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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 ENDEDMARCH 31, 2001
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------

OR

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

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)

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.

26,155,239
shares
As of April 30, 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 March 31, 2001 and December 31, 2000                   |  | 3   
|                          |  | b.                                                                                    |  | Condensed Consolidated Statements of Operations for the three months ended March 31, 2001 and 2000 |  | 4   
|                          |  | c.                                                                                    |  | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 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                            |  | 8                                                                                                 
|PART II
OTHER INFORMATION
|                          |  | Risk Factors                                                                          |  | 9                                                                                                 
|Item 6.                   |  | Exhibits and Reports on Form 8-K                                                      |  | 17                                                                                                
|                          |  | Signature                                                                             |  | 18                                                                                                

2

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

|                                                         |                                                       | March 31,
2001              |        | December 31,
2000 |       
|-------------------------------------------------------- | ----------------------------------------------------- | --------------------------- | ------ | ----------------- | ------
|
|ASSETS                                                   |                                                      
|Current assets:                                          |                                                       |                             |        |                   |       
|                                                         | Cash and cash equivalents                             |                             | $      | 23,410            |       
|                                                         | Short-term investments                                |                             |        | 25,071            |       
|                                                         | Other current assets                                  |                             |        | 2,404             |       
|                                                         |                                                       |                             |        |                   |       
|                                                         |                                                       | Total current assets        |        |                   | 50,885
|Property and equipment, net                              |                                                       |                             | 10,829 |                   |       
|Long-term notes from related parties                     |                                                       |                             | 370    |                   |       
|Deposits and other assets                                |                                                       |                             | 105    |                   |       
|                                                         |                                                       |                             |        |                   |       
|                                                         |                                                       | Total assets                |        | $                 | 62,189
|                                                         |                                                       |                             |        |                   |       
|LIABILITIES                                              |                                                      
|Current liabilities:                                     |                                                       |                             |        |                   |       
|                                                         | Accounts payable                                      |                             | $      | 1,628             |       
|                                                         | Accrued compensation                                  |                             |        | 985               |       
|                                                         | Accrued clinical trial costs                          |                             |        | 441               |       
|                                                         | Other accrued liabilities                             |                             |        | 1,340             |       
|                                                         | Current portion of deferred other income              |                             |        | 560               |       
|                                                         | Current portion of debt and capital lease obligations |                             |        | 1,499             |       
|                                                         |                                                       |                             |        |                   |       
|                                                         |                                                       | Total current liabilities   |        |                   | 6,453 
|Debt and capital lease obligations, less current portion |                                                       |                             | 10,593 |                   |       
|Deferred other income                                    |                                                       |                             | 3,368  |                   |       
|                                                         |                                                       |                             |        |                   |       
|                                                         |                                                       | Total long-term liabilities |        |                   | 13,961
|STOCKHOLDERS' EQUITY                                     |                                                      
|                                                         | Common stock                                          |                             |        | 262               |       
|                                                         | Additional paid-in capital                            |                             |        | 259,401           |       
|                                                         | Notes receivable from shareholders                    |                             |        |                  |       
|                                                         | Accumulated other comprehensive income                |                             |        | 24                |       
|                                                         | Accumulated deficit                                   |                             |        | (217,912          | )     
|                                                         |                                                       |                             |        |                   |       
|                                                         |                                                       | Total stockholders' equity  |        |                   | 41,775
|                                                         |                                                       |                             |        |                   |       
|                                                         |                                                       | $                           | 62,189 |                   | $     
|                                                         |                                                       |                             |        |                   |       

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See
accompanying notes

3

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

|                                                                                      |                          | Three Months Ended
March 31,       |       
|------------------------------------------------------------------------------------- | ------------------------ | ---------------------------------- | ------
|
|
|Revenues from contract services                                                       |                          | $                                  | 501   
|Operating costs and expenses:                                                         |                          |                                    |       
|                                                                                      | Contract services        |                                    |       
|                                                                                      | Research and development |                                    |       
|                                                                                      | General & administrative |                                    |       
|                                                                                      |                          |                                    |       
|                                                                                      |                          | Total operating costs and expenses |       
|                                                                                      |                          |                                    |       
|Loss from operations                                                                  |                          |                                    | (7,240
|Interest and other income, net                                                        |                          |                                    | 616   
|                                                                                      |                          |                                    |       
|Net loss                                                                              |                          | $                                  | (6,624
|                                                                                      |                          |                                    |       
|Basic and diluted net loss per common share                                           |                          | $                                  | (0.25 
|                                                                                      |                          |                                    |       
|Weighted average shares used in computing basic and diluted net loss per common share |                          |                                    | 26,028
|                                                                                      |                          |                                    |       

See
accompanying notes

4

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

|                                                     |                                                                             | For the Three Months
Ended March 31,                  |       
|---------------------------------------------------- | --------------------------------------------------------------------------- | ----------------------------------------------------- | ------
|
|
|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 and liabilities               |       
|                                                     |                                                                             |                                                       |       
|                                                     |                                                                             | Net cash used in operating activities                 |       
|Cash flows from investing activities:                |                                                                             |                                                       |       
|                                                     | Capital expenditures                                                        |                                                       |       
|                                                     | Investment in available-for-sale securities                                 |                                                       |       
|                                                     | Maturities of investments                                                   |                                                       |       
|                                                     |                                                                             |                                                       |       
|                                                     |                                                                             | Cash flows provided by (used in) investing activities |       
|Cash flows from financing activities:                |                                                                             |                                                       |       
|                                                     | Payments on debt and capital lease obligations                              |                                                       |       
|                                                     | Net cash proceeds from:                                                     |                                                       |       
|                                                     |                                                                             | Repayment of notes receivable from shareholders       |       
|                                                     |                                                                             | Common stock stock                                    |       
|                                                     |                                                                             |                                                       |       
|                                                     |                                                                             | Cash flows provided by financing activities           |       
|Net decrease in cash and cash equivalents            |                                                                             |                                                       | (8,468
|Cash and cash equivalents at the beginning of period |                                                                             |                                                       | 31,878
|                                                     |                                                                             |                                                       |       
|Cash and cash equivalents at the end of period       |                                                                             | $                                                     | 23,410
|                                                     |                                                                             |                                                       |       

See
accompanying notes

5

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MATRIX PHARMACEUTICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2001

1.Basis of presentation



2.Comprehensive loss



3.Revenue Recognition



4.New Accounting Standards



6

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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
the Company's 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. The Company disclaims, however, any intent or obligation to update these forward-looking
statements.

Results of Operations

Three Months Ended March 31, 2001 and 2000

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 March 31, 2001, the Company has incurred a cumulative net loss of approximately $217,912,000.

Revenue

Revenues from Matrix Contract Services, or MCS, were $501,000 in the first quarter of 2001 compared to $170,000 in the first quarter of 2000. The increase for
the quarter was due to a growth in the customer-base, larger contracts and repeat business.

Operating Costs and Expenses

Contract services operating costs for the first quarter of 2001 increased to $229,000 compared to $111,000 for the first quarter 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 first quarter of 2001 increased by 25% to $5,236,000 compared to $4,180,000 for the first quarter of 2000. The increase was primarily due to
higher personnel costs to support planned clinical programs, consulting expenses and higher utility costs at the MCS division in San Diego.

General
and administrative expenses for the first quarter of 2001 increased 57% to $2,276,000 compared to $1,449,000 for the first quarter of 2000. The increase was primarily due to
higher marketing personnel costs, market preparation expenses for IntraDose and consulting expenses.

Interest
and other income increased by 49% to $616,000 for the first quarter of 2001 compared to $414,000 for the same period in 2000 primarily due to interest earned on higher cash
and investment balances.

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Liquidity and Capital Resources

At March 31, 2001, the Company had $48,481,000 in cash, cash equivalents and marketable securities, compared to $53,976,000 at December 31, 2000.
The Company used $7,318,000 and $6,569,000 for operating activities for the three months ended March 31, 2001 and March 31, 2000, respectively.

The
decrease of $5,495,000 in cash, cash equivalents and short-term investments during the first quarter of 2001 reflects $7,318,000 of cash disbursements used to fund
operating activities, payments of
$309,000 on debt and capital lease obligations and capital purchases of $268,000. This was partially offset by cash receipts of $1,056,000 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. The Company anticipates that its existing and committed capital resources will enable it to maintain
its 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 favorable 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 are expected to grow 25% due to increased headcount and other resources to prepare for the commercial launch of
IntraDose®. In addition, the Company plans to expand its Medical and Clinical development programs and incur 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.

8

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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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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. 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. 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 have conducted and plan to continue to undertake 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 currently conducting multiple clinical trials in the United States and certain foreign countries. 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 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 March 31, 2001, our accumulated deficit was $217,912,000. Our net
loss for the years ended December 31, 2000, 1999, and 1998 was $23,321,000, $20,998,000 and $21,349,000, respectively. We have generated limited revenues from our products or product candidates
and expect to incur significant additional losses over

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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.

We Will Require Additional Financing to Develop and Commercialize Our Products. Additional Financing May Not Be Readily Available.

We have expended and will continue to expend substantial funds to complete the research and development of our product candidates. We may require additional
funds for these purposes and for the establishment of sales and marketing functions through additional equity or debt financings, collaborative arrangements with corporate partners or from other
sources. We cannot assure that such additional funds will be available on acceptable terms, if at all. Our failure to raise additional funds 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. Based on our current operating plan, we believe that our
existing capital resources will be adequate to satisfy our capital needs through 2002.

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.

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 assure that we will be able to validate this facility 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.

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Our Dependence on Suppliers for Materials Could Impair Our Ability to Manufacture Our Products.

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. In addition, the issuance in 1996 of a U.S. patent for cisplatin, a chemotherapeutic drug
that is the active compound in our IntraDose Injectable Gel product, could limit our ability to commercialize this product in the United States, if the newly-issued patent were upheld, if IntraDose
were found to infringe that patent, and if we were unable to obtain a license under that patent.

Our Patents and Proprietary Rights May Not Keep Us From Infringing the Rights of Others or May Not Prohibit Potential Competitors From Commercializing 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. 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.

In
1996, for instance, the PTO granted a composition-of-matter patent for the cytotoxic drug cisplatin in the United States, which patent was exclusively
licensed to another pharmaceutical 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, on
advice of patent counsel, that our IntraDose product candidate, which contains cisplatin, does not infringe this new composition-of-matter patent. Moreover, the 7th U.S.
District Court found the key claims of this new patent invalid in October 1999. The ruling was appealed, but on March 23, 2001, the District Court's action was upheld by the US Circuit
Court of Appeals. If the Circuit Court's decision is appealed and overturned, and if IntraDose

12

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were found to infringe that upheld patent, 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.

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.

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. Some of these products may have an entirely different approach or means of accomplishing similar therapeutic endpoints than
products that we are developing. 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.

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

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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.

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, 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.

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

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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. Additionally, We Have Not
Declared Any Dividends.

The market price for our common stock has been highly volatile, and, in addition, the market for biopharmaceutical and biotechnology companies' securities has
from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies.

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



We
have not paid any cash dividends on our common stock and do not anticipate paying any dividends in the foreseeable future.

Our Anti-Takeover Provisions Could Discourage Potential Takeover Attempts.

Some of the provisions of our Certificate of Incorporation and Bylaws may make it more difficult for a third party to acquire, or discourage a third party from
attempting to acquire, control of us. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock. 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 stockholders.

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 a third
party to acquire a majority of our outstanding voting stock. We have no present plans to issue shares of preferred stock. Some of the provisions of Delaware law applicable to us could also delay or
make more difficult a merger, tender offer or proxy contest involving us, including Section 203 of the Delaware General

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Corporation Law, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years unless specific conditions are met.

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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MATRIX PHARMACEUTICAL, INC.

PART II  OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K





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MATRIX PHARMACEUTICAL, INC.
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: May 4, 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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