<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)

[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
    Act of 1934

                   For the fiscal year ended DECEMBER 31, 1996
                                       or

[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
    Act of 1934

               For the transition period from ________ to ________

                         COMMISSION FILE NUMBER 0-19651

                          MAGAININ PHARMACEUTICALS INC.
             -------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER.)

                  Delaware                                       13-3445668
       -------------------------------                        ----------------
       (State or other jurisdiction of                        (I.R.S. Employer
        incorporation or organization)                       Identification No.)

          5110 Campus Drive
     Plymouth Meeting, Pennsylvania                                19462
----------------------------------------                         ----------
(Address of principal executive offices)                         (Zip Code)

        Registrant's telephone number, including area code (610) 941-4020

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class                    Name of each exchange on which registered

       None
-------------------                    -----------------------------------------

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                     Common Stock, $.002 par value per share
                     ---------------------------------------
                                (Title of Class)

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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant is approximately $169,804,108. Such aggregate market value was
computed by reference to the closing price of the Common Stock as reported on
the NASDAQ, National Market of The Nasdaq Stock Market, on March 24, 1997. For
purposes of this calculation only, the registrant has defined affiliates as
including all directors and executive officers. In making such calculation,
registrant is not making a determination of the affiliate or non-affiliate
status of any holders of shares of Common Stock.

The number of shares of the registrant's Common Stock outstanding as of March
24, 1997 was 19,364,468.


<PAGE>   2
                       DOCUMENTS INCORPORATED BY REFERENCE


         As stated in Parts II and III of this Annual Report on Form 10-K,
portions of the following documents are incorporated herein by reference:

         Annual Report to Stockholders for the fiscal year ended December 31,
1996.

         Definitive Proxy Statement to be filed within 120 days after the end of
         the fiscal year covered by this Annual Report on Form 10-K (the "Proxy
         Statement").


<PAGE>   3
                               INDEX TO FORM 10-K
                          MAGAININ PHARMACEUTICALS INC.


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                                                                                              References
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<S>        <C>                                                                                <C>
           PART I

ITEM 1.    BUSINESS..................................................................................   1
ITEM 2.    PROPERTIES................................................................................  14
ITEM 3.    LEGAL PROCEEDINGS.........................................................................  14
ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................  14

           PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.....................  14
ITEM 6.    SELECTED FINANCIAL DATA...................................................................  14
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
           OPERATIONS................................................................................  14
ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............................................  14
ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
           DISCLOSURE................................................................................  14

           PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........................................  15
ITEM 11.   EXECUTIVE COMPENSATION....................................................................  15
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................  15
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................  15

           PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...........................  15
</TABLE>


<PAGE>   4
                                     PART I

ITEM 1.  BUSINESS

GENERAL

         Magainin Pharmaceuticals Inc. ("Magainin" or the "Company") is a
biopharmaceutical company engaged in the development of breakthrough medicines
for serious diseases. The Company isolates and develops compounds from the
host-defense systems of animals and uses molecular techniques such as gene
identification to understand the pathogenesis of disease. The Company's
development efforts are focused on anti-infectives, oncology and, pulmonary and
allergic disorders.

         The Company's lead development compound is Cytolex(TM) (MSI-78), a
topical anti-infective. Magainin has completed two successful, pivotal Phase III
clinical trials of Cytolex for the treatment of infection in diabetic foot
ulcers.

         The Company is engaged in the preclinical development of an aminosterol
class of compounds, discovered in the dogfish shark. The Company believes these
compounds may have application in disease conditions characterized by cell
growth. The Company is evaluating one such compound, squalamine, in solid cancer
tumors, and another such compound, MSI-1436, in viral infections.

         The Company's newest research efforts are in the understanding of the
pathogenesis of disease using molecular techniques. The Company's initial
disease focus in this area is the genomics of asthma.

         Since commencing operations, the Company has not generated any sales
revenue, and has received nominal amounts of revenue from contracts and grants.
The Company has funded operations primarily from the proceeds of public and
private placements of securities. The Company has incurred net losses in each
year since its inception, and expects to incur substantial additional losses for
the next several years. The Company currently has no marketable products, and it
may be several years, if ever, until marketable products are developed and
approved.

         Magainin was incorporated in Delaware in June 1987. The Company's
executive offices and research facility are located at 5110 Campus Drive,
Plymouth Meeting, Pennsylvania 19462, and its telephone number is (610)
941-4020.


                                        1

<PAGE>   5
BACKGROUND - HOST DEFENSE SYSTEM AND GENOMICS

HOST-DEFENSE SYSTEM

         The Company was formed to engage in the research, development and
commercialization of compounds derived from the host-defense system of animals.
The host-defense system is the complex of natural processes and mechanisms used
by the body to protect itself against infection and certain cancers. This system
comprises physical barriers to infection, such as skin and mucosal membranes and
fluids, as well as more complex chemical and biological components, such as the
immune system. The Company believe that certain classes of naturally occurring
peptides, such as magainins, and certain non-peptide small molecules, such as
the aminosterols, both described below, are used by the host-defense system to
provide a first line of defense against infection and may have activity against
certain cancers.

         The Company's approach to identifying pharmaceutically active compounds
in the host-defense systems of animals involves the extraction of compounds from
animal tissues. The extracts are assayed for activity against selected
pathogens, such as bacteria, fungi, viruses and certain cancers. The assays are
designed to detect the relatively small quantities of active agents that are
present in animal tissues. The Company then purifies the active compound and
determines the precise chemical structure of the purified molecule.

         Once naturally occurring molecules have been isolated, the Company
analyzes the relationship between the molecular structure of the compound and
its biological activity. In general, this requires identification of the
structures in the compound which are believed to have therapeutic effects and an
analysis of how the compounds could be modified to improve the desired
therapeutic effects. As a result of such analysis, Company scientists have
modified naturally occurring molecules by substituting different amino acids and
shortening or lengthening the chain of molecules making up the compound. Company
scientists have also been able to add fatty acids, carbohydrates or other
constituents to the molecules to alter biological activity or increase
stability.

MAGAININS

         The first magainins were isolated from the African frog Xenopus laevis
by Dr. Michael A. Zasloff (presently Vice Chairman and Executive Vice President
of the Company, and President of the Magainin Research Institute, a division of
the Company) while conducting genetic and molecular biological research at the
National Institutes of Health ("NIH") in 1987. In connection with his research,
Dr. Zasloff was performing surgery on African clawed frogs in his laboratory.
After suturing the frogs and returning them to their aquarium tank, he noticed
that the incisions healed without infection, inflammation or notable scarring,
despite being exposed to the bacteria-filled aquarium water. Dr. Zasloff deduced
that the frogs produced a substance that protected them against infection.
Eventually, he isolated, from the skin, two related peptides, which he called
magainins and which were later shown to kill a variety of pathogens, including
bacteria, amoeba, fungi and parasites. Many synthetic magainin peptides have
been produced by the Company since this original discovery.

         In general, magainins, when present in solution, have no specific
structure. However, in the presence of a cell membrane rich in acidic
phospholipids and poor in cholesterol, such as bacterial membranes, magainins
twist into two-sided, spiral shaped molecules (helices), with one side soluble
in the fat-like substance that comprises cell membranes and the other side
soluble in water. Individual magainin peptides then aggregate and line up to
form a channel in the membrane of a pathogen. Once formed, this aggregate
punctures the cell membrane, breaks down the integrity of the cell and kills the
pathogen.

         An increasing problem in the antibiotic field is resistance, the
process by which antibiotics lose their effectiveness over time as bacteria,
through mutation, develop the means to produce enzymes capable of diminishing
the antibiotic utility. To date, the Company has not noted the development of
resistance to the magainins, which the Company believes is due to the means by
which magainins break down cells and kill pathogens.


                                        2

<PAGE>   6
AMINOSTEROLS

         In 1992, while continuing his search for novel anti-infectives from
vertebrates, Dr. Zasloff and his associates discovered squalamine, a steroid, in
the body tissues of the dogfish shark. The shark was initially examined because
of its known resistance to infection and cancer. Since 1992, Dr. Zasloff and his
team have discovered several other aminosterol compounds in the shark. In
preclinical testing conducted to date, these compounds have demonstrated an
ability to control cell growth. These properties may have application in a
number of disease indications, including solid cancer tumors and lymphocytic
viral infections.

         The aminosterol compounds are believed to have a unique mechanism of
action whereby they inhibit cell proliferation at an early stage in cell
activation by blocking the function of sodium proton exchangers. These
exchangers act as pumps on the surface of cells, and control cell function
through regulation of intracellular pH and volume. This system represents a
naturally occurring growth regulatory system in animals, and its regulation may
allow for control of cell proliferation.

ASTHMA GENOMICS PROGRAM

         New techniques in molecular biology have significantly enhanced the
ability of scientists to clone and sequence human genes, and more closely study
genetic variations between individuals. This, in turn, has allowed for an
examination of the genetic influences on many human diseases. This field of
research is called genomics, or the study of the genome. Genomics has led to an
increasing acceptance that genes, in addition to factors such as lifestyle and
environment, play a fundamental role in human disease.

         A genome is the total DNA content of an organism that is identically
present in each of its cells. DNA (deoxyribonucleic acid) is a molecule
comprised of four compounds, or nucleotides, that contain the genetic
instructions for living organisms. These genetic instructions are specified by
the order of the nucleotides. Genes represent a segment of DNA that codes for a
protein that is responsible for the structure and function of all living things.
The cloning and sequencing of DNA, made possible by recombinant DNA technology
in the 1970s, fueled the significant expansion of the genomics field. Scientists
could, for the first time, extensively study how differences in order of amino
acids affect protein function and, therefore, human health. Mutations in amino
acid sequences can decrease the ability of a protein to perform its proper
function, causing a disease or an increased susceptibility to a disease.

         In 1996, the Company initiated a research program in the genomics of
asthma. The Company's research initiative in this area is based principally on
the concept of positional cloning, or the analysis of disease inheritance
patterns. Positional cloning refers to a collection of tagging and sequencing
techniques that are used to localize and identify genes associated with
particular diseases. For example, DNA may be collected from family groups where
a particular disease is more prevalent than in the general population. Analysis
of the sequence of such DNA should then allow for insight into the pathogenesis
of the disease. While a number of companies in the genomics field are primarily
focused on sequencing without regard to function, the Company's focus is to
locate specific genes in a particular disease. The Company believes that
identification of disease genes will provide insight into the causes of disease,
and facilitate the development of therapeutic products against that disease.

         The Company's research and development strategy in genomics involves:

                  -  defining the genetic pathways that underlie susceptibility
                     to disease
                  -  defining the therapeutic target in the pathway
                  -  developing compounds to alter clinical outcome


                                        3

<PAGE>   7
PRODUCT DEVELOPMENT AND RESEARCH PROGRAMS

INFECTED DIABETIC FOOT ULCERS

         Infected foot ulcers in diabetic patients are a serious complication.
The often compromised vasculature and nervous systems in the diabetic patient
can create conditions conducive to infection. These infections can lead to
osteomyelitis (bone infection) and limb amputation. Patients with infected
ulcers are typically treated with oral antibiotics and no topical antibiotics
are currently approved specifically for the treatment of infection in diabetic
foot ulcers.

         There are a number of potential shortcomings in oral antibiotic
treatment of infection in diabetic foot ulcers. Increasing utilization of oral
antibiotics has exacerbated the development of antibiotic resistance, and
resistant organisms are expected to continue to develop. Additionally, there can
be side effects associated with oral antibiotics, including gastrointestinal
distress and headaches.

         The Company's most advanced development compound is Cytolex, a topical
cream antibiotic intended for the treatment of infection in diabetic foot
ulcers. In September 1996, the Company announced successful results of its
initial, pivotal Phase III clinical trial of Cytolex, and in March 1997,
Magainin reported successful results from a second such pivotal trial. These
trials were designed as equivalence studies with the goal of demonstrating that
Cytolex topical cream is as effective as orally administered ofloxacin, a
quinolone antibiotic, indicated for the treatment of skin and soft tissue
infections. The Company's analysis of the data from the studies showed
statistical equivalence between Cytolex and ofloxacin, with respect to the
primary end point of clinical response of infection at day 10 of treatment, and
at subsequent time points through day 28, and at follow-up. The two studies
together enrolled approximately 925 patients.

         As a secondary endpoint in the trials, Cytolex and ofloxacin were
comparable with respect to overall assessments of microbiological improvements.

         Analyses of adverse events in the studies suggest a favorable profile
for Cytolex. Both drugs were well tolerated, however, treatment with ofloxacin
was associated with a significant excess of adverse events related to the
central nervous system, particularly as it relates to insomnia.

         The clinical trials conducted for Cytolex yielded substantial data.
Such additional data includes information relating to the primary endpoints for
the studies, as well as data relating to patient subgroup analysis, wound
healing, side effects, and secondary endpoints of the study, including
microbiological results. Although the Company believes the two pivotal trials of
Cytolex yielded successful results, there can be no assurance that the United
States Food and Drug Administration (the "FDA") will concur with the Company's
analysis in this regard.

SOLID CANCER TUMORS

         Cancer is the second most common cause of death in the western world,
exceeded only by coronary heart disease. Cancer is characterized by uncontrolled
cell division resulting in the growth of a mass of cells commonly known as a
tumor. Cancer cells, if not eradicated, can spread ("metastasize") throughout
the body. Cancerous tumors can arise in almost any tissue or organ within the
human body.

         The three most prevalent methods of treating patients with cancer are
surgery, radiation therapy and chemotherapy. A cancer patient often receives a
combination of these treatment methods. Surgery and radiation therapy are
particularly effective in patients in which the disease has not yet spread to
other tissue or organs. Chemotherapy is the principal treatment for tumors that
have metastasized. Chemotherapy involves the administration of drugs designed to
kill cancer cells ("cytotoxic drugs") or the administration of hormone analogues
to either reduce the production of, or block the action of, certain hormones,
such as estrogens and androgens, which


                                        4

<PAGE>   8
affect the growth of tumors. Because chemotherapeutic agents generally attack
rapidly dividing cells indiscriminately, damaging normal as well as cancerous
cells, use of such agents often has adverse effects.

         Although several types of tumors can now be treated effectively with
drugs, survival rates for the most common tumors have only begun to improve
slightly. Advances in technology, though, have continued to yield new approaches
to cancer tumor treatment. One such approach is the control of angiogenesis, or
new blood vessel growth. Angiogenesis is a key stage in the development of tumor
malignancy, and its inhibition should contribute to the tumor becoming dormant.

         The Company's initial disease focus for squalamine is solid cancer
tumors. Squalamine may be of benefit in the treatment of solid cancer tumors by
inhibition of new blood vessel growth required for tumor nourishment. Squalamine
has exhibited anti-angiogenic properties in several in vitro and in vivo assays.
The Company is currently conducting preclinical research on squalamine,
including pathology and toxicology testing. Should squalamine proceed into human
clinical testing, the Company expects that it will be evaluated as a cancer
therapy in conjunction with existing cytotoxic treatment.

VIRAL DISEASE

         Acquired immune deficiency syndrome ("AIDS") was first recognized in
1981 in homosexual men. In 1983, the Human Immunodeficiency Virus ("HIV") was
identified. The HIV virus infects cells and instructs the cellular machinery to
produce new virus particles. As the body attempts to combat the infection, a
process ensues in which many virus-infected cells are destroyed and replaced
each day. Over time, however, the immune system is unable to keep up this pace,
and the patient becomes increasingly susceptible to a variety of opportunistic
infections and cancers, which define the end stage of HIV infection known as
AIDS.

         A number of drugs, including reverse transcriptase inhibitors and
protease inhibitors, have been recently introduced for the treatment of HIV,
and, when used in combination, have been successful in significantly reducing
virus levels in patients. However, these drugs are not likely to eliminate HIV
from the body and there are concerns as to the development of resistance to
these therapies.

         The Company's initial disease focus for MSI-1436 is HIV. MSI-1436 has
been shown to be an effective inhibitor of HIV replication in tissue culture for
both acute and chronically infected lymphocytes. Unlike current HIV therapies
which target the active infection, MSI-1436 acts on the host lymphocyte,
reducing the likelihood of drug resistance. The Company has a Cooperative
Research and Development Agreement ("CRADA") with the NIH, and is currently
conducting preclinical research on MSI-1436, including pathology/toxicology
testing. Should MSI-1436 proceed into human clinical testing, the Company
expects that it will be evaluated in conjunction with existing HIV therapies.

ASTHMA

         Asthma is characterized clinically by wheezing and shortness of breath
due to reversible bronchospasm. It is a chronic, disabling disorder that appears
to be increasing in prevalence and severity. The complex pathophysiology of
asthma is under intensive scrutiny, however, its precise causes are not well
understood. A number of studies suggest a heritable component to asthma, but
family studies have been difficult to interpret due to other influences,
including allergens and pollutants. Current treatments for asthma are limited to
controlling inflammation or treating airway constriction through use of
bronchial dilators.

         Asthma is the initial disease focus of the Company's genomics program.
The Company has identified two genes which it believes may be critical in the
pathogenesis of asthma. These genes, Asthma Associated Factor 1 ("AAF1") and
Asthma Associated Factor 2 ("AAF2") are the subject of pending patent
publications. AAF1 and AAF2 appear critical in determining the allergic and
inflammatory response characteristic of bronchial asthma.


                                        5

<PAGE>   9
These genes regulate mediators of the allergic response, including serum IgE
molecules. Variant forms of these genes occur widely and appear to be
significant in susceptibility to asthma. The Company has conducted confirmatory
analysis in animals, and is engaged in the early stages of a compound
development program.

OTHER PROGRAMS

         The Company has a number of other early stage research programs. One
such program is directed toward the treatment of pseudomonas infections in
cystic fibrosis patients. Another program is targeted to many of the pathogens
involved in certain sexually transmitted diseases. Additionally, the Company is
engaged in research efforts on defensins. Defensins are compounds found in
animals and man which have host-defense properties similar to magainins and
aminosterols. The longer-term evolution of the host-defense field may lie in
compounds that regulate endogenous defensin expression, rather than direct
application of the defensin molecules themselves.

PRODUCT DEVELOPMENT RISKS

         The Company's proposed products are in the development stage, require
significant further research, development, testing and regulatory approvals, and
are subject to the risks of failure inherent in the development of all
pharmaceutical products. These risks include the possibilities that any or all
of the proposed products are found to be ineffective or toxic, or otherwise fail
to receive necessary regulatory approvals; that the proposed products, although
effective, are uneconomical to manufacture or to market; that third parties hold
proprietary rights that preclude the Company from marketing any products; or
that third parties market superior or equivalent products. There can be no
assurance that any of the Company's product development candidates will progress
beyond their current state of development or ultimately receive necessary
regulatory approvals. There can be no assurance that the results of animal
studies or in vitro testing will be indicative of the results of any human
clinical trials or otherwise pertinent to the development of products for use as
human pharmaceuticals.

MANUFACTURING

         Production of peptides (such as magainins) is expensive relative to
production of traditional antibiotics. The Company contracts with third parties
for the manufacture of materials, and is working with Abbott Laboratories
("Abbott") with regard to the manufacture of bulk Cytolex. The Company's current
arrangement with Abbott provides for the development by Abbott of a solution
phase chemical process to manufacture bulk Cytolex on a commercial scale, for
the production of bulk Cytolex, and for Abbott to perform those activities
necessary to submit a Drug Master File to the FDA in support of any filing for
marketing approval of Cytolex. This arrangement provides for cash payments by
the Company to Abbott through early 1998 aggregating approximately $12,900,000,
as well as the issuance by the Company to Abbott of up to 500,000 shares of its
common stock and the obligation to pay a royalty on future sales of Cytolex.
Through December 31, 1996, the Company has paid Abbott approximately $8,600,000
under this arrangement. Stock issuances by the Company to Abbott will result in
a charge to earnings, representing the fair value of the shares when issued. The
Company issued 125,000 shares of common stock to Abbott in October 1995,
resulting in a charge to earnings of $1,250,000 in the year ended December 31,
1995. Future stock issuances are related to the achievement by Abbott of
contractual performance milestones which could begin to occur in 1997.
Substantial additional funds will also be required to continue manufacturing
development efforts beyond the term of this current arrangement.

         The Company does not have the resources, facilities or capabilities to
manufacture any of its proposed products. The Company has no current plans to
establish a manufacturing facility. The Company expects that it will be
dependent to a significant extent on contract manufacturers for commercial-scale
manufacturing of its proposed products in accordance with regulatory standards.
There are a limited number of companies currently able to produce materials on
the scale which the Company expects to require to commercialize its compounds.
There can be no assurance that qualified outside contractors will be available
to manufacture materials for the Company, or do so at costs which are affordable
by the Company. The Company is currently dependent upon Abbott for the


                                        6

<PAGE>   10
production of bulk Cytolex, and, as described above, Abbott is currently
conducting certain manufacturing development activities. The Company and Abbott
have agreed that, upon completion of such activities, they will negotiate in
good faith a supply agreement for the Company's worldwide supply needs of
Cytolex. In the event that this agreement is not entered into, or Abbott does
not otherwise continue to manufacture Cytolex, the Company's timeline to
commercialize Cytolex would be adversely affected, and the Company would need to
spend substantial funds on securing other manufacturing arrangements or building
a manufacturing infrastructure, and licensing applicable manufacturing related
technology from such contract manufacturer.

         The Company also expects to conduct significant manufacturing
development activities for its other products under development. The Company is
currently working with outside contractors for the chemical production of its
aminosterol compounds. The Company expects to expend significant resources in
the chemical synthesis of these compounds, and there can be no assurance that
these efforts will be successful.

         The Company's dependence on third parties for manufacturing may
adversely affect operating results as well as the Company's ability to develop
and deliver products on a timely and competitive basis. Significant progress in
scale-up and manufacturing development efforts will be required to enable the
Company to manufacture and sell Cytolex on a profitable basis. No assurance can
be given that a cost-effective manufacturing process can be developed, or that
any such process would be approved by the FDA, or that the Company, Abbott, or
others will be able to manufacture Cytolex or any of the Company's other
proposed products on a commercially viable basis.

RESEARCH AND DEVELOPMENT ORGANIZATION

         The Company conducts the majority of its research and development
activities through its own staff and facilities, including the Magainin Research
Institute, an internal division of the Company focused on host-defense research,
and the Magainin Institute of Molecular Medicine, an internal division of the
Company focused on the genomics of asthma. The Company also employs contract
research organizations, independent consultants and other research professionals
to aid in its research and development activities, and maintains a Scientific
Advisory Board to help guide its efforts.

COLLABORATIVE ARRANGEMENTS

         Research and License Agreements. The Company has rights under license
agreements to several patents and patent applications under which the Company
expects to owe royalties on sales of certain of its proposed products.
Additionally, certain of these agreements also provide that if the Company
elects not to pursue the commercial development of any licensed technology, or
does not adhere to an acceptable schedule of commercialization, then the
Company's exclusive rights to such technology would terminate. The Company also
funds research at certain institutions, and these relationships may provide the
Company with an option to license any results of the research.

         Collaborations. Collaborations may allow the Company to leverage its
own scientific and financial resources and gain access to markets and
technologies that would not otherwise be available to the Company. In the long
term, development and distribution arrangements with established companies in
the markets in which potential products will compete may allow the Company's
products easier access to their intended market and may accordingly conserve
Company resources. The Company expects that it will enter into marketing,
manufacturing and distribution arrangements for most of the products it may
develop. From time to time, the Company has held discussions with various
potential partners related thereto.

         SmithKline Beecham. In February 1997, the Company entered into a
development, supply and distribution agreement (the "Agreement") in North
America with SmithKline Beecham ("SB") for Cytolex. The Agreement provides for
an upfront payment by SB to the Company of $5 million. SB may make additional
payments to


                                        7

<PAGE>   11
Magainin of up to $27.5 million upon the occurrence of certain product
milestones. SB will also fund a percentage of development expenses for any
additional indications for Cytolex. Upon the commencement of commercial sales,
Magainin will be responsible for the supply of Cytolex, and SB will be
responsible for the marketing and sales of Cytolex. Magainin will receive
certain percentages of SB sales revenues under agreed upon terms. The Agreement
also gives SB the right to negotiate for rights to another Magainin product
development candidate, under certain terms and conditions.

         Abbott Laboratories. In August 1994, the Company entered into a
three-year, $450,000, collaborative arrangement with Abbott, under which the
Company is screening certain Abbott food additives to identify those with the
ability to increase defensin production in the body, and thereby, prevent or
treat infection. Abbott has paid the Company $362,000 to date under this
arrangement.

GOVERNMENT REGULATION

         The production and marketing of the Company's products and its research
and development activities are subject to regulation by numerous governmental
authorities in the United States and other countries. In the United States,
vaccines, drugs and certain diagnostic products are subject to rigorous review
by the FDA. The Federal Food, Drug, and Cosmetic Act, the Public Health Service
Act and other federal statutes and regulations govern or influence the testing,
manufacture, safety, efficacy, labeling, storage, recordkeeping, approval,
advertising and promotion of such products. Noncompliance with applicable
requirements can result in fines, recall or seizure of products, refusal of the
government to approve product approval applications or to allow the Company to
enter into government supply contracts, the withdrawal of previously approved
new drug applications and criminal prosecution.

         In order to obtain FDA approval of a new product, the Company must
submit proof of safety, purity, potency and efficacy. Such proof entails
extensive and time consuming preclinical and clinical testing. The results of
preclinical studies are submitted to the FDA as part of an Investigational New
Drug Application ("IND"). Preclinical studies involve laboratory evaluation of
product characteristics and animal studies to assess the efficacy and safety of
the product. Once the IND is approved, human clinical trials may be conducted.
Human clinical trials are typically conducted in three sequential phases, but
the phases may overlap. Phase I trials consist of testing the product in a small
number of patients or healthy volunteer subjects primarily for safety at one or
more doses. In Phase II, in addition to safety, the efficacy of the product is
evaluated in a patient population somewhat larger than Phase I trials. Phase III
trials typically involve additional testing for safety and clinical efficacy in
an expanded population at geographically dispersed test sites. A clinical plan,
or "protocol," accompanied by the approval of the Institutional Review Board
participating in the trials, must be submitted to the FDA prior to commencement
of each clinical trial. Various reports must be submitted to the FDA during the
course of the trials, and the FDA may order the temporary or permanent
discontinuation of a clinical trial at any time.

         The results of the clinical trials are submitted to the FDA as part of
a new drug application ("NDA"). Detailed manufacturing documentation is also
required, and with respect to Cytolex, even if clinical testing is successful,
the submission to FDA of any application for approval, and the review by FDA of
such application, will require additional time to complete manufacturing
stability studies, which additional time may be significant. Following extensive
review of the NDA, the FDA may grant marketing approval, require additional
testing or information, or deny the application. Sales of a new drug may
commence following FDA approval of an NDA and satisfactory completion of a
pre-approval review of the manufacturing facility and pertinent production
records. If there are any modifications to the drug, including any changes in
indication, manufacturing process, labeling or manufacturing facility, an NDA
supplement may be required to be submitted to the FDA.

         There is no assurance that the FDA will act favorably or quickly in
reviewing submitted applications, and significant difficulties or costs may be
encountered by the Company in its efforts to obtain FDA approvals that could
delay or preclude the Company from marketing any products it may develop. The
FDA may also require post-marketing testing and surveillance to monitor the
effects of approved products or place conditions on any


                                        8

<PAGE>   12
approvals that could restrict the commercial applications of such products.
Product approvals may be withdrawn if compliance with regulatory standards is
not maintained.

         Continued compliance with all FDA requirements and conditions in an
approved application, including those concerning product specification,
manufacturing process, validation, labeling, promotional material, recordkeeping
and reporting requirements, is necessary for all products. Failure to comply
could lead to the need for product recall or other FDA-initiated actions, which
could delay further marketing until the products are brought into compliance.
Even after any approval by the FDA and foreign regulatory authorities, products
may later exhibit adverse effects that prevent their widespread use or
necessitate their withdrawal from the market.

         In October 1992, the Prescription Drug User Fee Act of 1992 was
enacted, imposing substantial fees on a one-time basis for applications for
approval, and on an annual basis for the manufacturing and marketing of
prescription drugs.

         The Company is also subject to regulation by other regulatory
authorities, including the Occupational Safety and Health Administration, the
Environmental Protection Agency, the Nuclear Regulatory Commission, the Drug
Enforcement Agency and the United States Department of Agriculture, and to
regulation under the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other regulatory statutes, and may in the future be subject to
additional federal, state or local regulations. These agencies may promulgate
regulations that affect the Company's research and development programs.

         Sales of pharmaceutical products outside the United States are subject
to foreign regulatory requirements that vary widely from country to country.
Whether or not FDA approval has been obtained, approval by comparable regulatory
authorities of foreign countries must be obtained prior to the commencement of
marketing in those countries. The time required to obtain such approval may be
longer or shorter than that required for FDA approval.

REIMBURSEMENT; HEALTH CARE REFORM

         Successful commercialization of the Company's potential products will
be dependent in part on the availability of reimbursement of the costs of such
products from third-party payors, such as government authorities, private health
insurers and other organizations, such as health maintenance organizations.
There can be no assurance that such reimbursement will be available or, if
available, will be in adequate amounts.

         Various proposals have been put forth to reform the current health care
system in the United States. Additionally, several states have enacted
modifications to the current health care system to both improve access and
control costs. Such reform measures could adversely affect the amount of
reimbursement available from governmental agencies or third-party insurers, or
could affect the ability to set prices for newly approved therapeutic products.
Similar proposals are being considered by governmental officials in other
significant pharmaceutical markets, including Europe. Governmental or private
payors for health care goods and services can be expected to continue to
undertake cost reduction efforts.

         The Company cannot predict if such reforms will be implemented or the
effect any such reforms might have on the Company's business, and no assurance
can be given that any such reforms will not have an adverse effect on the
Company's business. In particular, it is possible that any such reform could
impact the manner in which drugs or therapies are marketed and could include
restrictions on the ability of pharmaceutical and biotechnology companies to
price drugs or therapies, which in turn could impact the ability of
biotechnology companies, such as the Company, to obtain financing for the
continued development of potential products. Furthermore, any such reform could
also impose limits on the overall growth of health care spending, as well as
limits on the growth of Medicare and Medicaid spending, all which could have an
adverse effect on the Company.


                                        9

<PAGE>   13
PATENT AND PROPRIETARY RIGHTS; LICENSED TECHNOLOGY

         The Company's success will depend in part upon its ability to obtain
patent protection for compounds, uses of compounds, and processes. Patent
matters involve complex legal and factual issues, and can be highly uncertain.
Host-defense compounds can be isolated from a wide variety of sources, and it is
not possible for the Company or any other entity to have proprietary rights to
all such compounds, or their uses. In the genomics area, a number of companies
are attempting to rapidly identify and patent genes whose functions have not yet
been characterized. Additional companies are seeking to patent fully
characterized genes. The criteria for obtaining patent protection for genes is
unclear, and the impact of this uncertainty on the Company's business can not be
determined.

         There can be no assurance that any patent applications now pending or
filed in the future will result in patents being issued or that any patents now
held by or licensed to the Company, or issued or licensed to the Company in the
future, will afford any competitive advantages for the Company, will not be
challenged by third parties, or cannot be designed around by others. The cost of
litigation to uphold the validity and prevent infringement of patents and to
enforce licensing rights can be substantial. Furthermore, there can be no
assurance that others will not independently develop similar technologies or
duplicate the technology owned by or licensed to the Company or design around
the patented aspects of such technology. In addition, there can be no assurance
that the products and technologies the Company will seek to market will not
infringe patents or other rights owned by others, licenses to which may not be
available to the Company.

         The Company also relies upon unpatented proprietary technology, and may
determine in appropriate circumstances that its interest would be better served
by reliance on trade secrets or confidentiality agreements rather than patents.
No assurances can be given that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to such proprietary technology or that the Company can meaningfully
protect its rights in such unpatented proprietary technology. Additionally, if
the Company is unable to obtain strong proprietary rights protection of its
products after obtaining regulatory clearance, competitors may be able to market
competing products by obtaining regulatory clearance, through showing
equivalency to the Company's product, without being required to conduct the
lengthy clinical tests required to be conducted by the Company.

         To the extent that consultants, key employees, vendors or other third
parties apply technological information independently developed by them or by
others to the Company's proposed products, disputes may arise as to the
proprietary rights to such information, which may not be resolved in favor of
the Company. Members of the Company's Scientific Advisory Board and other
consultants are employed by or have consulting agreements with third parties,
and any inventions discovered by such individuals are not likely to become the
property of the Company.

         The Company has rights under license agreements to several patents and
patent applications under which the Company expects to owe royalties on sales of
certain of its proposed products. Additionally, certain of these agreements also
provide that if the Company elects not to pursue the commercial development of
any licensed technology, or does not adhere to an acceptable schedule of
commercialization, then the Company's exclusive rights to such technology would
terminate.

COMPETITION

         The pharmaceutical industry is characterized by intense competition.
Many companies, research institutions and universities are working in a number
of areas similar to the Company's field of interest. In addition, many companies
are engaged in the development and sale of products, such as traditional
antibiotics, which may be, or are, competitive with the Company's proposed
products. Most of these entities have substantially greater financial,
technical, manufacturing, marketing, distribution and other resources than the
Company. The Company is aware that research is being conducted by others in
connection with compounds from the host-defense systems of various animals. Many
companies are involved in research and development activities focused on the
pathogenesis of


                                       10

<PAGE>   14
disease, and competition among companies attempting to find the genes
responsible for disease is intense. In addition, the Company's proposed products
may be subject to competition from products using techniques other than those
developed by the Company or based on advances that may render the Company's
products obsolete.

                  The Company expects technological developments in the
biopharmaceutical field to occur at a rapid rate and expects competition to
intensify as advances in this field are made. Accordingly, the Company will be
required to continue to devote substantial resources and efforts to research and
development activities in order to maintain a competitive position in this
field. Compounds, products or processes developed by the Company may become
obsolete before the Company is able to recover a significant portion of its
research and development expenses. The Company will be competing with respect to
its proposed products with companies that have significantly more experience in
undertaking preclinical testing and human clinical trials of new or improved
therapeutic products and obtaining regulatory approvals of such products. Some
of these companies may be in advanced phases of clinical testing of various
drugs that may be competitive with the Company's proposed products.

         Colleges, universities, governmental agencies and other public and
private research organizations are becoming more active in seeking patent
protection and licensing arrangements to collect royalties for use of technology
that they have developed, some of which may be directly competitive with that of
the Company. In addition, these institutions, along with pharmaceutical and
specialized biotechnology companies, can be expected to compete with the Company
in recruiting highly qualified scientific personnel.

         As to the disease areas being targeted by the Company, there can be no
assurance that Cytolex will be successfully marketed against oral antibiotics
for the treatment of infection in diabetic foot ulcers. These infections have
historically been treated with systemically administered antibiotics. There also
can be no assurance that Cytolex can be manufactured at a cost which will allow
it to be sold at a competitive price relative to oral antibiotics. Significant
efforts are underway by many companies in the development and marketing of
products intended for the additional disease areas being targeted by the
Company, including HIV, cancer and asthma. A number of major pharmaceuticals
companies have significant franchises in these disease areas, and can be
expected to invest heavily to protect these interests.

         There can be no assurance that the interests of the Company will
continue to coincide with the interests of its collaborators. Collaborators
could develop products independently, or through third parties, which could
compete with the Company's products. With respect to Cytolex, SB maintains a
significant presence in the antibiotic area, and currently sells a topical
antibiotic product indicated for certain skin infections. Furthermore, there can
be no assurance that collaborative agreements will not be terminated by the
Company's collaborators.

PRODUCT LIABILITY AND INSURANCE

         Before obtaining required regulatory approvals for the commercial sale
of products, the Company must demonstrate through human clinical testing that
such products are safe and efficacious for use in each target indication. The
administration of any product being developed by the Company could produce
undesirable side effects in humans. The Company carries limited clinical trial
insurance and there can be no assurance that such coverage is adequate.

         In addition, in the event the Company successfully develops any
products, the marketing of such products could expose the Company to product
liability claims. Certain agreements require the Company to maintain insurance
coverage naming third parties as additional insureds at such time as any related
products may be marketed. There can be no assurance that the Company will be
able to maintain such insurance or that such insurance can be maintained in
sufficient amounts to protect the Company against such liability or at a
reasonable cost. Certain arrangements also require the Company to indemnify
third parties against any liabilities that may arise in connection with such
third party's activities on behalf of the Company.


                                       11

<PAGE>   15
         In the event of an uninsured or inadequately insured claim, the
Company's business and financial condition could be materially adversely
affected.

EXECUTIVE OFFICERS OF THE COMPANY

         The current executive officers of the Company are as follows:

<TABLE>
<CAPTION>
Name                                        Age                     Position
----                                        ---                     --------
<S>                                         <C>      <C>
Jay Moorin                                  45       Chairman, President and Chief Executive Officer

Michael A. Zasloff, M.D., Ph.D.             51       Vice Chairman and Executive Vice President

Michael R. Dougherty                        39       Executive Vice President and Chief Financial Officer

Roy C. Levitt, M.D.                         43       Executive Vice President

Thomas J. Bigger                            40       Senior Vice President

Paul A. Litka, M.D.                         48       Senior Vice President
</TABLE>

         Jay Moorin has served as President and Chief Executive Officer of the
Company since 1991. In July 1996, Mr. Moorin was appointed Chairman of the
Board. Prior to joining the Company, Mr. Moorin served as a Managing Director at
Bear, Stearns & Co., Inc. and was responsible for health care investment banking
and other services to the pharmaceutical and distribution industry. Mr. Moorin
was employed in other capacities by Bear, Stearns from 1988 to 1990. From 1983
to 1988, Mr. Moorin was employed by E. R. Squibb & Co., Inc. ("Squibb"), joining
Squibb as its first Corporate National Accounts Director and subsequently was
promoted to Business Area Director and Vice President of Marketing and Business
Development at SquibbMark, a division of Squibb.

         Michael A. Zasloff, M.D. has served as Executive Vice President of the
Company and President of the Magainin Research Institute, a division of the
Company, since July 1992. In July 1996, Dr. Zasloff was appointed Vice Chairman
of the Board. From 1988 until Dr. Zasloff joined the Company on a full-time
basis in July 1992, Dr. Zasloff was the Company's Chief Scientific Advisor and
served as the Charles E.H. Upham Professor, Department of Pediatrics and
Genetics, University of Pennsylvania School of Medicine, and Chief, Division of
Human Genetics and Molecular Biology, the Children's Hospital of Philadelphia.
From 1982 until 1988, Dr. Zasloff was Chief, Human Genetics Branch, National
Institutes of Child Health and Human Development, National Institutes of Health.
Dr. Zasloff currently also serves as Adjunct Professor, Department of Human
Genetics and Orthopedics, University of Pennsylvania School of Medicine.

         Michael R. Dougherty has served as Executive Vice President and Chief
Financial Officer of the Company since March 1995. From August 1993, when he
joined the Company, until March 1995, Mr. Dougherty served as Senior Vice
President and Chief Financial Officer. Prior to joining the Company, Mr.
Dougherty served in the following capacities at Centocor, Inc. (a
biopharmaceutical company): Senior Vice President, Chief Financial Officer and
Treasurer, from February 1992 to August 1993, Vice President Corporate Finance
from May 1990 to February 1992 and Treasurer from June 1986 to May 1990.

         Roy C. Levitt, M.D., has served as Executive Vice President and the
Director of the Magainin Institute of Molecular Medicine since joining the
Company in January 1996. From 1986 to 1995, Dr. Levitt was a faculty member of
the Department of Anesthesiology and Critical Care Medicine, Neurological
Surgery and Environmental Health Sciences at Johns Hopkins University.


                                       12

<PAGE>   16
         Thomas J. Bigger has served as Senior Vice President Business
Development, Marketing and Sales since joining the Company in July 1996. Mr.
Bigger served as Senior Vice President of Advanced Polymer Systems (a drug
development company), in 1994 and 1995. From 1979 to 1994, Mr. Bigger held a
number of positions of increasing responsibility at Rhone-Poulenc Rorer ("RPR"),
including serving as President of Dermik Laboratories, a subsidiary of RPR.

         Paul A. Litka, M.D. has served as Senior Vice President Clinical
Research and Regulatory Affairs of the Company since May 1996. From March 1995,
when he joined the Company, until May 1996, Dr. Litka served as Vice President
Clinical Research. From 1991 to 1994, Dr. Litka was Senior Vice President and
General Manager of the Institute for Biological Research and Development, a
clinical research organization.

         Officers are elected or appointed by the Board of Directors to serve
until the appointment or election and qualification of their successors or their
earlier termination or resignation.

EMPLOYEES

         As of December 31, 1996, the Company had 60 full-time employees. No
employees are covered by collective bargaining agreements, and the Company
considers relations with its employees to be good.


                                       13

<PAGE>   17
ITEM 2.  PROPERTIES.

         The Company occupies an aggregate of approximately 21,000 square feet
of space in Plymouth Meeting, Pennsylvania, which is used as office and
laboratory space. The Company leases this space pursuant to a lease expiring in
1999, which provides for minimum annual rent payments of approximately $322,000
in the year ending December 31, 1997 and is subject to increases on an annual
basis for the remaining term.

ITEM 3.  LEGAL PROCEEDINGS.

         The Company is not a party to any material litigation.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         None.


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS.

         The information required by this item is incorporated herein by
reference to page 21 of the Company's 1996 Annual Report to Stockholders, which
is filed as an exhibit to this Annual Report on Form 10-K.

ITEM 6.  SELECTED FINANCIAL DATA

         The information required by this item is incorporated herein by
reference to page 4 of the Company's 1996 Annual Report to Stockholders, which
is filed as an exhibit to this Annual Report on Form 10-K.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

         The information required by this item is incorporated herein by
reference to pages 5 through 7 of the Company's 1996 Annual Report to
Stockholders, which is filed as an exhibit to this Annual Report on Form 10-K.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The information required by this item is incorporated herein by
reference to pages 8 through 19 of the Company's 1996 Annual Report to
Stockholders, which is filed as an exhibit to this Annual Report on Form 10-K.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

         None.


                                       14

<PAGE>   18
                                    PART III

ITEM 10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by this item concerning directors is
incorporated herein by reference to pages 3 through 5 of the Company's Proxy
Statement, dated March 27, 1997. Set forth in Part I herein is the information
required by this Item concerning executive officers.

ITEM 11.        EXECUTIVE COMPENSATION.

         The information required by this item is incorporated herein by
reference to pages 8 through 11 of the Company's Proxy Statement, dated March
27, 1997.

ITEM 12.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The information required by this item is incorporated herein by
reference to pages 6 through 8 of the Company's Proxy Statement, dated March 27,
1997.

ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

           Not applicable.


                                     PART IV

ITEM 14.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

Financial Statements

           See Index to Financial Statements at page F-1.

Financial Statement Schedules

           All schedules have been omitted because they are not applicable, or
not required, or the information is shown in the Financial Statements or Notes
thereto.

Reports on Form 8-K

           None.


                                       15

<PAGE>   19
Exhibits

           The following is a list of exhibits filed as part of this Annual
Report on Form 10-K. Where so indicated by footnote, exhibits which were
previously filed are incorporated by reference. For exhibits incorporated by
reference, the location of the exhibit in the previous filing is indicated
parenthetically, together with a reference to the filing indicated by footnote.

      Exhibit No.
      -----------

          3.1     Restated Certificate of Incorporation of the Registrant
                  (Exhibit 3.1)(1)

          3.2*    Certificate of Amendment of Restated Certificate of
                  Incorporation of the Registrant

          3.3     By-laws of the Registrant (Exhibit 3.2)(2)

          4.1     Specimen copy of stock certificate for shares of Common Stock
                  of the Registrant (Exhibit 4.1)(3)

         10.1+    1990 Stock Option Plan of the Registrant (Exhibit 10.1)(2)

         10.2+    1992 Stock Option Plan of the Registrant, as amended (4)

         10.3+    Stock Option Agreement with Jay Moorin (Exhibit 10.24)(3)

         10.4+    Amendment to Stock Option Agreement with Jay Moorin (Exhibit
                  10.4)(1)

         10.5+    Form of Stock Option Agreement under Stock Option Plans
                  (Exhibit 4.6)(2)

         10.6+    Employment Agreement with Jay Moorin (Exhibit 10.2)(2)

         10.7+    Employment Agreement with Michael A. Zasloff (Exhibit
                  10.23)(3)

         10.8+    Amendment of Employment Agreement with Michael A. Zasloff
                  (Exhibit 10.9)(3)

         10.9+    Employment Agreement with Michael R. Dougherty (Exhibit
                  10.26)(7)

         10.10+   Employment Agreement with Roy C. Levitt, M.D. (Exhibit
                  10.24)(5)(9)

         10.11+*  Employment Agreement with Paul A. Litka, M.D.

         10.12+*  Employment Agreement with Thomas J. Bigger

         10.13    Lease with respect to Plymouth Meeting, Pennsylvania offices
                  and laboratories (Exhibit 10.16)(2)

         10.14    Master Lease Agreement with Comdisco, Inc. (Exhibit 10.19)(6)

         10.15    Patent License Agreement and Sponsored Research Agreement with
                  The Children's Hospital of Philadelphia (Exhibit 10.15)(2)

         10.16    License Agreement with Multiple Peptide Systems, Inc. (Exhibit
                  10.12)(2)


                                       16

<PAGE>   20
       Exhibit No.
       -----------

         10.17    Second Amendment to License Agreement with Multiple Peptide
                  Systems, Inc. (Exhibit 10.30)(12)

         10.18    Stock Issuance Agreement between the Company and The Scripps
                  Research Institute. (Exhibit 10.2)(11)

         10.19    Stock Issuance Agreement between the Company and Houghten
                  Pharmaceuticals, Inc. (Exhibit 10.1)(11)

         10.20    Form of Credit Agreement, including form of Promissory Note
                  and Warrant (Exhibit 10.22)(2)

         10.21    Form of Amendment to Credit Agreement Warrant (Exhibit
                  10.18)(6)

         10.22    Research and Development Agreement with Abbott Laboratories
                  (Exhibit 10.23)(7)

         10.23    Warrant Agreement with Abbott Laboratories (Exhibit 10.25)(7)

         10.24    Manufacturing Agreement with Abbott Laboratories, dated
                  October 4, 1995 (Exhibit 10.27)(5)(8)

         10.25    Stock Issuance Agreement with Abbott Laboratories, dated
                  October 4, 1995 (Exhibit 10.28)(5)(8)

         10.26    Assignment Agreement between Magainin Pharmaceuticals Inc.,
                  Roy C. Levitt, M.D. and GeneQuest, Inc. (Exhibit 10.25) (5)(9)

         10.27    Form of Purchase Agreement relating to the issuance by the
                  Company of units consisting of shares of the Company's Common
                  Stock and warrants to purchase shares of the Company's Common
                  Stock. (Exhibit 10.1)(10)

         10.28    Form of Warrant to purchase shares of the Company's Common
                  Stock. (Exhibit 10.2)(10)

         10.29*   Development, Supply and Distribution Agreement, effective as
                  of February 12, 1997 with SmithKline Beecham Corporation (13)

         13*      1996 Annual Report to Stockholders

         23*      Consent of Richard A. Eisner & Company

         24*      Power of Attorney (included on signature page of this Annual
                  Report on Form 10-K)

-------------------

*        Filed herewith.

+        Compensation plans and arrangements for executives and others.

(1)      Filed as an Exhibit to the Annual Report on Form 10-K for the year
         ended June 30, 1992 filed with the Securities and Exchange Commission
         on September 24, 1992.

(2)      Filed as an Exhibit to Registration Statement (No. 33-43579) on Form
         S-1 filed with the Securities and Exchange Commission on October 24,
         1991.


                                       17

<PAGE>   21
(3)      Filed as an Exhibit to Pre-Effective Amendment No. 1 to Registration
         Statement (No. 33-43579) on Form S-1 filed with the Securities and
         Exchange Commission on November 27, 1991.

(4)      Filed as Exhibit A to the Company's Proxy Statement for the 1996 Annual
         Meeting of Stockholders.

(5)      Portions of this Exhibit were omitted and filed separately with the
         Securities and Exchange Commission pursuant to an order granting
         confidential treatment.

(6)      Filed as an Exhibit to the Transition Report on Form 10-K for the year
         ended December 31, 1993 filed with the Securities and Exchange
         Commission on March 9, 1994.

(7)      Filed as an Exhibit to the Annual Report on Form 10-K for the year
         ended December 31, 1994 filed with the Securities and Exchange
         Commission on March 31, 1995.

(8)      Filed as an Exhibit to the Form 10-Q for the quarter ended September
         30, 1995 filed with the Securities and Exchange Commission on November
         9, 1995.

(9)      Filed as an Exhibit to the Annual Report on Form 10-K for the year
         ended December 31, 1995 filed with the Securities and Exchange
         Commission on March 29, 1996.

(10)     Filed as an Exhibit to Registration Statement (No. 333-9927) on Form
         S-3 filed with the Securities and Exchange Commission on August 9,
         1996.

(11)     Filed as an Exhibit to Registration Statement (No. 333-14555) on Form
         S-3 filed with the Securities and Exchange Commission on October 21,
         1996.

(12)     Filed as an Exhibit to the Form 10-Q for the quarter ended September
         30, 1996 filed with the Securities and Exchange Commission on November
         14, 1996.

(13)     Portions of this Exhibit have been omitted and filed separately with
         the Securities and Exchange Commission pursuant to the Company's
         Application Requesting Confidential Treatment under the Securities
         Exchange Act of 1934.


                                       18

<PAGE>   22
                          MAGAININ PHARMACEUTICALS INC.
                          (a development stage company)



                          INDEX TO FINANCIAL STATEMENTS


                                                                         Page
                                                                         ----

Report of Independent Certified Public Accountants                    F-2 19*


Balance Sheets                                                             8*


Statements of Operations                                                   9*


Statements of Changes in Stockholders' Equity                             10*


Statements of Cash Flows                                                  11*


Notes to Financial Statements                                          12-18*


*        References to page numbers, except page F-2, are to the Company's 1996
         Annual Report to Stockholders, which is included as Exhibit 13 hereto.


                                       F-1

<PAGE>   23
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS







Board of Directors and Stockholders
Magainin Pharmaceuticals Inc.
Plymouth Meeting, Pennsylvania


We have audited the accompanying balance sheets of Magainin Pharmaceuticals Inc.
(a development stage company) as at December 31, 1996, and December 31, 1995 and
the related statements of operations, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996 and
for the period June 29, 1987 (inception) to December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of Magainin Pharmaceuticals Inc. at
December 31, 1996, and December 31, 1995 and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1996 and for the period June 29, 1987 (inception) to December 31, 1996, in
conformity with generally accepted accounting principles.



Richard A. Eisner & Company, LLP
New York, New York
January 29, 1997



                                       F-2


<PAGE>   24
                                   SIGNATURES

           Pursuant to the requirements of Section 13 or 15(d) 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.

                              MAGAININ PHARMACEUTICALS INC.

Date: March 25, 1997          By: /s/Jay Moorin
                                 --------------------------------
                                 Jay Moorin
                                 Chairman, President and Chief Executive Officer

           Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.

           Each person whose signature appears below in so signing also makes,
constitutes and appoints Jay Moorin, Chairman, President and Chief Executive
Officer, and Michael R. Dougherty, Executive Vice President and Chief Financial
Officer, and each of them severally, his true and lawful attorney-in-fact, in
his name, place and stead to execute and cause to be filed with the Securities
and Exchange Commission any or all amendments to this report.

<TABLE>
<CAPTION>
           Signature                             Title                                                   Date
           ---------                             -----                                                   ----
<S>                                             <C>                                                  <C>
/s/Jay Moorin                                   Chairman, President and Chief                        March 25, 1997
----------------------------------------        Executive Officer and Director
Jay Moorin                                      (Principal Executive Officer)

/s/Michael A. Zasloff, M.D., Ph.D.              Vice Chairman, Executive Vice President              March 25, 1997
----------------------------------------        and Director
Michael A. Zasloff, M.D., Ph.D.

/s/Michael R. Dougherty                         Executive Vice President and Chief                   March 25, 1997
----------------------------------------        Financial Officer (Principal
Michael R. Dougherty                            Financial and Accounting Officer)

/s/Bernard Canavan, M.D.                        Director                                             March 25, 1997
----------------------------------------
Bernard Canavan, M.D.

/s/James H. Cavanaugh, Ph.D                     Director                                             March 25, 1997
----------------------------------------
James H. Cavanaugh, Ph.D.

/s/Zola P.  Horovitz, Ph.D                      Director                                             March 25, 1997
----------------------------------------
Zola P. Horovitz, Ph.D.

/s/Charles A. Sanders, M.D.                     Director                                             March 25, 1997
----------------------------------------
Charles A. Sanders, M.D.

/s/Robert F. Shapiro                            Director                                             March 25, 1997
----------------------------------------
Robert F. Shapiro

/s/James B. Wyngaarden, M.D.                    Director                                             March 25, 1997
----------------------------------------
James B. Wyngaarden, M.D.
</TABLE>


<PAGE>   25
                                  Exhibit Index


Exhibit No.                                                             Page No.
-----------                                                             --------

    3.2     Certificate of Amendment of Restated Certificate of
            Incorporation of the Registrant

   10.11    Employment Agreement with Paul A. Litka, M.D.

   10.12    Employment Agreement with Thomas J. Bigger

   10.30    Development, Supply and Distribution Agreement, effective as
            of February 12, 1997 with SmithKline Beecham Corporation

   13       1996 Annual Report to Stockholders

   23       Consent of Richard A. Eisner & Company

   24       Power of Attorney (included on signature page of this Annual
            Report on Form 10-K)