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U.S. SECURITIES
AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

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

For the Quarterly Period Ended June 30, 2001

or

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number  0-19750

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MATRIX PHARMACEUTICAL, INC.(Exact name of Registrant as specified in its charter)

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Delaware(State or other jurisdiction of
incorporation organization)

94-2957068(I.R.S. Employer
Identification Number)


34700 Campus Drive
Fremont, California 94555(Address of principal executive offices)

(510) 742-9900(Registrant's telephone number, including area code)

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

Yes
/x/          No / /

Indicate
the number of shares outstanding of each of the issuer's classes of common stock, $.01 par value, outstanding as of the latest practicable date.

26,289,142
shares
As of August 3, 2001

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MATRIX PHARMACEUTICAL, INC.  TABLE OF CONTENTS

PART 1  FINANCIAL INFORMATION

|        |  |                                 |  | Page
|------- |  | ------------------------------- |  | ----
|Item 1. |  | Unaudited Financial Statements: |  |     

| |  | a. |  | Condensed Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000                           |  | 3
| |  | -- |  | --------------------------------------------------------------------------------------------------------- |  | -
| |  | b. |  | Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2001 and 2000 |  | 4
| |  | c. |  | Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000           |  | 5
| |  | d. |  | Notes to Condensed Consolidated Financial Statements                                                      |  | 6

|Item 2.                   |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 7 
|------------------------- |  | ------------------------------------------------------------------------------------- |  | --
|Item 3.                   |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 9 
|PART II
OTHER INFORMATION
|                          |  | Risk Factors                                                                          |  | 10
|Item 2.                   |  | Changes in Securities                                                                 |  | 18
|Item 4.                   |  | Submission of Matters to a Vote of Security Holders                                   |  | 18
|Item 6.                   |  | Exhibits and Reports on Form 8-K                                                      |  | 19
|                          |  | Signature                                                                             |  | 20

2

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MATRIX PHARMACEUTICAL, INC.  Condensed Consolidated Balance Sheets  (In thousands)

|                                                         |                                                       | June 30,
2001 |                             | December 31,
2000 |  
|-------------------------------------------------------- | ----------------------------------------------------- | ------------- | --------------------------- | ----------------- | -
|
|ASSETS                                                   |                                                      
|Current assets:                                          |                                                       |               |                             |                   |  
|                                                         | Cash and cash equivalents                             |               | $                           | 14,824            |  
|                                                         | Short-term investments                                |               |                             | 26,448            |  
|                                                         | Other current assets                                  |               |                             | 1,682             |  
|                                                         |                                                       |               |                             |                   |  
|                                                         |                                                       |               | Total current assets        |                   |  
|Property and equipment, net                              |                                                       |               | 10,554                      |                   |  
|Long-term notes from related parties                     |                                                       |               | 507                         |                   |  
|Deposits and other assets                                |                                                       |               | 105                         |                   |  
|                                                         |                                                       |               |                             |                   |  
|                                                         |                                                       |               | Total assets                |                   | $
|                                                         |                                                       |               |                             |                   |  
|LIABILITIES                                              |                                                      
|Current liabilities:                                     |                                                       |               |                             |                   |  
|                                                         | Accounts payable                                      |               | $                           | 1,265             |  
|                                                         | Accrued compensation                                  |               |                             | 1,435             |  
|                                                         | Accrued clinical trial costs                          |               |                             | 404               |  
|                                                         | Other accrued liabilities                             |               |                             | 1,021             |  
|                                                         | Current portion of deferred other income              |               |                             | 513               |  
|                                                         | Current portion of debt and capital lease obligations |               |                             | 1,534             |  
|                                                         |                                                       |               |                             |                   |  
|                                                         |                                                       |               | Total current liabilities   |                   |  
|Debt and capital lease obligations, less current portion |                                                       |               | 10,197                      |                   |  
|Deferred other income                                    |                                                       |               | 3,249                       |                   |  
|                                                         |                                                       |               |                             |                   |  
|                                                         |                                                       |               | Total long-term liabilities |                   |  
|STOCKHOLDERS' EQUITY                                     |                                                      
|                                                         | Common stock                                          |               |                             | 325               |  
|                                                         | Additional paid-in capital                            |               |                             | 260,086           |  
|                                                         | Notes receivable from shareholders                    |               |                             |                  |  
|                                                         | Accumulated other comprehensive income                |               |                             | 39                |  
|                                                         | Accumulated deficit                                   |               |                             | (225,948          | )
|                                                         |                                                       |               |                             |                   |  
|                                                         |                                                       |               | Total stockholders' equity  |                   |  
|                                                         |                                                       |               |                             |                   |  
|                                                         |                                                       | $             | 54,120                      |                   | $
|                                                         |                                                       |               |                             |                   |  

(*) Derived from audited financial statements.

See
accompanying notes

3

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MATRIX PHARMACEUTICAL, INC.  Condensed Consolidated Statements of Operations  (In thousands, except per share amounts)

|                                            |                            | Three Months Ended
June 30,        |        | Six Months Ended
June 30, |      
|------------------------------------------- | -------------------------- | ---------------------------------- | ------ | ------------------------- | -----
|
|
|Revenues from contract services             |                            | $                                  | 214    |                           | $    
|Operating costs and expenses:               |                            |                                    |        |                           |      
|                                            | Contract services          |                                    |        | 151                       |      
|                                            | Research and development   |                                    |        | 5,368                     |      
|                                            | General and administrative |                                    |        | 3,103                     |      
|                                            |                            |                                    |        |                           |      
|                                            |                            | Total operating costs and expenses |        |                           | 8,622
|                                            |                            |                                    |        |                           |      
|Loss from operations                        |                            |                                    | (8,408 | )                         |      
|Interest and other income, net              |                            |                                    | 372    |                           |      
|                                            |                            |                                    |        |                           |      
|Net loss                                    |                            | $                                  | (8,036 | )                         | $    
|                                            |                            |                                    |        |                           |      
|Basic and diluted net loss per common share |                            | $                                  | (0.31  | )                         | $    
|                                            |                            |                                    |        |                           |      
|Weighted average shares used in computing   |                            |                                    |        |                           |      
|basic and diluted net loss per common share |                            |                                    | 26,183 |                           |      
|                                            |                            |                                    |        |                           |      

See
accompanying notes

4

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MATRIX PHARMACEUTICAL, INC.  Condensed Consolidated Statements of Cash Flows  (In thousands)

|                                                     |                                                                             | For the Six Months
Ended June 30,                                    |        
|---------------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------------------------------- | -------
|
|
|Cash flows from operating activities:                |                                                                             |                                                                      |        
|                                                     | Net loss                                                                    |                                                                      | $      
|                                                     | Adjustments to reconcile net loss to net cash used by operating activities: |                                                                      |        
|                                                     |                                                                             | Depreciation, amortization, and other                                |        
|                                                     | Changes in assets and liabilities:                                          |                                                                      |        
|                                                     |                                                                             | Notes receivable from related parties                                |        
|                                                     |                                                                             | Deferred other income                                                |        
|                                                     |                                                                             | Accrued compensation                                                 |        
|                                                     |                                                                             | Other changes in assets                                              |        
|                                                     |                                                                             |                                                                      |        
|                                                     |                                                                             | Net cash used in operating activities                                |        
|Cash flows from investing activities:                |                                                                             |                                                                      |        
|                                                     | Capital expenditures                                                        |                                                                      |        
|                                                     | Net maturities of short-term investments                                    |                                                                      |        
|                                                     |                                                                             |                                                                      |        
|                                                     |                                                                             | Net cash flows provided by (used in) investing activities activities |        
|Cash flows from financing activities:                |                                                                             |                                                                      |        
|                                                     | Payments on debt and capital lease obligations                              |                                                                      |        
|                                                     | Net cash proceeds from:                                                     |                                                                      |        
|                                                     |                                                                             | Repayment of notes receivable from shareholders                      |        
|                                                     |                                                                             | Net proceeds from issuance of common stock stock                     |        
|                                                     |                                                                             |                                                                      |        
|                                                     |                                                                             | Net cash flows provided by financing activities                      |        
|Net increase (decrease) in cash and cash equivalents |                                                                             |                                                                      | (17,054
|Cash and cash equivalents at the beginning of period |                                                                             |                                                                      | 31,878 
|                                                     |                                                                             |                                                                      |        
|Cash and cash equivalents at the end of period       |                                                                             | $                                                                    | 14,824 
|                                                     |                                                                             |                                                                      |        

See
accompanying notes

5

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MATRIX PHARMACEUTICAL, INC.    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    (Unaudited)    June 30, 2001

1.  Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at June 30, 2001 and for all periods presented have been made. The condensed
consolidated balance sheet at December 31, 2000 has been derived from the audited consolidated financial statements at that date.

Certain
information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the Securities and Exchange Commission's rules and regulations.

Certain
items have been reclassified to conform to current period classification.

The
accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements as included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000 as filed with the Securities and Exchange Commission. The results of operations for the three and
six months ended June 30, 2001 are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ending December 31, 2001.

2.  Comprehensive loss

During the second quarter of 2001 and 2000, total comprehensive loss amounted to $8,021,000 and $6,094,000, respectively. For the first six months of 2001 and
2000, total comprehensive loss amounted to $14,622,000 and $11,156,000, respectively.

3.  Revenue Recognition

To date, the Company's primary source of revenue relates to its contract aseptic manufacturing for clinical and commercial supply. The Company's customers have
the right to inspect and reject products received if they do not meet customer-specified criteria. The Company performs extensive testing to ensure the products meet the customer-specified criteria
prior to shipment. Therefore, the Company recognizes such revenue when shipment has occurred, the sales price is fixed or determinable, collectibility is probable and the products or services meet all
of the customer-specified criteria. These criteria are met at the time the product is shipped.

4.  New Accounting Standards

In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Financial Instruments and Hedging Activities" ("SFAS 133") which provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities.
SFAS 133, as amended, was adopted by the Company effective January 1, 2001 and did not have an impact on the Company's results of operations or financial condition as the Company holds
no derivative financial instruments and does not currently engage in hedging activities.

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Form 10-Q contains, in addition to historical information, forward-looking statements that involve risks and uncertainties, including
our plans regarding the possible commercial launch of IntraDose, timing and outcome of regulatory reviews, additional Phase II trials for Head and Neck cancer and liver cancer and completion of the
Phase II study of tezacitabine for colon cancer. Any such forward-looking statements are based on management's current expectations and are subject to a number of risks and uncertainties that could
cause actual results to differ materially from expected results. For additional information, including risk factors, such as no assurance of regulatory approvals; uncertainties associated with
clinical trials; history of losses; future profitability uncertain; additional financing requirements and uncertain access to capital markets; limited sales and marketing experience; limited
manufacturing experience; dependence on sources of supply; uncertainty regarding patents and proprietary rights; rapid technological change and substantial competition; uncertainty of pharmaceutical
pricing; no assurance of adequate reimbursement; dependence upon qualified and key personnel; product liability exposure; limited insurance coverage; hazardous materials and product risks; volatility
of stock price; no dividends; and anti-takeover provisions, please see the "Risk Factors" section included in the company's 2000 Annual Report on Form 10-K and in this
Form 10-Q as well as other factors discussed below and elsewhere in this report. Except for our ongoing obligation to disclose material information as requested by federal
securities laws, we do not intend to provide updates concerning any further revisions to any forward-looking statements to reflect events or circumstances occurring after the date of this
filing.

Results of Operations



The Company has a history of operating losses and expects to incur substantial additional losses over the next several years as it continues to develop its
products. For the period from its inception to June 30, 2001, the Company has incurred a cumulative net loss of $225,948,000.

Revenue

Revenues from Matrix Contract Services, or MCS, were $214,000 in the second quarter of 2001 compared to $262,000 in the second quarter of 2000. This
quarter-over-quarter decrease was primarily due to an increased focus on producing IntraDose in preparation for market launch, if approved by the FDA. MCS revenues for the
first six months of 2001 were $715,000 compared to $432,000 for the same period of 2000. This period-over-period increase was due to a growth in the customer-base,
larger contracts and repeat business.

Operating Costs and Expenses

MCS operating costs for the second quarter of 2001 decreased to $151,000 compared to $170,000 for the second quarter of 2000. The lower
quarter-over-quarter MCS revenue resulted in decreased operating costs. MCS operating costs increased to $380,000 for the first six months of 2001 compared to $280,000 for the
same period of 2000. Higher spending to support the growth in the contract services business was the cause for the period-over-period increase in operating costs.

Research
and development expenses for the second quarter of 2001 increased by 16% to $5,368,000 compared to $4,611,000 for the second quarter of 2000. For the first six months of
2001, research and development expenses increased by 21% to $10,604,000 compared to $8,792,000 for the same period in 2000. Both period-over-period increases were primarily due
to higher personnel costs to support planned clinical programs, increased regulatory consulting expenses and higher research-related utility costs at the MCS division in San Diego.

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General and administrative expenses for the second quarter of 2001 increased 49% to $3,103,000 compared to $2,076,000 for the second quarter of 2000. For the first six months of 2001,
general and administrative expenses increased by 53% to $5,379,000 compared to $3,525,000 for the same period in 2000. Both period-over-period increases were primarily due to
higher marketing personnel costs, market preparation expenses for IntraDose and increased consulting expenses.

Net
interest and other income for the second quarter of 2001 decreased by 29% to $372,000 from $521,000 for the same period in 2000. This quarter-over-quarter
decrease is primarily attributable to declining interest rates and decreased interest earned on employee loans. Net interest and other income for the first six months of 2001 was $988,000 compared to
$935,000 in the same period of 2000. This period-over-period increase is due to interest earned on higher cash and investment balances offset by declining interest rates.

Liquidity and Capital Resources

At June 30, 2001, the Company had $41,272,000 in cash, cash equivalents and marketable securities, compared to $53,976,000 at December 31, 2000.
The Company used $14,773,000 and $11,689,000 for operating activities for the six months ended June 30, 2001 and June 30, 2000, respectively.

The
decrease of $12,704,000 in cash, cash equivalents and short-term investments during the first six months of 2001 reflects $14,773,000 of cash disbursements used to
fund operating activities, payments of $717,000 on debt and capital lease obligations, and capital purchases of $362,000. This was partially offset by cash receipts of $1,804,000 received primarily
from stock option exercises and $1,344,000 from employee loans.

The
Company has financed its operations and capital asset acquisitions from its inception through the sale of equity securities, interest income, and capital lease and debt financing.
The Company expects to finance its continued operating requirements principally with cash on hand and marketable securities, additional capital that may be generated through equity and debt
financings, collaborative agreements and revenues generated from MCS and IntraDose® if approved by the FDA.

The
Company's working capital and capital requirements will depend on numerous factors, including the progress of the Company's commercial and research and development programs,
pre-clinical testing and clinical trial activities, the timing and cost of obtaining regulatory approvals, the levels of resources that the Company devotes to the development of
manufacturing and marketing capabilities, technological advances and the status of competitors.

The
Company expects to incur substantial additional costs relating to the continued clinical development of its anti-cancer products, continued research and development
programs, the development of manufacturing capabilities, and general working capital requirements. Assuming the approval by the FDA of IntraDose, we anticipate that our existing and current capital
resources in addition to revenues from the sale of IntraDose and contract services, along with refinancing approximately $11,000,000 in existing debt, will enable us to maintain our current and
planned operations through 2002. The Company may require additional outside financing to complete the process of bringing current products to market, if approved by the FDA, and there can be no
assurance that such financing will be available on acceptable terms, if at all.

The
Company expects revenues to increase as MCS continues to develop its clinical and commercial supply business. Also, if the FDA approves the Company's NDA application for
IntraDose, related revenues may commence by 2002.

Operating
costs and expenses in 2001 are expected to grow approximately 25% over 2000 due to increased employee headcount and other resources to prepare for the commercial launch of

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IntraDose®. In addition, the Company plans to expand its Medical and Clinical development programs which will result in higher MCS costs.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the reported market risks since December 31, 2000.

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PART II. OTHER INFORMATION    RISK FACTORS

The Regulatory Approval Process is Expensive, Time Consuming, and Uncertain and May Prevent Us from Obtaining Required Approvals for the Commercialization of Our Products or
May Negatively Impact the Ongoing Marketing of Approved Products.

The pre-clinical and clinical testing, manufacturing, and marketing of our products are subject to extensive regulation by numerous governmental
authorities in the United States and other countries, including the Food and Drug Administration, or FDA. Among other requirements, the FDA must approve our product candidates, manufacturing processes
and production facilities before we may market our products in the United States. Similarly, a foreign governmental authority must typically approve the marketing of a product before that product's
manufacturer can market it in a particular foreign country. We have only limited experience in submitting and pursuing regulatory applications. The process of obtaining FDA approvals can be costly,
time-consuming and subject to unanticipated delays, and we can give no assurance that the FDA will grant us any approvals on a timely basis, or at all. We have no products approved by the
FDA and we do not expect to achieve profitable operations unless our product candidates now under development receive FDA and foreign regulatory approval and are thereafter commercialized
successfully.

The
process of obtaining FDA regulatory approval involves a number of steps that, taken together, may involve seven years or more from the initiation of clinical trials and require
the expenditure of substantial resources. Among other requirements, this process requires that the product candidate undergo extensive pre-clinical and clinical testing to demonstrate its
safety and efficacy for its intended uses. We must also file a New Drug Application, or NDA, requesting FDA approval. When a product contains more than one component that contributes to the
product's effect, as do some of our current product candidates, the FDA may request that additional data be submitted in order to demonstrate the contribution of each such component to clinical
efficacy. Further, when we submit an NDA, the FDA must review and interpret our analysis of the results of our clinical studies submitted as part of the NDA. An FDA interpretation may differ from our
analysis and we cannot assure that the FDA will accept our data or our interpretation of that data. In addition, changes in applicable law or FDA policy during the period of product development and
FDA regulatory review may result in the delay or rejection of our NDA. Any failure to obtain, or delay in obtaining, FDA approvals would harm our ability to market our proposed products. Moreover,
even if FDA approval is granted, the approval may include significant limitations on indicated uses for which a product could be marketed.

In
addition, prior to approval of a product, the FDA must inspect and accept the product's manufacturing facilities as being in compliance with its current Good Manufacturing
Practices, or GMP, regulations. We cannot assure that the FDA will accept our San Diego manufacturing facility, and failure to receive or maintain such acceptance would prevent us from successfully
commercializing our products.

Violations
of regulatory requirements at any stage, including the pre-clinical and clinical testing process, the approval process or after approval, may result in adverse
consequences, including the FDA's delay in approving or refusal to approve a product, withdrawal of an approved product from the market, and/or the imposition of criminal penalties against the
manufacturer and/or the NDA holder. In addition, the subsequent discovery of previously unknown problems relating to a marketed product may result in restrictions on such product, manufacturer, or the
NDA holder, including withdrawal of the product from the market. Also, new government requirements may be established that could delay or prevent regulatory approval of our products under development.

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IntraDose® is a potential new approach to treating locally recurrent or metastatic cancers. It delivers high concentrations of cisplatin (an established chemotherapy
agent) for an extended time period at the injection site while reducing systemic effects associated with intravenous administration.

In
May 1999, IntraDose received Fast-Track designation. Fast-Track designation allows the submission of portions of the NDA as sections are completed.
During 2000, IntraDose received Orphan Drug status for recurrent or refractory head and neck cancer. The FDA may designate a product as an "Orphan Drug" if the drug is intended to treat a rare disease
or condition. A disease or condition is considered rare if it affects fewer than 200,000 people in the United States, or which affects more than 200,000 people but for which the development costs of
the drug, plus a reasonable profit, will not be recovered within seven years following FDA approval. Upon approval of the first NDA for a drug designated as an Orphan Drug for a specified indication,
the sponsor of the NDA is entitled to exclusive marketing rights in the United States for that drug for that indication for a period of seven years. Orphan Drugs may also be eligible for federal
income tax credits for costs associated with drug's development. Fast-Track designation and Orphan Drug status does not imply any greater or lesser likelihood of a favorable or timely
review of the complete NDA.

In
January 2001, the Company announced that it completed its submission to the FDA of its NDA for IntraDose. In March 2001, the FDA accepted the submission for filing
and designated the IntraDose application for standard review. According to the published performance goals and procedures of the FDA Center for Drug Evaluation and Research, the goal of the FDA is to
complete standard reviews on NDA submission in 2001 within 12 months. In July 2001, the Company announced that the Oncologic Drugs Advisory Committee, or ODAC, of the FDA is scheduled to
review IntraDose® Injectible Gel in September 2001. Acceptance of the submission by the FDA does not imply that the FDA will review the product in a timely manner or approve the
product.

The
processes required by European regulatory authorities before our product candidates can be marketed in Western Europe are similar to those in the United States. We must first
complete appropriate pre-clinical laboratory and animal tests as well as analytical product quality tests and then submit a clinical trial exemption or similar documentation before we can
initiate human clinical trials. Upon completion of adequate and well-controlled clinical trials in humans that establish that the drug is safe and efficacious, we must obtain regulatory
approval to market the drug product from the relevant regulatory authorities.

Clinical Trials Required By the FDA and Other Regulatory Agencies Can Be Lengthy, Expensive and May Not Provide Positive Results.

We completed two randomized placebo-controlled Phase III clinical trials for Intradose for head and neck cancer during 2000. In addition, we have conducted and
plan to continue to undertake other extensive and costly clinical testing to assess the safety and efficacy of our potential products. If we fail to comply with FDA regulations applicable to clinical
testing it could result in delay, suspension, or cancellation of this testing, or refusal by the FDA to accept the results of this testing. In addition, the FDA or we may modify or suspend clinical
trials at any time if the FDA concludes that the subjects or patients participating in the trials are being exposed to unacceptable health risks. Further, we cannot assure that human clinical testing
will show any current or future product candidate to be safe and effective or provide data suitable for submission to the FDA.

We
are conducting multiple clinical trials in the United States and Germany and Poland. The rate of completion of our clinical trials depends upon, among other factors, the rate of
patient enrollment. Patient enrollment is a function of many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites and the
eligibility criteria for the study. We experienced slower than planned accrual of patients in two of our completed Phase III trials. Delays in completing enrollment in other clinical studies may
result in increased costs and delays, which could

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harm our business. Generally, similar considerations apply to clinical testing that is subject to regulatory oversight by foreign authorities and/or that is intended to be used in connection with
foreign marketing applications.

Additionally,
we extended enrollment in a Phase II IntraDose trial beyond the original number of patients planned for that study. Final study results may be different from the
preliminary outcomes as more patients have been entered into the study and as patients are followed for a longer period of time.

We Have a History of Losses and Our Future Profitability Is Uncertain.

We incorporated in 1985 and have experienced significant losses since that date. As of June 30, 2001, our accumulated deficit was $225,948,000. Our net
loss for the years ended December 31, 2000, six months ending June 30, 2001 and three months ended June 30, 2001 were $23,321,000, $14,660,000 and $8,036,000, respectively. We
have generated limited revenues from our products or product candidates and expect to incur significant additional losses over the next several years. In order to achieve a profitable level of
operations, we must successfully develop products, obtain regulatory approvals for our products, enter into agreements for product commercialization outside the United States, and develop an effective
sales and marketing organization in the United States. We cannot assure that we will complete our product development efforts, that we will obtain the required regulatory approvals, that we will
manufacture or market any products successfully, or that we will achieve profitability.

Our Additional Financing Requirements and Limited Access to Financing May Adversely Affect Our Ability to Develop Products.

We have expended and will continue to expend substantial funds to complete the research and development of our product candidates. At June 30, 2001, we
had $41,272,000 in cash, cash equivalents and marketable securities. Assuming the approval by the FDA of IntraDose, we anticipate that our existing and current capital resources in addition to
revenues from the sale of IntraDose and contract services, along with refinancing approximately $11,000,000 in existing debt, will enable us to maintain our current and planned operations through
2002. We will require additional funds to continue to support our existing operating needs. We expect to generate such additional funds, or funds required for operating after 2002, through equity or
debt financings, collaborative agreements and revenues generated from our contract services as well as sales of Intradose. We cannot assure that such additional funds will be available on acceptable
terms, if at all. Our failure to raise additional funds on a timely basis would require us to scale back or eliminate some or all of our research and development license programs to third parties of
products or technologies that we would otherwise seek to develop ourselves.

We Have Limited Sales and Marketing Experience, and if We Are Unable to Develop Our Own Sales and Marketing Capability, We May Be Unsuccessful in Commercializing Our Products.

We intend to market and sell some of our product candidates, if successfully developed and approved, through our own dedicated sales force in the United States
and through pharmaceutical licensees in Europe. We hope to have a partner in place in several European countries in approximately six to twelve months before pricing approval, although there is no
assurance such a partner will be obtained. We cannot assure that we will be able to establish a successful direct sales organization or co-promotion or distribution arrangements. In
addition, we cannot assure that we will be able to fund our marketing and sales expenses, some of which would be incurred before sales commence. If we fail to establish a marketing and sales
capability in the United States or outside the United States, we will not be able to successfully commercialize our products.

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We Have Limited Manufacturing Experience and May Not Be Able to Manufacture Products on a Commercial Scale.

Our ability to conduct clinical trials on a timely basis, to obtain regulatory approvals and to commercialize our products will depend, in part, upon our
ability to manufacture our products, either directly or through third parties, at a competitive cost and in accordance with applicable FDA and other regulatory requirements, including GMP regulations.
We closed our manufacturing facilities in San Jose and Milpitas, California in March 1998 and transferred manufacturing personnel to a research and manufacturing facility in San Diego,
California that we acquired in 1995 to meet our anticipated long-term commercial scale production requirements. We expect that the San Diego facility and contract manufacturers should
provide sufficient production capacity to meet our clinical requirements. We cannot guarantee that the FDA will accept our San Diego manufacturing facility as being GMP compliant in a timely manner or
that this facility will be adequate for our long-term needs without delaying our ability to meet product demand or to manufacture in a cost-effective manner. We expect to
continue to use selected contract manufacturers, in addition to our own manufacturing capability, for some or all of our product components. If we fail to establish additional manufacturing capacity
on a timely basis we will not be able to successfully commercialize our products.

Our Patents and Proprietary Rights May Not Keep Us From Infringing the Rights of Others or May Not Prohibit Potential Competitors From Commercializing Products and Our
Dependence on Suppliers for Materials Could Impair Our Ability to Manufacture Our Products.

Our success depends, in part, on our ability to obtain patent protection for our products and to preserve our trade secrets and operate without infringing on
the proprietary rights of third parties. Our patent estate includes twelve U.S. patents, three European patents (each granted in at least ten different European countries), four Japanese patents, four
Canadian patents, three Australian patents, as well as pending patent applications in the U.S. and foreign jurisdictions. At least three of the U.S. patents specifically cover the IntraDose
formulation. These are U.S. Patents Nos. 6,077,545; 6,224,883; and Re. 35,748. An Australian patent corresponding to U.S. Patents 6,077,545 and 6,224,883 has also been granted. In addition, foreign
patents corresponding to Re. 35,748 have been granted in Europe, Japan Canada and Australia. We have not conducted an exhaustive patent search and we cannot assure that patents do not exist or could
not be filed, which would negatively affect our ability to market our products or maintain our competitive position with respect to our products. Additionally, our patents may not prevent others from
developing competitive products using related technology. Further, other companies that obtain patents claiming products or processes useful to us may bring infringement actions against us. As a
result, we may be required to obtain licenses from others to develop, manufacture or market our products. We cannot assure that we will be able to obtain any such licenses on commercially reasonable
terms, if at all. We also rely on trade secrets and proprietary know-how that we seek to protect, in part, by confidentiality agreements with our employees, consultants, suppliers and
licensees. We cannot assure that these third parties will not breach these agreements, that we would have adequate remedies for any breach, or that our trade secrets will not otherwise become known or
be independently developed by competitors.

We
cannot assure that the U.S. Patent and Trademark Office, or PTO, will approve our pending patent applications, or that any patent issued to, or licensed by us will provide
protection that has commercial significance. In this regard, the patent position of pharmaceutical compounds and compositions is particularly uncertain. Even issued patents may later be modified or
revoked by the PTO in proceedings instituted by others or us. In addition, we cannot assure that our patents will afford protection against competitors with similar compounds or technologies, that
others will not obtain patents with claims similar to those covered by our patents or applications, or that the patents of others will not adversely affect our ability to conduct our business.

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In 1996, for instance, the PTO granted U.S. Patent 5,562,925 which claims a composition-of-matter for the cytotoxic drug cisplatin, which patent was
exclusively licensed to Bristol-Myers Squibb Company. An earlier patent covering the use of cisplatin in treating cancer was also licensed to this company, but expired in December 1996. We
believe that IntraDose, which contains cisplatin, does not infringe this composition-of-matter patent. Moreover, a U.S. District Court found the key claims of this patent
invalid in October 1999. The District Court ruling was affirmed by the U.S. Court of Appeals for the Federal Circuit on March 23, 2001. Although a petition for certiorari may be filed
with the U.S. Supreme Court, we believe that, even if filed, it is unlikely that the Supreme Court will grant such a petition. However, if the decision of the Federal Circuit is reversed, we cannot
assure that we would be able to obtain a license to the patent on commercially reasonable terms, if at all, in order to commercialize IntraDose in the United States.

Foreign
patent applications covering IntraDose are pending in Canada, Europe, Japan and Korea. We believe that obtaining foreign patents may be more difficult than obtaining domestic
patents because of differences in patent laws, and recognize that our patent position therefore may be stronger in the United States than abroad. In addition, the protection provided by foreign
patents, once they are obtained, may be weaker than that provided by domestic patents.

Additionally,
several of the materials used in our product candidates are available from a limited number of suppliers. These items, including collagen gel and various bulk drug
substances, have generally been available to us on commercially reasonable terms. If our manufacturing facilities are not able to produce sufficient quantities of collagen gel in accordance with
applicable regulations, we would have to obtain collagen gel from another source and gain regulatory approval for that source. We cannot assure that we would be able to locate an alternative,
cost-effective and FDA approvable source of supply for collagen gel.

We
have negotiated and intend to continue to negotiate supply agreements, as appropriate, for the raw materials and components utilized in our products. Any interruption of supply
could impair our ability to manufacture our products, complete clinical trials, or commercialize our products.

Rapid Technological Change and Substantial Competition May Impair Our Business.

The pharmaceutical industry is subject to rapid and substantial technological change. Technological competition in the industry from pharmaceutical and
biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase. Most of these entities have significantly greater research
and development capabilities, as well as substantially more marketing, financial and managerial resources than us, and represent significant competition for us. Acquisitions of, or investments in,
competing biotechnology companies by large pharmaceutical companies could increase these competitors' financial, marketing and other resources. We cannot assure that developments by others will not
render our products or technologies noncompetitive or that we will be able to keep pace with technological developments. Competitors have developed or are in the process of developing technologies
that are, or in the future may be, the basis for competitive products. Products currently in clinical trials for head and neck cancer include ImClone "C-225", Onyx Pharmaceuticals/Pfizer
Pharmaceuticals "Onyx-015", and OSI Pharmaceuticals/Roche/Genentech "Tarceva". Competitive products in the liver cancer area include radio frequency ablation devices currently approved, as
well as some drugs reported to be in early stage clinical trials. Some of these products may have an entirely different approach or means of accomplishing similar therapeutic endpoints than products
that we are developing and it is not clear at this stage of development whether they will be competitive or complementary in nature to our products. These competing products may be more effective and
less costly than the products that we are developing. In addition, conventional drug therapy, surgery and other more familiar treatments and modalities will compete with our products.

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Any product that we successfully develop and for which we gain regulatory approval must then compete for market acceptance and market share. Accordingly, important competitive
factors, in addition to completion of clinical testing and the receipt of regulatory approval, will include product efficacy, safety, timing and scope of regulatory approvals, availability of supply,
marketing and sales capability, reimbursement coverage, pricing and patent protection.

Healthcare Reform and Restrictions on Reimbursement May Limit Our Returns on Our Products.

The continuing efforts of governmental and third party payers to contain or reduce the costs of health care through various means may affect the future
revenues, profitability, and availability of capital for biopharmaceutical companies. For example, in certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to
government control. In the United States, there have been, and we expect that there will continue to be, a number of federal and state proposals to implement similar government control. Specific
legislation is currently being reviewed concerning the reimbursement of oncology drugs. While we cannot predict whether any such legislative or regulatory
proposals will be adopted, the announcement or adoption of such proposals could negatively affect our prospects.

Our
ability to commercialize our products successfully will depend, in part, on the extent to which appropriate oncology-related reimbursement levels for the cost of such products and
related treatment are obtained from government authorities, private health insurers and other organizations, such as health maintenance organizations, or HMOs. Third-party payers are increasingly
challenging the prices charged for medical products and services. Also, the trend towards managed health care in the United States and the concurrent growth of organizations like HMOs, which could
control or significantly influence the purchase of health care services and products, as well as legislative proposals to reform health care or reduce government insurance programs, may limit prices
we can charge for our products. The cost containment measures that health care payers and providers are instituting and the effect of any health care reform could impair our ability to sell our
products and may negatively affect our business.

If We Lose Qualified Management and Scientific Personnel or Are Unable to Attract and Retain Such Personnel, We May Be Unable to Successfully Develop Our Products or We May Be
Significantly Delayed in Developing Our Products.

We are highly dependent on our President and Chief Executive Officer, Michael D. Casey, as well as our Senior Vice President, Medical Affairs, Richard D.
Leavitt, M.D., both of whom are employed at-will pursuant to letter agreements with us dated August 25, 1997 and November 8, 1996, respectively. If we lose their services we
may not achieve our objectives. Because of the specialized nature of our business, our ability to maintain our competitive position depends on our ability to attract and retain qualified management
and scientific personnel. We operate in geographical areas where competition for such critical resources is intense, time consuming and expensive. We cannot assure that we will be able to continue to
attract or retain such persons.

We May Have Significant Product Liability Exposure.

We face an inherent business risk of exposure to product liability and other claims, in the event that the use of products during research or commercialization
is alleged to have resulted in adverse effects. While we will continue to take precautions, we may not avoid significant product liability exposure. Although we maintain product liability insurance
for clinical studies and contract service activities in the amount of $4,000,000 per occurrence or $4,000,000 in the aggregate on a claims-made basis, this coverage may not be adequate. We
may not be able to obtain adequate insurance coverage for future clinical or commercial activities at all, or at an acceptable cost. If we are sued for any injury caused by our technology or products,
our liability could exceed our assets.

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We Use Hazardous Materials in Our Business. Any Claims Relating to Improper Handling, Storage or Disposal Could Be Time Consuming and Costly.

Our research and development involves the controlled use of hazardous materials, such as cytotoxic drugs, other toxic and carcinogenic chemicals and various
radioactive compounds. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by federal, state and local regulations, we
cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of this type of accident, we could be held liable for any resulting damages, and any such
liability could be extensive. We are also subject to substantial regulation relating to occupational health and safety, environmental protection, hazardous substance control, and waste management and
disposal. If we fail to comply with such regulations, we could be subject to, among other things, fines and criminal liability.

Certain
chemotherapeutic agents that we employ in our aqueous-based protein systems, Anhydrous Delivery Vehicles, and regional delivery technology are known to have toxic side
effects, particularly when used in traditional methods of administration. Each product incorporating a chemotherapeutic agent will require separate FDA approval as a new drug, under the procedures
specified above. Bovine collagen is a significant component of our protein matrix. Two rare autoimmune connective tissue conditions, polymyositis and dermatomyositis, have been alleged to occur with
increased frequency in patients who have received cosmetic collagen treatments. Based upon the occurrence of these conditions, the FDA requested a major manufacturer of bovine collagen products for
cosmetic applications to investigate the safety of such uses of its collagen. In October 1991, an expert panel convened by the FDA to examine this issue found no statistically significant
relationships between injectable collagen and the occurrence of autoimmune disease, but noted that certain limitations in the available data made it difficult to establish a statistically significant
association.

In
addition, bovine-sourced materials are of some concern because of potential transmission of Bovine Spongiform Encephalopathy, or BSE. We have taken precautions to minimize the risk
of contamination of our collagen with BSE-causing agents, including the use of United States-sourced hides. The Committee for Proprietary Medicinal Products, a steering committee of the
European Medicines Evaluation Agency, has determined that materials made from bovine skin are unlikely to result in any risk of contamination, indicating minimal risk of transmission of BSE. In
March 2001, the European Directorate for the Quality of Medicines issued a Certification of Suitability for the bovine-derived collagen used for the manufacture of our products. However,
marketing issues exist for Europe because of high levels of concern by the public about BSE and should BSE spread to the U.S., such concerns might also arise in the U.S. We have developed a
back-up plan using non-bovine derived collagen, but significant risks may exist for such a program since non-bovine sourced collagen has not been tested on humans,
and it would not be ready for marketing for several years.

Our Stock Price Could Continue to Be Volatile and Shareholders May Not Be Able to Resell Their Shares At or Above the Price They Paid for Them.

The market price for our common stock and the market for biopharmaceutical and biotechnology companies' securities in general are highly volatile and have from
time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. For example, the market price of our common stock fluctuated
between $6.75 and $17.00 per share during the six months ended June 29, 2001.

The
following factors, among others, could have significant impact on the market for our common stock:



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Our Policy of Not Declaring Dividends Could Limit Shareholder's Return on Their Investment.

We have not paid any cash dividends on our common stock and do not anticipate paying any dividends in the foreseeable future. As a result our shareholder's
sole source of any return on their investment will be price appreciation of our common stock.

Our Certificate of Incorporation and Bylaws Include Provisions that Could Make Attempts By Shareholders to Change Management More Difficult.

Some of the provisions of our Certificate of Incorporation and Bylaws may make attempts by shareholders to change management more difficult. Our Board of
Directors has the authority to issue shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions of those shares without any further vote or action by the
shareholders. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The
issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for
shareholders to acquire a majority of our outstanding voting stock and to effect a change in management.

We May Experience Power Blackouts And Higher Electricity Prices As A Result Of California's Current Energy Crisis, Which Could Disrupt Our Operations And Increase Our Expenses.

California is in the midst of an energy crisis that could disrupt our operations and increase our expenses. We rely on the major Northern California public
utility, Pacific Gas & Electric Company, or PG&E, to supply electric power to our facilities in Northern California. Due to problems associated with the de-regulation of the power
industry in California and shortages in wholesale electricity supplies, customers of PG&E have been faced with increased electricity prices, power shortages and, in some cases, rolling blackouts. If
blackouts interrupt our power supply, we may be unable temporarily to continue operations at our facilities. Any such interruption in our ability to continue operations at our facilities could delay
our ability to develop or provide our products or services, which could damage our
reputation and result in lost revenue, either of which could substantially harm our business and results of operations.

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Item 2. Changes in Securities

On May 25, 2001, the Company filed a registration statement on Form S-3 (333-61616) with the Securities and Exchange
Commission pursuant to which the Company proposed to register $30,000,000 worth of Common Stock, shares of Preferred Stock, options, warrants and other rights to purchase shares of the Company's
Common or Preferred Stock. On July 2, 2001, July 23, 2001 and July 26, 2001, the Company filed amendments to the registration statement. On August 3, 2001, the registration
statement was declared effective. There have been no sales to date under the registration statement.

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

The Company's 2001 Annual Meeting of Stockholders was held on May 8, 2001. The following actions were taken at the Annual Meeting. As of
March 20, 2001, the record date, 26,122,196 shares were entitled to vote at the Annual Meeting:

The
following directors were elected:

For

WithheldEric K. Brandt

18,809,990

1,772,660Michael D. Casey

18,233,659

2,348,991Stephen B. Howell, M.D.

18,811,440

1,771,210Marvin E. Jaffe, M.D.

18,717,441

1,865,209Bradley G. Lorimier

18,717,891

1,864,759Julius L. Pericola

18,808,790

1,773,860


The
following additional matters were submitted to the stockholders for vote and approved:

Approval
of an amendment to the Company's 1988 Restricted Stock Plan to increase the maximum number of shares of Common Stock authorized for issuance under the Plan by an additional
1,050,000 shares. Of the total shares voting on the foregoing resolution, 15,460,857 voted in favor, 5,086,068 voted against and 35,725 abstained.

Approval
of an amendment to the Company's 1991 Directors Stock Option Plan to increase the maximum number of shares of Common Stock authorized for issuance under the Directors Plan by
an additional 200,000 shares. Of the total shares voting on the foregoing resolution, 18,235,861 voted in favor, 2,311,734 voted against and 35,055 abstained.

Ratification
of the appointment of Ernst & Young LLP as independent public accountants for the fiscal year ending December 31, 2001. Of the total shares voting on the
foregoing resolution, 20,139,424 voted in favor, 404,569 voted against and 38,657 abstained.

Other
matters discussed in the Company's Definitive Proxy Statement, filed with the SEC on April 2, 2001, were withdrawn by the Company and were not submitted to a vote of
stockholders.

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Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

None

(b) Reports on Form 8-K

None

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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.

MATRIX PHARMACEUTICAL, INC.

|Date: August 13, 2001 |  | By: /s/DAVID W. PRITCHARDDavid W. Pritchard
Senior Vice President and Chief Financial Officer
|--------------------- |  | ---------------------------------------------------------------------------------------------
|                      |  | Signing on behalf of the registrant
as principal financial officer                           

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