UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549



                                    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, 1997

                                       OR

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



Commission File number:    0-19750
                          ---------

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



            Delaware                                          94-2957068
   (State or other jurisdiction of                          (I.R.S. Employer
   incorporation or organization)                          Identification No.)


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



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




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  preceeding 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
                                   -----      -----

Number of shares of Common  Stock,  $.01 par value,  outstanding  as of June 30,
1997: 21,291,530.




                                                                          Page 1

<PAGE>
<TABLE>

                           MATRIX PHARMACEUTICAL, INC.


                                      INDEX


PART I.  FINANCIAL INFORMATION

<CAPTION>

Item 1.       Financial   Statements                                                                        Page No.

<S>                                                                                                           <C>
              Condensed Consolidated Balance Sheets -
              June 30, 1997 and December 31, 1996                                                              3

              Condensed Consolidated Statements of Operations -
              Three Months and Six Months Ended June 30, 1997 and 1996                                         4

              Condensed Consolidated Statements of Cash Flows -
              Six Months Ended June 30, 1997 and 1996                                                          5

              Notes to Condensed Consolidated Financial Statements                                             6


Item 2.       Management's Discussion and Analysis of Financial
              Condition and Results of Operations                                                              9


PART II. OTHER INFORMATION

              Risk Factors                                                                                    12

Item 4.       Submission of Matters to a Vote of Security Holders                                             22

Item 6.       Exhibits and Reports on Form 8-K                                                                23

              Signatures                                                                                      24


</TABLE>

                                                                          Page 2
<PAGE>
                          MATRIX PHARMACEUTICAL, INC.
                         (a development stage company)
                                                        
                     Condensed Consolidated Balance Sheets
                                                        
                                                            (In thousands)
                                                        June 30,    December 31,
                                                          1997          1996
                                                       ---------      ---------
Assets                                                (Unaudited)

Current assets:
        Cash and cash equivalents                      $  18,407      $  20,138
        Short-term investments                            27,441         38,997
        Inventories                                        1,224            758
        Other current assets                               2,103          2,283
                                                       ---------      ---------
                Total current assets                      49,175         62,176

Property and equipment, net                               18,371         17,152
Non-current investments                                   50,038         55,449
Deposits and other assets, net                               158            173
                                                       ---------      ---------
                                                       $ 117,742      $ 134,950
                                                       =========      =========

Liabilities and Stockholders' Equity

Current liabilities:
        Accounts payable                               $   3,052      $   2,636
        Accrued compensation                                 818          1,045
        Accrued clinical trials                            1,599          1,239
        Other accrued liabilities                          1,470          2,135
        Current portion of debt and capital
           lease obligations                                 607            660
                                                       ---------      ---------
                Total current liabilities                  7,546          7,715

Long Term liabilities:
        Debt and capital lease obligations,
           less current portion                           11,644         11,724
        Deferred other income                              2,193             --
                                                       ---------      ---------
                Total long-term liabilities               13,837         11,724

Stockholders' equity
        Capital stock                                    224,707        222,256
        Notes receivable from shareholders                (2,313)            --
        Other                                               (617)          (856)
        Deficit accumulated during the
          development stage                             (125,418)      (105,889)
                                                       ---------      ---------
                Total stockholders' equity                96,359        115,511
                                                       ---------      ---------
                                                       $ 117,742      $ 134,950
                                                       =========      =========


                             See accompanying notes
                                                                          Page 3
<PAGE>

<TABLE>

                                                    MATRIX PHARMACEUTICAL, INC.
                                                   (a development stage company)
                                                                                                                                    
                                          Condensed Consolidated Statements of Operations
                                              (In thousands except per share amounts)
                                                            (Unaudited)
                                                                                                                                    
<CAPTION>
                                                                                                                                    
                                                                                                                                    
                                                                          Three Months Ended                  Six Months Ended      
                                                                               June 30,                           June 30,          
                                                                         1997            1996               1997              1996  
                                                                     --------          --------          --------          -------- 
                                                                                                                                    
<S>                                                                  <C>               <C>               <C>               <C>      
Revenues                                                             $   --            $   --            $   --            $   --   

Costs and expenses:
        Research and development                                        7,798             6,304            14,343            12,004
        Selling, general and administrative                             4,791             2,176             8,413             4,304
                                                                     --------          --------          --------          -------- 
               Total costs and expenses                                12,589             8,480            22,756            16,308
                                                                     --------          --------          --------          -------- 

Loss from operations                                                  (12,589)           (8,480)          (22,756)          (16,308)

Interest and other income, net                                          1,561             1,274             3,227             2,024
                                                                     --------          --------          --------          -------- 

Net loss                                                             $(11,028)         $ (7,206)         $(19,529)         $(14,284)
                                                                     ========          ========          ========          ======== 

Net loss per share                                                   $  (0.52)         $  (0.34)         $  (0.92)         $  (0.76)
                                                                     ========          ========          ========          ======== 

Weighted average number
of shares outstanding                                                  21,276            20,877            21,267            18,909
                                                                     ========          ========          ========          ======== 
<FN>

                                                       See accompanying notes
</FN>

                                                                                                                              Page 4

</TABLE>
<PAGE>
<TABLE>
                                                    MATRIX PHARMACEUTICAL, INC.
                                                   (a development stage company)
                                                                                                                                    
                                           Condensed Consolidated Statements of Cash Flows
                                          Increase (Decrease) in Cash and Cash Equivalents
                                                                                                                                    
                                                           (In thousands)
                                                            (Unaudited)
                                                                                                                                    
<CAPTION>
                                                                                                             For the Six  Months    
                                                                                                                Ended June 30       
                                                                                                          1997               1996   
                                                                                                        --------           -------- 
<S>                                                                                                     <C>                <C>      
Cash flows from operating activities:
                Net loss                                                                                $(19,529)          $(14,284)
                Adjustments to reconcile net loss to
                 net cash used by operating activities:
                        Depreciation, amortization and other                                               1,189                627
                Changes in assets and liabilities:
                        Inventories                                                                         (930)              --   
                        Deferred other income                                                              2,753               --   
                        Other changes in assets and liabilities                                             (481)            (1,064)
                                                                                                        --------           -------- 
                         Net cash used by operating activities                                           (16,998)           (14,721)
Cash flows from investing activities:
                Capital expenditures                                                                      (1,790)            (1,352)
                Investment in available-for-sale securities                                              (16,000)           (96,431)
                Proceeds of available-for-sale securities                                                   --                8,404
                Maturities of investments                                                                 33,000              6,221
                                                                                                        --------           -------- 
                        Cash flows provided (used) by investing activities                                15,210            (83,158)
Cash flows from financing activities:
                Payments on debt and capital lease obligations                                              (178)              (281)
                Net cash proceeds from issuance of:                                                         --                 --   
                        Debt and capital lease financing                                                      24               --  
                        Capital stock                                                                        211             68,328
                                                                                                        --------           -------- 
                        Cash flows provided by financing activities                                           57             68,047
Net decrease in cash and cash equivalents                                                                 (1,731)           (29,832)
Cash and cash equivalents at the beginning of period                                                      20,138             55,675
                                                                                                        --------           -------- 
Cash and cash equivalents at the end of period                                                          $ 18,407           $ 25,843
                                                                                                        ========           ========

Supplemental  schedule of noncash investing and
  financing activities:
                Notes receivable from shareholders in exchange for
                        capital stock                                                                   $  2,313           $   --
                                                                                                        ========           ========

<FN>

                                                       See accompanying notes
</FN>
                                                                                                                         
                                                                                                                              page 5
                                                                                                                                   
</TABLE>

<PAGE>
                           MATRIX PHARMACEUTICAL, INC.


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  June 30, 1997


1.       Basis of presentation

                  The results of  operations  for the interim  periods  shown in
         this report are not  necessarily  indicative  of results to be expected
         for the year ending  December 31, 1997.  In the opinion of  management,
         the information  contained herein reflects all adjustments necessary to
         make the results of operations for the interim periods a fair statement
         of such  operations.  All such  adjustments  are of a normal  recurring
         nature.

                  These condensed  consolidated  financial  statements should be
         read in conjunction with the Company's audited  consolidated  financial
         statements for the year ended December 31, 1996, which were included in
         the Company's Annual Report on Form 10-K, filed with the Securities and
         Exchange Commission.

2.       Principles of consolidation

                  The consolidated  financial statements include the accounts of
         the Company and its wholly owned  subsidiary  after  elimination of all
         material intercompany balances and transactions.

3.       Net loss per share

                  Net loss per  share is  computed  using the  weighted  average
         number of shares of common  stock  outstanding  during the  period.  In
         February  1997,  the Financial  Accounting  Standards  Board issued the
         Statement  of  Financial   Accounting  Standard  No.  128  (SFAS  128),
         "Earnings  per  Share,"  which the Company is required to adopt for its
         fiscal year ending December 31, 1997. At that time, the Company will be
         required to change the method  currently  used to compute  earnings per
         share and to restate all prior periods.  The Company's  compliance with
         SFAS 128 is not  expected  to have a material  impact on the  Company's
         calculation of per share earnings or loss.

4.       Cash and cash  equivalents,  short-term  investments,  and  non-current
         investments

                  The  Company   invests  its  excess  cash  in  government  and
         corporate  securities.  Highly liquid  investments  with  maturities of
         three months or less at the date of  acquisition  are considered by the
         Company to be cash  equivalents.  Investments  with  maturities  beyond
         three months at the date of acquisition and that mature within one year
         from  the  balance   sheet  date  are   considered   to  be  short-term
         investments.  Investments with maturities longer than one year from the
         balance  sheet  date  are  classified  as  short-term   investments  or
         non-current investments based on the Company's intended holding period.

                  The  Company   maintains  its  cash,   cash   equivalents  and
         investments  in  several  different  instruments  held by a bank  and a
         brokerage house.  This  diversification  of risk is consistent with the
         Company's  investment policy which is to maintain  liquidity and ensure
         the safety of principal.

                                                                          Page 6
<PAGE>



                  The Company determines the appropriate  classification of debt
         securities at the time of purchase and reevaluates  such designation as
         of each balance sheet date.  The amortized  cost of debt  securities is
         adjusted for  amortization  of premiums  and  accretion of discounts to
         maturity.  Such  amortization is included in interest and other income.
         Realized   gains  and  losses  and  declines  in  value  judged  to  be
         other-than-temporary  are also  included in interest and other  income.
         The cost of  securities  sold is based on the  specific  identification
         method.  Debt  securities are classified as  held-to-maturity  when the
         Company has the positive  intent and ability to hold the  securities to
         maturity and are carried at amortized cost.

                  Debt securities  which are not classified as  held-to-maturity
         and which are not held for resale in anticipation of short-term  market
         movements  are  classified  as  available-for-sale.  Available-for-sale
         securities  are carried at fair value,  with the  unrealized  gains and
         losses,  net of tax, reported in a separate  component of stockholders'
         equity.

5.       Litigation

                  On December 21, 1994, Collagen Corporation  ("Collagen") filed
         a lawsuit  against  the Company in Santa Clara  County  Superior  Court
         alleging  misappropriation  of trade secrets  concerning  the Company's
         manufacturing  process for collagen and seeking unspecified damages and
         injunctive  relief. The Company denied all allegations of the complaint
         and subsequently  filed a  cross-complaint  against Collagen and Howard
         Palefsky,  Collagen's  former  Chairman  and Chief  Executive  Officer,
         seeking  recovery of damages for  defamation,  violations  of state law
         unfair competition.

                  On May 23, 1997,  the lawsuit  between the parties was settled
         on mutually agreeable terms and dismissed with prejudice. All claims by
         and against all parties have been  released.  Matrix  agreed that for a
         period of five years it shall not manufacture or sell products directly
         competitive with Collagen's current core products. Collagen has granted
         Matrix  a  non-exclusive   license  to  certain  Collagen  intellectual
         property for certain non-monetary consideration.

6.        Notes receivable from stockholders

                  In March 1997,  the Board of  Directors  authorized  a special
         risk sharing  arrangement  designated as the Shared Investment  Program
         ("Program").  Under the Program,  the Company's  executive officers and
         other key managerial  personnel were given the  opportunity to purchase
         shares  of  Common  Stock  in an  individually  designated  amount  per
         participant  determined by the  Committee of the Board of Directors.  A
         total of  370,000  shares  were  purchased  under the  Program  by nine
         eligible  employees  at $6.25 per share,  the fair market  value of the
         Common  Stock on June  25,  1997,  for an  aggregate  consideration  of
         $2,312,500.  The purchase price will be paid through the  participant's
         delivery of a  full-recourse  promissory  note  payable to the Company.
         Each note bears interest at 6.69%  compounded  semi-annually  and has a
         maximum term of nine years. The note will be secured by a pledge of the
         purchased  shares  with  the  Company.  The  Company  recorded  a notes
         receivable  from  participants  in this program for  $2,312,500  in the
         equity section in the Consolidated Balance Sheet.

7.       New accounting pronouncements

                  In June 1997, the Financial  Accounting Standards Board issued
         the  Statement  of  Financial  Accounting  Standard No. 130 (SFAS 130),
         "Reporting  Comprehensive  Income,"  which the  Company is  required to
         adopt for its fiscal  year ended  December  31,  1998.  This  Statement
         requires


                                                                          Page 7
<PAGE>


         that all items that are  required  to be  recognized  under  accounting
         standards  as  components  of  comprehensive  income be  reported  in a
         financial statement that is displayed with the same prominence as other
         financial statements.  In June 1997, the Financial Accounting Standards
         Board issued the  Statement of  Financial  Accounting  Standard No. 131
         (SFAS 131),  "Disclosures  about  Segments of an Enterprise and Related
         Information,"  which the  Company is  required  to adopt for its fiscal
         year ended December 31, 1998. This Statement  establishes standards for
         the way that  public  business  enterprises  report  information  about
         operating  segments  in  annual  financial  statements  and in  interim
         financial reports issued to shareholders. It also establishes standards
         for related disclosures about products and services,  geographic areas,
         and  major   customers.   Both   standards   will  require   additional
         disclosures,  but will  not have a  material  effect  on the  Company's
         financial position or results of operations.

                                                                          Page 8
<PAGE>


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


         This Quarterly Report on Form 10-Q contains,  in addition to historical
statements, forward-looking statements, including without limitation, statements
regarding  the timing and outcome of  regulatory  reviews and  clinical  trials.
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; rapid technological
change;  substantial competition;  uncertainty regarding patents and proprietary
rights;  uncertainty  of  pharmaceutical  pricing;  and no assurance of adequate
reimbursement,  please see the "Risk Factors"  section included in the Company's
1996 Form 10-K and in this Form 10-Q as well as other  factors  discussed  below
and elsewhere in this report.

Results of Operations

Three Months and Six Months Ended June 30, 1997 and 1996

         Since  the  Company's  inception  in  1985,  the  primary  focus of its
operations has been research and  development  and, to date, it has not received
any revenues from the commercial sale of products.  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 current and future  products.
For the period from its  inception to June 30, 1997,  the Company has incurred a
cumulative net loss of $125,418,000.

         The Company had no revenue in either of the second quarters of 1997 and
1996 nor in the first six months of 1997 and 1996.

         Research  and  development  expenses  for the  second  quarter  of 1997
increased by 24% to $7,798,000 as compared to $6,304,000  for the second quarter
of 1996.  For the first six months of 1997,  research and  development  expenses
increased by 19% to $14,343,000 compared to $12,004,000 in 1996. These quarterly
and  year-to-date  increases  were primarily due to a higher level of production
expenses for AccuSite(TM),  increases in manufacturing  research and development
and clinical  personnel  costs,  increased  clinical  trial costs to support the
IntraDose  Injectable  Gel cancer  program,  and higher  occupancy  costs.  This
increase  was  partially  offset  by  lower  expenses  on  clinical  trials  for
AccuSite(TM).

         Selling,  general and administrative expenses for the second quarter of
1997  increased by 120% to $4,791,000  as compared to $2,176,000  for the second
quarter  of 1996.  For the  first  six  months  of 1997,  selling,  general  and
administrative expenses increased by 95% to $8,413,000 versus $4,304,000 for the
same period in 1996.  This increase was  primarily due to higher legal  expenses
related to the Collagen  litigation  which was settled during the second quarter
of  1996,  market  launch  expenses  for  AccuSite,  recruiting  and  relocation
expenses,  and higher  personnel  expenses.  The legal  expenses  related to the
Collagen  lawsuit were  $2,286,000 and $3,720,000 for the quarter and six months
ended June 30,  1997,  respectively,  compared to $350,000  and $860,000 for the
comparative periods of 1996.

         Net interest and other income  increased to  $1,561,000  for the second
quarter of 1997 as compared to $1,274,000  for the second  quarter of 1996.  For
the first six  months of 1997,  net  interest  

                                                                          Page 9

<PAGE>

and other income  increased to $3,227,000  compared to  $2,024,000 in 1996.  The
increase  for the quarter and six months  ended June 30, 1997  reflected  rental
income  from the lease of a section  of the  Company's  San Diego  facility.  In
addition, for the six months ended June 30, 1997, interest income increased as a
result of higher  cash  balances in effect  during the first  quarter of 1997 as
compared to the same period in the prior year.

Liquidity and Capital Resources

         At June  30,  1997,  the  Company  had  $95.9  million  in  cash,  cash
equivalents and marketable securities compared to $114.6 million at December 31,
1996.  During the six months ended June 30, 1997, $25.2 million in cash was used
primarily to fund operating activites,  inventory,  and capital purchases.  This
was partially  offset by interest and rental receipts of $3.6 million as well as
$2.8 million received as part of a non-compete agreement.

         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,  sales from AccuSite as
well as  additional  capital  that  may be  generated  through  equity  and debt
financings and collaborative agreements.

         The Company's  working capital and capital  requirements will depend on
numerous  factors,   including  the  progress  of  the  Company's  research  and
development  programs,  preclinical  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.

         In December  1995, the Company  purchased a research and  manufacturing
facility in San Diego,  California  for $13.1  million.  This facility  requires
validation  and  process  installation  investments  that will  require  capital
expenditures  of  approximately  $10.5  million of which $1.0  million  has been
incurred through June 30, 1997.

         The Company expects to incur  substantial  additional costs relating to
the  continued  clinical  development  of its products,  continued  research and
development   programs,   the   development   of  marketing  and   manufacturing
capabilities,  the purchase of additional  capital equipment and general working
capital  requirements.  The Company  anticipates that its existing and committed
capital  resources  including the proceeds of its April 1996 public offering and
commercial  sales of AccuSite will enable it to maintain its current and planned
operations  at least through 1998.  The Company may require  additional  outside
financing to complete the process of bringing  current  products to market,  and
while the Company is not aware of any  limitations on future sources of capital,
there can be no  assurance  that such  financing  will be available on favorable
terms, if at all.

         Capital  expenditures  for  environmental   control  efforts  were  not
material during the first six months of 1997 and 1996.

         The Company  began  selling and  marketing  activities  with respect to
AccuSite in the United  Kingdom  during the first  quarter of 1997.  The Company
anticipates  sales to gradually build in the United Kingdom as support is gained
and the product is accepted by pharmacy  formularies.  However, the Company does
not expect any material sales until 1998.  Also,  during the first half of 1997,
the Company 


                                                                         Page 10
<PAGE>

signed  agreements  pursuant  to which  one  company  has  exclusive  rights  to
distribute  AccuSite  in Italy  and  another  company  has  exclusive  rights to
distribute AccuSite in Spain and Portugal.

         The Company has filed separate  regulatory  submissions for AccuSite in
Germany, France and Italy.  Additionally,  the regulatory approval in the United
Kingdom was submitted in certain other countries of the European Union under the
mutual recognition process. In June 1997, AccuSite was recommended for marketing
authorization  in  Belgium,  Denmark,  Finland,  Ireland,  Luxembourg,  and  the
Netherlands  through  the  mutual  recognition  process.   Such  recommendations
typically lead to approval within 30-90 days. However, there can be no assurance
that the  Company  will  receive  approval  in such  countries  during such time
period, if at all.

         In the United States, the Company received an action letter in December
1996 from the Food and Drug Administration (FDA) identifying issues that need to
be resolved before the Company's New Drug Application  (NDA) for AccuSite can be
approved  for the  treatment  of  genital  warts.  In March  1997,  the  Company
submitted  an  amendment  to its NDA that the  Company  believes  addresses  the
questions raised in the FDA's action letter and during a subsequent  meeting. If
the Company fails to  commercialize  its program for genital warts in the United
States,  this would have a material adverse impact on the future revenues of the
company.

         In August 1997, the Company  signed an agreement  pursuant to which one
company  has  exclusive  rights  to  distribute   AccuSite  to  dermatology  and
obstetrics and gynecology audiences in the United States.


                                                                         Page 11
<PAGE>

                           PART II. OTHER INFORMATION


                                  RISK FACTORS


No Assurance of Regulatory Approvals

         The preclinical and clinical testing,  manufacturing,  and marketing of
the  Company's  products  are  subject  to  extensive   regulation  by  numerous
governmental  authorities in the United States and other  countries,  including,
but not  limited  to, the FDA.  Among other  requirements,  FDA  approval of the
Company's  products,  including  a review  of the  manufacturing  processes  and
facilities used to produce such products,  will be required before such products
may be marketed in the United States. Similarly, marketing approval by a foreign
governmental  authority  is  typically  required  before  such  products  may be
marketed in a particular foreign country. Matrix has no products approved by the
FDA and one  product  approved  by a foreign  authority  and does not  expect to
achieve  profitable   operations  unless  other  product  candidates  now  under
development  receive  FDA and foreign  regulatory  approval  and are  thereafter
commercialized successfully.

         In  order to  obtain  FDA  approval  of a  product,  the  Company  must
demonstrate  to the  satisfaction  of the FDA  that  such  product  is safe  and
effective for its intended uses and that the Company is capable of manufacturing
the product with procedures that conform to the FDA's current good manufacturing
practice ("cGMP") regulations,  which must be followed at all times. The Company
has  had  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. There can be no assurance that
such approvals will be granted to the Company on a timely basis, or at all.

         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 undergo  extensive
preclinical and clinical testing and that the Company file an NDA requesting FDA
approval.  When a product  contains more than one component that  contributes to
the product's effect,  as do many of the Company's  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. In addition,  when
there has been a  manufacturing  change in a product  component  (either  in the
process  by  which  the  component  is  manufactured  or the site at which it is
manufactured) during product  development,  as is the case with the collagen gel
used in the Company's AccuSite product, the FDA may request that additional data
be submitted to demonstrate that the  manufacturing  change has not affected the
clinical performance of the product. In addition,  the manufacturing  facilities
for a product must be inspected  and accepted by the FDA as being in  compliance
with  cGMP  regulations  prior  to  approval  of the  product.  There  can be no
assurance that the Company's  current  manufacturing  facilities in San Jose and
Milpitas will continue to be accepted by the FDA, or that its San Diego facility
will be  accepted  in the  future,  and  failure  to receive  or  maintain  such
acceptance would have a material adverse effect on the Company's business.

         Matrix has used three different sources of collagen gel in the products
on which it has conducted clinical trials:  Koken Co., Ltd. ("Koken"),  Collagen
Corporation  ("Collagen")  and its own  production.  The Company  intends to use
collagen gel of its own  manufacture in products it markets  commercially if 

                                                                         Page 12

<PAGE>


FDA approval is received. Accordingly, the Company has not referenced Collagen's
Pre-Market Approval files in its NDA. (See "-- Litigation" )

         However, as noted above, when there has been a manufacturing  change in
a product, such as a change in the supplier of a component,  the FDA may request
that additional data be submitted to demonstrate that the  manufacturing  change
has not  affected the  clinical  performance  of the product as shown in earlier
clinical  trials.  Accordingly,  Matrix has  conducted  a series of  preclinical
studies to show  comparability of products made from Collagen,  Koken and Matrix
collagen gel, a human  pharmacokinetic  study to show  comparability of products
made with  Matrix and  Collagen  collagen  gel,  and Phase III  clinical  trials
showing  comparability  in  clinical  performance  of a product  made with Koken
collagen gel and a product  made with  Collagen  collagen  gel. The Company also
conducted a Phase III(b) clinical trial to demonstrate  the comparable  clinical
performance  of a product  made with Matrix  collagen gel to a product made with
Collagen  collagen gel. The Company believes that all studies  conducted to date
have  supported  the  comparable  clinical  performance  of  products  made with
collagen gel from all three sources,  but there can be no assurance that the FDA
will agree. In addition, there can be no assurance that the FDA will not require
further clinical  demonstrations  either of the  comparability of a product made
with Matrix  collagen  gel to product made with  Collagen  collagen gel or Koken
collagen gel, or the safety and efficacy of a product made with Matrix  collagen
gel. If questions  arise during the FDA review  process about  comparability  or
about the safety and  efficacy of a product made with  collagen,  it could delay
the  approval  process  or  prevent  approval  and will  increase  the  costs of
obtaining such approval.

         The Company's analysis of the results of its clinical studies submitted
as part of an NDA is subject to review and  interpretation by the FDA, which may
differ from the Company's analysis. There can be no assurance that the Company's
data or its  interpretation  of data will be accepted  by the FDA. In  addition,
delays or rejections may be encountered  based upon changes in applicable law or
FDA policy during the period of product  development and FDA regulatory  review.
Any failure to obtain,  or delay in  obtaining,  FDA approvals  would  adversely
affect the ability of the  Company to market its  proposed  products.  Moreover,
even  if  FDA  approval  is  granted,  such  approval  may  include  significant
limitations on indicated uses for which a product could be marketed.

         Both  before  and  after   approval  is   obtained,   a  product,   its
manufacturer,  and  the  holder  of the  NDA  for the  product  are  subject  to
comprehensive regulatory oversight. Violations of regulatory requirements at any
stage,  including the preclinical  and clinical  testing  process,  the approval
process  or  thereafter  (including  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,  later  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  the  Company's   products  under   development.   See
"--Uncertainty   of   Pharmaceutical   Pricing;   No   Assurance   of   Adequate
Reimbursement.

         The  Company's  NDA for  AccuSite was accepted for filing by the FDA in
November  1995.  In December  1996,  the Company  announced  that it received an
action  letter  from the FDA  identifying  issues  that will need to be resolved
before the  Company's  NDA for  AccuSite  can be approved  for the  treatment of
genital warts.

                                                                         Page 13

<PAGE>

         The  FDA  letter  cited  the  information  submitted  by  Matrix  to be
inadequate and said that the AccuSite application is consequently not approvable
as submitted. The FDA's response raised issues relating to clinical matters (the
importance  of the  persistence  of one side  effect as it  relates  to  product
equivalence,  length of patient follow-up,  and a potential risk of serious side
effects -- though no such side  effects  were  observed  in  clinical  studies),
chemistry matters (e.g.,  expiration dating and sampling plans) and microbiology
issues (e.g., filter and equipment sterilization validations). In February 1997,
the Company met with FDA officials to discuss the clinical  issues raised in the
agency's  December 1996 letter.  In March 1997, Matrix filed an amendment to its
NDA that the  Company  believes  addresses  the  questions  raised in the action
letter and during the  subsequent  meeting.  However,  there can be no assurance
that the FDA may not ask for additional  information  on these issues,  or raise
new issues,  either of which could delay or preclude marketing approval.  If the
Company  fails to  commercialize  its program  for  genital  warts in the United
States, this could have a material adverse impact on the Company.

         The processes  required by European  regulatory  authorities before the
Company's products can be marketed in Western Europe are similar to those in the
United States.  First,  appropriate  preclinical  laboratory and animal tests as
well as analytical product quality tests must be done, followed by submission of
a  clinical  trial  exemption  ("CTX")  or similar  documentation  before  human
clinical   trials  can  be   initiated.   Upon   completion   of  adequate   and
well-controlled  clinical  trials in humans that establish that the drug is safe
and efficacious, regulatory approval of a Market Authorization Application (MAA)
must be obtained from the relevant regulatory authorities.

         The Company filed its MAA for AccuSite in the United  Kingdom in August
1995 and  subsequently  filed an MAA in Germany,  France and Italy. In May 1996,
the Company was notified by the Medicines  Control  Agency in the United Kingdom
that a product  license  had been  granted for  AccuSite  for the  treatment  of
genital warts. In December 1996, the Company submitted an application for mutual
recognition  of the United Kingdom  approval by various  members of the European
Union to which it did not make a national submission. In June 1997, AccuSite was
recommended for marketing authorization in Belgium,  Denmark,  Finland, Ireland,
Luxembourg  and the  Netherlands  through the mutual  recognition  process.  The
recommendations  should lead to formal  approvals  within  30-90 days.  However,
there can be no assurance of mutual recognition by other participating countries
of the approval obtained in the United Kingdom.  During the regulatory  process,
the MAA was withdrawn from Spain, Greece,  Portugal, and Austria, and a national
application  was  withdrawn  from Sweden.  As with the United  States FDA review
process,  there are numerous risks  associated  with the MAA review.  Additional
data may be requested by the regulatory  agency reviewing the MAA to demonstrate
the contribution of a product component to the clinical safety and efficacy of a
product or to compare the  efficacy of the  product to other  treatments,  or to
confirm  the  comparable   performance  of  materials   produced  by  a  changed
manufacturing process or at a changed manufacturing site.

Uncertainties Associated with Clinical Trials

         Matrix has conducted  and plans to continue to undertake  extensive and
costly  clinical  testing to assess the safety  and  efficacy  of its  potential
products.  Failure to comply with FDA regulations applicable to such testing can
result in delay, suspension,  or cancellation of such testing, and/or refusal by
the FDA to accept  the  results of such  testing.  In  addition,  the FDA or the
Company may modify or suspend  clinical  trials at any time if it concludes that
the  subjects or  patients  participating  in such  trials are being  exposed to
unacceptable  health  risks.  Further,  there  can be no  assurance  that  human
clinical  testing will show any current or future  product  candidate to be safe
and effective or that data derived  therefrom will be suitable for submission to
the FDA.

                                                                         Page 14

<PAGE>

         The Company is currently  conducting  multiple  clinical  trials in the
United States and certain  foreign  countries,  including four ongoing Phase III
trials.  The rate of completion of the  Company's  clinical  trials is dependent
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.  The Company has  experienced  slower than
planned accrual of patients with its ongoing Phase III trials. Further delays in
completing  enrollment in these trials or delays in other  clinical  studies may
result in increased costs and delays, which could have a material adverse effect
on the Company.  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.

History of Losses; Future Profitability Uncertain

         Matrix was incorporated in 1985 and has experienced  significant losses
since that date.  As of June 30, 1997,  the  Company's  accumulated  deficit was
approximately  $125.4 million.  The Company has not generated  revenues from its
products  and  expects  to incur  significant  additional  losses  over the next
several years. The Company's ability to achieve a profitable level of operations
is  dependent  in large  part on  successfully  developing  products,  obtaining
regulatory  approvals  for  its  products,  and  making  the  transition  to  an
organization  producing  commercial  products and entering into  agreements  for
product commercialization.  No assurance can be given that the Company's product
development efforts will be completed,  that required regulatory  approvals will
be obtained,  that any products will be manufactured and marketed  successfully,
or that profitability will be achieved.

Additional Financing Requirements and Uncertain Access to Capital Markets

         The Company has expended and will continue to expend  substantial funds
to complete the research, development and marketing of its products. The Company
may require  additional  funds for these purposes through  additional  equity or
debt  financings,  collaborative  arrangements  with corporate  partners or from
other  sources.  No assurance  can be given that such  additional  funds will be
available on acceptable  terms,  if at all. If adequate  funds are not available
from operations or additional sources of financing, the Company's business could
be materially and adversely  affected.  Based on its current operating plan, the
Company  anticipates  that its existing  capital  resources  will be adequate to
satisfy its  capital  needs  through  1998.  See  "Management's  Discussion  and
Analysis of Financial Condition and Results of Operations."

Limited Sales and Marketing Experience

         The  Company  intends to market and sell  certain of its  products,  if
successfully developed and approved, through its own dedicated salesforce in the
United States.  However, for AccuSite,  the Company has entered into a sales and
marketing  agreement with Savage  Laboratories,  the U.S.  marketing division of
Altana,  Inc.,  to sell,  market and  distribute  AccuSite  to  dermatology  and
obstetrics and gynecology  audiences in the United States. With the exception of
the United  Kingdom,  the  Company's  strategy is to secure sales and  marketing
agreements,  in the major European  territories,  for its products.  The Company
currently has limited marketing and sales staff, utilizes a small contract sales
organization  in the UK, and has not entered into  co-promotion  or distribution
arrangements  other than for Italy,  Spain,  Portugal and the United States. The
Company is  developing  a sales and  marketing  plan for  AccuSite and its other
products in clinical  development.  In order to market its products directly,  a
sales  force  with  technical  expertise  must  be  developed.  There  can be no
assurance  that the Company will be able to establish a successful  direct sales
organization or co-promotion or distribution  arrangements.  In 

                                                                         Page 15

<PAGE>

addition,  there can be no  assurance  that  there will be  sufficient  sales of
AccuSite  or other  products  to fund  related  expenses,  many of which must be
incurred  before  sales  commence.  Failure to  establish a marketing  and sales
capability  in the United  States  and/or  outside the United  States may have a
material adverse effect on the Company.

Limited Manufacturing Experience

         The Company's  ability to conduct clinical trials on a timely basis, to
obtain  regulatory  approvals and to  commercialize  its products will depend in
part upon its ability to manufacture  its products,  either  directly or through
third parties,  at a competitive  cost and in accordance with applicable FDA and
other  regulatory  requirements,  including  cGMP  regulations.  The  Company is
currently  manufacturing  commercial  quantities  of  AccuSite  and  supplies of
IntraDose for its clinical  trials at its  manufacturing  facilities in San Jose
and Milpitas,  California.  The Company  anticipates  that its facilities in San
Jose and Milpitas should provide sufficient production capacity to meet clinical
and  early  commercial   requirements  of  its  AccuSite  product  and  selected
components for IntraDose into 1998. However,  there can be no assurance that the
Company  will  be  able to  produce  adequate  quantities  of its  products  for
commercial  marketing and for its clinical  trials;  or that the Company will be
able to manufacture in a cost-effective  manner;  or that the Company's  current
manufacturing facilities will continue to be accepted by the FDA.

         In December  1995, the Company  purchased a research and  manufacturing
facility in San Diego,  California.  The Company intends to use this facility to
meet its  long-term  commercial  scale  production  requirements.  This facility
requires  validation  and process  installation  investments  that will  require
capital expenditures of approximately $10.5 million of which $1 million has been
incurred  through June 30, 1997.  The Company  estimates that this facility will
not be available for production  until late 1998. There can be no assurance that
the  Company  will be able to  validate  and scale up this  facility in a timely
manner or that this  facility  will be adequate  for  Matrix's  long-term  needs
without delay to the Company's ability to meet product demand. Matrix expects to
continue  to use  selected  contract  manufacturers,  in  addition  to  its  own
manufacturing capability, for some or all of its product components.  Failure to
establish  additional  manufacturing  capacity  on a  timely  basis  may  have a
material adverse effect on the Company.

Dependence on Sources of Supply

         Several of the materials  used in the Company's  products are available
from a limited  number of  suppliers.  These items,  including  collagen gel and
various bulk drug substances used in the Company's products, have generally been
available to Matrix and others in the  pharmaceutical  industry on  commercially
reasonable  terms.  If the Company's  manufacturing  facilities  are not able to
produce  sufficient  quantities  of collagen gel in accordance  with  applicable
regulations,  the Company would have to obtain  collagen gel from another source
and gain regulatory approval for that source. There can be no assurance that the
Company would be able to locate an alternative,  cost-effective source of supply
of collagen  gel.  Matrix has  negotiated  and intends to continue to  negotiate
supply agreements, as appropriate, for the raw materials and components utilized
in its products.  Matrix is also in the process of attempting to obtain approval
of second sources for as many as possible of these supplies. Any interruption of
supply  could  have a  material  adverse  effect  on the  Company's  ability  to
manufacture  its products,  and thus the ability to complete the clinical trials
or  to  commercialize   products.   In  addition,   the  Company's   ability  to
commercialize its IntraDose Injectable Gel product in the United States could be
limited  by  the  issuance  in  1996  of  a  U.S.   patent  for   cisplatin,   a
chemotherapeutic  drug  that  is  the  active  compound  in  IntraDose,  if  the
newly-issued  patent were upheld and if  IntraDose  were found to infringe  

                                                                         Page 16
<PAGE>

that  patent,  and if the  Company  were  unable to obtain a license  under that
patent. See "--Uncertainty Regarding Patents and Proprietary Rights."

Litigation

         On December 21, 1994, Collagen Corporation ("Collagen") filed a lawsuit
against  the   Company  in  Santa   Clara   County   Superior   Court   alleging
misappropriation of trade secrets concerning the Company's manufacturing process
for collagen and seeking  unspecified damages and injunctive relief. The Company
denied all allegations of the complaint and subsequently filed a cross-complaint
against  Collagen  and Howard  Palefsky,  Collagen's  former  Chairman and Chief
Executive  Officer,  seeking  recovery of damages for defamation,  violations of
state law unfair competition.

         On May 23,  1997,  the  lawsuit  between  the  parties  was  settled on
mutually agreeable terms and dismissed with prejudice. All claims by and against
all parties have been released. Matrix agreed that for a period of five years it
shall not  manufacture or sell products  directly  competitive  with  Collagen's
current core products.  Collagen has granted Matrix a  non-exclusive  license to
certain Collagen intellectual property for certain non-monetary consideration.

Uncertainty Regarding Patents and Proprietary Rights

         The Company's  success  depends in part on its ability to obtain patent
protection  for its  products  and to  preserve  its trade  secrets  and operate
without infringing on the proprietary rights of third parties.  No assurance can
be given that the Company's pending patent applications will be approved or that
any patents will provide  competitive  advantages for the Company's  products or
will not be  successfully  challenged or circumvented  by its  competitors.  The
Company has not  conducted an  exhaustive  patent search and no assurance can be
given  that  patents  do not  exist or could  not be filed  which  would  have a
material  adverse  effect on the  Company's  ability to market its  products  or
maintain its  competitive  position with respect to its products.  The Company's
patents  may not prevent  others  from  developing  competitive  products  using
related  technology.  Other companies  obtaining  patents  claiming  products or
processes  useful to the  Company  may bring  infringement  actions  against the
Company. As a result, the Company may be required to obtain licenses from others
to develop,  manufacture or market its products.  There can be no assurance that
the Company will be able to obtain any such licenses on commercially  reasonable
terms,  if at all.  The  Company  also relies on trade  secrets and  proprietary
know-how which it seeks to protect, in part, by confidentiality  agreements with
its employees,  consultants,  suppliers and licensees. There can be no assurance
that these agreements will not be breached, that the Company would have adequate
remedies for any breach,  or that the Company's trade secrets will not otherwise
become known or be independently developed by competitors.

         No  assurance  can be given that any patent  issued to, or licensed by,
the Company 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 United States Patent and Trademark Office ("PTO") in proceedings  instituted
by Matrix or others.  During an  opposition  proceeding  in Japan,  the  Company
became  aware of a  reference  which may affect  the scope of its United  States
Patent  claims  which cover the collagen  gel matrix  products.  The Company has
brought this  reference to the attention of the PTO for a  determination  of the
extent to which the claims  should be  modified in light of this  reference.  No
assurance can be given concerning the outcome of the determination, although the
Company  believes that  modifications of the claims that may be required because
of the reference will not materially adversely affect the Company's  proprietary
protection  for its  products.  In addition,  no assurance can be given that the
Company's  patents  will afford  

                                                                         Page 17
<PAGE>

protection  against  competitors with similar  compounds or  technologies,  that
others will not obtain patents  claiming aspects similar to those covered by the
Company's  patents or applications,  or that the patents of others will not have
an adverse  effect on the ability of the Company to do business.  Moreover,  the
Company  believes that  obtaining  foreign  patents may be more  difficult  than
obtaining domestic patents because of differences in patent laws, and recognizes
that its 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.

         In addition,  no assurance can be given that the Company's patents will
afford  protection  against  competitors with similar compounds or technologies,
that others will not obtain patents claiming aspects similar to those covered by
the Company's  patents or  applications,  or that the patents of others will not
have an adverse  effect on the ability of the Company to do  business.  In 1996,
for instance,  a  composition-of-matter  patent for the cytotoxic drug cisplatin
was granted in the United States to a pharmaceutical company whose use patent on
cisplatin as an  anti-tumor  agent  expired in December  1996.  The Company,  on
advice of patent  counsel,  believes  the new patent for  cisplatin,  the active
agent in the Company's  IntraDose product,  was improperly awarded and should be
found  invalid.  However,  if the new  patent  on  cisplatin  is  upheld  and if
IntraDose were found to infringe that patent, there can be no assurance that the
Company  would  be  able  to  obtain  a  license  to  the  patent  in  order  to
commercialize IntraDose in the United States.

Rapid Technological Change and Substantial Competition

         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 the  Company,  and  represent  significant  competition  for the
Company.  Acquisitions of, or investments in, competing  biotechnology companies
by large  pharmaceutical  companies could increase such competitors'  financial,
marketing and other  resources.  There can be no assurance that  developments by
others will not render the Company's products or technologies  noncompetitive or
that the  Company  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 effects than products being developed by the Company.  These
competing  products  may be more  effective  and less costly  than the  products
developed by the Company.  In addition,  conventional drug therapy,  surgery and
other more familiar  treatments  and  modalities  will offer  competition to the
Company's products.

         Any product which the Company  succeeds in developing  and for which it
gains  regulatory  approval must then compete for market  acceptance  and market
share. Accordingly,  important competitive factors, in addition to completion of
clinical  testing and the gaining 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.

                                                                         Page 18
<PAGE>


Uncertainty of Pharmaceutical Pricing; No Assurance of Adequate Reimbursement

         The future revenues and  profitability  of and  availability of capital
for  biopharmaceutical  companies may be affected by the  continuing  efforts of
governmental  and third  party  payers to  contain or reduce the costs of health
care through various means.  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 the Company  expects that there will
continue to be, a number of federal and state  proposals  to  implement  similar
government   control.   While  the  Company  cannot  predict  whether  any  such
legislative  or  regulatory  proposals  will be  adopted,  the  announcement  or
adoption of such proposals could have a material adverse effect on the Company's
prospects. Additionally, the cost of prescription drugs is receiving substantial
attention  in the United  States  Congress.  Legislation  enacted  in 1990,  and
amended and  strengthened  in 1992,  requires  pharmaceutical  manufacturers  to
rebate to the  government a portion of their  revenues  from drugs  furnished to
Medicaid  patients.  In  1992,   legislation  was  enacted  that  extends  these
requirements to cover outpatient pharmaceuticals,  and also mandates a reduction
in pharmaceutical prices charged to certain federally-funded  facilities as well
as to certain hospitals serving a disproportionate share of low-income patients.
It is likely that Congressional  attention will continue to focus on the cost of
drugs  generally,  and particularly on increases in drug prices in excess of the
rate of inflation, given recent government initiatives pertaining to the overall
reform of the U.S.  health  care  system,  and those  specifically  directed  at
lowering  total costs.  The Company  cannot predict the likelihood of passage of
federal and state  legislation  related to health  care reform or lowering  drug
costs.

         The Company's ability to commercialize  its products  successfully will
depend in part on the extent to which appropriate  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   ("HMOs").   Third-party  payors  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  such as 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 all
result in lower prices for the Company's products. The cost containment measures
that health  care payors and  providers  are  instituting  and the effect of any
health care reform  could  adversely  affect the  Company's  ability to sell its
products and may have a material adverse effect on the Company.

Dependence Upon Qualified and Key Personnel

         Because  of the  specialized  nature  of the  Company's  business,  the
Company's ability to maintain its competitive position depends on its ability to
attract and retain qualified  management and scientific  personnel.  Competition
for such  personnel is intense.  There can be no assurance that the Company will
be able to continue to attract or retain such persons.  During the quarter,  the
Company's Chief Executive Officer resigned.  The Company's Board of Directors is
currently conducting a search for a new Chief Executive Officer. The loss of key
personnel or the failure to recruit  additional  personnel could have a material
adverse effect on the Company's business.

Product Liability Exposure; Limited Insurance Coverage

         The  Company  faces an  inherent  business  risk of exposure to product
liability  claims in the  event  that the use of  products  during  research  or
commercialization results in adverse effects. While the Company will continue to
attempt to take appropriate precautions,  there can be no assurance that it will
avoid  significant  product  liability  exposure.  The Company maintains product
liability insurance for

                                                                         Page 19
<PAGE>

clinical studies and commercial product. However, there can be no assurance that
such coverage will be adequate or that  adequate  insurance  coverage for future
clinical or  commercial  activities  will be available at all, or at  acceptable
cost, or that a product  liability claim would not materially  adversely  affect
the business or financial condition of the Company.

Hazardous Materials and Product Risks

         The Company's  research and development  involves the controlled use of
hazardous  materials,  such as  cytotoxic  drugs,  other toxic and  carcinogenic
chemicals and various radioactive compounds.  Although the Company believes that
its safety  procedures for handling and disposing of such materials  comply with
the standards  prescribed by federal,  state and local regulations,  the risk of
accidental  contamination  or injury from these  materials  cannot be completely
eliminated.  In the event of such an accident,  the Company could be held liable
for any damages that result,  and any such  liability  could be  extensive.  The
Company is also  subject to  substantial  regulation  relating  to  occupational
health and safety,  environmental  protection,  hazardous substance control, and
waste management and disposal. The failure to comply with such regulations could
subject the Company to, among other things, fines and criminal liability.

         Certain of the  chemotherapeutic  agents employed by the Company in its
Therapeutic  Implant,  ADV and Therapeutic  Adhesive  products are known to have
toxic  side  effects,   particularly   when  used  in  traditional   methods  of
administration.  Each product  incorporating such a chemotherapeutic  agent will
require  separate  FDA  approval  as a new drug under the  procedures  specified
above.  Bovine  collagen is a  significant  component of the  Company's  protein
matrix.  Two rare autoimmune  connective  tissue  conditions,  polymyositis  and
dermatomyositis  ("PM/DM"),  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 hypothetical concern
because of transmission of Bovine Spongiform Encelphalopaty ("BSE"). The Company
has taken all precautions to minimize the risk of  contamination of its collagen
with BSE including the use of U.S sourced cow hides. Materials made of cow hides
are considered to be the lowest risk of transmission of BSE.

Volatility of Stock Price; No Dividends

         The market prices for securities of biopharmaceutical and biotechnology
companies (including the Company) have historically been highly volatile, and in
addition,  the market has from time to time  experienced  significant  price and
volume  fluctuations  that  are  unrelated  to  the  operating   performance  of
particular   companies.   Future  announcements   concerning  the  Company,  its
competitors  or  other  biopharmaceutical  products,   governmental  regulation,
developments in patent or other proprietary rights, litigation or public concern
as to the safety of  products  developed  by the  Company or others and  general
market  conditions  may have a  significant  effect on the  market  price of the
Common  Stock.  The Company has not paid any cash  dividends on its Common Stock
and does not anticipate paying any dividends in the foreseeable future.

                                                                         Page 20
<PAGE>

Anti-Takeover Provisions

         The ability of the Board of Directors of the Company to issue shares of
Preferred  Stock  without  stockholder  approval and a  stockholder  rights plan
adopted by the Company may, alone or in combination,  have certain anti-takeover
effects.  The Company  also is subject to  provisions  of the  Delaware  General
Corporation Law which may make certain business combinations more difficult.

                                                                         Page 21
<PAGE>

                           MATRIX PHARMACEUTICAL, INC.

PART II           OTHER INFORMATION


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

The Company's 1997 Annual Meeting of Stockholders was held on June 25, 1997. The
following  directors,  all of whom served in such capacity prior to the meeting,
were re-elected by the stockholders:

                                             For                   Withheld
                                             ---                   --------
         J. Stephan Dolezalek             19,244,145                936,103
         Edward E. Luck                   19,237,594                942,654
         John E. Lyons                    19,245,245                935,003
         Julius L. Pericola               19,245,645                934,603
         Alan E. Salzman                  18,506,442              1,673,806

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

         o    Approval of an amendment to the Company's  1988  Restricted  Stock
              Plan ("the Plan") in order to (1)  increase the maximum  number of
              shares of common stock  authorized  for issuance under the Plan by
              an additional  2,000,000  shares and (2) the extension of the term
              of the Plan from  September 2, 1998 to December  31, 2002.  Of the
              total shares voting on the foregoing  resolution,  7,836,268 voted
              in favor, 5,849,061 voted against, 1,607,880 abstained, and broker
              non-votes were 4,887,039.

         o    Approval of a series of amendments to the Company's  1991 Director
              Stock Option Plan (the "Directors Plan"), including an increase in
              the  maximum  number  of shares of  common  stock  authorized  for
              issuance  under the  Director's  Plan by an  addition  of  250,000
              shares.  Of the total shares voting on the foregoing  resolutions,
              8,104,237  voted in  favor,  5,590,924  voted  against,  1,611,834
              abstained, and broker non-votes were 4,873,253.

         o    Ratification  of the appointment of Ernst and Young as independent
              auditors of the Company  for the fiscal year ending  December  31,
              1997.  Of the total  shares  voting on the  foregoing  resolution,
              20,123,305 voted in favor, 35,125 voted against, 24,818 abstained,
              and broker non-votes were 3,000.


                                                                         Page 22

<PAGE>



                           MATRIX PHARMACEUTICAL, INC.


Item 6.  Exhibits and Reports on Form 8-K

                  (a)      Exhibits

Number            Exhibit Table
------            -------------
10.46*            Settlement and License Agreement  effective as of May 23, 1997
                  by and between Collagen Corporation and the Company

10.47*            Distribution  Agreement  made  as of  August  4,  1997  by and
                  between the Company and Altana, Inc.

10.48(1)          1988 Restricted Stock Plan (Amended and Restated through March
                  19, 1997)

10.49(2)          Form of Stock Issuance Agreement

10.50(3)          1991 Directors Stock Option Plan (Amended and Restated through
                  March 19, 1997)

10.51(4)          Form of Non-Statutory Stock Option Agreement

27                Financial Data Schedule


                  (b)      Reports on Form 8-K

                           There  were no  Current  Reports  on Form  8-K  filed
                           during the quarter ended June 30, 1997.

--------
*    Confidential  treatment has been  requested as to certain  portions of this
agreement.  Such omitted  confidential  information  has been  designated  by an
asterisk  and has been filed  separately  with the  Commission  pursuant to Rule
24b-2 under the  Securities  Exchange  Act of 1934,  as amended,  pursuant to an
application for confidential treatment.

1 Incorporated  by reference to Exhibit 99.1 of  Registration  Statement on Form
S-8 (No. 333-32213).
2 Incorporated  by reference to Exhibit 99.6 of  Registration  Statement on Form
S-8 (No. 333-32213).
3 Incorporated  by reference to Exhibit 99.7 of  Registration  Statement on Form
S-8 (No. 333-32213).
4 Incorporated  by reference to Exhibit 99.8 of  Registration  Statement on Form
S-8 (No. 333-32213).

                                                                         Page 23

<PAGE>


                           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.


<TABLE>
<CAPTION>
<S>                                                  <C>

Date:    August 12, 1997                             By:      /s/ James R. Glynn
     --------------------------------                         ------------------
                                                              James R. Glynn
                                                              Interim Chief Executive Officer and President
                                                              Chief Operating Officer
                                                              Chief Financial Officer



                                                     Signing on behalf of the registrant and as principal
                                                     executive and financial officer
</TABLE>

                                                                         Page 24