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 September 30, 1997

                                       OR

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



Commission File number:    0-19750


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



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


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



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




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


                          Yes X       No
                             --         --

Number of shares of Common Stock,  $.01 par value,  outstanding  as of September
30, 1997: 21,886,946.


                                                                          Page 1
<PAGE>

                           MATRIX PHARMACEUTICAL, INC.


                                      INDEX





PART I.  FINANCIAL INFORMATION


Item 1.  Financial   Statements                                         Page No.


         Condensed Consolidated Balance Sheets -
         September 30, 1997 and December 31, 1996                             3

         Condensed Consolidated Statements of Operations -
         Three Months and Nine Months Ended September 30, 1997 and 1996       4

         Condensed Consolidated Statements of Cash Flows -
         Nine Months Ended September 30, 1997 and 1996                        5

         Notes to Condensed Consolidated Financial Statements                 6


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


PART II. OTHER INFORMATION

         Risk Factors                                                        12

Item 6.  Exhibits and Reports on Form 8-K                                    21

         Signatures                                                          22


                                                                          Page 2
<PAGE>
<TABLE>
                           MATRIX PHARMACEUTICAL, INC.
                          (a development stage company)


                     Condensed Consolidated Balance Sheets
<CAPTION>

                                                                (In thousands)

                                                           September 30,  December 31,
                                                               1997          1996
                                                             ---------    ---------
Assets                                                      (Unaudited)
<S>                                                          <C>          <C>
Current assets:
  Cash and cash equivalents                                  $   4,062    $  20,138
  Short-term investments                                        56,548       38,997
  Inventories                                                     --            758
  Other current assets                                           3,277        2,283
                                                             ---------    ---------
    Total current assets                                        63,887       62,176

Property and equipment, net                                     23,704       17,152
Non-current investments                                         20,016       55,449
Deposits and other assets, net                                     370          173
                                                             ---------    ---------
                                                             $ 107,977    $ 134,950
                                                             =========    =========
Liabilities and Stockholders' Equity

Current liabilities:
  Accounts payable                                           $   4,399    $   2,636
  Special charges                                                2,867         --
  Accrued compensation                                           1,337        1,045
  Accrued clinical trials                                        1,361        1,239
  Other accrued liabilities                                      1,285        2,135
  Current portion of debt and capital lease obligations            779          660
                                                             ---------    ---------
    Total current liabilities                                   12,028        7,715

Long Term liabilities:
  Debt and capital lease obligations, less current portion      11,089       11,724
  Deferred other income                                          2,054         --
                                                             ---------    ---------
    Total long-term liabilities                                 13,143       11,724

Stockholders' equity
  Capital stock                                                224,895      222,256
  Notes receivable from shareholders                            (2,313)        --
  Other                                                           (494)        (856)
  Deficit accumulated during the development stage            (139,282)    (105,889)
                                                             ---------    ---------
    Total stockholders' equity                                  82,806      115,511
                                                             ---------    ---------
                                                             $ 107,977    $ 134,950
                                                             =========    =========

<FN>
                             See accompanying notes
</FN>
</TABLE>
                                                                          Page 3

<PAGE>


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

                Condensed Consolidated Statements of Operations
                    (In thousands except per share amounts)
                                  (Unaudited)

<CAPTION>
                                                 Three Months Ended     Nine Months Ended
                                                     September 30,        September 30,
                                                 1997       1996        1997         1996
                                              --------    --------    --------    ---------
<S>                                           <C>         <C>         <C>         <C>
Revenues                                      $   --      $   --      $   --      $   --

Costs and expenses:
        Research and development                 7,182       6,110      21,525      18,114
        Selling, general and administrative      3,808       2,732      12,221       7,036
        Special charges                          4,518        --         4,518        --
                                              --------    --------    --------    ---------
                Total costs and expenses        15,508       8,842      38,264      25,150
                                              --------    --------    --------    ---------

Loss from operations                           (15,508)     (8,842)    (38,264)    (25,150)

Interest and other income, net                   1,644       2,030       4,871       4,054
                                              --------    --------    --------    ---------
Net loss                                      $(13,864)   $ (6,812)   $(33,393)   $(21,096)
                                              ========    ========    ========    =========
Net loss per share                            $  (0.64)   $  (0.32)   $  (1.56)   $  (1.07)
                                              ========    ========    ========    =========
Weighted average number
of shares outstanding                           21,706      21,248      21,414      19,689
                                              ========    ========    ========    =========


<FN>
                             See accompanying notes
</FN>
</TABLE>
                                                                          Page 4


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

                 Condensed Consolidated Statements of Cash Flows


                                 (In thousands)
                                  (Unaudited)
<CAPTION>
                                                                          For the Nine Months
                                                                          Ended September 30
                                                                           1997        1996
                                                                       ----------   ----------
<S>                                                                    <C>          <C>
Cash flows from operating activities:
        Net loss                                                       ($ 33,393)   ($ 21,096)
        Adjustments to reconcile net loss to
        net cash used by operating activities:
                Depreciation, amortization and other                       1,051        1,030
        Changes in assets and liabilities:
                Inventories                                                  758         --
                Special charges                                            2,867         --
                Deferred other income                                      2,613         --
                Other changes in assets and liabilities                     (422)      (2,121)
                                                                       ----------   ----------
                 Net cash (used) by operating activities                 (26,526)     (22,187)
Cash flows from investing activities:
        Capital expenditures                                              (7,410)      (1,908)
        Investment in available-for-sale securities                      (16,000)    (144,531)
        Proceeds of available-for-sale securities                           --         42,832
        Maturities of investments                                         34,000       21,734
                                                                       ----------   ----------
                Cash flows provided (used) by investing activities        10,590      (81,873)
Cash flows from financing activities:
        Payments on debt and capital lease obligations                      (563)        (336)
        Net cash proceeds from issuance of:
                Debt and capital lease financing                              24         --
                Capital stock                                                399       68,404
                                                                       ----------   ----------
                Cash flows provided (used) by financing activities          (140)      68,068
                                                                       ----------   ----------
Net decrease in cash and cash equivalents                                (16,076)     (35,992)
Cash and cash equivalents at the beginning of period                      20,138       55,675
                                                                       ----------   ----------
Cash and cash equivalents at the end of period                         $   4,062    $  19,683
                                                                       
Supplemental schedule of noncash investing and financing activities:
                Notes receivable from shareholders in exchange for
                        capital stock                                  $   2,313    $    --
                                                                       ==========   ==========

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

<PAGE>


                           MATRIX PHARMACEUTICAL, INC.


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               September 30, 1997


1.       Basis of presentation

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

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

2.       Principles of consolidation

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

3.       Net loss per share

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

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

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

                  The  Company   maintains  its  cash,   cash   equivalents  and
         investments  in  several  different  instruments  held by a bank  and a
         brokerage house.  This  diversification  of risk is consistent with the
         Company's  investment policy which is to maintain  liquidity and ensure
         the safety of principal.
                                                                          Page 6

<PAGE>


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

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

5.       Litigation

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

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

6.       Notes receivable from stockholders

                  In March 1997,  the Board of  Directors  authorized  a special
         risk sharing  arrangement  designated as the Shared Investment  Program
         ("Program").  Under the Program,  the Company's  executive officers and
         other key managerial  personnel were given the  opportunity to purchase
         shares  of  Common  Stock  in an  individually  designated  amount  per
         participant  determined by the  Compensation  Committee of the Board of
         Directors.  A total of 370,000 shares were purchased  under the Program
         by nine eligible employees at $6.25 per share, the fair market value of
         the Common  Stock on June 25,  1997,  for  aggregate  consideration  of
         $2,312,500.  The  purchase  price was paid  through  the  participant's
         delivery of a  full-recourse  promissory  note  payable to the Company.
         Each note bears interest at 6.69%  compounded  semi-annually  and has a
         maximum  term of nine  years.  The notes are secured by a pledge of the
         purchased  shares.  Notes receivable from  participants in this program
         total  $2,312,500  at September 30, 1997 and are included in the equity
         section in the accompanying balance sheet.

7.       New accounting pronouncements

                  In June 1997, the Financial  Accounting Standards Board issued
         the  Statement  of  Financial  Accounting  Standard No. 130 "SFAS 130",
         "Reporting  Comprehensive  Income,"  which the  Company is  required to
         adopt for its fiscal year ending  December  31,  1998.  This  Statement
         requires
                                                                          Page 7
<PAGE>


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

8.       Special charges

         During  the  third  quarter  of  1997,  the  Company  recorded  pre-tax
         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" is not prepared to approve AccuSite as a treatment
         for genital warts.  Although Matrix plans to meet with the FDA at their
         earliest  possible  convenience,  the Company expects that the concerns
         raised by the agency will be difficult to overcome and does not plan to
         invest  significant  additional  resources in the AccuSite program.  In
         September,  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 has  effected a workforce
         reduction of approximately  70 employees of which 48 positions  related
         to  manufacturing,   for  a  total  severance  expense  of  $1,478,000.
         Additional  expenses  included the  write-off  of inventory  related to
         AccuSite of $1,245,000,  costs totaling $1,194,000  associated with the
         shut  down  of  Northern   California   facilities  and  write  off  of
         manufacturing equipment,  costs associated with the closing of clinical
         trials with  respect to AccuSite of $414,000,  and sales and  marketing
         costs  associated  with  AccuSite of $187,000.  The  remaining  reserve
         balance,  net of third quarter payments made through September 30, 1997
         is included in current liabilities.

                                                                          Page 8
<PAGE>

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


         This Quarterly Report on Form 10-Q contains,  in addition to historical
statements, forward-looking statements, including without limitation, statements
regarding  the timing and outcome of  regulatory  reviews and  clinical  trials.
Forward-looking  statements are based on management's  current  expectations and
are  subject  to a number of risks and  uncertainties  that could  cause  actual
results to differ materially from expected results. For additional  information,
including  risk  factors,   such  as  no  assurance  of  regulatory   approvals;
uncertainties  associated  with  clinical  trials;  history  of  losses;  future
profitability uncertain;  additional financing requirements and uncertain access
to  capital   markets;   limited   sales  and  marketing   experience;   limited
manufacturing  experience;  dependence on sources of supply; rapid technological
change;  substantial competition;  uncertainty regarding patents and proprietary
rights;  uncertainty  of  pharmaceutical  pricing;  and no assurance of adequate
reimbursement,  please see the "Risk Factors"  section included in the Company's
1996 Form 10-K and in this Form 10-Q as well as other  factors  discussed  below
and elsewhere in this report.

 Results of Operations

 Three Months and Nine Months Ended September 30, 1997 and 1996

         Since  the  Company's  inception  in  1985,  the  primary  focus of its
 operations has been research and development  and, to date, it has not received
 any revenues from the commercial sale of products. The Company has a history of
 operating losses and expects to incur  substantial  additional  losses over the
 next several years as it continues to develop its current and future  products.
 For the period  from its  inception  to  September  30,  1997,  the Company has
 incurred a cumulative net loss of $139,282,000. .

         Research  and  development  expenses  for  the  third  quarter  of 1997
 increased by 18% to $7,182,000 as compared to $6,110,000  for the third quarter
 of 1996. For the first nine months of 1997,  research and development  expenses
 increased by 19% to $21,525,000  compared to $18,114,000 in 1996. The quarterly
 increase  was  primarily  due  to  increases  in  manufacturing   research  and
 development and clinical  personnel  costs,  increased  clinical trial costs to
 support  the  IntraDose(TM)  Injectable  Gel cancer  program  and  AccuSite(TM)
 Injectable  Gel study for  genital  warts.  The  increase  for the  quarter was
 partially offset by a decline in operations  supplies for operations during the
 quarter  ended  September  30, 1997 as compared to the same period in the prior
 year. The year-to-date increase was primarily due to increases in manufacturing
 research and  development and clinical  personnel costs and increased  clinical
 trial costs to support the IntraDose Injectable Gel cancer program.

         Selling,  general and administrative  expenses for the third quarter of
 1997  increased by 39% to $3,808,000  as compared to  $2,732,000  for the third
 quarter  of 1996.  For the first  nine  months of 1997,  selling,  general  and
 administrative  expenses  increased by 74% to $12,221,000 versus $7,036,000 for
 the same  period in 1996.  This  increase  was  primarily  due to higher  legal
 expenses related to the Collagen litigation which was settled during the second
 quarter of 1997 and represents 50% of the year-to-date percentage increase. The
 remaining  quarterly and  year-to-date  increases  were primarily due to higher
 personnel expenses,  recruiting and relocation expenses,  and product marketing
 expenses for AccuSite, prior the decision to halt this development program.

         During the third quarter of fiscal 1997, the Company  recorded  pre-tax
 restructuring  costs of $4,518,000  in connection  with the decision to suspend
 further development and commercialization of

                                                                          Page 9
<PAGE>

AccuSite.  Management  suspended the Accusite  program after being notified that
the FDA is not prepared to approve  AccuSite as a treatment  for genital  warts.
Although  Matrix  plans  to  meet  with  the  FDA  at  their  earliest  possible
convenience,  the Company expects that the concerns raised by the agency will be
difficult  to  overcome  and  does  not plan to  invest  significant  additional
resources  in the  AccuSite  program.  In  September,  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 has effected a workforce
reduction  of  approximately  70  employees,  of which 48  positions  related to
manufacturing, for a total severance package of $1,478,000.  Additional expenses
included the  write-off of inventory  related to AccuSite of  $1,245,000,  costs
totaling  $1,194,000  associated  with  the  shut  down of  Northern  California
facilities  and write off of  manufacturing  equipment,  the closing of clinical
trials with  respect to  AccuSite of  $414,000,  and sales and  marketing  costs
associated  with AccuSite of $187,000.  The remaining  reserve  balance,  net of
third quarter  payments made through  September 30, 1997, is included in current
liabilities.

         Net interest and other income  decreased by 19% to  $1,644,000  for the
 third quarter of 1997 as compared to $2,030,000  for the third quarter of 1996.
 For the first nine months of 1997,  net interest and other income  increased by
 20% to $4,871,000  compared to  $4,054,000 in 1996.  The decrease for the three
 months ended  September  30, 1997 compared to the same period in the prior year
 was due to lower  interest  income  as a result  of  decline  in  average  cash
 balances.  The increase for the nine months ended  September 30, 1997 reflected
 rental income from  inception of a lease at the  Company's  San Diego  facility
 which began in the third quarter of 1996.

 Liquidity and Capital Resources

         At  September  30,  1997,  the Company had  $80,600,000  in cash,  cash
 equivalents and marketable securities, compared to $114,600,000 at December 31,
 1996.  During the nine months ended  September  30,  1997,  the net decrease of
 $34,000,000  includes cash receipts of interest and rental income of $4,800,000
 and $2,800,000 as part of a non-compete agreement. Cash disbursements were used
 primarily to fund operating activities, inventory and capital purchases.

         Special charges of $4,500,000 were recorded during the third quarter of
1997 in  connection  with  the  decision  to  suspend  further  development  and
commercialization of AccuSite. See "Results of Operations".  Total cash payments
for  restructuring are approximately  $2,700,000,  of which $2,300,000  remained
payable at  September  30,  1997.  The  remaining  amount is expected to be paid
during the fourth quarter 1997.

         The Company is  continuing to pursue  registrations  in Europe and will
evaluate options for commercializing AccuSite in Europe. However, in the absence
of U.S.  approval,  the Company  believes  that it may not be cost  effective to
manufacture  the product for Europe  alone.  Currently,  AccuSite  has  received
marketing  approval in the United  Kingdom,  Ireland,  and the  Netherlands  and
selling  and  marketing  activities  of the product  commenced  during the first
quarter of 1997 in the United  Kingdom.  However,  as part of the  restructuring
discussed above,  management has withdrawn AccuSite from the United Kingdom. The
Company  has filed  separate  regulatory  submissions  for  AccuSite in Germany,
France and Italy.  Additionally,  the regulatory  approval in the United Kingdom
was submitted in certain other  countries of the European Union under the mutual
recognition  process.  In June 1997,  AccuSite  was  recommended  for  marketing
authorization  in  Belgium,  Denmark,  Finland,  Ireland,  Luxembourg,  and  the
Netherlands  through the mutual recognition  process.  However,  there can be no
assurance that the Company will receive approval in such countries.

                                                                         Page 10
<PAGE>

         In October 1997,  the Company  received  $9,950,000,  net of commitment
fees, as part of a five year equipment financing agreement maturing in 2002. The
agreement is secured by all of the  equipment  purchased by the Company  between
October  21,  1995 and March 31,  1998.  The loan  payments  will be rendered in
monthly installments of $161,000, beginning in November 1997, which will include
9% interest, computed daily.

         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.

         In December  1995, the Company  purchased a research and  manufacturing
facility  in San Diego,  California  for  $13,100,000.  This  facility  requires
validation and process installation  investments which the Company has committed
capital expenditures of approximately  $8,900,000,  of which $4,600,000 has been
paid through September 30, 1997.

         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, including the proceeds of its April 1996 public
offering and October 1997  equipment  financing,  will enable it to maintain its
current and planned  operations at least  through 1999.  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 nine months of 1997 and 1996.

                                                                         Page 11
<PAGE>


                           PART II. OTHER INFORMATION


                                  RISK FACTORS


No Assurance of Regulatory Approvals

         The preclinical and clinical testing,  manufacturing,  and marketing of
the  Company's  products  are  subject  to  extensive   regulation  by  numerous
governmental  authorities in the United States and other  countries,  including,
but not  limited  to, the FDA.  Among other  requirements,  FDA  approval of the
Company's  products,  including  a review  of the  manufacturing  processes  and
facilities used to produce such products,  will be required before such products
may be marketed in the United States. Similarly, marketing approval by a foreign
governmental  authority  is  typically  required  before  such  products  may be
marketed in a particular foreign country. Matrix has no products approved by the
FDA and one  product  approved  by  foreign  authorities  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  manufacturing  facilities  will be accepted by the
FDA, 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.   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

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

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

         Both  before  and  after   approval  is   obtained,   a  product,   its
manufacturer,  and  the  holder  of the  NDA  for the  product  are  subject  to
comprehensive regulatory oversight. Violations of regulatory requirements at any
stage,  including the preclinical  and clinical  testing  process,  the approval
process  or  thereafter  (including  after  approval),  may  result  in  adverse
consequences,  including  the FDA's delay in  approving  or refusal to approve a
product,  withdrawal  of  an  approved  product  from  the  market,  and/or  the
imposition of criminal penalties against the manufacturer and/or the NDA holder.
In  addition,  later  discovery of  previously  unknown  problems  relating to a
marketed  product may result in restrictions on such product,  manufacturer,  or
the NDA holder,  including  withdrawal of the product from the market. Also, new
government   requirements  may  be  established  that  could  delay  or  prevent
regulatory   approval  of  the  Company's   products  under   development.   See
"--Uncertainty   of   Pharmaceutical   Pricing;   No   Assurance   of   Adequate
Reimbursement.

         The  Company's  NDA for  AccuSite was accepted for filing by the FDA in
November  1995.  In December  1996,  the Company  announced  that it received an
action  letter  from the FDA  identifying  issues  that will need to be resolved
before the  Company's  NDA for  AccuSite  can be approved  for the  treatment of
genital  warts.  In March 1997,  Matrix  filed an  amendment to its NDA that the
Company believed  addressed the questions raised in the action letter and during
the subsequent  meeting. In September 1997, the Company received a second action
letter from the FDA which  maintained  the agency's  previous  non-approvability
stance toward AccuSite.

         The second FDA action  letter  focused on the  persistence,  in certain
AccuSite-treated patients, of a bump-like thickening or swelling (induration) at
the site of injection. The agency feels the persistence of induration,  although
it typically resolved naturally,  may be an indicator of localized inflammation.

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Although  Matrix  plans  to  meet  with  the  FDA  at  their  earliest  possible
convenience,  the Company expects that the concerns raised by the agency will be
difficult  to  overcome  and  does  not plan to  invest  significant  additional
resources in the  AccuSite  program.  The AccuSite  program will be abandoned if
such efforts  require the  commitment of significant  resources.  The failure to
commercialize  AccuSite  in the United  States and Europe is  expected to have a
material adverse impact on the future revenues of the Company.

         The Company is  continuing to pursue  registrations  in Europe and will
evaluate options for commercializing AccuSite in Europe. However, in the absence
of U.S.  approval,  the Company  believes  that it may not be cost  effective to
manufacture  the  product  for  Europe  alone.  The  Company  filed  its  Market
Authorization  Application  "MAA" for  AccuSite in the United  Kingdom in August
1995 and  subsequently  filed an MAA in Germany,  France and Italy. In May 1996,
the Company was notified by the Medicines  Control  Agency in the United Kingdom
that a product  license  had been  granted for  AccuSite  for the  treatment  of
genital warts. In December 1996, the Company submitted an application for mutual
recognition  of the United Kingdom  approval by various  members of the European
Union to which it did not make a national submission. In June 1997, AccuSite was
recommended for marketing authorization in Belgium,  Denmark,  Finland, Ireland,
Luxembourg and the Netherlands through the mutual recognition process. As of the
end of September,  the Company has received marketing authorization for AccuSite
in Ireland and the Netherlands. However, there can be no assurance that Belgium,
Denmark,  Finland,  and Luxembourg will formally recognize the approval obtained
in the United Kingdom. During the regulatory process, the MAA was withdrawn from
Spain, Greece,  Portugal,  and Austria, and a national application was withdrawn
from Sweden.  As with the United States FDA review  process,  there are numerous
risks  associated  with the MAA review.  Additional data may be requested by the
regulatory agency reviewing the MAA to demonstrate the contribution of a product
component  to the  clinical  safety and  efficacy of a product or to compare the
efficacy  of the  product  to other  treatments,  or to confirm  the  comparable
performance  of materials  produced by a changed  manufacturing  process or at a
changed manufacturing site.

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

Uncertainties Associated with Clinical Trials

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

         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

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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  enrollment  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 September 30, 1997, the Company's accumulated deficit was
approximately  $139,282,000 million. The Company has not generated revenues from
its products and expects to incur  significant  additional  losses over the next
several years. The Company's ability to achieve a profitable level of operations
is  dependent  in large  part on  successfully  developing  products,  obtaining
regulatory  approvals  for  its  products,  and  making  the  transition  to  an
organization  producing  commercial  products and entering into  agreements  for
product commercialization.  No assurance can be given that the Company's product
development efforts will be completed,  that required regulatory  approvals will
be obtained,  that any products will be manufactured and marketed  successfully,
or that profitability will be achieved.

Additional Financing Requirements and Uncertain Access to Capital Markets

         The Company has expended and will continue to expend  substantial funds
to complete the research, development and marketing of its products. The Company
may require  additional  funds for these purposes through  additional  equity or
debt  financings,  collaborative  arrangements  with corporate  partners or from
other  sources.  No assurance  can be given that such  additional  funds will be
available on acceptable  terms,  if at all. If adequate  funds are not available
from operations or additional sources of financing, the Company's business could
be materially and adversely  affected.  Based on its current operating plan, the
Company  anticipates  that its existing  capital  resources  will be adequate to
satisfy its  capital  needs  through  1999.  See  "Management's  Discussion  and
Analysis of Financial Condition and Results of Operations."

Limited Manufacturing and Marketing Experience

         The  Company  intends to market and sell  certain of its  products,  if
successfully  developed  and  approved,  through a direct sale  organization  or
co-promotion or distribution  agreements.  For AccuSite, the Company has entered
into a  sales  and  marketing  agreement  with  Savage  Laboratories,  the  U.S.
marketing division of Altana,  Inc., to sell, market and distribute  AccuSite to
dermatology  and obstetrics and gynecology  audiences in the United States.  The
Company  has  similar  agreements  in place  for  AccuSite  with  pharmaceutical
companies in Italy,  Spain,  and  Portugal.  However,  management  suspended the
Accusite  program  after being  notified  that the Food and Drug  Administration
(FDA)  is  not  prepared  to  approve  AccuSite  as a  treatment  including  the
withdrawal of AccuSite from the United Kingdom, where it has been marketed since
January  1997.  In order to market its  products  directly,  a sales  force with
technical  expertise  must be  developed.  There  can be no  assurance  that the
Company  will be able to establish a successful  direct  sales  organization  or
co-promotion  or  distribution  arrangements.  In  addition,  there  can  be  no
assurance  that there  will be  sufficient  sales of  products  to fund  related
expenses,  many of which must be  incurred  before  sales  commence.  Failure to
establish a marketing and 

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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  cGMP  regulations.  The  Company is
currently manufacturing clinical supplies at its manufacturing facilities in San
Jose  and  Milpitas,   California.  The  Company  plans  to  decommission  these
facilities by March 31, 1998.

         In December  1995, the Company  purchased a research and  manufacturing
facility in San Diego,  California to meet its 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.  The Company  estimates  that this  facility will not be
available for commercial  production  until late 1998. 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 delay
to the Company's ability to meet product demand or that the Company will be able
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.  Matrix is also in the process of attempting to obtain approval
of second sources for as many as possible of these supplies. Any interruption of
supply  could  have a  material  adverse  effect  on the  Company's  ability  to
manufacture  its products,  and thus the ability to complete the clinical trials
or  to  commercialize   products.   In  addition,   the  Company's   ability  to
commercialize its IntraDose Injectable Gel product in the United States could be
limited  by  the  issuance  in  1996  of  a  U.S.   patent  for   cisplatin,   a
chemotherapeutic  drug  that  is  the  active  compound  in  IntraDose,  if  the
newly-issued  patent were upheld and if  IntraDose  were found to infringe  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

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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.  The
patent has been  reexamined by the PTO and the reissuance has been allowed.  The
Company  believes,  although no assurance can be given, that the modified claims
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.

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

Rapid Technological Change and Substantial Competition

         The  pharmaceutical  industry  is  subject  to  rapid  and  substantial
technological   change.   Technological   competition   in  the  industry   from
pharmaceutical and biotechnology companies, universities,  governmental entities
and others  diversifying  into the field is intense and is expected to

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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.

         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

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

Hazardous Materials and Product Risks

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

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

         In addition,  bovine sourced materials are of some hypothetical concern
because of transmission of Bovine Spongiform Encelphalopaty ("BSE"). The Company
has taken all precautions to minimize the

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<PAGE>

risk of  contamination of its collagen with BSE including the use of U.S sourced
cow hides.  Materials  made of cow hides are considered to be the lowest risk of
transmission of BSE.

Volatility of Stock Price; No Dividends

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


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 20
<PAGE>


                           MATRIX PHARMACEUTICAL, INC.




Item 6.  Exhibits and Reports on Form 8-K

                  (a)      Exhibits


Number   Exhibit Table

10.52             Imperial Bank Credit Agreement (October 8, 1997)


27                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, 1997.

                                                                         Page 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:                              By:  /s/ James R. Glynn
     -----------------------            -----------------------
                                        James R. Glynn
                                        Chief Operating Officer
                                        Chief Financial Officer


                                    (Signing on behalf of the  registrant and as
                                    principal executive and financial officer)

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