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                     U.S. 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 SEPTEMBER 30, 1998

                                       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 of incorporation)                (I.R.S. Employer
                                           Identification Number)

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

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

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.
                                    Yes  X  No
                                        ---    ---

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

                                22,115,453 shares
                             As of October 31, 1998


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<PAGE>
<TABLE>

                                              MATRIX PHARMACEUTICAL, INC.
                                                  TABLE OF CONTENTS



                                                      PART 1
                                               FINANCIAL INFORMATION
<CAPTION>

                                                                                                            Page
<S>                                                                                                         <C>
Item 1.         Financial Statements:

                a.       Condensed Consolidated Balance Sheets
                          as of September 30, 1998 and December 31, 1997.................................    2

                b.       Condensed Consolidated Statements of Operations
                          for the three and nine months ended September 30, 1998 and 1997................    3

                c.       Condensed Consolidated Statements of Cash Flows
                          for the nine months ended September 30, 1998 and 1997..........................    4

                d.       Notes to Condensed Consolidated Financial Statements............................    5


Item 2.         Management's Discussion and Analysis of Financial
                Condition and Results of Operations......................................................    8

Item 3.         Quantitative and Qualitative Disclosures About Market Risk...............................    11



                                     PART II
                                OTHER INFORMATION

                Risk Factors.............................................................................    12

Item 4.         Submission of Matters to a Vote of Security Holders......................................    20

Item 6.         Exhibits and Reports on Form 8-K.........................................................    20

                Signatures...............................................................................    21

</TABLE>

                                                           1
<PAGE>

<TABLE>

                                                     MATRIX PHARMACEUTICAL, INC.
                                                    (a development stage company)
                                                Condensed Consolidated Balance Sheets
                                                           (In thousands)
<CAPTION>


                                                                                                  September 30,         December 31,
                                                                                                     1998                    1997
                                                                                                   ---------              ---------
                                                                                                  (Unaudited)                (*)
<S>                                                                                                <C>                    <C>      
                                     ASSETS
Current assets:
     Cash and cash equivalents .......................................................             $  21,569              $  19,719
     Short-term investments ..........................................................                43,829                 40,666
     Other current assets ............................................................                 3,306                  2,128
                                                                                                   ---------              ---------
           Total current assets ......................................................                68,704                 62,513

Property and equipment, net ..........................................................                13,939                 26,742
Non-current investments ..............................................................                10,017                 19,983
Deposits and other assets, net .......................................................                 1,218                  1,191
                                                                                                   ---------              ---------
           Total assets ..............................................................             $  93,878              $ 110,429
                                                                                                   =========              =========

                                        LIABILITIES

Current liabilities:
     Accounts payable ................................................................             $     578              $   2,063
     Accrued clinical trial costs ....................................................                 1,432                  1,788
     Other accrued liabilities .......................................................                 6,558                  2,681
     Current portion of debt and capital lease obligations ...........................                 1,805                  2,283
                                                                                                   ---------              ---------
           Total current liabilities .................................................                11,495                 11,615
Debt and capital lease obligations, less current portion .............................                15,185                 20,248
Deferred other income ................................................................                 5,032                  1,913
                                                                                                   ---------              ---------
           Total long-term liabilities ...............................................                20,217                 22,161

                                   STOCKHOLDERS' EQUITY

     Capital stock ...................................................................               225,237                225,144
     Notes receivable from shareholders ..............................................                (1,813)                (2,313)
     Other ...........................................................................                  (192)                  (558)
     Deficit accumulated during the development stage ................................              (161,066)              (145,620)
                                                                                                   ---------              ---------
           Total stockholders' equity ................................................                62,166                 76,653
                                                                                                   ---------              ---------
                                                                                                   $  93,878              $ 110,429
                                                                                                   =========              =========
<FN>

(*) Derived from audited financial statements.

                                                       See accompanying notes
</FN>
</TABLE>

                                                                 2
<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          Nine Months Ended
                                                                                      September 30,               September 30,
                                                                                   1998          1997         1998            1997
                                                                                 --------      --------      --------      --------
<S>                                                                              <C>           <C>           <C>           <C>   
Revenues ...................................................................     $   --        $   --        $   --        $   --

Costs and expenses:
   Research and development ................................................        5,028         7,182        16,129        21,525
   In-License Fee ..........................................................        4,000          --           4,000          --
   General and administrative ..............................................        1,831         3,808         4,937        12,221
   Special Charges .........................................................         --           4,518          --           4,518
                                                                                 --------      --------      --------      --------
      Total costs and expenses .............................................       10,859        15,508        25,066        38,264
                                                                                 --------      --------      --------      --------

Loss from operations .......................................................      (10,859)      (15,508)      (25,066)      (38,264)

Gain on sale and leaseback transaction .....................................          113          --           1,995          --
Interest and other income, net .............................................        1,234         1,644         7,625         4,871
                                                                                 --------      --------      --------      --------
                                                                                    1,347         1,644         9,620         4,871
                                                                                 --------      --------      --------      --------

Net loss ...................................................................     $ (9,512)     $(13,864)     $(15,446)     $(33,393)
                                                                                 ========      ========      ========      ========

Net loss per share:  basic and diluted .....................................     $  (0.43)     $  (0.64)     $  (0.70)     $  (1.56)
                                                                                 ========      ========      ========      ========

Weighted average shares used in computing
basic and diluted net loss per common share ................................       22,088        21,706        22,004        21,414
                                                                                 ========      ========      ========      ========


<FN>

                                              See accompanying notes
</FN>
</TABLE>

                                                                 3
<PAGE>



<TABLE>


                                              MATRIX PHARMACEUTICAL, INC.
                                             (a development stage company)
                                    Condensed Consolidated Statements of Cash Flows
                                                     (In thousands)
<CAPTION>

                                                                                                            For the Nine Months
                                                                                                             Ended September 30
                                                                                                         1998                1997
                                                                                                       --------            --------
                                                                                                      (Unaudited)        (Unaudited)
<S>                                                                                                    <C>                  <C>     
Cash flows from operating activities:
       Net loss ............................................................................           $(15,446)            (33,393)
       Adjustments to reconcile net loss to net cash used by operating
        activities:
          Depreciation, amortization, and other ............................................              2,233               1,051
          Gain on sale and leaseback transaction ...........................................             (1,882)               --
          Amortization of deferred income ..................................................               (773)               --
       Changes in assets and liabilities:
          Inventory ........................................................................                --                  758
          Accruals for special charges .....................................................             (1,485)              2,867
          Deferred other income ............................................................               --                 2,613
          Other changes in assets and liabilities ..........................................                638                (422)
                                                                                                       --------            --------
           Net cash used by operating activities ...........................................            (16,715)            (26,526)
Cash flows from investing activities:
       Capital expenditures ................................................................               (518)             (7,410)
       Proceeds from sale of fixed assets ..................................................             17,744                --
       Investment in securities available-for-sale .........................................            (26,926)            (16,000)
       Maturities of investments ...........................................................             33,729              34,000
                                                                                                       --------            --------
          Cash flows provided by investing activities ......................................             24,029              10,590
Cash flows from financing activities:
       Repayment of mortgage loan from sale ................................................             (9,840)               --
       Payments on debt and capital lease obligations ......................................             (1,701)               (563)
       Net cash proceeds from:
          Debt and capital lease financing .................................................              6,000                  24
          Capital stock ....................................................................                 45                 399
          Payments on notes receivable from shareholders ...................................                 32                --
                                                                                                       --------            --------
          Cash flows used by financing activities ..........................................             (5,464)               (140)
Net increase (decrease) in cash and cash equivalents .......................................              1,850             (16,076)
Cash and cash equivalents at the beginning of period .......................................             19,719              20,138
                                                                                                       ========            ========
Cash and cash equivalents at the end of period .............................................           $ 21,569               4,062
                                                                                                       ========            ========
<FN>

                                              See accompanying notes

</FN>
</TABLE>
                                                                 4
<PAGE>


                           MATRIX PHARMACEUTICAL, INC.


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               September 30, 1998



1.       Basis of presentation

                  The condensed  consolidated  balance sheet as of September 30,
         1998, the condensed consolidated statements of operations for the three
         months and nine  months  ended  September  30,  1998 and 1997,  and the
         condensed  consolidated  statements  of cash flows for the nine  months
         ended  September  30, 1998 and 1997 have been  prepared by the Company,
         without audit.  In the opinion of management,  all  adjustments  (which
         include only normal recurring  adjustments) necessary to present fairly
         the  financial  position,  results  of  operations,  and cash  flows at
         September 30, 1998 and for all periods  presented  have been made.  The
         condensed  consolidated  balance  sheet at  December  31, 1997 has been
         derived from the audited financial statements at that date.

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

                  The  condensed   financial   statements   should  be  read  in
         conjunction with the Company's audited financial statements as included
         in the Company's Annual Report on Form 10-K for the year ended December
         31, 1997 as filed with the  Securities  and  Exchange  Commission.  The
         results  of  operations  for the three  months  and nine  months  ended
         September 30, 1998 are not necessarily  indicative of the results to be
         expected  for any  subsequent  quarter  or for the entire  fiscal  year
         ending December 31, 1998.

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.       Basic and diluted net loss per common share

                  Basic and  diluted  net loss per common  share is  computed in
         conformance with Statement of Financial  Accounting  Standards No. 128,
         "Earnings  Per Share" ("SFAS 128"),  which the Company  adopted  during
         1997.  Accordingly,  the  weighted  average  number of shares of common
         stock outstanding are used while common stock  equivalents,  consisting
         of stock options and stock rights, are excluded from the computation as
         their impact is anti-dilutive.


                                       5
<PAGE>


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

                  The  Company   invests  its  excess  cash  in  government  and
         corporate debt 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 determines the appropriate  classification of debt
         securities at the time of purchase and reevaluates  such designation as
         of each balance sheet date. 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  stockholder's  equity.  Realized  gains and  losses  and
         declines in value  judged to be  other-than-temporary  are  included in
         interest and other income.  The cost of securities sold is based on the
         specific identification method.

5.       Gain on sale and leaseback transaction

                  In March 1998, the Company  completed an agreement with a real
         estate  investment  trust for the sale and  leaseback  of its San Diego
         office/laboratory and manufacturing  facility and an adjacent parcel of
         land. The transaction  was structured as an $18,400,000  purchase and a
         $6,000,000  convertible loan secured by specific  manufacturing related
         building  improvements.  Under the terms of the agreement,  the Company
         will lease the  facility for 13 years with the option to renew up to an
         additional  25 years.  Matrix will pay an average  $2,800,000 in annual
         lease  expense.  Currently  this rental  income is partially  offset by
         rental  income  from  a  portion  of the  facility  leased  to  another
         bio-pharmaceutical  company whose lease expires  January 15, 1999.  The
         Company  is  currently  seeking to rent this  portion  of the  facility
         following the expiration of the existing lease. Net cash from the lease
         and loan  agreement,  after the payment of the  existing  mortgage  and
         escrow and other related fees,  totals  approximately  $14,000,000  and
         will be used to fund  operating  expenses  and capital  purchases.  The
         total gain on the  transaction  is $5,769,000 of which  $1,882,000  has
         been recognized as an immediate gain in the first quarter of 1998 while
         the remaining balance has been deferred and is being recorded to income
         over the 13-year lease term.

6.       Litigation settlement

                  In  April  1998,  the  Company  received  $4,000,000  from  an
         insurance  company for the  reimbursement  of legal  expenses  incurred
         during prior years. The payment settles  litigation between the Company
         and the insurer over  coverage  under the Company's  general  liability
         policy. The payment was recorded as other income.

7.       New accounting pronouncements

                  As  of  January  1,  1998,  the  Company   adopted   Financial
         Accounting   Standards  Board's   Statement  of  Financial   Accounting
         Standards No. 130,  Reporting  Comprehensive  Income ("SFAS 130"). SFAS
         130   establishes   new  rules  for  the   reporting   and  display  of
         comprehensive income and its components;  however, the adoption of this
         Statement had no impact on the


                                       6
<PAGE>

         Company's  net  income  or  shareholders'  equity.  SFAS  130  requires
         unrealized   gains  or  losses  on  the  Company's   available-for-sale
         securities and foreign currency translation adjustments, which prior to
         adoption  were  reported  separately  in  shareholders'  equity  to  be
         included in other comprehensive income. Prior year financial statements
         have been reclassified to conform to requirements of SFAS 130.

                  During the third quarter of 1998 and 1997, total comprehensive
         loss  amounted to $9,366,000  and  $13,926,000,  respectively.  For the
         first nine months of 1998 and 1997, total  comprehensive  loss amounted
         to $15,346,000 and $33,467,000, respectively.

                  Effective  January 1, 1998, the Company  adopted the Financial
         Accounting   Standards  Board's   Statement  of  Financial   Accounting
         Standards No. 131,  Disclosures  about  Segments of an  Enterprise  and
         Related  Information  ("SFAS 131").  SFAS 131  superseded the Financial
         Accounting   Standards  Board  ("FASB")  Statement  No.  14,  Financial
         Reporting for Segments of a Business  Enterprise.  SFAS 131 establishes
         standards  for  the  way  that  public  business   enterprises   report
         information about operating segments in annual financial statements and
         requires  that those  enterprises  report  selected  information  about
         operating  segments  in  interim  financial  reports.   SFAS  131  also
         establishes  standards  for  related  disclosures  about  products  and
         services,  geographic areas, and major customers.  The adoption of SFAS
         131 did not affect the results of operations,  financial  position,  or
         the disclosure of segment information.





                                       7
<PAGE>



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

         This Form 10-Q may  contain,  in  addition to  historical  information,
forward-looking statements,  including without limitation,  statements regarding
the timing and outcome of  regulatory  reviews  and  clinical  trials.  Any such
forward-looking  statements are based on management's  current  expectations and
are  subject  to a number of risks and  uncertainties  that could  cause  actual
results to differ materially from expected results. For additional  information,
including  risk  factors,   such  as  no  assurance  of  regulatory   approvals;
uncertainties  associated  with  clinical  trials;  history  of  losses;  future
profitability uncertain;  additional financing requirements and uncertain access
to capital markets;  limited  manufacturing and sales and marketing  experience;
dependence on sources of supply;  uncertainty  regarding patents and proprietary
rights; rapid technological change and substantial  competition;  uncertainty of
pharmaceutical pricing; no assurance of adequate reimbursement;  dependence upon
qualified and key  personnel;  product  liability  exposure;  limited  insurance
coverage;  hazardous materials and product risks;  volatility of stock price; no
dividends;  anti-takeover  provisions and year 2000  compliance,  please see the
"Risk Factors" section included in the Company's 1997 Annual Report on 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 Nine Months Ended September 30, 1998 and 1997

         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 September 30, 1998,  the Company has incurred a cumulative  net
loss of $161,066,000.

         The Company had no revenue in the third quarters of 1998 and 1997 or in
the first nine months of 1998 and 1997.

         Research  and  development  expenses  for  the  third  quarter  of 1998
decreased by 30% to $5,028,000  compared to $7,182,000  for the third quarter of
1997.  For the first nine  months of 1998,  research  and  development  expenses
decreased by 25% to $16,129,000  compared to $21,525,000  for the same period in
1997. The decrease was primarily due to lower personnel  costs,  the termination
of clinical trials for AccuSite(TM) Injectable Gel which were in progress during
the first nine months of 1997, lower consulting  expenses and lower purchases of
operation  supplies and materials.  The decrease was partially  offset by higher
building  rent expense  which began in the second  quarter of 1998 in connection
with the sale and leaseback transaction for the San Diego facility.

         License fee expense for the three and nine months ended  September  30,
1998 was  $4,000,000.  There were no license  fees in the three and nine  months
ended  September  30,  1997.  This  increase  in  license  fees was due to a new
agreement to  in-license a systemic  anticancer  agent known as FMdC which is in
the early stages of clinical development.

                                       8
<PAGE>

         General  and  administrative  expenses  for the third  quarter  of 1998
decreased  52% to  $1,831,000  compared to  $3,808,000  for the third quarter of
1997.  For the first nine months of 1998,  general and  administrative  expenses
decreased by 60% to $4,937,000  compared to  $12,221,000  for the same period in
1997.  The  decreases  were  primarily  due to  lower  litigation-related  legal
expenses,  the absence of  AccuSite-related  product marketing  expenses,  lower
recruiting fees and lower personnel costs.

         During the third  quarter of 1997 the  Company  recorded  restructuring
costs  of  $4,518,000  in  connection  with  the  decision  to  suspend  further
development and  commercialization  of  AccuSite(TM)  (fluorouracil/epinephrine)
Injectable Gel.  Management  suspended the AccuSite program after being notified
that the Food  and Drug  Administration  ("FDA")  was not  prepared  to  approve
AccuSite as a treatment for genital warts.  Restructuring costs were incurred to
conclude the clinical  trials and commercial  programs  associated with AccuSite
and allow the Company to focus its  resources on its oncology  drug  development
programs.  Pursuant to the plan, the Company had effected a workforce  reduction
of approximately 70 employees, written off inventory and manufacturing equipment
related to  AccuSite  and shut down its  manufacturing  facilities  in  Northern
California.

         In March 1998,  the Company  completed an agreement  with a real estate
investment  trust for the sale and leaseback of its San Diego  office/laboratory
and  manufacturing  facility and an adjacent parcel of land. The transaction was
structured as an $18,400,000 purchase and a $6,000,000  convertible loan secured
by specific manufacturing related building improvements.  Under the terms of the
agreement,  the Company  will lease the facility for 13 years with the option to
renew up to an additional 25 years.  The Company will pay an average  $2,800,000
in annual lease and interest expense.  Currently this rental income is partially
offset by  rental  income  from a  portion  of the  facility  leased to  another
bio-pharmaceutical  company whose lease expires January 15, 1999. The Company is
currently seeking to rent this portion of the facility  following the expiration
of the existing  lease.  Net cash from the sale and loan  agreements,  after the
payment of the  existing  mortgage  and escrow and other  related  fees,  totals
approximately  $14,000,000  and  will be used to  fund  operating  expenses  and
capital  purchases.  The net  gain on the  transaction  is  $5,769,000  of which
$1,882,000  was  recognized in the first  quarter of 1998.  The balance has been
deferred and is being recorded as income over the 13 year lease term.

         Net interest and other income  decreased by 25% to  $1,234,000  for the
third quarter of 1998 compared to $1,644,000 for the third quarter of 1997. This
decrease was due to lower average  balances in cash and  investments  as well as
higher interest  expense as a result of equipment  financing  obligations  which
began in the third  quarter  of 1997.  For the first  nine  months of 1998,  net
interest and other income increased by 57% to $7,625,000  compared to $4,871,000
for the  same  period  in  1997.  This  was due to  $4,000,000  received  from a
settlement  with an  insurance  company  which  was  recorded  as other  income,
partially offset by the decline in interest income and higher interest expense.


Liquidity and Capital Resources

         At September 30, 1998,  the Company had aggregate  cash and  marketable
securities of  $75,415,000  as compared to $80,368,000 at December 31, 1997. The
Company used  $16,715,000 and $26,526,000 for operating  activities for the nine
months ended September 30, 1998 and September 30, 1997, respectively.

         In September  1998, the Company  entered into an agreement to license a
systemic  anticancer  agent  known as FMdC for  $4,000,000.  The license fee was
recorded in the third quarter of 1998 and was paid on October 22, 1998.

                                       9
<PAGE>

         As discussed  in "Results of  Operations,"  in March 1998,  the Company
completed  an  agreement  with a real estate  investment  trust for the sale and
leaseback of its San Diego  facility and an adjacent  parcel of land and entered
into a loan  agreement.  Net cash  from the sale and loan  agreement,  after the
payment of the existing  mortgage  and escrow and other  related  fees,  totaled
approximately  $14,000,000  and is being  used to fund  operating  expenses  and
capital purchases.

         In  September  1995,  the  Company  repurchased  from  Medeva  PLC  all
marketing rights related to its AccuSite product for $2,000,000. As of September
30, 1998, the remaining  balance of this  obligation  was $1,000,000  payable as
$500,000 per year in 1999 and 2000.

         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 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.

         The Company expects to incur  substantial  additional costs relating to
the continued clinical development of its oncology products,  continued research
and development  programs,  the development of manufacturing  capabilities,  and
general working capital requirements.  The Company anticipates that its existing
and  committed  capital  resources  will enable it to  maintain  its current and
planned  operations at least through  2000.  The Company may require  additional
outside  financing  to  complete  the process of  bringing  current  products to
market,  and there can be no assurance  that such financing will be available on
favorable terms, if at all.

Year 2000 Compliance

         The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (year 2000) approaches. The "year
2000" problem is pervasive  and complex as virtually  every  computer  operation
will be affected in some way by the  rollover of the two digit year value to 00.
The issue is whether  computer  systems will properly  recognize  date sensitive
information  when  the  year  changes  to  2000.  Systems  that do not  properly
recognize such  information  could generate  erroneous data or cause a system to
fail.

         The Company has formed a Year 2000 TASK Force to determine what actions
are  required  to  resolve  year  2000  issues.  A systems  assessment  is being
performed  and  conversion  is expected to be completed by the third  quarter of
1999.

         During 1997,  the Company  installed a new  accounting  system that was
confirmed by the vendor to address the year 2000 related issues. The Company has
analyzed  other  external  factors,  such as the impact on  significant  company
vendors,  and has determined that the related  potential effect on the Company's
business,  financial  condition or the Company results of operations will not be
material. At the current stage of the assessment process,  total projected costs
of implementing year 2000 requirements are not expected to exceed $150,000.

                                       10
<PAGE>

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

         Not applicable.



                                       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 Food and Drug  Administration  ("FDA").  Among  other
requirements,  FDA  approval of the  Company's  product  candidate,  including a
review of its  manufacturing  processes and production  facilities,  is required
before such product  candidate 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  although  AccuSite  has been  approved by
foreign  authorities,  Matrix 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,  the Company must  demonstrate  to the
satisfaction  of the FDA  that  the  Company's  product  candidate  is safe  and
effective for its intended uses and is manufactured in conformity with the FDA's
Good  Manufacturing  Practices  ("GMP")  regulations.  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  a  New  Drug
Application  ("NDA") requesting FDA approval.  When a product contains more than
one  component  that  contributes  to the  product's  effect,  as do some 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  products,  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 GMP  regulations  prior to approval of the product.
During  the  first  quarter  of  1998,  the  Company  closed  its  manufacturing
facilities in San Jose and Milpitas,  California and consolidated  manufacturing
personnel  at the  Company's  San  Diego  production  facility.  There can be no
assurance that the Company's San Diego  manufacturing  facility will be accepted
by the FDA in the future,  and failure to receive or  maintain  such  acceptance
would have a material adverse effect on the Company's business.


         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  that  data  will be  accepted  by the  FDA.  In
addition,  changes in applicable  law or FDA policy during the period of product
development and FDA regulatory review may result in the delay or rejection of an
NDA filed by the  Company.  Any failure to obtain,  or delay in  obtaining,  FDA
approvals  would  adversely  affect  the  ability  of the  Company 

                                       12
<PAGE>

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.

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

         Matrix  filed  an NDA for  AccuSite  Injectable  Gel for  treatment  of
condyloma  (genital  warts) with the FDA in 1995.  The FDA has issued two action
(non-approvable)  letters with respect to the Company's  application.  An action
letter  received in September 1997 reiterated  concerns  expressed by the FDA in
December 1996 about the safety profile of AccuSite and, in particular, about the
persistence in certain  AccuSite-treated  patients of a bump-like  thickening or
swelling  (induration)  at the  site of  injection.  The  Company  believes  the
clinical data for AccuSite, including supplementary data submitted to the agency
in March  1997 as an  amendment  to the NDA,  are  supportive  of the safety and
efficacy of the product in this  indication.  The  Company  continues  to pursue
approval of the  AccuSite  NDA.  However,  the Company does not intend to invest
substantial  Company  resources in this pursuit and believes it is unlikely that
AccuSite will be cleared for marketing in the United  States.  Accordingly,  the
Company has indefinitely  suspended  further  development and  commercialization
programs related to AccuSite.

         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 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 must be obtained from the relevant regulatory authorities.

         AccuSite  has been  approved in  Belgium,  Denmark,  Germany,  Finland,
Ireland, Italy, Luxembourg, The Netherlands and the United Kingdom. A regulatory
decision  is  expected  in 1998 in France.  The  Company  continues  to evaluate
whether,  in the absence of  commercialization  in the United States,  it may be
cost   effective  to  market   AccuSite  in  Europe   through  local   partners.
Commercialization of AccuSite in Europe would, in certain markets,  also require
the negotiation of satisfactory  pricing with local governments.  At this point,
the Company does not intend to commercialize AccuSite in Europe. There can be no
assurance  that  the  Company  will  develop  the  distribution  agreements  and
regulatory  approvals,  including pricing approvals,  that would be necessary to
commercialize AccuSite in Europe.

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 clinical 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 



                                       13
<PAGE>

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  provide  data  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 in its ongoing Phase III trials.  The two supportive
Phase III  trials  have  completed  enrollment.  However,  the two  registration
directed  trials  have not been fully  enrolled.  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 September 30, 1998, the Company's accumulated deficit was
approximately  $161,066,000.  The Company has not  generated  revenues  from its
products  or product  candidates  and  expects to incur  significant  additional
losses over the next several  years.  In order to achieve a profitable  level of
operations,  the Company must successfully  develop products,  obtain regulatory
approvals for its products, enter into agreements for product  commercialization
outside  the  United  States,  and  develop  an  effective  sales and  marketing
organization in the United States.  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 and development of its product candidates.  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  2000.  See  "Management's  Discussion  and
Analysis of Financial Condition and Results of Operations."

Limited Manufacturing and Sales and Marketing Experience

         The  Company  intends  to  market  and  sell  certain  of  its  product
candidates,  if successfully  developed and approved,  through its own dedicated
sales force in the United States and through pharmaceutical licensees in Europe.
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  resources  will be
available to the Company to fund  marketing  and sales  expenses,  many of which
must be incurred  before sales  commence.  Failure to establish a marketing  and


                                       14
<PAGE>

sales  capability in the United States and/or outside the United States may have
a material adverse effect on the Company.

         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 GMP  regulations.  The Company closed
manufacturing facilities in San Jose and Milpitas,  California in March 1998 and
transferred  manufacturing personnel to a research and manufacturing facility in
San  Diego,  California  that  was  acquired  in  1995  to  meet  the  Company's
anticipated  long-term  commercial  scale production  requirements.  The Company
expects that the San Diego  facility and contract  manufacturers  should provide
sufficient  production capacity to meet clinical  requirements.  There can be no
assurance  that the Company will be able to validate  this  facility in a timely
manner or that this  facility  will be adequate  for  Matrix's  long-term  needs
without delaying the Company's  ability to meet product demand or to manufacture
in a cost-effective  manner. 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. Any interruption of supply could have a material adverse effect
on the Company's ability to manufacture its products,  complete clinical trials,
or 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  that  patent,  and if the Company were
unable to obtain a license  under  that  patent.  See  "--Uncertainty  Regarding
Patents and Proprietary Rights."

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 that obtain 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. 



                                       15
<PAGE>

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.  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 with claims 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 that the Company's IntraDose
product,  which contains cisplatin,  does not infringe this patent and also that
new patent may have been  improperly  awarded and should be found invalid and/or
unenforceable.  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  on  commercially
reasonable  terms, if at all, in order to commercialize  IntraDose in the United
States.

         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.

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 compete with 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



                                       16
<PAGE>

competitive  factors,  in addition  to  completion  of clinical  testing and the
receipt of regulatory approval,  will include product efficacy,  safety,  timing
and scope of regulatory approvals,  availability of supply,  marketing and sales
capability, reimbursement coverage, pricing and patent protection.

Uncertainty of Pharmaceutical Pricing; No Assurance of Adequate Reimbursement

         The future  revenues,  profitability,  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.

         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  payers  are  increasingly
challenging  the prices  charged for medical  products and services.  Also,  the
trend towards managed health care in the United States and the concurrent growth
of organizations  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
limit  prices the  Company  can charge for its  products.  The cost  containment
measures that health care payers 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.

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
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 an 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  



                                       17
<PAGE>

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   chemotherapeutic  agents  employed  by  the  Company  in  its
aqueous-based protein systems, Anhydrous Delivery Vehicles ("ADV"), and regional
delivery technology 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 concern  because of
transmission of Bovine Spongiform Encelphalopathy ("BSE"). The Company has taken
all precautions to minimize the risk of  contamination of its collagen with BSE,
including  the  use of  United  States-sourced  cow  hides.  The  Committee  For
Proprietary  Medicinal Products  ("CPMP"),  a steering committee of the European
Medicines Evaluation Agency ("EMEA"),  has classified materials made from bovine
skin products as showing no detectable  infectivity,  indicating minimal 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.

Anti-Takeover Provisions

         Certain  provisions of the Company's  Certificate of Incorporation  and
Bylaws  may have the  effect of making it more  difficult  for a third  party to
acquire, or discouraging a third party from attempting to acquire control of the
Company.  Such provisions could limit the price that certain  investors might be
willing  to pay in the  future for shares of the  Company's  Common  Stock.  The
Company's  Board of  Directors  has the  authority  to issue shares of Preferred
Stock  and  to  determine  the  


                                       18
<PAGE>

price, rights, preferences,  privileges and restrictions of those shares without
any further vote or action by the stockholders.

         The rights of the  holders of Common  Stock will be subject to, and may
be adversely  affected by, the rights of the holders of any Preferred Stock that
may be issued in the future.  The issuance of Preferred  Stock,  while providing
desirable  flexibility  in  connection  with  possible  acquisitions  and  other
corporate  purposes,  could  have the effect of making it more  difficult  for a
third  party to  acquire  a  majority  of the  outstanding  voting  stock of the
Company.  The Company has no present  plans to issue shares of Preferred  Stock.
Certain provisions of Delaware law applicable to the Company could also delay or
make more  difficult  a merger,  tender  offer or proxy  contest  involving  the
Company,  including  Section 203 of the Delaware General  Corporation Law, which
prohibits a Delaware  corporation from engaging in any business combination with
any interested stockholder for a period of three years unless certain conditions
are met.

Year 2000 Compliance

         The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (year 2000) approaches. The "year
2000" problem is pervasive  and complex as virtually  every  computer  operation
will be affected in some way by the  rollover of the two digit year value to 00.
The issue is whether  computer  systems will properly  recognize  date sensitive
information  when  the  year  changes  to  2000.  Systems  that do not  properly
recognize such  information  could generate  erroneous data or cause a system to
fail.

         The Company has formed a Year 2000 Task Force to determine what actions
are  required  to  resolve  year  2000  issues.  A systems  assessment  is being
performed  and  conversion  is expected to be completed by the third  quarter of
1999.

         During 1997,  the Company  installed a new  accounting  system that was
confirmed by the vendor to address the year 2000 related issues. The Company has
analyzed  other  external  factors,  such as the impact on  significant  company
vendors,  and has determined that the related  potential effect on the Company's
business,  financial  condition or the Company results of operations will not be
material. At the current stage of the assessment process,  total projected costs
of implementing year 2000 requirements are not expected to exceed $150,000.




                                       19
<PAGE>



                           MATRIX PHARMACEUTICAL, INC.

PART II                    OTHER INFORMATION


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

None.


Item 5. Other Information

None


Item 6. Exhibits and Reports on Form 8-K

                  (a)      Exhibits

                           10.59    License  Agreement  by and  between  Hoechst
                                    Marion    Roussel,     Inc.    and    Matrix
                                    Pharmaceutical,  Inc.  dated  September  22,
                                    1998


                           27.1     Financial Data Schedule


                  (b)      Reports on Form 8-K

                           There  were no  Current  Reports  on Form  8-K  filed
                           during the quarter ended September 30, 1998.


                                       20
<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:  November 10, 1998           By:  /s/ David Ludvigson
       -----------------                -------------------
                                        David Ludvigson
                                        Chief Financial Officer,
                                        Senior Vice President


                                        Signing on behalf of the registrant
                                        and as principal financial and 
                                        accounting officer


                                       21
<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:  November 6, 1998           By:        
       ----------------                 ----------------------------------------
                                        David Ludvigson
                                        Chief Financial Officer, 
                                        Senior Vice President


                                        Signing on behalf of the registrant
                                        and as principal financial and 
                                        accounting officer




                                       22