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 March 31, 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 March 31,
1997: 21,269,530.

                                                                          Page 1

<PAGE>

                           MATRIX PHARMACEUTICAL, INC.


                                      INDEX





PART I.  FINANCIAL INFORMATION
         ---------------------

Item 1.       Financial   Statements                                        Page
              ----------------------                                         No.

              Condensed Consolidated Balance Sheets -
              March 31, 1997 and December 31, 1996                            3

              Condensed Consolidated Statements of Operations -
              Three Months Ended March 31, 1997 and 1996                      4

              Condensed Consolidated Statements of Cash Flows -
              Three Months Ended March 31, 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                             8


PART II. OTHER INFORMATION
         -----------------

              Risk Factors                                                   10

Item 6.       Exhibits and Reports on Form 8-K                               19

              Signatures                                                     20

                                                                          Page 2

<PAGE>

<TABLE>

                         PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

<CAPTION>
                           MATRIX PHARMACEUTICAL, INC.
                          (a development stage company)

                      Condensed Consolidated Balance Sheets

                                 (In thousands)

                                                            March 31,    December 31,
                                                              1997          1996
                                                            ---------    ---------
Assets                                                     (Unaudited)
<S>                                                         <C>          <C>      
Current assets:
    Cash and cash equivalents                                   9,435    $  20,138
    Short-term investments                                     38,998       38,997
    Inventory                                                   1,872          758
    Other current assets                                        2,839        2,283
                                                            ---------    ---------
       Total current assets                                    53,144       62,176

Property and equipment, net                                    17,712       17,152
Non-current investments                                        55,281       55,449
Deposits and other assets, net                                    168          173
                                                            ---------    ---------
                                                            $ 126,305    $ 134,950
                                                            =========    =========

Liabilities and Stockholders' Equity

Current liabilities:
    Accounts payable                                            3,214    $   2,636
    Accrued compensation                                          727        1,045
    Accrued clinical trials                                     1,370        1,239
    Other accrued liabilities                                   1,736        2,135
    Current portion of debt and capital lease obligations         627          660
                                                            ---------    ---------
       Total current liabilities                                7,674        7,715

Debt and capital lease obligations, less current portion       11,665       11,724
Stockholders' equity
    Capital stock                                             222,327      222,256
    Other                                                        (971)        (856)
    Deficit accumulated during the development stage         (114,390)    (105,889)
                                                            ---------    ---------
       Total stockholders' equity                             106,966      115,511
                                                            ---------    ---------
                                                              126,305    $ 134,950
                                                            =========    =========

<FN>
                             See Accompanying Notes
</FN>

                                                                            Page 3
</TABLE>

<PAGE>

                           MATRIX PHARMACEUTICAL, INC.
                          (a development stage company)

                 Condensed Consolidated Statements of Operations

                     (In thousands except per share amounts)


                                                         Three Months Ended
                                                              March 31,

                                                         1997            1996
                                                       --------        --------
                                                     (Unaudited)     (Unaudited)

Revenues                                               $   --          $  --  

Costs and expenses:
   Research and development                               6,545           5,700
   Selling, general and administrative                    3,622           2,128
                                                       --------        --------
      Total costs and expenses                           10,167           7,828
                                                       --------        --------

Loss from operations                                    (10,167)         (7,828)

Interest and other income, net                            1,666             750
                                                       --------        --------

Net loss                                               $ (8,501)       $ (7,078)
                                                       ========        ========

Net loss per share                                     $  (0.40)       $  (0.42)
                                                       ========        ========

Weighted average number
of shares outstanding                                    21,259          16,941
                                                       ========        ========

                             See Accompanying Notes
                                                                          Page 4

<PAGE>

<TABLE>
                                                     MATRIX PHARMACEUTICAL, INC.
                                                    (a development stage company)

                                           Condensed Consolidated Statements of Cash Flows
                                          Increase (Decrease) in Cash and Cash Equivalents

                                                           (In thousands)
<CAPTION>

                                                                                                        For the Three Months 
                                                                                                            Ended March 31    
                                                                                       
                                                                                       
                                                                                                       1997                  1996  
                                                                                                     --------              --------
                                                                                                    (Unaudited)          (Unaudited)
<S>                                                                                                  <C>                   <C> 
Cash flows from operating activities:
       Net loss                                                                                      $ (8,501)             $ (7,078)
       Adjustments to reconcile net loss to
       net cash used by operating activities:
         Depreciation, amortization and other                                                             335                   300
       Changes in assets and liabilities:
         Inventory                                                                                     (1,114)                 --
         Other changes in assets and liabilities                                                         (559)                 (573)
                                                                                                     --------              --------
          Net cash used by operating activities                                                        (9,839)               (7,351)

Cash flows from investing activities:
       Capital expenditures                                                                              (843)                 (693)
       Investment in securities available-for-sale                                                       --                 (20,658)
       Proceeds of securities-available-for-sale                                                         --                     268
       Maturities of investments                                                                         --                   6,221
                                                                                                     --------              --------
         Cash flows provided (used) by investing activities                                              (843)              (14,862)

Cash flows from financing activities:
       Payments on debt and capital lease obligations                                                     (92)                 (134)
       Net cash proceeds from issuance of:
         Debt and capital lease financing                                                                --                    --   
         Capital stock                                                                                     71                   328
                                                                                                     --------              --------
         Cash flows provided by financing activities                                                      (21)                  194
Net decrease in cash and cash equivalents                                                             (10,703)              (22,019)
Cash and cash equivalents at the beginning of period                                                   20,138                55,675
                                                                                                     --------              --------
Cash and cash equivalents at the end of period                                                       $  9,435              $ 33,656
                                                                                                     ========              ========
<FN>

                                                       See Accompanying Notes
</FN>
                                                                                                                              Page 5

</TABLE>

<PAGE>

                           MATRIX PHARMACEUTICAL, INC.


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                 March 31, 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.

                  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.

                                                                          Page 6

<PAGE>

                  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  filed a lawsuit  against the
         Company in Santa Clara County Superior Court alleging  misappropriation
         of trade secrets  concerning  the  manufacturing  process for collagen,
         including breach of contract and fraud. The complaint seeks unspecified
         damages  and  injunctive  relief  related to  Matrix's  manufacture  of
         collagen,  its  regulatory  filings and its hiring of current or former
         Collagen employees.  On February 14, 1995, the Company filed its answer
         to  Collagen's  complaint,  denying  all  claims  of  misappropriation,
         asserting  several  affirmative  defenses  and seeking  recovery of its
         attorneys'  fees.  Matrix  has  also  filed a  cross-complaint  against
         Collagen  and Howard  Palefsky,  Collagen's  Chairman  and former Chief
         Executive   Officer,   seeking  recovery  of  damages  for  defamation,
         violations of California antitrust law and other causes of action.

                  On  September  12,  1995,   Collagen  filed  a  First  Amended
         Complaint, adding as defendants two former Collagen employees currently
         working at Matrix,  alleging  that these  employees  used  confidential
         documents and  information  acquired by them as Collagen  employees for
         the benefit of Matrix.  These employees had been accused of wrong-doing
         in the original  complaint along with other former Collagen  employees,
         but not named as defendants.  The First Amended  Complaint  purports to
         add  causes  of  action  for  conversion  against  Matrix  and  the two
         individual   defendants,   and  for  breach  of  contract,   breach  of
         confidence,  breach of fiduciary  obligation  and breach of the duty of
         loyalty  against the former  Collagen  employees.  Matrix is alleged to
         have induced such  breaches.  The First Amended  Complaint  adds to the
         requested  relief of the original  complaint for damages and injunctive
         relief a request  for the  imposition  of a  constructive  trust on the
         alleged fruits of the alleged trade secret misappropriation.

                  The lawsuit follows a series of contract  negotiations in 1994
         aimed at developing a long-term  supply  relationship  between Collagen
         and Matrix. Although processes to manufacture collagen gel have been in
         the public  domain  for many  years,  Collagen  is  presently  the only
         commercial  source of collagen gel for human use in the United  States.
         Before Matrix developed its own manufacturing process,  Matrix products
         in clinical  trials  included  collagen gel  manufactured  by Koken and
         Collagen.

                  The case has been assigned out to trial.  The first  pre-trial
         motion  was heard by the trial  judge on Monday  May 5,  1997.  Further
         pre-trial  motions  will be heard on May 16,  1997 with trial to follow
         thereafter.

                  The Company believes that the  manufacturing  process which it
         has developed for collagen gel does not  incorporate any Collagen trade
         secrets  and that the  lawsuit  filed by  Collagen  is  without  merit.
         Although the Company intends to defend against this suit vigorously, no
         assurances can be given regarding its eventual outcome. This litigation
         does not  involve  any  claims of  patent  infringement.  A finding  of
         misappropriation  of trade  secrets  could  result in damages  and/or a
         significant  restriction on the Company's  ability to  manufacture  its
         products.  Such a finding  would also  require the Company to alter its
         manufacturing  process,  or seek an alternate  source of collagen  gel.
         There can be no assurance  that the Company  would be able to alter its
         manufacturing  process,  if required,  in a timely manner, or at all or
         that it would be able to secure an  alternative  source of collagen gel
         on commercially  reasonable terms, or at all. As a result, there can be
         no assurance  that this lawsuit  will not delay the  Company's  product
         approvals or affect its ability to  manufacture  its products,  each of
         which  would  have  a  material  adverse  effect  on the  Company,  its
         prospects  and  financial   condition.   Additionally,   the  costs  of
         litigating this matter, regardless of outcome, may exceed $3,500,000 in
         1997.

                                                                          Page 7

<PAGE>

Item 2.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITIONS  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;  uncertainty regarding patents and proprietary rights;
and   uncertainty   of   pharmaceutical   pricing;   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  forward-looking  statements
discussed below and elsewhere in this report.

Results of Operations

Three Months Ended March 31, 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 products.  For the period from
its inception to March 31, 1997,  the Company has incurred a cumulative net loss
of $114,390,000.

         The Company had no revenue in either of the first  quarters of 1997 and
1996.

         Research  and  development  expenses  for  the  first  quarter  of 1997
increased by 15% to $6,545,000  as compared to $5,700,000  for the first quarter
of 1996.  This  increase was  primarily  due to  increases in clinical  costs to
support  the  IntraDose  Injectable  Gel  cancer  program,  a  higher  level  of
production  development expenses in preparation for the commercial  introduction
of AccuSite(TM),  and higher occupancy costs. This increase was partially offset
by lower expenses on clinical trials for AccuSite(TM) as well as the transfer of
certain production expenses to inventory at the end of the quarter.

         Selling,  general and administrative  expenses for the first quarter of
1997  increased by 70% to  $3,622,000  as compared to  $2,128,000  for the first
quarter of 1996. This increase was primarily due to higher legal expenses due to
the ongoing  Collagen  litigation,  market launch  expenses for  AccuSite(TM) in
Europe, and higher personnel expenses. The legal expenses related to the ongoing
litigation with Collagen, regardless of outcome, may exceed $3,500,000 in 1997.

         Net  interest and other income  increased to  $1,666,000  for the first
quarter of 1997 as  compared  to $750,000  for the first  quarter of 1996.  This
increase  was  primarily  the result of higher  average  balances in cash,  cash
equivalents,  and marketable  securities due to a follow-on  public  offering in
April 1996, which  contributed net proceeds of $67.4 million,  and rental income
received from the lease of a section of the Company's San Diego facility.

Liquidity and Capital Resources

         At March 31,  1997,  the  Company  had  $103.7  million  in cash,  cash
equivalents and marketable securities compared to $114.6 million at December 31,
1996.  During  the  first  quarter  of  1997,  cash was  primarily  used to fund
operating expenses, inventory, and capital purchases.

                                                                          Page 8

<PAGE>

         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(TM) as
well as additional  capital  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  that will require capital  expenditures of
approximately $10.5 million.

         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 the April 1996 public offering and
commercial  sales of  AccuSite(TM)  will enable it to  maintain  its current and
planned  operations  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 quarter of 1997 and 1996.

         The Company  began  selling and  marketing  activities  with respect to
AccuSite (TM) in the United Kingdom during the first quarter of 1997. During the
second  quarter of 1997,  the Company  commenced  sales of  AccuSite(TM)  in the
United  Kingdom for the treatment of genital warts.  Also,  during the first and
second  quarters of 1997,  the Company signed  agreements  pursuant to which one
company has exclusive  rights to distribute  AccuSite(TM) in Italy,  and another
company has exclusive rights to distribute AccuSite(TM) in Spain and Portugal.

         The Company has filed separate regulatory  submissions for AccuSite(TM)
in  Germany,  France and Italy.  Additionally,  the  regulatory  approval in the
United Kingdom was submitted in other  countries of the European Union under the
mutual recognition process. These applications are currently under review by the
relevant regulatory authorities.

         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(TM) 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.

                                                                          Page 9

<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 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

                                                                         Page 10

<PAGE>

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.

         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

                                                                         Page 11

<PAGE>

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  has 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.  However,  there can be no
assurance of mutual recognition by other participating countries of the approval
obtained in the United  Kingdom.  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  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.

         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 March 31, 1997,  the Company's  accumulated  deficit was
approximately  $114.4 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.

                                                                         Page 12

<PAGE>


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 a dedicated contract sales force in
the United  States and certain  countries  in Europe,  by  co-promoting  certain
products to selected  physician  specialties,  and through  sales and  marketing
partnership  arrangements in other countries.  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 and  Portugal.  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,  the Company must develop a sales force
with  technical  expertise.  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 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  that  will  require  capital
expenditures of  approximately  $10.5 million.  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.

                                                                         Page 13

<PAGE>


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 components of raw materials utilized
in its products.  Matrix is also in the process of attempting to approve  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 new 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  that  patent,  and if the Company were
unable to obtain a license  under  that  patent.  See  "--Uncertainty  Regarding
Patents  and  Proprietary  Rights."  The  Company's  process  for  manufacturing
collagen gel is currently  being  challenged in litigation  with  Collagen.  See
"--Litigation."

Litigation

         On December 21, 1994,  Collagen filed a lawsuit  against the Company in
Santa Clara County  Superior  Court alleging  misappropriation  of trade secrets
concerning the manufacturing process for collagen,  including breach of contract
and fraud. The Complaint seeks unspecified damages and injunctive relief related
to Matrix's  manufacture of collagen,  its regulatory  filings and its hiring of
current or former  Collagen  employees.  On February 14, 1995, the Company filed
its answer to  Collagen's  complaint,  denying  all claims of  misappropriation,
asserting  several  affirmative  defenses and seeking recovery of its attorneys'
fees.  Matrix  has also  filed a  cross-complaint  against  Collagen  and Howard
Palefsky,  Collagen's  Chairman  and former  Chief  Executive  Officer,  seeking
recovery of damages for defamation,  violations of California  antitrust law and
other causes of action.

         On September 12, 1995, Collagen filed a First Amended Complaint, adding
as  defendants  two  former  Collagen  employees  currently  working  at Matrix,
alleging  that these  employees  used  confidential  documents  and  information
acquired  by  them as  Collagen  employees  for the  benefit  of  Matrix.  These
employees had been accused of wrong-doing in the original  Complaint  along with
other former Collagen employees, but not named as defendants.  The First Amended
Complaint purports to add causes of action for conversion against Matrix and the
two  individual  defendants,  and for breach of contract,  breach of confidence,
breach of  fiduciary  obligation  and breach of the duty of loyalty  against the
former Collagen employees.  Matrix is alleged to have induced such breaches. The
First Amended  Complaint adds to the requested relief of the original  Complaint
for damages and injunctive relief a request for the imposition of a constructive
trust on the alleged fruits of the alleged trade secret misappropriation.

         The lawsuit follows a series of contract  negotiations in 1994 aimed at
developing a long-term supply relationship between Collagen and Matrix. Although
processes to  manufacture  collagen gel have been in the public  domain for many
years,  Collagen is  presently  the only  commercial  source of collagen gel for
human use in the United States.  Before Matrix  developed its own  manufacturing
process,  Matrix products in clinical trials included  collagen gel manufactured
by Koken and Collagen. See "-- No Assurance of Regulatory Approvals."

         The case has been assigned out to trial. The first pre-trial motion was
heard by the trial judge on Monday May 5, 1997.  Further  pre-trial motions will
be heard on May 16, 1997 with trial to follow thereafter.

                                                                         Page 14

<PAGE>

         The  Company  believes  that  the  manufacturing  process  which it has
developed for collagen gel does not  incorporate  any Collagen trade secrets and
that the  lawsuit  filed by  Collagen  is without  merit.  Although  the Company
intends to defend  against  this suit  vigorously,  no  assurances  can be given
regarding its eventual  outcome.  This litigation does not involve any claims of
patent infringement. A finding of misappropriation of trade secrets could result
in  damages  and/or  a  significant  restriction  on the  Company's  ability  to
manufacture its products. Such a finding would also require the Company to alter
its  manufacturing  process,  or seek an alternate source of collagen gel. There
can be no assurance  that the Company  would be able to alter its  manufacturing
process, if required,  in a timely manner, or at all or that it would be able to
secure an alternative  source of collagen gel on commercially  reasonable terms,
or at all. As a result,  there can be no  assurance  that this  lawsuit will not
delay the Company's  product  approvals or affect its ability to manufacture its
products, each of which would have a material adverse effect on the Company, its
prospects and financial  condition.  Additionally,  the costs of litigating this
matter, regardless of outcome, may exceed $3,500,000 in 1997.

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  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.

                                                                         Page 15

<PAGE>


         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
invalidated.  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
will 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.

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.

                                                                         Page 16

<PAGE>

         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. 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 clinical  studies.  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

                                                                         Page 17

<PAGE>

disease,  but noted  that  certain  limitations  in the  available  data made it
difficult to establish a statistically significant association.

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.

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 18

<PAGE>

                           MATRIX PHARMACEUTICAL, INC.



Item 6.  Exhibits and Reports on Form 8-K

         (a)      Exhibits

                  27      Financial Data Schedule


         (b)      Reports on Form 8-K

                  There  were no current  Reports  on Form 8-K filed  during the
                  quarter ended March 31, 1997.

                                                                         Page 19

<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.





Date:    May 7, 1997                        By:      /s/ James R. Glynn
     ----------------------------                    ---------------------------
                                                     James R. Glynn  
                                                     Senior   Vice    President,
                                                     Chief  Financial  Officer &
                                                     Secretary




                                                     Signing  on  behalf  of the
                                                     registrant and as principal
                                                     financial officer

                                                                         Page 20