FAS 123R requires share-based payments to employees and directors, including grants of stock options, to be recognized in the statement of operations based on their fair values. We adopted FAS 123R on January 1, 2006. Accordingly, the
adoption of FAS 123R had a significant impact on our results of operations, although it has no impact on our cash or overall financial position. For the three months ended March 31, 2009 and 2008, we recognized $357,000 and $497,000,
respectively, of stock-based compensation expense in accordance with FAS 123R.



34



---

##### Table of Contents

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

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

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

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

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

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

Our commercial success depends in part on our not
infringing valid, enforceable patents or proprietary rights of third parties, and not breaching any licenses that may relate to our technologies and products. 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 nine 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.



35



---

##### Table of Contents

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

We may 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.

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 are at risk of securities class action litigation.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology
companies have experienced greater than average stock price volatility in recent years. If we faced such litigation, it could result in substantial costs and a diversion of managements attention and resources, which could harm our business.

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

Our board of directors has approved an amendment to our trading policy that permits officers and directors to enter into trading plans that comply with
the requirements of Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. Rule 10b5-1 allows corporate officers and directors to adopt written, pre-arranged stock trading plans when they do not have material, non-public information. Using
these plans, officers and directors can gradually diversify their investment portfolios, can spread stock trades out over an extended period of time to reduce any market impact and can avoid concerns about initiating stock transactions at a time
when they might be in possession of material, non-public information. As of March 31, 2009, no director or officer has such a plan however an officer or director may do so in the future. We expect future sales by officers and directors either
under 10b5-1 plans or otherwise as a result of their personal financial planning. We do not believe the volume of such sales would affect our trading price; however, the market could react negatively to sales by our officers and directors, which
could affect the trading price of our stock.

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

Certain anti-takeover provisions of Delaware law and
our charter documents as currently in effect may make a change in control of our company more difficult, even if a change in control would be beneficial to our stockholders. Our charter documents contain certain anti-takeover provisions, including
provisions in our certificate of incorporation providing that stockholders may not cumulate votes, stockholders meetings may be called by stockholders only if they hold 25% or more of our common stock and provisions in our bylaws providing
that the stockholders may not take action by written consent. Additionally, our board of directors has the authority to issue 10 million shares of preferred stock and to determine the terms of those shares of stock without any further action by
the stockholders. The rights of holders of our common stock are subject to the rights of the holders of any preferred stock that may be issued. The issuance of preferred stock could make it more difficult for a third-party to acquire a majority of
our outstanding voting stock. Delaware law also prohibits corporations from engaging in a business combination with any holders of 15% or more of their capital stock until the holder has held the stock for three years unless, among other
possibilities, the board of directors approves the transaction. Our board of directors may use these



36



---

##### Table of Contents

provisions to prevent changes in the management and control of our company. Also, on December 18, 2006, our Board of Directors declared a dividend
distribution of one Preferred Stock Purchase Right (collectively, the Rights) for each outstanding share of our Common Stock, each Right which entitles the registered holder to purchase from the Company one one-thousandth of a share of
the Companys Series D Preferred Stock, $0.001 par value, at a price of $25.00 pursuant to a Rights Agreement dated as of December 19, 2006, between the Company and Mellon Investor Services LLC. The Rights have certain anti-takeover
effects. Under certain circumstances the Rights could cause substantial dilution to a person or group who attempts to acquire the Company on terms not approved by our Board of Directors. Although the Rights should not interfere with an acquisition
of the Company approved by the Board, the Rights may have the effect of delaying and perhaps improving the terms of an acquisition for our stockholders, or deterring an acquisition of the Company. Also, under applicable Delaware law, our board of
directors may adopt additional anti-takeover measures in the future.

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

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



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

None.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



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

None



|Item 5. | Other Information
|------- | -----------------

None



37



---

##### Table of Contents

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



|              |  |                                                                                                                                                                                                            
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                
|              | 
|10.56(1)      |  | Settlement Agreement between Sigma-Tau Finanziaria, S.p.A and SciClone Pharmaceuticals, Inc. dated March 30, 2009.                                                                                         
|              | 
|10.57(1)      |  | Letter Agreement related to Thymosin Alpha 1 between SciClone Pharmaceuticals, Inc. and Sigma-Tau Industrie Farmaceutiche Riunite S.p.A., dated March 30, 2009.                                            
|              | 
|10.58(2)      |  | Amendment No. 1 to Change of Control Agreement between Dr. Friedhelm Blobel and SciClone Pharmaceuticals, Inc. dated April 7, 2009.                                                                        
|              | 
|10.59(2)      |  | Amendment No. 1 to Employment Agreement between Dr. Friedhelm Blobel and SciClone Pharmaceuticals, Inc. dated April 7, 2009.                                                                               
|              | 
|10.60(3)      |  | Change in Control Agreement between Mr. Gary Titus and SciClone Pharmaceuticals, Inc. dated December 8, 2008.                                                                                              
|              | 
|10.61(3)      |  | Amendment No. 1 to Loan and Security Agreement between Silicon Valley Bank, SciClone Pharmaceuticals International Ltd., and SciClone Pharmaceuticals International China Holding Ltd dated March
30, 2009.
|              | 
|31.1(3)       |  | Rule 13a-14(a) Certification of Chief Executive Officer.                                                                                                                                                   
|              | 
|31.2(3)       |  | Rule 13a-14(a) Certification of Chief Financial Officer.                                                                                                                                                   
|              | 
|32.1(3)       |  | Section 1350 Certification of Chief Executive Officer.                                                                                                                                                     
|              | 
|32.2(3)       |  | Section 1350 Certification of Chief Financial Officer.                                                                                                                                                     



|(1) | Incorporated by reference from the Companys Current Report on form 8-K filed on April 1, 2009.
|--- | -----------------------------------------------------------------------------------------------



|(2) | Incorporated by reference from the Companys Current Report on form 8-K filed on April 8, 2009.
|--- | -----------------------------------------------------------------------------------------------



|(3) | 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: May 11, 2009 |  |  |  | /s/ Gary S. Titus                                         
|                   |  |  |  | Gary S. Titus                                             
|                   |  |  |  | Senior Vice President, Finance and Chief Financial Officer



39



---

##### Table of Contents

INDEX TO EXHIBITS



|               |  |                                                                                                                                                                                                            
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibit                                                                                                                                                                                                    
|               | 
|10.56(1)       |  | Settlement Agreement between Sigma-Tau Finanziaria, S.p.A and SciClone Pharmaceuticals, Inc. dated March 30, 2009.                                                                                         
|               | 
|10.57(1)       |  | Letter Agreement related to Thymosin Alpha 1 between SciClone Pharmaceuticals, Inc. and Sigma-Tau Industrie Farmaceutiche Riunite S.p.A., dated March 30, 2009.                                            
|               | 
|10.58(2)       |  | Amendment No. 1 to Change of Control Agreement between Dr. Friedhelm Blobel and SciClone Pharmaceuticals, Inc. dated April 7, 2009.                                                                        
|               | 
|10.59(2)       |  | Amendment No. 1 to Employment Agreement between Dr. Friedhelm Blobel and SciClone Pharmaceuticals, Inc. dated April 7, 2009.                                                                               
|               | 
|10.60(3)       |  | Change in Control Agreement between Mr. Gary Titus and SciClone Pharmaceuticals, Inc. dated December 8, 2008.                                                                                              
|               | 
|10.61(3)       |  | Amendment No. 1 to Loan and Security Agreement between Silicon Valley Bank, SciClone Pharmaceuticals International Ltd., and SciClone Pharmaceuticals International China Holding Ltd dated March
30, 2009.
|               | 
|31.1(3)        |  | Rule 13a-14(a) Certification of Chief Executive Officer.                                                                                                                                                   
|               | 
|31.2(3)        |  | Rule 13a-14(a) Certification of Chief Financial Officer.                                                                                                                                                   
|               | 
|32.1(3)        |  | Section 1350 Certification of Chief Executive Officer.                                                                                                                                                     
|               | 
|32.2(3)        |  | Section 1350 Certification of Chief Financial Officer.                                                                                                                                                     



|(1) | Incorporated by reference from the Companys Current Report on form 8-K filed on April 1, 2009.
|--- | -----------------------------------------------------------------------------------------------



|(2) | Incorporated by reference from the Companys Current Report on form 8-K filed on April 8, 2009.
|--- | -----------------------------------------------------------------------------------------------



|(3) | Filed Herewith.
|--- | ---------------



40