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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
                            ------------------------

     [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000,

                                       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 0-19825

                         SCICLONE PHARMACEUTICALS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                 CALIFORNIA                                     94-3116852
       (STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
       INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NO.)

       901 MARINER'S ISLAND BOULEVARD
            SAN MATEO, CALIFORNIA                                  94404
  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                      (ZIP CODE)
</TABLE>

                                 (650) 358-3456
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                           COMMON STOCK, NO PAR VALUE
                                (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 Regulation 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.  [X]

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $143,845,000 as of March 9, 2001, based upon
the closing sale price of the Registrant's Common Stock on The Nasdaq National
Market on such date. Shares of Common Stock held by each executive officer and
director have been excluded from the calculation because such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.

     As of March 9, 2001, there were 32,247,587 shares of the Registrant's
Common Stock outstanding.

     Part III incorporates by reference from the definitive proxy statement for
the Registrant's 2001 Annual Meeting of Shareholders to be filed with the
Commission pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this Form.

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                   NOTE REGARDING FORWARD-LOOKING STATEMENTS:

     This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act. These forward-looking statements are based on our
current expectations, estimates and projections about our industry, management's
beliefs and certain assumptions made by us. Words such as "anticipates,"
"expects," "intends," "plans," "believes" or similar expressions are intended to
identify forward-looking statements. These statements are not guarantees of
future performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict. Therefore, our actual results could
differ materially and adversely from those expressed in any forward-looking
statements as a result of various factors including, but not limited to, our
expectations regarding future ZADAXIN(R) sales growth, our ability to operate
profitably, the safety and efficacy of ZADAXIN as a mono-therapy or in
combination with other agents for the treatment of hepatitis B, hepatitis C, HIV
and cancer, the timing and completion of our ZADAXIN U.S. pivotal phase 3
program for hepatitis C, the timing of the commencement of ZADAXIN European
pivotal phase 3 studies, our expectations regarding our planned and ongoing
ZADAXIN and CPX U.S. phase 2 development programs, our expectations regarding
partnering arrangements and business development in the U.S., Europe and Japan
for development and marketing of ZADAXIN, risks associated with international
operations, general economic conditions and conditions in the markets we
address, and other factors. This Annual Report on Form 10-K and our other SEC
filings discuss some of the important risk factors that may affect our business,
results of operations and financial condition. We undertake no obligation to
revise or update publicly any forward-looking statements for any reason.

                                     PART I

ITEM 1. BUSINESS

OVERVIEW

     We develop and commercialize novel medicines for treating a broad range of
the world's most serious diseases. We have focused our current product
development and commercial activities on the following diseases:

     - hepatitis C, an infectious disease affecting 170 million people
       worldwide;

     - hepatocellular carcinoma, the most common and deadliest form of liver
       cancer worldwide;

     - malignant melanoma, the deadliest form of skin cancer and one of the most
       rapidly increasing types of cancer worldwide;

     - hepatitis B, an infectious disease affecting 350 million people
       worldwide;

     - HIV, the virus that causes AIDS;

     - drug-resistant tuberculosis, an infectious disease reaching pandemic
       proportions worldwide; and

     - cystic fibrosis, the most common fatal genetic disease among Caucasians.

     Our flagship drug is ZADAXIN(R), an immune system enhancer drug or ISE. ISE
is an acronym for an immune system enhancer drug, such as ZADAXIN, that helps
stimulate, maintain and direct the body's antiviral or anticancer responses.
ZADAXIN boosts the body's immune system in the fight against multiple types of
cancer and infectious diseases. ZADAXIN is in or expected to enter phase 2 and
phase 3 development in the U.S., Europe and Japan. These markets represent
approximately 90% of the world's pharmaceutical market. Current ZADAXIN clinical
research is emphasizing four diseases: hepatitis C, hepatocellular carcinoma,
malignant melanoma and hepatitis B. Approximately 3,000 patients have been
treated with ZADAXIN in over 70 clinical trials covering a broad range of
life-threatening diseases in which the immune system plays a key role in the
patient's ability to fight back.

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<PAGE>   3

     Unlike most young biotechnology/specialty pharmaceutical companies, we are
currently selling our lead drug, ZADAXIN. As of March 2001, ZADAXIN is approved
for sale in 21 countries, principally for the treatment of hepatitis B and
hepatitis C and as a vaccine adjuvant for patients with weakened immune systems.
Total ZADAXIN sales for 2000 were $15,357,000, a 69% increase over 1999 sales of
$9,091,000. ZADAXIN marketing applications are pending in 19 additional
countries.

     Our second product in clinical development, CPX, is a novel protein-repair
therapy for cystic fibrosis, the most common fatal genetic disease among
Caucasians. Currently approved drugs treat only the symptoms of cystic fibrosis,
not the underlying cause of the disease. CPX, which we in-licensed from the U.S.
National Institutes of Health, is designed to repair the underlying
protein-associated defect responsible for cystic fibrosis in most patients, not
just the symptoms of the disease. CPX is currently in a phase 2 development
program in the U.S.

     Additional drug candidates in our pipeline include SCV-07, the lead, orally
active, compound in our new class of immune system enhancer drugs and DAX.
SCV-07 has entered phase 1 testing for drug-resistant tuberculosis and we expect
to develop SCV-07 for cancer and viral hepatitis. DAX is targeted at cystic
fibrosis.

OUR MARKETS

     We are focusing on a large number of discrete but widespread
life-threatening diseases that afflict different parts of the human body. We
believe the significance, prevalence and diversity of our disease targets, and
the known limitations of current treatment alternatives, have created a
compelling need for improved therapies, with novel medicines often enjoying
premium pricing and rapid market acceptance. Our current product development and
commercial activities are focused on this large, unmet medical need.

     The fundamentals of the cancer, infectious disease and cystic fibrosis
markets that are particularly advantageous for us include:

     - inadequate treatment alternatives;

     - high incidence and prevalence;

     - accelerated FDA approval procedures;

     - highly concentrated populations of specialists, allowing a small sales
       force to be effective; and

     - favorable pricing reimbursement.

OUR STRATEGY

     Our objective is to be a leading global immune system enhancer drug therapy
and protein-repair therapy company. Our strategy consists of the following key
elements:

     - focus on specialist-oriented markets for cancer, infectious disease and
       cystic fibrosis;

     - develop our portfolio of products for a broad range of diseases;

     - use our ZADAXIN sales in emerging markets in Asia, Latin America and the
       Middle East to help fund late-stage development of our products in major
       markets -- the U.S., Europe and Japan;

     - form strategic collaborations where necessary and appropriate to support
       our product development and commercialization programs;

     - use our global expertise in immune system enhancer drug therapy and
       protein-repair therapy to identify and in-license or acquire additional
       product candidates;

     - selectively outsource activities to reduce our development and
       manufacturing costs.

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<PAGE>   4

     All of our current product rights were in-licensed. We observe a
disciplined approach to product acquisition, in-licensing and development, the
key elements of which are that:

     - we do not engage in drug discovery or perform early-stage research;

     - we only acquire, in-license and develop drug candidates with strong
       evidence of preclinical or human efficacy;

     - we only acquire, in-license and develop compounds that can be
       administered by a highly concentrated population of specialists, allowing
       a small sales force to be effective;

     - we only acquire, in-license and develop drugs protected by patents, have
       patents pending or qualify for orphan drug status in the U.S. and Europe;

     - we establish strategic collaborations when appropriate to share the cost
       and risk of drug development and/or commercialization, especially in
       large overseas markets.

                                        3
<PAGE>   5

CURRENT PRODUCT DEVELOPMENT ACTIVITIES

     The following table summarizes our product development activities as of
March 22, 2001:

<TABLE>
<CAPTION>
   PRODUCT/PRODUCT
      CANDIDATE                  DISEASE                        STATUS                   LOCATION
   ---------------               -------                        ------                   --------
<S>                    <C>                             <C>                          <C>
ZADAXIN(R)...........  Hepatitis C                     Phase 3                      U.S.
                                                       Planned Phase 3              Europe
                                                       Phase 2                      Japan
                                                       Approved                     Argentina,
                                                                                    Cambodia, Malta,
                                                                                    Myanmar, Pakistan,
                                                                                    Peru, Philippines,
                                                                                    Singapore, Sri
                                                                                    Lanka, Venezuela
                       Hepatitis B                     Phase 2                      U.S.
                                                       Phase 3                      Japan
                                                       Approved                     Argentina, Brunei,
                                                                                    Cambodia, India,
                                                                                    Kuwait, Laos,
                                                                                    Malaysia, Malta,
                                                                                    Myanmar, Peru,
                                                                                    Pakistan, People's
                                                                                    Republic of China,
                                                                                    Philippines,
                                                                                    Singapore, Sri
                                                                                    Lanka, Thailand,
                                                                                    Venezuela, Vietnam
                       Hepatocellular Carcinoma        Phase 2                      U.S.
                                                       Phase 2                      People's Republic
                                                                                    of China
                       Malignant Melanoma              Planned Phase 2              U.S.
                                                       Phase 2                      Australia
                       HIV                             Phase 2                      Singapore
                       Influenza vaccine adjuvant      Approved                     Argentina, Italy,
                                                                                    Malta, Mexico,
                                                                                    People's Republic
                                                                                    of China, South
                                                                                    Korea, Thailand
CPX..................  Cystic Fibrosis                 Phase 2                      U.S.
SCV-07...............  Hepatitis C                     Preclinical                  U.S.
                       Hepatitis B                     Preclinical                  U.S.
                       Drug-Resistant Tuberculosis     Preclinical                  U.S., Russia
                       Drug-Resistant Tuberculosis     Phase 1                      Russia
DAX..................  Cystic Fibrosis                 Preclinical                  U.S.
</TABLE>

THE IMMUNE SYSTEM

     The immune system is an astonishingly intricate network of cells and organs
that defends the body against invading bacteria, viruses and abnormal cells,
such as cancer cells. A properly functioning immune system specifically
recognizes and fights off attacks from "foreign" invaders, including the
hepatitis B and hepatitis C viruses, as well as cancerous cells. We are
targeting virally infected and cancerous cells with our ZADAXIN and SCV-07
immune system enhancer drug therapy programs. The immune system includes the
lymphocytes, a type of white blood cell, which reside both in the tissues and
the circulation. These cells include natural killer, or NK, cells, as well as
the "T" lymphocytes, so-called because they mature in the thymus gland,
including both CD8, or cytotoxic T-cells, and CD4, or helper T-cells. The CD4
cells can

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<PAGE>   6

mature into different subsets (Th1 and Th2) releasing different soluble
molecules called "cytokines" depending on the kind of disease process that is
targeted. A malfunctioning or incompetent immune system can result in a
multitude of chronic diseases, as the body is unable to fight the infection or
cancer.

ZADAXIN(R) -- A NOVEL IMMUNE SYSTEM ENHANCER DRUG THERAPY FOR CANCER AND
INFECTIOUS DISEASES

     ZADAXIN is our lead immune system enhancer drug. ZADAXIN is able to fight
disease by boosting the immune system. The immune enhancement effects of ZADAXIN
include stimulation of NK cells and CD8 cells, which directly kill virally
infected and cancerous cells. ZADAXIN also increases the production of cytokines
such as interferon gamma and interleukin 2 (IL-2), and increases the Th1 subset
of disease fighting white blood cells. ZADAXIN has also recently been shown to
increase the differentiation of stem cells into CD4 cells, and to increase
important cellular antigenic proteins (MHC) required to enable the immune system
to identify and destroy virally-infected cells. Like alpha interferon before it,
we expect ZADAXIN to be an effective treatment for multiple cancers and
infectious diseases. In sharp contrast to other major immunotherapies such as
alpha interferon, as well as the leading antiviral drugs and chemotherapies,
ZADAXIN has been virtually free of any serious drug-related side effects or
toxicities in over 3,000 patients in more than 70 clinical studies, even in
patients with a poor performance status prior to treatment, including those with
decompensated liver disease and kidney disease requiring hemodialysis.

  Hepatitis C

     Hepatitis C is a worldwide epidemic. The World Health Organization
estimates that approximately 170 million people worldwide are infected by the
hepatitis C virus, including over 10 million people infected in the U.S., Europe
and Japan, the world's leading pharmaceutical markets. According to the American
Liver Foundation, 12,000 people die from complications of hepatitis C each year
in the U.S. In the year 2000, the number of deaths in the U.S. from
complications of hepatitis C were estimated to have exceeded deaths caused by
HIV, the virus that causes AIDS. Without improved prevention and treatment, the
American Liver Foundation and the Centers for Disease Control and Prevention
estimate the number of deaths from hepatitis C in the U.S. will more than triple
to 38,000 by 2010. There is no approved vaccine to prevent hepatitis C.

     Hepatitis C is the most common chronic bloodborne RNA viral infection in
the U.S. It is a highly contagious virus that attacks the liver and can cause
cirrhosis (liver scarring and dysfunction), liver failure and liver cancer. Most
people infected with hepatitis C have no symptoms and are unaware that they
carry this potentially deadly virus. Because they are asymptomatic carriers,
they can unknowingly infect others. Over 85% of people infected with hepatitis C
become long-term or chronic carriers unable to clear the virus without
treatment. Today, it is estimated that over 4 million Americans are infected
with hepatitis C. The hepatitis C epidemic in America is arguably one of the
greatest health care threats facing our country. In Europe, it is estimated that
over 5 million people are infected with the hepatitis C virus.

     Six main genotypes ("strains") of hepatitis C have been recognized so far.
There are a large number of subtypes within each of these genotypes. Some
genotypes of hepatitis C (types 1a, 1b, 2a and 2b) show a worldwide
distribution, while others (such as type 5a and 6a) are only found in specific
geographical regions. The genetic plasticity of the hepatitis C virus allows it
to adapt rapidly to antiviral treatment and host immune response, so that
mutants which are resistant to treatment can arise. Some genotypes, such as
genotype 3, are extremely responsive to treatment. However, genotype 1, the most
prevalent genotype in the U.S. Europe and Japan, responds extremely poorly to
currently approved treatments. ZADAXIN, in combination with interferon, has been
shown in studies to be effective against even the most difficult to treat
genotypes such as 1a and 1b.

     We believe that there is a consensus in the medical community that
combination therapies will be required to fight viruses causing diseases such as
hepatitis B, hepatitis C and HIV. In January 2001, we announced a program to
develop ZADAXIN in combination with a new formulation of interferon, pegylated
interferon alfa-2a, as a treatment for hepatitis C. We believe that early
therapeutic intervention and increased public awareness can reduce significantly
the threat of hepatitis C.

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<PAGE>   7

  ZADAXIN for Hepatitis C

     Twelve (12) months of therapy with interferon has been extensively used in
the treatment of hepatitis C. However, dissatisfaction with the low (5% to 20%)
sustained response (no detectable hepatitis C virus RNA measured six months
after the end of therapy) rate to interferon alone has led to the study of
interferon in combination with other therapeutic agents, particularly ribavirin.
However, studies of the combination alpha interferon plus ribavirin show a
negative response in up to 72% of patients infected with the highly prevalent
and difficult-to-treat genotype 1 hepatitis C virus, i.e. they do not have a
sustained response. Typically, genotype 1 infection is seen in 75% of the
hepatitis C patients in the U.S. Meta-analyses of studies examining the
re-treatment of non-responders (those patients that still have hepatitis C virus
RNA after 12 months of alpha interferon plus ribavirin therapy) show that less
than 8% of this patient group have sustained response after an additional 12
months of therapy with alpha interferon or alpha interferon plus ribavirin. By
contrast, in a pooled analysis of previous studies with non-responders, the
combination of ZADAXIN plus alpha interferon demonstrated a 22% sustained
response. Clinical data demonstrate that the combination of ZADAXIN plus
interferon could represent a significant therapeutic advance in the global fight
against hepatitis C.

     Three studies, published as full articles or abstracts, describe the
response in patients with hepatitis C to the combination of ZADAXIN plus
interferon. The strength of pooled analysis and meta-analysis techniques was
applied to the three studies. Patients were treated for 6 to 12 months with the
combination of ZADAXIN plus interferon and observed for 6 to 12 months after
treatment. Interferon-treated patients from the randomized controlled trials and
historical controls from an open label trial were used as controls. A total of
121 patients (67 ZADAXIN plus interferon combination therapy and 54 interferon
monotherapy) were compared.

     Pooled intent-to-treat analysis looked at end of treatment biochemical
response, defined as an improvement in ALT, a liver enzyme. In the combination
of ZADAXIN plus interferon group the improvement was 44.7% compared to 22.2% in
the interferon monotherapy group (p = 0.0096). Meta-analysis demonstrated an end
of treatment biochemical response odds ratio and 95% confidence interval of
greater than 1, indicating that the combination of ZADAXIN plus interferon was
significantly superior to interferon alone. Meta-analysis also showed an end of
treatment virological response odds ratio and 95% confidence interval of greater
than 1, indicating that the combination of ZADAXIN plus interferon was
significantly superior to interferon alone.

     Pooled intent-to-treat analysis revealed a trend showing sustained
biochemical, ALT, response of 22.3% in the combination of ZADAXIN plus
interferon group compared to 9.26% in the interferon monotherapy group
(p = 0.1). Meta-analysis demonstrated a sustained response odds ratio of greater
than 1 and a 95% confidence interval slightly overlapping 1, indicating that the
combination of ZADAXIN plus interferon was superior to interferon alone. This
sustained biochemical response analysis demonstrates a statistical trend in
favor of the combination of ZADAXIN plus interferon group and suggests that
there is only a small chance that this difference occurred by chance alone.
Meta-analysis of sustained virological response also showed an odds ratio and
95% confidence interval of greater than 1, indicating that the combination of
ZADAXIN plus interferon was significantly superior to interferon alone.
Importantly, in the difficult-to-treat genotype 1 infected patients, combination
ZADAXIN plus interferon resulted in sustained clearance of viral RNA in up to
39% of patients, well above the results obtained with the current standard of
care.

     The three studies also showed there were no increased or new side effects
or toxicities in the combination of ZADAXIN plus interferon group compared to
patients treated with interferon alone.

     Pegylated interferon alfa-2a is an alpha interferon formulation which lasts
longer in the bloodstream than standard alpha interferon. Pegylation involves
the attachment of a polyethylene glycol moiety to the interferon molecule.
Pegylation provides a more convenient once weekly dosing schedule and more
consistent viral suppression. We believe that because of its improved efficacy
profile pegylated interferon will eventually replace regular interferon in
clinical practice. Therefore, in our U.S. pivotal phase 3 hepatitis C program we

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<PAGE>   8

are developing ZADAXIN as a combination therapy with pegylated interferon
alfa-2a. We believe that ZADAXIN will also be effective when combined with
pegylated interferons.

     Our U.S. ZADAXIN pivotal phase 3 hepatitis C program began in January 2001.

  Competition -- Hepatitis C

     As of December 31, 2000, there were two approved drug treatments for
hepatitis C in the U.S. -- interferon, which is available from several
manufacturers, and interferon in combination with ribavirin, an antiviral drug.
While interferon therapy does not eliminate the virus from the body in most
patients, it reduces viral load and protects the liver from damage. However,
interferon is associated with debilitating "flu-like" side effects, including
fever, chills, headaches, fatigue and weakness, as well as psychiatric side
effects such as depression. Interferon therapy results in a durable,
long-lasting response in only 10% to 15% of patients.

     Published clinical trial results indicate interferon plus ribavirin may
benefit up to 40% to 65% of new hepatitis C patients. However, published
clinical trial results also indicate the combination of interferon plus
ribavirin is only effective in up to 28% of patients infected with the highly
prevalent and difficult to treat hepatitis C genotype 1. Unlike ZADAXIN, which
does not add to interferon's side effects, ribavirin adds the risk of
significant additional side effects when combined with interferon therapy. We
believe that ZADAXIN may offer the same or better additive therapeutic benefit,
especially in genotype 1 patients, which comprise over 70% of the hepatitis C
patients in the U.S. and Europe, without the risk of added side effects.

     Pegylated interferon alfa-2b has recently been approved by the U.S. FDA. We
believe the other pegylated interferon, pegylated interferon alfa-2a, will soon
become approved for use in the U.S. and Europe. These drugs cause the same side
effects seen with regular interferon. However, due to their once weekly dosing
schedule, the expected duration of the adverse reactions is less than what is
expected from regular interferon. This should result in improved compliance.
This toxicity profile, patient convenience and the increased efficacy should
cause pegylated interferon to replace the regular interferons in the treatment
of chronic hepatitis C. Nevertheless, clinical experience suggests that it is
the addition of another drug (currently ribavirin) that makes the difference and
combination therapies will be the future standard of care in chronic hepatitis
C. We believe that ZADAXIN is next in line and that adding ZADAXIN to pegylated
interferon alfa-2a may offer patients a highly effective and safer therapy for
their infection.

  Hepatitis B

     Hepatitis B is one of the most common potentially fatal infectious diseases
in the world. The hepatitis B virus is up to 100 times more infectious than HIV,
the virus that causes AIDS. Hepatitis B is most commonly transmitted through
contact with infected body fluids. Some examples of causes of infection are
blood transfusions, contaminated needles, sexual contact, breast milk and open
sores. Most people that acquire acute hepatitis B infection as described above
are adults and have competent immune systems and are able to fight off the
infection themselves. According to the American Liver Foundation, however, 5% to
10% of those infected with hepatitis B will become chronic carriers of the
virus. Importantly, up to 70% of children infected at birth as the disease is
passed from mother to child will become chronic carriers of the hepatitis B
virus.

     In 2000, the World Health Organization estimated that approximately 350
million individuals worldwide, or 5% of the world's population, were long term
carriers of hepatitis B in their blood. As of March 2001, there are over 1
million carriers of hepatitis B in the U.S. and an estimated 200,000 people
contract acute hepatitis B each year. Most carriers are unaware that they are
infected or have minimal disease with no clinically evident symptoms. However,
carriers of the hepatitis B virus have a 200-fold increased chance of developing
liver cancer, the most prevalent cancer in the world, and a significant number
develop cirrhosis of the liver. We are not aware of any diagnostic tools to
predict accurately which infected individuals will or will not become chronic
carriers.

     A safe and effective vaccine against hepatitis B is available. However, the
vaccine only benefits those who have not yet been infected by the hepatitis B
virus. Most approved treatments benefit a minority of patients and have serious
adverse side effects.

                                        7
<PAGE>   9

  ZADAXIN for Hepatitis B

     We commissioned a meta-analysis of randomized and controlled trials of
ZADAXIN in hepatitis B. Meta-analysis is the statistical pooling of data derived
from two or more clinical trials. By using data from two or more studies, overly
positive or negative random effects are reduced and the precision of estimates
will increase as sample size increases. A valuable use of meta-analysis is to
assess the efficacy of a drug in the treatment of a particular disease across
many studies. Our meta-analysis of ZADAXIN was performed by MetaWorks, Inc. of
Boston, Massachusetts, and included two U.S. hepatitis B trials sponsored by
Alpha 1 Biomedicals, Inc. and our hepatitis B trials in Taiwan and Italy. A
statistically significant benefit (p = 0.04) was demonstrated in the
meta-analysis with an overall sustained response rate of 36% compared to 19% for
the control group. The results also showed no indications of toxicity or
significant drug related side effects.

     In Asia, Latin America and the Middle East, we are currently marketing
ZADAXIN for the treatment of hepatitis B. ZADAXIN is currently an
investigational drug in the U.S.

     We are developing ZADAXIN as a single agent therapy and in combination with
certain antiviral drugs, particularly nucleoside analogues, as a treatment for
hepatitis B. In a U.S. phase 2 trial, we are studying ZADAXIN combined with
lamivudine, an FDA-approved nucleoside analogue therapy for hepatitis B. In two
previous pilot studies conducted in Asia, the combination of ZADAXIN plus
nucleoside analogues produced durable responses, as measured by the sustained
seroconversion of hepatitis B "e" antigen and disappearance of hepatitis B viral
DNA measured 12 months after end of therapy, in a clinically significant number
of patients. In Japan, ZADAXIN, as a mono-therapy, is in a phase 3 study
targeting 348 patients.

  Competition -- Hepatitis B

     Alpha interferon, a synthetic version of a natural immune substance
manufactured and sold by numerous companies, is approved to treat hepatitis B.
However, most patients do not respond to alpha interferon. In addition, alpha
interferon is associated with debilitating "flu-like" side effects, including
fever, chills, headaches, fatigue and weakness, as well as psychiatric side
effects such as depression, lethargy and mental confusion that can lead to
reduction in dose and discontinuation of treatment.

     Lamivudine, an oral antiviral drug originally developed for HIV and
approved in the U.S. and certain other countries for the treatment of hepatitis
B, often only eliminates the hepatitis B virus from the blood, but not from the
liver tissue. Importantly, levels of hepatitis B virus may rebound rapidly when
lamivudine treatment is interrupted or stopped. Moreover, lamivudine-resistant
mutant viruses are often seen with prolonged therapy. The Antiviral Drugs
Advisory Committee (an FDA advisory committee) expressed uncertainty and concern
over the safety and effectiveness of treatment with lamivudine beyond one year,
the optimal duration of treatment of the drug, the safety and efficacy of
lamivudine for pregnant women and children, and the efficacy of a second round
or subsequent rounds of therapy, especially in patients who have developed
lamivudine-induced mutations in the hepatitis B virus which infects them.
Clinical studies show lamivudine sustained response rates (no detectable
hepatitis B viral DNA and hepatitis B "e" antigen 12 months after end of
therapy) are less than 20%, similar to spontaneous seroconversion rates in
hepatitis B patients.

  Cancer

     Cancer is characterized by uncontrolled division of cells and can occur in
almost any tissue or organ in the body. Cancerous cells can grow into a mass
known as a tumor. If not destroyed, cancer cells can spread throughout the body
(metastasis). It is estimated that one in three Americans will be diagnosed with
cancer at some point in their lives.

  ZADAXIN Immune system enhancer drug therapy for cancer

     ZADAXIN immune system enhancer therapy has been examined as a treatment for
several types of cancer. The rationale for such use is that ZADAXIN has shown
significant efficacy in multiple animal cancer models where the improvement in
survival appears to be related to improved immune function and in multiple

                                        8
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pilot phase 2 clinical studies. Patients with some cancers have depressed
cellular immunity, and progression of some cancers is related to an impaired
immune system. In some cases, immune modulation has shown promising results for
treatment of human cancers. This has been shown to be the case for malignant
melanoma, hepatocellular carcinoma, and renal cell carcinoma. The results
summarized below suggest that ZADAXIN may have usefulness in treating certain
forms of cancer. We are conducting additional phase 2 clinical trials to confirm
these results.

  Hepatocellular Carcinoma

     Hepatocellular carcinoma, or HCC, commonly referred to as liver cancer, is
the most prevalent malignant disease in the world, killing up to 1.25 million
persons per year. There is a strong correlation between HCC and chronic
hepatitis B. Recently, an association between HCC and chronic hepatitis C also
has been determined. Although HCC is a common malignancy in Africa and Asia
(including Japan), it also accounts for approximately 4,000 to 6,000 cases per
year in the U.S.

     When identified in its early stages, HCC can be treated with surgical
resection or liver transplantation, and some patients may be cured. However, the
disease is often not amenable to surgical treatment, either because of tumor
size or location, or because of poor liver function. In these situations the
prognosis is dire.

     Other treatment approaches have been tried when surgery or liver
transplantation are not feasible. Systemic chemotherapy results are not
encouraging. Conversely, a large number of reports have provided encouraging
perspectives for regional chemotherapy and radio frequency ablation.
Transcatheter arterial chemo-embolization, or TACE, is a combination of regional
chemotherapy and a form of hepatic artery occlusion. Consistently higher
response rates have been reported for TACE when compared with systemic
chemotherapy. More recently, radio frequency ablation, or RFA, has also been
used as a form of ablation therapy for HCC. RFA consists of direct destruction
of the tumor using radio frequency waves through a percutaneous needle. RFA
appears to have similar efficacy rates to TACE, without the use of potentially
toxic chemotherapy agents and without exposure to radiation. Because of its
efficacy and safety profiles, RFA is becoming increasingly popular, and may soon
overtake TACE as the most widely used form of ablation therapy.

  ZADAXIN for Hepatocellular Carcinoma

     A pilot phase 2 study has been completed in Italy which examined the
efficacy and safety of ZADAXIN plus TACE for treatment of HCC. Eleven patients
had liver cirrhosis of class A or B according to Child's criteria, with tumors
classified as Okuda stage I or II. One patient was classified as Child's class C
and had an Okuda stage III tumor. The diagnosis of HCC was based on
ultrasonography and histology. The patients were treated with ZADAXIN and TACE
for 6 months. Results were compared to a matched historical control group
treated with TACE alone.

     Patients treated with the combination of ZADAXIN plus TACE showed longer
survival compared to the historical control group treated with TACE alone, that
reached statistical significance 7 months after the end of treatment (82% vs.
41% survival; p<0.05, Kaplan-Meier and Mantel-Haenszel test). Patients receiving
the ZADAXIN plus TACE demonstrated a significant increase in cytotoxic T-cells
(CD8) and NK cells (CD16 and CD56) at 3 months and 1 month, respectively, after
completion of treatment. The delayed after-treatment effect of ZADAXIN observed
in this study is similar to studies in hepatitis B, where it is common to see
patients respond to ZADAXIN later, during the follow-up period.

     The FDA has granted Orphan Drug Status to ZADAXIN for the treatment of HCC.

     In January 2001, we began a U.S. phase 2 program of ZADAXIN in combination
with RFA, for the treatment of HCC. The goal of the open label, randomized,
controlled study is to evaluate whether a ZADAXIN enhanced immune response may
contribute to the effectiveness of tumor therapy with RFA.

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  Malignant Melanoma

     Melanoma is the most dangerous and malignant of skin cancers and one of the
most rapidly increasing types of cancer worldwide. Although melanoma accounts
for only 4% of skin cancer cases, it is responsible for 79% of all skin cancer
deaths. Since 1973, the number of new melanomas diagnosed each year in the U.S.
has doubled. According to the American Cancer Society, about 51,400 new
melanomas will be diagnosed in the U.S. in 2001. The standard treatment for
primary melanoma tumors is surgical removal, and patient prognosis is not good
unless the tumor is detected early.

  ZADAXIN for Malignant Melanoma

     Malignant melanoma is resistant to most forms of therapy, with response
rates to dacarbazine, commonly referred to as DTIC, the most active single
chemotherapy agent for the disease, of approximately 17% to 20%, and without
impact on patient survival. The effects of ZADAXIN in combination with
chemotherapy and cytokine therapy for treatment of malignant melanoma were
examined in three trials in Italy with comparisons to historical controls. In
one trial, ZADAXIN was used following DTIC therapy in combination with alpha
interferon. In 26 treated patients evaluated by World Health Organization
criteria there was an overall response rate of 50%, with a mean duration of
response of 13.5 months. In another trial with the same combination treatment,
20 patients with Stage III or IV unresectable metastatic melanoma were treated
with up to nine cycles of therapy. Ten patients responded to therapy for an
overall response rate of 50%. Median survival time was 11.5 months with a median
time to progression of 5.5 months. Importantly, 7 patients survived for more
than two years and 2 patients were disease free after more than five years. In a
third trial, ZADAXIN was administered following DTIC therapy in combination with
IL-2, an immunomodulator. There were 42 evaluable patients that showed an
overall response rate of 36%, with a median time to progression of 5.5 months
and median survival of 11 months. Historical controls have shown response rates
of about 27% with DTIC and alpha interferon and about 22% with DTIC and IL-2.
Thus, the ZADAXIN treated patients showed greater overall response than these
other regimens, namely DTIC with alpha interferon or IL-2.

     In November 2000, we began a ZADAXIN phase 2 advanced-stage malignant
melanoma program based on immune system enhancer therapy treatment in Australia.
The study is designed to show whether ZADAXIN can enhance immunity, elevate
T-cell counts and contribute, in combination with active immunization of
dendritic cells, or DC, to a specific melanoma immune response. Advanced-stage
malignant melanoma is poorly responsive to chemotherapy or radiotherapy.
Moreover, most agents used, including DTIC are extremely toxic. Combination
dendritic-cell therapy plus ZADAXIN is a novel approach to the treatment of
advanced-stage malignant melanoma based solely on immune system enhancer
therapy. The main advantage of this immune system enhancer therapy approach is
the dramatic reduction in toxicity when compared to traditional chemotherapy or
combined chemotherapy and cytokine therapy. If proven effective, combination
dendritic-cell plus ZADAXIN therapy may become a new form of treatment for an
otherwise highly fatal disease.

CYSTIC FIBROSIS

     Cystic fibrosis is the most common fatal genetic disease among Caucasians.
Currently, there is no cure for the disease which affects approximately 70,000
children and young adults worldwide, including approximately 30,000 in the U.S.
and 30,000 in Europe. In the U.S., 1,000 new cases are diagnosed each year,
usually by the age of three. Tragically, the median survival is only up to age
31. Cystic fibrosis patients suffer from chronic lung infections and sinusitis,
as well as the inability to secrete enough digestive enzymes to properly digest
food and absorb nutrients.

     Cystic fibrosis is caused by a mutated gene that produces an abnormal
protein, the Cystic Fibrosis Transmembrane Conductance Regulator, or CFTR,
protein. This basic defect in cystic fibrosis cells results in the faulty
transport of chloride ions across epithelial cells which line organs such as the
lungs and pancreas membranes. This faulty chloride transport causes the body to
produce abnormally thick, sticky mucus which clogs the airways and leads to
chronic bacterial infections that result in lung destruction and death. This

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mucus also obstructs the pancreas, preventing enzymes from reaching the
intestines to digest food. Most cystic fibrosis patients die from lung disease.
Cystic fibrosis also affects other areas of the body, including the sweat
glands, liver, gallbladder and male reproductive organs.

     It is estimated that one in every 31 Americans, more than 10 million
people, is an unknowing, asymptomatic carrier of the gene. A child must inherit
two copies of the mutated cystic fibrosis gene, one from each parent, to have
cystic fibrosis. Each time two carriers conceive a child there is a 25% chance
that the child will have cystic fibrosis, a 50% chance that the child will be a
carrier, and a 25% chance that the child will be a non-carrier.

     Currently, there is no cure for cystic fibrosis. Approved cystic fibrosis
treatments only address the symptoms of the disease not the underlying defective
protein related problems causing cystic fibrosis in most patients -- impaired
chloride ion transport and abnormal CFTR protein trafficking. The treatment of
cystic fibrosis depends upon the stage of the disease and which organs are
involved. One means of treatment, postural drainage, also called chest physical
therapy, requires vigorous percussion by using cupped hands on the back and
chest to dislodge the thick, sticky mucus from the lungs. Antibiotics are also
used to treat lung infections and are administered intravenously, orally or in
medicated vapors that are inhaled to open up clogged airways. Unfortunately, the
emergence of antibiotic-resistant bacteria is an ever-increasing threat to those
patients. In addition, mucolytic, or mucus-thinning drugs, are used to reduce
the viscosity of the mucus and facilitate airway clearance. When cystic fibrosis
affects the digestive system, the body cannot absorb enough nutrients.
Therefore, patients with cystic fibrosis may need to eat an enriched diet and
take both replacement vitamins and pancreatic enzymes. The Cystic Fibrosis
Foundation estimates that the annual average cost of care of a cystic fibrosis
patient is approximately $50,000 per patient, including hospitalizations, chest
physical therapy and medications.

CPX -- PROTEIN-REPAIR, A NEW PROMISING THERAPY FOR CYSTIC FIBROSIS

     We are currently developing a promising new protein-repair therapy for the
treatment of cystic fibrosis -- CPX. The use of CPX for cystic fibrosis was
co-discovered by Dr. Harvey Pollard and Dr. Kenneth Jacobson at the U.S.
National Institutes of Health, or NIH. Laboratory testing was so promising that
our clinical research is being supported in part by grants from the U.S. FDA and
the Cystic Fibrosis Foundation.

     The FDA has granted Orphan Drug Status to CPX as a potential treatment for
cystic fibrosis.

     In NIH laboratory studies CPX has demonstrated efficacy in human cells
explanted from cystic fibrosis patients. We are now looking for ways to
replicate this efficacy in cystic fibrosis patients. CPX is the only drug
currently under clinical development that in laboratory experiments targets and
corrects the underlying protein-associated defect that causes cystic fibrosis in
more than 70% of patients. All other current therapies treat only the symptoms
of the disease.

     Laboratory research at the NIH suggests that CPX repairs the defective CFTR
protein and helps it do its job in the following two ways:

     - CPX binds to the defective CFTR protein and improves the ability of the
       CFTR protein to properly move through the epithelial cell, a process
       called trafficking, by binding with the defective CFTR protein and
       protecting it from being destroyed as it makes its way to the surface of
       the cell; and

     - CPX improves the function of the defective CFTR protein so that it
       successfully provides increased transport of chloride through the
       epithelial cell membranes.

     CPX is currently in a phase 2 development program in the U.S. In the
initial phase 2 study of CPX, the unique drug absorption characteristics of
cystic fibrosis patients precluded achievement of the sustained blood
concentrations of CPX necessary to evaluate efficacy in this study. Our new
formulation program is intended to address this drug absorption issue. Working
closely with scientists and clinical investigators in the Cystic Fibrosis
Foundation's Therapeutics Development Network, we plan to study a new
formulation of CPX in additional U.S. phase 2 studies.

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<PAGE>   13

MARKETING AND SALES

     Assuming FDA, European and Japanese regulatory approval, we plan to market
ZADAXIN in the U.S., Europe and Japan in collaboration with larger
pharmaceutical companies. Outside these territories we plan to market ZADAXIN
through our established broad distribution network.

     In our ZADAXIN markets in Asia (excluding Japan), Latin America and the
Middle East, we conduct medical education and clinical trial programs targeting
the leading specialists (e.g. hepatologists, immunologists and oncologists) at
the leading hospitals in each of our markets. Local importers/distributors
assist us with regulatory submissions to the ministries of health and are
responsible for the importation, inventory, physical distribution and invoicing
of ZADAXIN. Our wholly-owned international subsidiary, SciClone Pharmaceuticals
International Ltd., which we refer to as SPIL, is based in Hong Kong and has
international offices in Beijing, Hong Kong, Rome, Panama City, Shanghai,
Singapore and Tokyo. SPIL manages a distribution center in Hong Kong which is
the source for all ZADAXIN re-exported to our non-U.S. markets, except Japan. We
have established distribution arrangements with local pharmaceutical
wholesale/distribution companies covering 46 countries outside of the U.S.,
Europe and Japan. In those markets where ZADAXIN is approved in Asia, Latin
America and the Middle East, we have established or plan to establish in the
near term ZADAXIN marketing programs. ZADAXIN sales in our currently approved
markets and pending markets are and will be managed by SPIL employees.

     Assuming FDA and equivalent European regulatory approval, we plan to market
CPX directly and in collaboration with specialty pharmaceutical oriented
companies.

MANUFACTURING

     We do not intend to acquire or establish our own dedicated manufacturing
facilities for any of our products at this time. We believe there are numerous
facilities in compliance with FDA Good Manufacturing Practice, or the foreign
equivalent of such standards, available for contract manufacturing. We have
entered into exclusive contract manufacturing and supply agreements to produce
ZADAXIN and CPX. These manufacturers are supplying the ZADAXIN and CPX required
for our current and planned clinical trial activities, and have demonstrated,
with respect to ZADAXIN, the capability to supply commercial quantities of the
drug to fulfill our expected near term commercial requirements. We believe that,
in the event of the termination of an agreement with any single supplier or
manufacturer, we would likely be able to enter into arrangements with other
suppliers or manufacturers on similar terms.

     For Europe and all markets except the U.S. and Japan, ZADAXIN is
manufactured to cGMP standards in Europe. For the U.S. and Japanese markets
ZADAXIN is manufactured to cGMP standards in the U.S.

     We directly monitor production runs of our products and maintain our own
quality assurance audit programs.

PATENTS AND PROPRIETARY RIGHTS

     We are either a patentee or exclusive licensee of composition of matter,
process and use patents and pending applications related to thymosin alpha 1,
the generic name of ZADAXIN, in the U.S. and abroad.

     We are the exclusive licensee of foreign patents directed to the thymosin
alpha 1 composition of matter which are owned by F. Hoffmann-La Roche AG and the
Board of Regents of the University of Texas System. Most of these foreign
composition of matter patents have expired. However, we are a patentee of a
number of composition of matter patents and applications directed to analogs and
derivatives of thymosin alpha 1 which have been granted in the U.S. and numerous
international markets. We are seeking numerous other proprietary rights for
thymosin alpha 1. We are either a patentee or exclusive licensee and are
directing prosecution of use and process patents related to the method of making
and therapeutic uses of thymosin alpha 1.

     Our process patents are directed to methods of making thymosin alpha 1 and
have issued in the U.S., a majority of European countries, Hong Kong, Canada,
Japan, South Korea and Taiwan.

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<PAGE>   14

     We are also a co-patentee of patents and pending applications covering
numerous uses of thymosin alpha 1. Patents covering use of thymosin alpha 1 for
treatment of hepatitis C have issued in the U.S., a majority of European
countries and numerous international markets. Patents for which we are a
co-patentee have additionally issued in the U.S. and various international
markets covering the use of thymosin alpha 1 to treat autoimmune hepatitis; in
the U.S. and various international markets for the use of thymosin alpha 1 in
treating hepatitis C in non-responders to interferon treatment; and in the U.S.
and various international markets covering the use of thymosin alpha 1 to treat
decompensated liver disease. Patents which we own covering the use of thymosin
alpha 1 to treat hepatitis B carriers with minimal disease have issued in the
U.S., Japan, Taiwan, the Republic of China and other international markets. We
are the exclusive licensee of patents which have issued in the U.S., a majority
of European countries, Japan and other international markets which cover the use
of thymosin alpha 1 to treat small cell and non-small cell lung cancer; in the
U.S., Japan and other international markets covering the treatment of hepatitis
B using thymosin alpha 1; in the U.S. and several international markets covering
the use of thymosin alpha 1 to treat septic shock; and in the U.S. and several
international markets covering the treatment of infertility in mammalian males
using thymosin alpha 1. Numerous corresponding additional patent applications in
other countries are pending for each of the above named indications.

     We are the exclusive licensee of an issued U.S. patent covering the use of
CPX to treat cystic fibrosis, as well as an issued U.S. patent and pending
foreign patent applications covering DAX and other CPX analogs and their use in
treating cystic fibrosis.

     We are the exclusive licensee of an issued U.S. patent covering the
composition of matter of SCV-07 and related compounds, as well as similar
pending foreign patent applications.

     In addition to patent protection, we intend to use other means to protect
our portfolio of proprietary rights. Certain marketing exclusivity periods may
be available under regulatory provisions in certain countries including the
U.S., European Union countries and Japan, which benefits the holder of the first
marketing approval for new chemical entities or their equivalents for a given
indication and we are pursuing such rights. Orphan drug protection has been or
will be sought where available, granting additional market exclusivity. We hold
an orphan drug product designation for thymosin alpha 1 for hepatocellular
carcinoma, hepatitis B and DiGeorge Anomaly in the U.S. Recognition and
protection of trademarks for thymosin alpha 1 is being accomplished through
worldwide filing of trademark applications for ZADAXIN and other trademarks
which appear on the commercial packaging of the product and are used in
promotional literature. Copyrights for the commercial packaging may provide us
with means to take advantage of procedures available in certain countries to
exclude counterfeit products or genuine but unauthorized products from entering
a particular country by parallel importation. We have also implemented
anti-counterfeiting measures on commercial packaging and plans to register the
packaging with customs departments in countries where such procedures exist.

     We are pursuing similar types of protection for CPX, where applicable. We
hold an orphan drug product designation for CPX to treat cystic fibrosis in the
U.S.

     We also rely upon trade secrets, which we seek to protect, in part, by
entering into confidentiality agreements with our employees, consultants,
corporate partners, suppliers and licensees.

SPONSORED RESEARCH AND DEVELOPMENT

     For the years ended December 31, 2000, 1999 and 1998, we expended
$4,182,000, $4,604,000 and $9,293,000, respectively, in our sponsored research
and development activities.

COMPETITION

     In the area of immune system enhancer, ISE, therapy, we believe that we
participate in an important and growing therapeutic niche, stimulating an immune
system response in a disease state often characterized by an inadequate immune
response. ZADAXIN is a product that has demonstrated a unique safety profile
among immunomodulatory agents. ZADAXIN has shown in clinical trials that it can
be added safely and effectively

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<PAGE>   15

to existing anti-viral and anti-cancer therapies. We believe that this cocktail
approach to anti-viral and anti-cancer therapy will become more popular in the
future. We believe that ZADAXIN's suggested mechanism of action will encourage
it to be used in newer multiple combination therapies over time. We anticipate
that as newer and better direct anti-viral and anti-cancer are developed there
will continue to be a need for an immune system enhancement component and this
in turn may create new opportunities for ZADAXIN. Competition with ZADAXIN may
be reduced by the fact that ZADAXIN, administered in combination with numerous
anti-viral and anti-cancer agents, is expected to be complementary rather than
competitive to these agents in enhancing the immune system. We expect continuing
advancements in and increasing awareness of the use of immune system enhancer
therapy approach to fighting some cancer and infectious diseases may create new
competitors as well as numerous new opportunities for expanded use of ZADAXIN.
We know of no other immune system enhancer therapy that has ZADAXIN's
combination of proven safety and efficacy.

     Alternative methods to treat viral diseases and cancers exist and new
treatments will be developed. All of these will compete with each other and
ZADAXIN for therapeutic use, but we believe that in many cases ZADAXIN will
prove itself complementary.

     SCV-07 shows early signs of having many of the immune system enhancer
qualities of ZADAXIN, but in an orally available form.

     There are numerous research activities at other companies that are
targeting ways to mitigate the symptoms and medical problems associated with
cystic fibrosis. However, according to the Cystic Fibrosis Foundation, CPX is
one of only three drugs in a phase 2 development program. Importantly, CPX is
the only drug in a phase 2 program that is targeting both of the root causes of
cystic fibrosis as opposed to attempting to treat a symptom. If CPX can
replicate in CF patients the activity demonstrated in vitro at the NIH and gain
FDA approval it will compete with existing and future therapies for therapeutic
use and acceptance.

GOVERNMENT REGULATION

     Regulation by governmental authorities in the U.S. and foreign countries is
a significant factor in the manufacturing of products for us and the marketing
of our products, as well as in ongoing research and development activities and
in preclinical and clinical trials and testing related to our products. When our
products are manufactured, tested or sold in the U.S., they will be regulated in
accordance with the Federal Food, Drug, and Cosmetic Act, commonly referred to
as the FD&C Act and the U.S. Public Health Service Act. The standard process
required by the FDA before a pharmaceutical agent may be marketed in the U.S.
includes (i) preclinical laboratory and animal tests, (ii) submission to the FDA
of an Investigational New Drug Application, or IND, which must become effective
before human clinical trials may commence, (iii) adequate well-controlled human
clinical trials to establish the safety and efficacy of the product for its
intended indication, and adequate data to support the Chemistry, Manufacturing
and Controls aspect of the process which will ensure reproducible product
quality batch after batch (iv) submission to the FDA of a New Drug Application,
or NDA, with respect to drugs, or Biologics License Application, or BLA, for
biological products and (v) FDA approval of the NDA prior to any commercial
marketing, sale or shipment of the drug. In addition to obtaining FDA approval
for each product, each domestic manufacturing establishment must be registered
with the FDA. Domestic manufacturing establishments are subject to inspections
by the FDA and by other federal, state and local agencies and must comply with
current U.S. Good Manufacturing Practices, or cGMP.

     The steps required before a new drug or biological product may be
distributed commercially in the U.S. generally include:

     - conducting appropriate preclinical laboratory evaluations of the
       product's chemistry, formulation and stability, and animal studies to
       assess the potential safety and efficacy of the product;

     - submitting the results of these evaluations and tests to the FDA, along
       with manufacturing information and analytical data, in an IND;

     - making the IND effective after the resolution of any safety or regulatory
       concerns of FDA;

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<PAGE>   16

     - obtaining approval of Institutional Review Boards, or IRBs, to introduce
       the drug into humans in clinical studies;

     - conducting adequate and well-controlled human clinical trials that
       establish the safety and efficacy of the drug product candidate for the
       intended use, typically in the following three sequential, or slightly
       overlapping stages:

      - Phase I: The drug is initially introduced into healthy human subjects or
        patients and tested for safety, dose tolerance, absorption, metabolism,
        distribution and excretion;

      - Phase II: The drug is studied in patients to identify possible adverse
        effects and safety risks, to determine dose tolerance and the optimal
        dosage, and to collect initial efficacy data; and

      - Phase III: The drug is studied in an expanded patient population at
        multiple clinical study sites, to confirm efficacy and safety at the
        optimized dose, by measuring a primary endpoint established at the
        outset of the study, and comparing it to that of established therapies,
        if any;

     - submitting the results of preliminary research, preclinical studies, and
       clinical studies as well as chemistry, manufacturing and control
       information on the drug to the FDA in a NDA or BLA; and

     - obtaining FDA approval of the NDA or BLA prior to any commercial sale or
       shipment of the drug product.

     In approving an NDA or BLA, the FDA may require further post-marketing
studies, referred to as phase 4 studies. When used in this Report in connection
with trials and filings in other countries, terms such as "phase 1," "phase 2,"
"phase 3," "phase 4," "new drug application" and "marketing application" refer
to what we believe are comparable trials and filings in these other countries.

     Congress has amended the FD&C Act to facilitate and expedite the
development and review of drugs and biological products intended for treatment
of serious or life-threatening conditions that demonstrate the potential to
address unmet medical needs for such conditions. These provisions, which combine
existing FDA expedited approval and accelerated approval procedures, set forth a
new procedure for designation of a drug as a "fast track product." Concurrent
with or after an NDA is filed, the sponsor may request designation as a fast
track product, and the FDA will respond within 60 days.

     If designated fast track, the FDA must take such actions as are appropriate
to facilitate and expedite review of applications for these products. Another
advantage of fast track designation is that sponsors may submit, and the FDA may
commence review of, portions of an application before the complete application
is submitted, provided that a schedule for submission of the completed
application is provided. Sponsors of fast track products also may seek and
obtain FDA approval based upon a determination that the product has an effect on
a clinical endpoint or on a surrogate endpoint that is reasonably likely to
predict clinical benefit. Products approved on this basis are subject to
rigorous postmarket compliance requirements. For example, the sponsor may be
required to conduct post-approval studies to validate or confirm the endpoint or
may be required to submit copies of all promotional materials 30 days prior to
their dissemination. The FDA may withdraw approval of fast track products if,
for example, the sponsor fails to conduct required post-approval studies or
disseminates false or misleading promotional materials.

     Even after initial FDA approval has been obtained, further studies,
including post-marketing studies, may be required to provide additional data on
the product's risks, benefits, and optimal use, and will be required to gain
approval for the use of a product as a treatment for clinical indications other
than those for which the product was initially tested. Also, the FDA will
require post-marketing reporting to monitor the side effects of the drug.
Results of post-marketing programs may limit or expand the further marketing of
the products. Further, if there are any modifications to the drug, including
changes in indication, labeling, or a change in manufacturing facility, an NDA
or BLA supplement may be required to be submitted to the FDA. Pursuant to recent
amendments to the FD&C Act, major manufacturing changes, defined as changes that
have substantial potential to have an adverse effect on the identity, strength,
quality, purity, or potency of a product as they may relate to the safety an
effectiveness of the product, require the submission of a supplement and
approval by FDA prior to distribution of the product made using the change.
Moderate changes are defined as
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having moderate potential to have an adverse effect on the identity, strength,
quality, purity, or potency of the product as they may relate to the safety or
effectiveness. Some moderate changes, such as a move to a different
manufacturing site for the manufacture or processing of any drug product,
in-process material, or drug substance, require submission of a supplement to
FDA at least 30 days before the distribution of the product made using the
change. Other moderate changes, including a move to a different manufacturing
site for the manufacture or processing of the final intermediate, may occur when
FDA receives the supplement. The manufacturer must describe minor changes,
defined as having minimal potential to have an adverse effect on the identity,
strength, quality, purity, or potency of the product as they may relate to the
safety or effectiveness, in the next required annual report to the FDA.

     The orphan drug provisions of the FD&C Act provide incentives to drug and
biologics manufacturers to develop and manufacture drugs for the treatment of
rare diseases, currently defined as diseases that affect fewer than 200,000
individuals in the U.S. or, for a disease that affects more than 200,000
individuals in the U.S., where the sponsor does not realistically anticipate its
product becoming profitable. Under these provisions, a manufacturer of a
designated orphan product can seek tax benefits, and the holder of the first FDA
approval of a designated orphan product will be granted a seven year period of
marketing exclusivity for that product for the orphan indication. While the
marketing exclusivity of an orphan drug would prevent other sponsors from
obtaining approval of the same compound for the same indication, it would not
prevent other types of drugs from being approved for the same use. We have been
granted orphan designation by the FDA for CPX for cystic fibrosis, and for
ZADAXIN for chronic active hepatitis B, DiGeorge Anomaly and hepatocellular
carcinoma.

     Orphan drug legislation was recently introduced into the European Union, or
EU, pursuant to the Orphan Medicinal Products Regulation. Orphan medicinal
products are those products designed to diagnose, treat or prevent a condition
which occurs so infrequently that the cost of developing and bringing the
product to the market would not be recovered by the expected sale of the
product. In the EU, the criterion for designation is a prevalence of the
relevant condition no more than 5 per 10,000 of the population.

     The legislation, consistent with that already in place in the United
States, aims to provide incentives for the development of orphan medicinal
products which include, amongst others, a reduction in the fees payable in
respect of the marketing authorization application, protocol assistance for
clinical trials in support of the application and marketing exclusivity once the
authorization is granted. In the EU, marketing exclusivity is granted to
products with an orphan drug designation for a period of 10 years during which
the EU will not accept another application for a marketing authorization for the
same therapeutic indication in respect of a similar medicinal product, unless
the second applicant can show its product is safer, more effective or otherwise
clinically superior. A similar medicinal product is defined as a medicinal
product containing a similar active substance as contained in the authorized
orphan medicinal product.

     In accordance with EU procedures, our application in respect of CPX for the
treatment of cystic fibrosis was granted a positive opinion by the Committee on
Orphan Medicinal Products in February 2001. The opinion has now been forwarded
to the European Commission for its adoption and the formal grant of the
designation, which we expect to receive by April 2001. However, it should be
noted that the granting of orphan drug status does not affect the likelihood of
success of obtaining marketing authorization for the relevant product in any
way.

     Under the Drug Price Competition and Patent Term Restoration Act of 1984,
or DPCPTRA, a sponsor may be granted marketing exclusivity for a period of time
following FDA approval of certain drug applications, regardless of patent
status, if the drug is a new chemical entity or new clinical studies were used
to support the marketing application. This marketing exclusivity would prevent a
third party from obtaining FDA approval for a similar or identical drug through
an Abbreviated New Drug Application, or ANDA, which is the application form
typically used by manufacturers seeking approval of a generic drug, or 505(b)(2)
application. The DPCPTRA also allows a patent owner to extend the term of the
patent for a period equal to one-half the period of time elapsed between the
filing of an IND and the filing of the corresponding NDA plus the period of time
between the filing of the NDA and FDA approval with the maximum patent extension
term being five years. Once a drug is granted some form of marketing
exclusivity, the recently enacted FDA

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Modernization Act provides an additional six months of marketing exclusivity for
certain pediatric research conducted at the written request of the FDA.

     We may seek the benefits of orphan, DPCPTRA, or fast track provisions, but
we cannot assure you that we will be able to obtain any such benefits.

     We are subject to foreign regulations governing human clinical trials and
pharmaceutical sales. The requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursement vary widely from country to
country. Whether or not FDA approval has been obtained, approval of a product by
the comparable regulatory authorities of foreign countries is required prior to
the commencement of marketing of our products in those countries. The approval
process varies from country to country and the time required for approval may be
longer or shorter than that required for FDA approval. In general, foreign
countries use one of three forms of regulatory approval processes. In one form,
local clinical trials must be undertaken and the data must be compiled and
submitted for review and approval. In Japan, for example, the process is time
consuming and costly because clinical trials and preclinical studies must be
conducted in Japan. A second form of approval process requires clinical trial
submissions, but permits use of foreign clinical trials and typically also
requires some form of local trial as well. A third form of approval process does
not require local clinical trials, but rather contemplates submission of an
application including proof of approval by countries that have clinical trial
review procedures. Thus, a prior approval in one or more of the U.S., Japan,
most European Union countries or Australia, among others, is often sufficient
for approval in countries using this third form of approval process.

     In addition to required foreign approvals, the FDA regulates the export of
drugs or bulk pharmaceuticals from the U.S. In general, a drug that has been
approved for commercial sale in the U.S. may be exported for commercial sale. In
1996, the U.S. Congress passed export reform legislation that provides that an
unapproved drug may be exported to a "listed country" for investigational
purposes without FDA authorization if exported in accordance with laws of the
foreign country, and in accordance with the export requirements. The listed
countries include Australia, Canada, Israel, Japan, New Zealand, Switzerland,
South Africa, and countries in the European Union and the European Economic
Area. Export of drugs to an unlisted country for clinical trial purposes
continues to require FDA approval. We have obtained, where necessary, FDA
approval for all exports of ZADAXIN from the U.S. for clinical trial purposes,
and will seek to obtain FDA approval, where necessary, for any future shipments
from the U.S. to any unlisted country. The export reform legislation further
provides that an unapproved drug can be exported to any country for commercial
purposes without prior FDA approval, provided that the drug: (i) complies with
the laws of that country; and (ii) has valid marketing authorization or the
equivalent from the appropriate authority in a "listed country." Export of drugs
not approved in the U.S. that do not have marketing authorization in a listed
country continue to require FDA export approval.

     Pursuant to the Prescription Drug User Fee Act of 1992, drug and biologics
manufacturers generally are required to pay three types of user fees: (1) a
one-time application fee for approval of an NDA or BLA; (2) an annual product
fee imposed on prescription drugs and biologics after FDA approval; and (3) an
annual establishment fee imposed on facilities used to manufacture prescription
drugs and biologics. The fee rates for 2000 were: (1) $285,470 one-time fee for
an application requiring clinical data, or $142,870 fee for an application not
requiring clinical data; (2) a $14,971 annual establishment fee; and (3) a
$19,959 annual product fee. These fee amounts are likely to increase in the
future. Fee waivers or reductions are available in certain instances, including
a waiver of the application fee for the first application filed by a small
business. Additionally, no user fees are assessed on NDAs or BLAs for products
designated as orphan drugs, unless the drug also includes a non-orphan
indication.

     Among the conditions for NDA or BLA approval in the U.S. is the requirement
that the prospective manufacturer's quality control and manufacturing procedures
conform to cGMP. In complying with standards set forth in these regulations,
manufacturers must continue to expend time, money and effort in the area of
production and quality control to ensure full technical compliance.

     We are also subject to various federal, state and local laws, regulations
and recommendations relating to safe working conditions, laboratory and
manufacturing practices, the experimental use of animals and the use
                                        17
<PAGE>   19

and disposal of hazardous or potentially hazardous substances, including
radioactive compounds and infectious disease agents, used in connection with
research work and preclinical and clinical trials and testing. The extent of
government regulation that might result from future legislation or
administrative action in these areas cannot be accurately predicted.

     As the preceding discussion indicates, the research, preclinical
development, clinical development, manufacturing, marketing and sales of
pharmaceuticals, including ZADAXIN and CPX, are subject to extensive regulation
by governmental authorities. Products we develop cannot be marketed commercially
in any jurisdiction in which they have not been approved. The process of
obtaining regulatory approvals is lengthy, uncertain and requires the
expenditure of substantial resources. For example, in some countries where we
contemplate marketing ZADAXIN, the regulatory approval process for drugs not
previously approved in countries that have established clinical trial review
procedures is uncertain and this uncertainty may result in delays in granting
regulatory approvals. In addition, in certain countries such as Japan, the
process for obtaining regulatory approval is time consuming and costly. We are
currently pursuing regulatory approvals of ZADAXIN in a number of countries, and
of CPX in the U.S.

THIRD PARTY REIMBURSEMENT

     ZADAXIN is currently sold principally in countries without broad government
provided health care reimbursement programs or adequate and broadly distributed
private health insurers and other third party payer organizations. Regardless,
we believe that it is important to position ZADAXIN, and our other drugs, to
participate as much as possible in the government provided health care
reimbursement programs and the programs of other private and third party payers.
This is important in the countries where ZADAXIN is currently registered but
even more important in the U.S., Europe and Japan where participation in drug
insurance programs and government drug cost reimbursement programs are essential
to the commercial success of a product.

EMPLOYEES

     As of December 31, 2000, we had 71 employees, 17 in the U.S., and 54 in
foreign offices. We consider our relations with our employees to be
satisfactory. We expect to hire other experienced professionals in 2001 to,
among other things, address expanded clinical, regulatory, manufacturing and
marketing activities.

     In addition to our employees, we have direct access to the activities of
approximately 55 employees of our overseas distributors. We also have engaged
the services of numerous experienced consultants worldwide with pharmaceutical
and business backgrounds to assist in our product development and ZADAXIN
commercialization activities. We plan to leverage our key personnel by
continuing to make extensive use of contract laboratories, development
consultants and collaborations with pharmaceutical companies to develop and
market our products.

RECENT DEVELOPMENTS

     In January 2001, The Company signed a Materials Transfer Agreement with F.
Hoffmann-LaRoche, Ltd. This agreement provides a free of charge supply of
PEGASYS(R) brand of pegylated alpha interferon to be used in our U.S. phase 3
hepatitis C clinical program. We agreed to provide Roche with access to and use
of the data resulting from the studies. Roche can use the data for regulatory
purposes and does not have any rights to ZADAXIN.

ITEM 2. PROPERTIES

     We currently lease approximately 16,750 square feet of office space at our
headquarters in San Mateo, California and limited office space for marketing
purposes in Beijing, Hong Kong, Rome, Panama City, Shanghai, Singapore and
Tokyo. We believe that our existing facilities will be adequate for our current
needs and that additional space will be available as needed.

                                        18
<PAGE>   20

ITEM 3. LEGAL PROCEEDINGS

     None

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

     No matter was submitted to a vote of security holders during the quarter
ended December 31, 2000.

                                        19
<PAGE>   21

                                    PART II

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

     Our Common Stock trades on The Nasdaq National Market under the symbol
"SCLN."

     The following table sets forth the high and low sale prices per share for
the quarterly periods indicated, as reported by The Nasdaq National Market. The
quotations shown represent inter-dealer prices without adjustment for retail
markups, markdowns, or commissions, and may not necessarily reflect actual
transactions.

<TABLE>
<CAPTION>
                                                               PRICE RANGE
                                                               COMMON STOCK
                                                              --------------
                                                               HIGH     LOW
                                                              ------   -----
<S>                                                           <C>      <C>
2000
  4th quarter...............................................  $11.13   $2.50
  3rd quarter...............................................   14.19    9.50
  2nd quarter...............................................   15.25    5.81
  1st quarter...............................................   22.75    5.06
1999
  4th quarter...............................................  $ 7.38   $1.56
  3rd quarter...............................................    2.50    1.19
  2nd quarter...............................................    1.94    1.25
  1st quarter...............................................    2.50    1.00
</TABLE>

     In January 2000, we completed a private placement to Brown Simpson Asset
Management, a strategic institutional investor. Brown Simpson purchased
1,000,000 shares of our common stock at a price of $6.00 per share, which was a
slight premium to market, and five-year warrants to purchase 800,000 shares of
our common stock at an exercise price of $7.00 per share. As of December 31,
2000, Brown Simpson had not exercised any of its warrants.

     In March 2000, we completed a private placement to Italy-based Sigma-Tau
Group, one of the leading pharmaceutical companies in Southern Europe. Sigma Tau
purchased 198,072 shares of our common stock at $15.14 per share and five-year
warrants to purchase 400,000 shares of our common stock. Warrants for 200,000
shares are exercisable at a price of $15.67 per share and warrants for 200,000
shares are exercisable at a price of $31.33 per share. Sigma-Tau may not sell
any of the shares purchased in this private placement until March 2, 2001. In
addition, Sigma-Tau was not granted any registration rights covering resale of
the shares or the shares issuable upon exercise of the warrants.

     In March/April 2000, we received approximately $8,606,000 in connection
with exercises of outstanding warrants to purchase 4,597,690 shares of common
stock.

     In December 2000, we completed a $4 million senior unsecured convertible
note with an investment affiliate of UBS AG, one of the world's five largest
financial institutions, The new $4 million note is convertible into 407,610
shares of our common stock at a fixed conversion price of $9.8133 per share. The
note will accrue interest at a rate of 6% per year and will mature in December
2005. The note is not convertible prior to December 2001. We also received
$900,000 for granting the investor the right to purchase approximately $5.9
million of senior unsecured convertible notes due December 2005. If issued, the
notes will bear no interest (zero coupon) and will be convertible into 407,610
shares of our common stock at a fixed conversion price of $14.5066 per share.

     As of March 21, 2001, there were approximately 322 holders of record and
approximately 25,500 beneficial holders of our common stock.

     We have not paid any dividends on our common stock and currently intend to
retain any future earnings for use in our business.

                                        20
<PAGE>   22

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     This section presents selected historical financial data for each of the
last five fiscal years and is qualified by reference to and should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                  2000          1999           1998           1997           1996
                               -----------   -----------   ------------   ------------   ------------
<S>                            <C>           <C>           <C>            <C>            <C>
STATEMENTS OF OPERATIONS
  DATA:
Product sales................  $15,357,000   $ 9,091,000   $  3,625,000   $  2,223,000   $    703,000
Contract revenue.............           --       307,000        100,000             --             --
                               -----------   -----------   ------------   ------------   ------------
          Total revenue......   15,357,000     9,398,000      3,725,000      2,223,000        703,000
                               -----------   -----------   ------------   ------------   ------------
Cost of product sales........    3,113,000     1,761,000      1,036,000        990,000        740,000
                               -----------   -----------   ------------   ------------   ------------
Gross margin.................   12,244,000     7,637,000      2,689,000      1,233,000        (37,000)
                               -----------   -----------   ------------   ------------   ------------
Operating expenses:
  Research and development...    4,182,000     4,604,000      9,293,000      8,642,000      9,904,000
  Marketing..................    8,328,000     5,911,000      5,391,000      4,145,000      4,240,000
  General and
     administrative..........    2,930,000     2,978,000      3,714,000      3,662,000      3,183,000
                               -----------   -----------   ------------   ------------   ------------
          Total operating
            expenses.........   15,440,000    13,493,000     18,398,000     16,449,000     17,327,000
                               -----------   -----------   ------------   ------------   ------------
Loss from operations.........   (3,196,000)   (5,856,000)   (15,709,000)   (15,216,000)   (17,364,000)
Writedown of note receivable
  from former officer........           --            --     (5,944,000)            --             --
Interest and investment
  income, net................    1,479,000       389,000        582,000      1,219,000      2,618,000
                               -----------   -----------   ------------   ------------   ------------
Net loss.....................  $(1,717,000)  $(5,467,000)  $(21,071,000)  $(13,997,000)  $(14,746,000)
Deemed dividend on issuance
  of preferred stock.........           --            --     (3,143,000)            --             --
                               -----------   -----------   ------------   ------------   ------------
Net loss attributable to
  common stockholders........  $(1,717,000)  $(5,467,000)  $(24,214,000)  $(13,997,000)  $(14,746,000)
                               ===========   ===========   ============   ============   ============
Basic net loss per share.....  $     (0.06)  $     (0.26)  $      (1.48)  $      (0.85)  $      (0.85)
                               ===========   ===========   ============   ============   ============
Weighted average shares used
  in computing basic and
  diluted net loss per
  share......................   29,904,924    21,162,936     16,335,096     16,472,765     17,421,312
                               ===========   ===========   ============   ============   ============
BALANCE SHEET DATA:
Cash, cash equivalents and
  investments................  $22,497,000   $ 3,621,000   $  5,410,000   $ 12,901,000   $ 35,106,000
Working capital..............   30,281,000     7,091,000      3,845,000      7,416,000      9,224,000
Total assets.................   36,167,000    13,124,000     11,727,000     19,196,000     42,728,000
Redeemable preferred stock...           --            --        848,000             --             --
Total shareholders' equity...   28,077,000     9,301,000      6,428,000     15,724,000     37,466,000
</TABLE>

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

     This Management's Discussion and Analysis of Financial Condition and
Results of Operation should be read in conjunction with the "Selected
Consolidated Financial Data" and our financial statements and related notes
thereto included elsewhere in this Annual Report on Form 10-K. This Management's
Discussion and Analysis of Financial Condition and Results of Operations and
other parts of this Annual Report on Form 10-K contain forward-looking
statements which involve risks and uncertainties. Our actual results may differ
materially from the results discussed in the forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed in "Risk Factors."

                                        21
<PAGE>   23

OVERVIEW

     During the periods encompassed by this Annual Report on Form 10-K, we have
devoted substantially all of our resources to our ZADAXIN and CPX product
development programs and our ZADAXIN commercialization activities. We conduct
our research and product development efforts through a combination of internal
and collaborative programs. In addition to internal management and staff, we
rely upon arrangements with universities, other clinical research sites and
contract research organizations for a significant portion of our product
development efforts. Oversight of all external and collaborative programs is
conducted by our executive officers and other staff from our headquarters
located in San Mateo, California.

     From commencement of operations through December 31, 2000, we incurred a
cumulative net loss of approximately $117 million. We expect our sales, gross
margin and operating expenses to increase over the next several years as we
expand our sales, research and development, clinical testing and marketing
capabilities. Our ability to achieve and sustain operating profitability is
primarily dependent on the initiation, execution and completion of new ZADAXIN
clinical trials thereby securing regulatory approvals for ZADAXIN in additional
countries, particularly in the U.S., Europe and Japan, successfully launching
ZADAXIN, if approved, in those countries, increasing ZADAXIN sales in approved
markets, developing ZADAXIN corporate partnering arrangements in the U.S.,
Europe and Japan. In addition, other factors may also impact our ability to
achieve and sustain operating profitability, including manufacturing costs of
ZADAXIN, our ability to obtain additional financing to support our operations,
long-term product development and commercialization programs, our spending
associated with successful development of CPX, acquiring rights to additional
drugs, and entering into and extending agreements for product development and
commercialization, where appropriate.

     Our operating results may fluctuate from quarter to quarter and these
fluctuations may be substantial as a result of, among other factors, the number,
timing, costs and results of preclinical and clinical trials of our products,
market acceptance of ZADAXIN, the regulatory approval process, the timing of FDA
or international regulatory approvals, the acquisition of additional product
rights and the funding, if any, provided as a result of corporate partnering
arrangements. Setbacks in the launch, sale or distribution of ZADAXIN,
preclinical or clinical development of our products, the regulatory approval
process or relationships with collaborative partners, and any shortfalls in
revenue or earnings from levels expected by securities analysts, among other
developments, have in the past had, and could in the future have, an immediate
and significant adverse effect on the trading price of our common stock in any
given period.

RESULTS OF OPERATIONS

     Product sales were $15,357,000, $9,091,000 and $3,625,000 for the years
ended December 31, 2000, 1999 and 1998, respectively. In 1998, 1999 and 2000,
both unit and U.S. dollar sales grew as the awareness and use of ZADAXIN
expanded. As of March 2001, after the approval of ZADAXIN in India, we had
received approval to market ZADAXIN in 21 countries. The People's Republic of
China, currently ZADAXIN's largest market, like Japan and certain other Asian
markets, uses a tiered method to import and distribute products. The
distributors make the sales in the country, but the product is imported for them
by licensed importers. We sell to principal importer/agents who then resell to
distributors inside the People's Republic of China. For the year ended December
31, 2000, distributors in China accounted for 86% of our product sales. Sales
emphasis is concentrated in China because, as one of our more developed markets,
marketing expenditures can result in rapid benefits in sales and profits
compared to newer markets which require investment and development spending. In
addition, we have filed for approval to market ZADAXIN in 19 additional
countries and anticipate additional filings in other countries. We expect
ZADAXIN sales to increase both in our existing approved markets and in new
markets once regulatory approvals are secured and ZADAXIN is launched. The level
of these sales increase is dependent upon increased ZADAXIN market penetration
in our existing approved markets, additional ZADAXIN marketing approvals and the
successful launch of ZADAXIN in new markets. Although we remain optimistic
regarding the prospects of ZADAXIN, we cannot assure you that we will ever
achieve significant levels of sales or that we will receive additional ZADAXIN
market approvals.

                                        22
<PAGE>   24

     Cost of product sales was $3,113,000, $1,761,000 and $1,036,000 for the
years ended December 31, 2000, 1999 and 1998, respectively. The increase was
attributable to increased ZADAXIN sales. We expect cost of product sales to vary
from quarter to quarter, depending upon the level of ZADAXIN sales, the
absorption of fixed product-related costs, and any charges associated with
excess or expiring finished product.

     Gross margin was $12,244,000, $7,637,000 and $2,689,000 for the years ended
December 31, 2000, 1999 and 1998, respectively. Gross profit margin was 71% in
1998, 81% in 1999 and 80% in 2000.

     Research and development expenses were $4,182,000, $4,604,000 and
$9,293,000 for the years ended December 31, 2000, 1999, and 1998, respectively.
The decrease in 2000 over 1999 was primarily attributable to decreased clinical
trial expenses and consulting fees. The decrease in 1999 over 1998 was primarily
attributable to decreased clinical trial expenses, decreased license fees
expense associated with acquisition of rights to ZADAXIN, and decreased
consulting fees, partially offset by increased payroll expenses related to our
restructuring program. The initiation and continuation of ZADAXIN, CPX and other
product clinical development programs has had and will continue to have a
significant effect on our research and development expenses and may require us
to seek additional capital resources. In general, we expect product research and
development expenses to increase significantly over the next several years and
to vary quarter to quarter as we pursue our strategy of initiating additional
preclinical and clinical trials and testing, acquiring product rights, and
expanding regulatory activities.

     Marketing expenses were $8,328,000, $5,911,000 and $5,391,000 for the years
ended December 31, 2000, 1999, and 1998, respectively. The increase over the
years is related to increased payroll expenses and expenses for advertising and
conferences associated with the expansion of our ZADAXIN markets. We expect
marketing expenses to increase in the next several quarters and years as we
expand our commercialization and marketing efforts and pursue additional
strategic collaborations.

     General and administrative expenses were $2,930,000, $2,978,000 and
$3,714,000 for the years ended December 31, 2000, 1999, and 1998, respectively.
The decrease over the years was attributable to decreased payroll and
administrative expenses partially offset by increased amortization expense in
relation to its intangible product rights acquired in 1998. In the near term, we
expect general and administrative expenses to vary quarter to quarter as we
augment our general and administrative activities and resources to support
increased expenditures on preclinical and clinical trials and testing, and
regulatory, pre-commercialization and marketing activities.

     A non-cash charge to earnings was recorded in April 1998 for $3,143,000
representing a deemed dividend associated with the issuance of the series C
preferred stock.

     Net interest and investment income was approximately $1,479,000, $389,000
and $582,000 for the years ended December 31, 2000, 1999, and 1998,
respectively. The increase in 2000 over 1999 primarily resulted from increased
interest and investment income due to higher average invested cash balances. In
addition, we recognized other income of approximately $400,000, based on the
repayment of a loan from a former officer. The decrease in 1999 as compared to
1998 resulted from lower average invested cash balances.

LIQUIDITY AND CAPITAL RESOURCES

     At December 31, 2000, 1999 and 1998, we had $22,497,000, $3,621,000 and
$5,410,000, respectively, in cash, cash equivalents, short-term investments and
marketable securities. The marketable securities consist primarily of highly
liquid short-term investments. Under our lease agreement, we are required to
have a line of credit in the amount of $317,000. This line of credit is secured
by a certificate of deposit that total $317,000.

     Net cash used by us in operating activities amounted to $5,517,000,
$8,909,000 and $13,353,000, for the years ended December 31, 2000, 1999, and
1998, respectively. Net cash used in operating activities for the year ended
December 31, 2000 was greater than the net loss primarily due to increases in
accounts receivable and inventory and decreases in accrued professional fees.
These amounts were partially offset by increases in accounts payable and
decreases in prepaid expenses. Net cash used in operating activities for the
year ended December 31, 1999 was greater than the net loss due to increases in
accounts receivable and decreases in amounts owed to third parties for clinical
trials. These amounts were partially offset by non-cash charges
                                        23
<PAGE>   25

associated with depreciation and amortization, and decreases in prepayments of
certain future expenses and inventory. Net cash used in operating activities for
the year ended December 31, 1998 was less than the net loss primarily due to
increases in clinical trial expense accruals primarily for Japan, inventory
decreases, and impairment of a note receivable from a former officer. These
amounts were partially offset by increases in prepaid expense primarily for
product marketing rights acquired for the U.S. and Europe.

     Net cash provided by investing activities for the year ended December 31,
2000 primarily related to the net sale of $1,283,000 in marketable securities
offset by the net purchase of approximately $99,000 in equipment and furniture.
Net cash provided by investing activities for the year ended December 31, 1999
primarily related to the net sale of $120,000 in marketable securities offset by
the net purchase and disposal of approximately $42,000 in equipment and
furniture. Net cash provided by investing activities for the year ended December
31, 1998 primarily related to the net sale of $7,388,000 in marketable
securities offset by the purchase of approximately $99,000 in equipment and
furniture.

     Net cash provided by financing activities for the year ended December 31,
2000 consisted of $24,486,000 in proceeds, approximately $5,326,000 of which
related to net proceeds of a private placement of common stock and redeemable
warrants to institutional investors, approximately $8,606,000 from the exercise
of outstanding redeemable warrants to purchase common stock by institutional and
accredited investors, approximately $191,000 in net proceeds from the issuance
of common stock under our employee stock purchase plan, approximately $3,100,000
in net proceeds from a private placement to Sigma-Tau, our European ZADAXIN
development and marketing partner, approximately $2,363,000 in connection with
exercises of outstanding options under our employee stock option plans,
$4,000,000 from the issuance of a convertible note and $900,000 for granting
investors the right to purchase approximately $5,900,000 of senior unsecured
convertible notes. Net cash provided by financing activities for the year ended
December 31, 1999 consisted of $7,169,000 in proceeds, approximately $5,430,000
of which related to the issuance of common stock and redeemable warrants to
institutional and accredited investors in two private placements, payment in
full of $235,000 on a note receivable from our President and Chief Executive
Officer, and approximately $1,581,000 related to the issuance of common stock
under our employee stock purchase plan, exercise of warrants and issuance of
restricted common stock to Sigma-Tau, our ZADAXIN development and marketing
partner in Europe. Net cash provided by financing activities for the year ended
December 31, 1998 consisted of $6,342,000 in proceeds, approximately $3,931,000
of which related to our sale and issuance of 661,157 shares of series C
preferred stock, approximately $529,000 of which related to the issuance of
common stock and approximately $1,882,000 of which related to the payment on
notes receivable from former and current officers.

     In January 2000, we completed a private placement of common stock and
redeemable common stock warrants to an institutional investor which resulted in
gross proceeds of approximately $6,100,000. If the warrants issued in connection
with this private placement are fully exercised, we will receive an additional
$5,600,000. In March 2000, we completed a $3,100,000 private placement to
Sigma-Tau consisting of 198,072 shares of restricted common stock and warrants
for 400,000 shares of common stock, which, if fully exercised, will result in
additional gross proceeds of $9,400,000. In March and April 2000, an aggregate
of 4,597,690 common stock warrants were exercised resulting in aggregate gross
proceeds of approximately $8,606,000. In December 2000, we completed a $4
million senior unsecured convertible note with an investment affiliate of UBS
AG. The $4 million note is convertible into 407,610 shares of our common stock
at a fixed conversion price of $9.8133 per share. The note will accrue interest
at a rate of 6% per year and will mature in December 2005. The note is not
convertible prior to December 2001. We also received $900,000 for granting the
investor the right to purchase approximately $5.9 million of senior unsecured
convertible notes due December 2005. If issued, the notes will bear no interest
(zero coupon) and will be convertible into 407,610 shares of our common stock at
a fixed conversion price of $14.5066 per share.

     Our capital requirements may change depending upon numerous factors,
including the level of ZADAXIN product sales, the availability of complementary
products, technologies and businesses, the initiation of preclinical and
clinical trials and testing, the timing of regulatory approvals, developments in
relationships with existing or future collaborative partners and the status of
competitive products. Management believes ZADAXIN product sales should continue
to increase and remain a valuable source of capital
                                        24
<PAGE>   26

generation. The initiation and continuation of U.S. clinical development
programs could, however, require additional funding either from a collaborative
partner or through equity or debt financing. The timing, achievement and
sustainability of our operating profitability and capital requirements may
change depending upon numerous factors, including the level of ZADAXIN product
sales, the timing and amount of manufacturing costs related to ZADAXIN and CPX,
the availability of complementary products, technologies and businesses, the
initiation and continuation of preclinical and clinical trials and testing,
particularly in the U.S., the timing of regulatory approvals, developments in
relationships with existing or future collaborative partners and the status of
competitive products. Without additional financing, or sales growth beyond
management's expectations, or a combination thereof, management believes its
existing capital resources and interest on funds available are adequate to
maintain its current and planned operations for at least the next twelve months.

INCOME TAXES

     At December 31, 2000, we had net operating loss carryforwards for federal
income tax purposes of approximately $56,485,000 which expire in the years 2006
through 2020. The difference between the cumulative losses for financial
reporting purposes and federal income tax purposes is primarily attributable to
losses incurred by our foreign subsidiaries. At December 31, 2000, we had
federal tax credit carryforwards of approximately $2,600,000 which expire in the
years 2009 through 2020.

     Because of the "change in ownership" provisions of the Internal Revenue
Code, a portion of our net operating loss carryforwards and tax credit
carryforwards may be subject to an annual limitation regarding their utilization
against taxable income in future periods. As a result of the annual limitation,
a portion of these carryforwards may expire before ultimately becoming available
to reduce future income tax liabilities.

RECENT ACCOUNTING PRONOUNCEMENTS

     As of December 31, 2000, the Company adopted Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" ("SAB 101"). This summarizes
certain areas of the staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. Management believes
that the Company has complied with the guidance of SAB 101.

     In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of Opinion No. 25" for (a) the definition of employee for
purposes of applying Opinion No. 25, (b) the criteria for determining whether a
plan qualifies as a noncompensatory plan, (c) the accounting consequences of
various modifications to the terms of a previously fixed stock option or award,
and (d) the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 became effective July 1, 2000, but certain
conclusions cover specific events that occur after either December 15, 1998, or
January 12, 2000. The adoption of certain provisions of FIN 44 did not have a
material impact on the Company's financial position or results of operations.

     In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which is required to be adopted for the year ending December 31, 2001.
The Company does not anticipate that the adoption of SFAS 133 will have a
significant effect on results of operations or the financial position of the
Company.

RISK FACTORS

     You should carefully consider the risks described below, together with all
of the other information included in this report on Form 10-K, before making an
investment decision. The risks below are not the only ones we face. If any of
the following risks actually occurs, our business, financial condition or
operating results could be harmed. In such case, the trading price of our common
stock could decline, and you may lose all or part of your investment.

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<PAGE>   27

IF WE FAIL TO SATISFY AND COMPLY WITH GOVERNMENTAL REGULATIONS OR IF GOVERNMENT
REGULATIONS CHANGE, OUR BUSINESS WILL SUFFER.

     All new drugs, including our products which have been developed or are
under development, are subject to extensive and rigorous regulation by the FDA,
and comparable agencies in state and local jurisdictions and in foreign
countries. These regulations change from time to time. In prior years,
legislation was introduced in the U.S. Congress that would restrict the duration
of the marketing exclusivity of an orphan drug. There can be no assurances that
this type of legislation will not be reintroduced and passed into law, or that
the benefits of the existing statute will remain in effect. Our failure to
satisfy and comply with regulations by the FDA, and comparable agencies in state
and local jurisdictions and in foreign countries can delay or stop approval of
our drugs. These regulations govern, among other things, the development,
testing, manufacturing, labeling, storage, premarket approval, importation,
advertising, promotion, sale and distribution of our products. Satisfaction of
these regulations typically takes several years and the time needed to satisfy
them vary substantially, based on the type, complexity and novelty of the
pharmaceutical product. As a result, government regulation may cause us to delay
or prevent us from marketing our existing or potential products for a
considerable period of time and to impose costly procedures upon our activities.
If regulatory approval of our products is granted, such approval may impose
limitations on the indicated uses for which our products may be marketed.

IF WE FAIL TO OBTAIN REGULATORY APPROVALS IN COUNTRIES WHERE WE HAVE TARGETED
REGULATORY APPROVAL FOR OUR PRODUCTS, OUR REVENUE GROWTH MAY BE HARMED AND OUR
STOCK PRICE MAY DECLINE.

     The research, preclinical and clinical development, manufacturing,
marketing and sale of ZADAXIN, CPX and our other drug candidates are subject to
extensive regulation by governmental authorities. ZADAXIN, CPX and any other
products must be approved by the FDA or its foreign counterparts before they can
be sold in any jurisdiction. Obtaining regulatory approval is time-consuming and
expensive. In some countries where we are contemplating marketing and selling
ZADAXIN, the regulatory approval process for drugs that have not been previously
approved in countries with established clinical trial review procedures is
uncertain, and this may delay the grant of regulatory approvals for ZADAXIN. In
addition, to secure these regulatory approvals, we need favorable results from
additional clinical trials of ZADAXIN and we will need to demonstrate, in
preclinical and clinical trials, the safety and efficacy of CPX as a treatment
for cystic fibrosis. Our failure to obtain the required regulatory approvals so
that we can develop, market and sell our products in countries where we
currently do not have such rights may limit the growth of our revenues.

     There can be no assurance that we will ultimately obtain regulatory
approvals in our targeted countries in a timely and cost-effective manner or at
all. Failure to comply with applicable U.S. or foreign regulatory requirements
can, among other things, result in warning letters, fines, suspensions of
regulatory approvals, product recalls or seizures, operating restrictions,
injunctions, total or partial suspension of production, civil penalties, and
criminal prosecutions. Further, additional government regulation may be
established or imposed by legislation or otherwise, which could prevent or delay
regulatory approval of ZADAXIN, CPX or any of our future products. Adverse
events related to our products in any of our existing or future markets could
cause regulatory authorities to withdraw market approval for such products, if
any, or prevent us from receiving market approval in the future.

     We may not be able to commence or complete the clinical trials we have
sponsored or are planning relating to ZADAXIN and CPX in a timely or
cost-effective manner. Even if completed, these trials may not fulfill the
applicable regulatory approval criteria, in which case we will not be able to
obtain regulatory approvals in these countries. Failure to obtain additional
regulatory approvals will harm our operating results. In addition, adverse
results in our development programs also could result in restrictions on the use
of ZADAXIN and, if approved, CPX.

     Our failure, or the failure by one or more of our partners, to comply with
applicable U.S. or foreign regulatory requirements could, among other things,
result in warning letters, fines, suspensions of regulatory approvals, product
recalls or seizures, operating restrictions, injunctions and criminal
prosecutions. In addition,

                                        26
<PAGE>   28

government regulations may be established or imposed which prevent or delay
regulatory approval of ZADAXIN, CPX or our future products.

WE ARE PLANNING TO IMPLEMENT AND MANAGE A PHASE 3 PROGRAM IN THE U.S. FOR THE
APPROVAL IN THE U.S. OF ZADAXIN IN COMBINATION WITH PEGYLATED INTERFERON FOR THE
TREATMENT OF HEPATITIS C. OUR SCIENTIFIC AND CLINICAL RESEARCH DATA RELATING TO
ZADAXIN IN COMBINATION WITH INTERFERON FOR THE TREATMENT OF HEPATITIS C IS BASED
ON THE USE OF THE UN-PEGYLATED FORM OF INTERFERON.

     The results from our previous phase 2 and phase 3 hepatitis C studies have
enabled us to produce a conservatively designed study program based on the use
of ZADAXIN in combination with un-pegylated interferon. However, there can be no
assurances that the results that produced this conservative design will
carryover to the design of the study program using the combination of ZADAXIN
and pegylated interferon. The pegylated form of interferon may perform better
than anticipated in comparison to the combination of ZADAXIN and pegylated
interferon resulting in an underpowered study.

WE HAVE A HISTORY OF OPERATING LOSSES AND AN ACCUMULATED DEFICIT, WE EXPECT TO
CONTINUE TO INCUR LOSSES IN THE NEAR TERM AND MAY NEVER ACHIEVE PROFITABILITY.

     We have experienced significant operating losses since our inception and as
of December 31, 2000, we had an accumulated deficit of $116,746,000. We expect
our operating expenses to increase over the next several years as we plan to
dedicate substantially all of our resources to expanding our development,
testing and marketing capabilities. Accordingly, we may never achieve
profitability. Our failure to achieve profitability may cause our stock price to
decline.

IF WE DO NOT INCREASE THE AMOUNT OF REVENUE WE DERIVE FROM SALES OF ZADAXIN WE
WILL NEED TO OBTAIN ADDITIONAL CAPITAL TO SUPPORT OUR LONG-TERM PRODUCT
DEVELOPMENT AND COMMERCIALIZATION PROGRAMS.

     Our strategy in the near term is to invest in phase 2 and 3 clinical
studies in the U.S. Europe and Japan and continue to maintain and develop our
international ZADAXIN business. Our ability to achieve and sustain operating
profitability depends in large part on our ability to:

     - commence, execute and complete clinical programs for, and obtain
       additional regulatory approvals for, ZADAXIN, CPX, SCV-07, DAX and/or
       future products, particularly in the U.S., Europe and Japan;

     - increase ZADAXIN sales in existing markets; and

     - launch ZADAXIN in new markets;

     If we do not increase the revenue we derive from the sales of ZADAXIN and
achieve operating profitability, we will need to obtain additional financing to
support our long-term product development and commercialization programs. We may
seek additional funds through public and private stock offerings, arrangements
with corporate partners, borrowings under lease lines of credit or other
sources. If we cannot raise the necessary funds, we will have to reduce our
capital expenditures, scale back our development of new products, reduce our
workforce and out-license to others products or technologies that we otherwise
would seek to commercialize ourselves.

     The amount of capital we need will depend on many factors, including:

     - the level of future ZADAXIN sales;

     - the timing, location, scope and results of ongoing and planned
       preclinical studies and clinical trials;

     - the cost of manufacturing or obtaining preclinical and clinical
       materials;

     - the timing and cost involved in applying for and obtaining FDA and
       international regulatory approvals;

     - the costs involved in filing, prosecuting and enforcing patent claims;

     - competing technological and market developments;

                                        27
<PAGE>   29

     - whether any or all of our outstanding common stock warrants are exercised
       and the timing and amount of these exercises;

     - our ability to establish and maintain strategic arrangements for
       development, sales, manufacturing and marketing of our products; and

     - whether we elect to establish additional partnering arrangements for
       development, sales, manufacturing, and marketing of our products.

     Many of the foregoing factors are not within our control. If we need to
raise additional funds and such funds are not available on reasonable terms, we
may be required to delay or cancel our long-term product development and
commercialization programs. Any additional equity financing will be dilutive to
shareholders, and any debt financing, if available, may include restrictive
covenants.

WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP OR COMMERCIALIZE OUR PRODUCTS.

     Many of our products are in the development stage and will require the
commitment of substantial resources, devoted to extensive research, development,
preclinical testing, clinical trials, manufacturing scale-up and regulatory
approval prior to being ready for sale. We can not assure you that commercially
viable products will result from these efforts. We face significant
technological risks inherent in developing these products. We may also abandon
some or all of our proposed products before they become commercially viable. If
any of our products, even if developed and approved, cannot be successfully
commercialized in a timely manner, our business will be harmed and the price of
our stock may decline.

     We have not yet sold any product other than ZADAXIN. Our future revenue
growth depends on increased market acceptance and commercialization of ZADAXIN
in additional countries. If we fail to successfully market ZADAXIN, or if we
cannot commercialize this drug in additional markets, our revenue and operating
results will suffer. Our future revenue will also depend in part on our ability
to develop other commercially viable and accepted products. Market acceptance of
our products will depend on many factors, including our ability to:

     - convince prospective customers that our products are an attractive
       alternative to other treatments and therapies;

     - convince prospective strategic partners that our products are an
       attractive alternative to other treatments and therapies; and

     - manufacture products in sufficient quantities with acceptable quality and
       at an acceptable cost.

WE ARE DEPENDENT ON THE SALE OF ZADAXIN IN FOREIGN COUNTRIES, PARTICULARLY
CHINA, AND IF WE EXPERIENCE DIFFICULTIES IN OUR FOREIGN SALES EFFORTS, OUR
FINANCIAL CONDITION WILL BE HARMED.

     Our financial condition in the near term is highly dependent on the sale of
ZADAXIN in foreign countries. If we experience difficulties in our foreign sales
efforts, our business will suffer and our financial condition will be harmed.
The majority of our ZADAXIN sales are to customers in China. Sales of ZADAXIN in
China may be limited due to its low average income and poorly developed
infrastructure. In addition, our ZADAXIN sales and operations in other parts of
Asia, as well as in Latin America and the Middle East, are subject to a number
of risks, including:

     - difficulties and delays in obtaining pricing approvals and reimbursement;

     - difficulties and delays in obtaining product health registration;

     - difficulties and delays in obtaining importation permits;

     - unexpected changes in regulatory requirements;

     - difficulties in staffing and managing foreign operations;

     - long payment cycles;

                                        28
<PAGE>   30

     - difficulties in accounts receivable collection;

     - currency fluctuations; adverse or deteriorating economic conditions; and

     - potential adverse tax consequences.

     We do not have any product sales in the U.S. with which to offset any
decrease in our revenue from ZADAXIN sales in Asia, Latin America and the Middle
East. In addition, some countries in these regions regulate pharmaceutical
prices and pharmaceutical importation. These regulations may reduce prices for
ZADAXIN to levels significantly below those that would prevail in an unregulated
market or limit the volume of product which may be imported and sold, either of
which will cause our revenues to fall and our business to suffer.

WE HAVE LIMITED SALES, MARKETING AND DISTRIBUTION CAPABILITIES, WHICH MAY
ADVERSELY AFFECT OUR ABILITY TO SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS.

     We currently have limited sales, marketing and distribution capabilities,
and we anticipate that we will be relying on third-party collaborators to sell,
market and distribute our products in the foreseeable future. If our
arrangements with these third parties are not successful, or if we are unable to
enter into additional third-party arrangements, we may need to substantially
expand our sales, marketing and distribution force. Our efforts to expand may
not succeed, or we may lack sufficient resources to expand in a timely manner,
either of which will harm our operating results. If we are able to further
develop our sales, marketing and distribution capabilities, we will compete with
other companies that have experienced and well funded operations. If we cannot
successfully compete with them, our revenues may not grow and our business may
suffer.

IF WE ARE NOT ABLE TO ESTABLISH AND MAINTAIN ADEQUATE MANUFACTURING AND SUPPLY
RELATIONSHIPS, THE DEVELOPMENT AND SALE OF OUR PRODUCTS COULD BE IMPAIRED.

     To be successful, our products must be manufactured in commercial
quantities, in compliance with regulatory requirements and at an acceptable
cost. We may not be able to maintain the long-term manufacturing relationships
we currently have with our suppliers of ZADAXIN and CPX. Manufacturing
interruptions, if any, could significantly delay clinical development of
potential products and reduce third-party or clinical researcher interest and
support of proposed trials. These interruptions could also impede
commercialization of our products, including sales of ZADAXIN in approved
markets, and impair our competitive position. Any of these developments would
harm our business. In some countries, a change may require additional regulatory
approvals. If we do not obtain the required regulatory approvals of this
manufacturing change in a timely fashion, new ZADAXIN marketing approvals may be
delayed or sales may be interrupted until the manufacturing change is approved.
Either of these results will hurt our business.

     Manufacturing, supply and quality control problems may arise as we, either
alone or with subcontractors, attempt to scale-up our manufacturing procedures.
We may not be able to scale-up in a timely manner or at a commercially
reasonable cost. Problems could lead to delays or pose a threat to the ultimate
commercialization of our products and harm us.

IF WE DO NOT OBTAIN RIGHTS TO ADDITIONAL PRODUCTS FROM THIRD PARTIES, OUR
REVENUE MAY DECLINE AND OUR FUTURE DEVELOPMENT EXPENSES MAY INCREASE.

     We are only actively pursuing clinical development of ZADAXIN and CPX at
this time. If we do not advance SCV-07 and DAX, the other products to which we
have in-licensed rights, from preclinical into clinical development, or license
or otherwise acquire rights to additional drugs, we may have a shortage of drugs
to develop and commercialize. Any shortage in the number of drugs that we are
able to develop and commercialize may cause our revenues to fall and increase
our future development expenses.

                                        29
<PAGE>   31

COMMERCIALIZATION OF SOME OF OUR PRODUCTS DEPENDS ON COLLABORATIONS WITH OTHERS.
IF OUR COLLABORATORS ARE NOT SUCCESSFUL, OR IF WE ARE UNABLE TO FIND FUTURE
COLLABORATORS, WE MAY NOT BE ABLE TO PROPERLY DEVELOP AND COMMERCIALIZE OUR
PRODUCTS.

     We depend in part on our distributors and business partners to develop
and/or promote our drugs, and if they are not successful in their efforts or
fail to do so, our business will suffer. We generally do not have control over
the amount and timing of resources that our business partners devote to ZADAXIN.
If they do not perform their obligations as we expect, our development expenses
would increase and the development and/or sale of our products could be limited
or delayed, which could cause our business to suffer and our stock price to
decline. In addition, our relationships with these companies may not be
successful. Disputes may arise over ownership rights to intellectual property,
know-how or technologies developed with our collaborators, and we may not be
able to negotiate similar additional arrangements in the future to develop and
commercialize ZADAXIN.

IF WE FAIL TO PROTECT OUR PRODUCTS, TECHNOLOGIES AND TRADE SECRETS, WE MAY NOT
BE ABLE TO SUCCESSFULLY USE, MANUFACTURE OR MARKET AND SELL OUR PRODUCTS OR WE
MAY FAIL TO ADVANCE OR MAINTAIN OUR COMPETITIVE POSITION.

     Our success depends significantly on our ability to obtain and maintain
meaningful patent protection for our products and technologies, to preserve our
trade secrets and to avoid infringing on the proprietary rights of third
parties. Our pending patent applications may not result in the issuance of
patents in the future. Our patent applications may not have priority over
others' applications and, even if any patents are issued, they may not provide a
competitive advantage to us or may be invalidated or circumvented by our
competitors. Others may independently develop similar products or design around
patents issued or licensed to us. Patents issued to, or patent applications
filed by, other companies could harm our ability to use, manufacture or market
our products or maintain our competitive position with respect to our products.
Many of our patents relating to ZADAXIN have expired, and we have rights to
other patents and patent applications relating to ZADAXIN under exclusive
licenses. If we breach the terms of any of these licenses, we could lose our
rights to these patents and patent applications.

     Our commercial success also depends in part on us not infringing valid,
enforceable patents or proprietary rights of third parties, and not breaching
any licenses that may relate to our technologies and products. We are aware of
third-party patents that may relate to our products. It is possible that we may
unintentionally infringe these patents or other patents or proprietary rights of
third parties. We may in the future receive notices claiming infringement from
third parties as well as invitations to take licenses under third-party patents.
Any legal action against us or our collaborative partners claiming damages and
seeking to enjoin commercial activities relating to our products and processes
affected by third-party rights may require us or our collaborative partners to
obtain licenses in order to continue to manufacture or market the affected
products and processes. Our efforts to defend against any of these claims, even
if unmeritorious, would require us to devote resources and attention that could
have been directed to our operation and growth plans. In addition, these actions
may subject us to potential liability for damages. We or our collaborative
partners may not prevail in a patent action and any license required under a
patent may not be made available on commercially acceptable terms, or at all.

     Pharmaceuticals are either not patentable or have only recently become
patentable in some of the countries other than the U.S., in which we have
exclusive rights to ZADAXIN. Past enforcement of intellectual property rights in
many of these countries has been limited or non-existent. Future enforcement of
patents and proprietary rights in many other countries will likely be
problematic or unpredictable. Moreover, the issuance of a patent in one country
does not assure the issuance of a similar patent in another country. Claim
interpretation and infringement laws vary by nation, so the extent of any patent
protection is uncertain and may vary in different jurisdictions.

IF WE MAKE ANY ACQUISITIONS, WE WILL INCUR A VARIETY OF COSTS AND MAY NEVER
REALIZE THE ANTICIPATED BENEFITS.

     If appropriate opportunities become available, we may attempt to acquire
products, product candidates or businesses that we believe fit strategically
with our business. We currently have no commitments or

                                        30
<PAGE>   32

agreements with respect to material acquisitions. If we do undertake any
transaction of this sort, the process of integrating an acquired product,
product candidate or business may result in operating difficulties and
expenditures and may absorb significant management attention that would
otherwise be available for our ongoing business development plans. Moreover, we
may never realize the anticipated benefits of any acquisition. Future
acquisitions could result in potentially dilutive issuances of equity
securities, the incurrence of debt, contingent liabilities and/or amortization
expenses related to goodwill and other intangible assets, which could adversely
affect our business, financial condition and results of operations.

WE MAY LOSE MARKET SHARE OR OTHERWISE FAIL TO COMPETE EFFECTIVELY IN THE
INTENSELY COMPETITIVE BIOPHARMACEUTICAL INDUSTRY.

     Competition in the biopharmaceutical industry is intense and we expect that
competition to increase. Our success depends on our ability to compete. We
believe that the principal competitive factors in this industry include the
efficacy, safety, price, therapeutic regimen and manufacturing quality assurance
associated with a given drug. Our competitors include biopharmaceutical
companies, biotechnology firms, universities and other research institutions,
both in the U.S. and abroad, that are actively engaged in research and
development of products in the therapeutic areas we are pursuing, particularly
cancer, hepatitis B, hepatitis C, HIV and cystic fibrosis. In certain instances,
our competitors are currently marketing drugs for cancer, hepatitis B, hepatitis
C and HIV or have products in late-stage clinical trials.

     Most of our competitors, particularly large biopharmaceutical companies,
have substantially greater financial, technical, regulatory, manufacturing,
marketing and human resource capabilities than we do. Most of them also have
extensive experience in undertaking the preclinical and clinical testing and
obtaining the regulatory approvals necessary to market drugs. Additional mergers
and acquisitions in the pharmaceutical industry may result in ever more
resources being concentrated with our competitors. Principal competitive factors
in the pharmaceutical field include efficacy, safety, and therapeutic regimen.
Where comparable products are marketed by other companies price is also a
competitive factor. Increased competitive pressure could lead to intensified
price-based competition resulting in lower prices and margins, which would hurt
our operating results

     We currently rely on sales of ZADAXIN as a treatment for hepatitis C and
hepatitis B as our primary source of revenue. However, several large
biopharmaceutical companies have substantial commitments to alpha interferon, an
approved drug for treating hepatitis B and hepatitis C and to lamivudine, an
approved drug to treat hepatitis B. We cannot assure you that we will compete
successfully against our competitors or that our competitors, or potential
competitors, will not develop drugs or other treatments for hepatitis C,
hepatitis B, cystic fibrosis, cancer and other diseases that will be superior to
ours. However, in the area of immune system enhancer therapy, we anticipate that
our competition for ZADAXIN may be reduced by the fact that ZADAXIN,
administered in combination with numerous antiviral and anti-cancer agents, is
expected to be complementary rather than competitive to these agents in
enhancing the immune system. We believe that we can position ZADAXIN as a
complementary rather than competitive drug to many therapies, but cannot
guarantee that we will be successful in this endeavor. We expect continuing
advancements in and increasing awareness of the use of immune system enhancer
therapy to fight cancer and infectious diseases may create new competitors as
well as numerous new opportunities for expanded use of ZADAXIN worldwide.

IF THE CURRENT ECONOMIC SLOWDOWN IN THE U.S. CAUSES THE ECONOMIES OF OTHER
COUNTRIES, PARTICULARLY THOSE IN ASIA, LATIN AMERICA AND THE MIDDLE EAST TO
EXPERIENCE A SLOWDOWN OR RECESSION, OUR BUSINESS WILL SUFFER.

     The U.S. is the world's largest consumer and as such, the current economic
slowdown in the U.S. may adversely affect the economies of other countries,
including the developing countries in Asia, Latin America and the Middle East
from which we derive all of our revenues. If the economic conditions in the U.S.
continue or worsen, these developing countries may also experience an economic
slowdown or recession, which would likely result in a decrease of sales of
ZADAXIN. Any decrease in sales of ZADAXIN would harm our operating results,
delay our efforts to achieve profitability, and likely cause our stock price to
decline.

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<PAGE>   33

WE RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR OPERATIONS, AND CALIFORNIA'S
CURRENT ENERGY CRISIS COULD DISRUPT OUR BUSINESS AND INCREASE OUR EXPENSES.

     California is in the midst of an energy crisis that could disrupt our
operations and increase our expenses. In the event of an acute power shortage,
that is, when power reserves for California fall below 1.5%, electricity
providers have on some occasions implemented, and may in the future continue to
implement, rolling blackouts. The majority of our operations are located in
California; however, we currently do not have backup generators or alternate
sources of power in the event of a blackout. If blackouts interrupt our power
supply, we would be temporarily unable to continue operations at our facilities.
Any such interruption in our ability to continue operations at our facilities
could damage our reputation and harm our development efforts, which could
adversely affect our business and results of operation.

IF THIRD-PARTY REIMBURSEMENT IS NOT AVAILABLE OR PATIENTS CANNOT OTHERWISE PAY
FOR ZADAXIN, WE MAY NOT BE ABLE TO SUCCESSFULLY MARKET ZADAXIN.

     Our ability to successfully commercialize our products may depend in part
on the extent to which coverage and reimbursement to patients for our products
will be available from government health care programs, private health insurers
and other third party payors or organizations. Significant uncertainty exists as
to the reimbursement status of new therapeutic products, such as ZADAXIN, and we
cannot assure you that third party insurance coverage and reimbursement will be
available for therapeutic products we might develop. In most of the emerging
markets in which we sell ZADAXIN or intend to sell ZADAXIN, reimbursement for
ZADAXIN under government or private health insurance programs is not yet widely
available. The failure to obtain third-party reimbursement for our products,
particularly in the U.S., Europe and Japan, will hurt our business. In the U.S.,
proposed health care reforms could limit the amount of third-party reimbursement
available for our products. We cannot assure you that future additional
limitations will not be imposed in the future on drug coverage and
reimbursement. In many emerging markets where we have marketing rights to
ZADAXIN, government resources and per capita income may be so low that our
products will be prohibitively expensive. In these countries, we may not be able
to market our products on economically favorable terms, if at all.

     Efforts by governmental and third-party payors to contain or reduce health
care costs could cause us to reduce the prices at which we market our drugs,
which will reduce our gross margins and may harm our business. Various
governments and third-party payors are trying to contain or reduce the costs of
health care through various means. We expect that there will continue to be a
number of legislative proposals to implement government controls. The
announcement of proposals or reforms could cause us to reduce the prices at
which we market our drugs, which will reduce our gross margins and may harm our
business.

IF WE LOSE KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL, HIGHLY
SKILLED PERSONNEL REQUIRED FOR THE EXPANSION OF OUR ACTIVITIES, OUR BUSINESS
WILL SUFFER.

     We are highly dependent upon our ability to attract and retain qualified
personnel because of the specialized, scientific and international nature of our
business. There is intense competition for qualified management, scientific and
technical personnel in the pharmaceutical industry, and we may not be able to
attract and retain the qualified personnel we need to grow and develop our
business globally. In addition, numerous key responsibilities at SciClone are
assigned to a small number of individuals. If we are unable to attract and
retain qualified personnel as needed or promptly replace those employees who are
critical to our product development and commercialization, the development and
commercialization of our products would adversely be affected. At this time, we
do not maintain "key person" life insurance on any of our key personnel.

WE MAY BE SUBJECT TO PRODUCT LIABILITY LAWSUITS AND OUR INSURANCE MAY BE
INADEQUATE TO COVER DAMAGES.

     Clinical trials or marketing of any of our current and potential products
may expose us to liability claims from the use of these products. We currently
carry product liability insurance. However, we cannot be certain that we will be
able to maintain insurance on acceptable terms for clinical and commercial
activities or that

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<PAGE>   34

the insurance would be sufficient to cover any potential product liability claim
or recall. If we fail to have sufficient coverage, our business, results of
operation and cash flows could be adversely affected.

IF WE ARE UNABLE TO COMPLY WITH ENVIRONMENTAL LAWS AND REGULATIONS, OUR BUSINESS
MAY BE HARMED.

     We are subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of hazardous materials and
waste products. We currently maintain a supply of hazardous materials at our
facilities. In the event of an accident, we could be liable for any damages that
result, and the liability could exceed our resources. While we outsource our
research and development programs involving the controlled use of biohazardous
materials, if in the future we conduct these programs ourselves, we might be
required to incur significant cost to comply with the environmental laws and
regulations.

THE PRICE OF OUR COMMON STOCK HAS EXPERIENCED SUBSTANTIAL VOLATILITY AND MAY
FLUCTUATE DUE TO FACTORS BEYOND OUR CONTROL.

     There has been significant volatility in the market prices for publicly
traded shares of pharmaceutical and biotechnology companies, including ours. The
following factors may have an adverse impact on the market price of our common
stock:

     - significant negative changes in the major equity market indices;

     - announcements of technical or product developments by us or our
       competitors;

     - governmental regulation;

     - health care legislation;

     - public announcements regarding advances in the treatment of the disease
       states that we are targeting;

     - public announcements from government officials relating to the
       biotechnology or pharmaceutical industries;

     - patent or proprietary rights developments;

     - changes in third-party reimbursement policies for our products; and

     - fluctuations in our operating results.

     The price of our common stock may not remain at or exceed current levels.

SUBSTANTIAL SALES OF OUR STOCK OR CONVERTIBLE SECURITIES MAY IMPACT THE MARKET
PRICE OF OUR COMMON STOCK.

     As of December 31, 2000, stock options for 4,426,077 shares of common stock
were outstanding, of which options for 3,002,884 shares were currently
exercisable, and there were warrants exercisable for 1,970,500 shares of common
stock outstanding. Upon exercise and issuance, all of these shares of common
stock will be freely tradable.

     Future sales of substantial amounts of our common stock could adversely
affect the market price of our common stock. Similarly, if we raise additional
funds through the issuance of common stock or securities convertible into or
exercisable for common stock, the percentage ownership of our shareholders will
be reduced and the price of our common stock may fall.

ISSUING PREFERRED STOCK WITH RIGHTS SENIOR TO THOSE OF OUR COMMON STOCK COULD
ADVERSELY AFFECT HOLDERS OF COMMON STOCK.

     Our charter documents give our board of directors the authority to issue
additional series of preferred stock without a vote or action by our
shareholders. The board also has the authority to determine the terms of
preferred stock, including price, preferences and voting rights. The rights of
holders of our common stock may be adversely affected by the rights granted to
holders of preferred stock. For example, a series of preferred

                                        33
<PAGE>   35

stock may be granted the right to receive a liquidation preference -- a pre-set
distribution in the event SciClone is liquidated -- that would reduce the amount
available for distribution to holders of common stock. In addition, the issuance
of preferred stock could make it more difficult for a third party to acquire a
majority of our outstanding voting stock. As a result, common shareholders could
be prevented from participating in transactions that would offer an optimal
price for their shares.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The primary objective of our investment activities is to preserve principal
while at the same time maximizing yields without significantly increasing risk.
To achieve this objective, we invest in highly liquid and high quality debt
securities. Our investments in debt securities are subject to interest rate
risk. To minimize the exposure due to adverse shift in the interest rates, we
invest in short term securities and maintain an average maturity of less than 1
year. A hypothetical 60 basis point increase in interest rates would result in
an approximate $90,305 decrease (equal to 0.6%) in fair value of our
available-for-sale securities.

     The potential change noted above is based on sensitivity analyses performed
on our financial positions at December 31, 2000. Actual results may differ
materially.

                                        34
<PAGE>   36

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         SCICLONE PHARMACEUTICALS, INC.

                         INDEX TO FINANCIAL STATEMENTS
           FINANCIAL STATEMENTS AT DECEMBER 31, 2000 AND 1999 AND FOR
        EACH OF THE THREE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998.

<TABLE>
<CAPTION>
                                                                   PAGE
                                                                   ----
<S>  <C>                                                           <C>
1.   Report of Ernst & Young LLP, Independent Auditors...........   36
2.   Consolidated Balance Sheets at December 31, 2000 and
     1999........................................................   37
3.   Consolidated Statements of Operations for each of the three
     years ended December 31, 2000, 1999 and 1998................   38
4.   Consolidated Statement of Shareholders' Equity for the three
     years ended December 31, 2000, 1999 and 1998................   39
5.   Consolidated Statements of Cash Flows for each of the three
     years ended December 31, 2000, 1999 and 1998................   40
6.   Notes to Consolidated Financial Statements..................   41
</TABLE>

                                        35
<PAGE>   37

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
SciClone Pharmaceuticals, Inc.

     We have audited the accompanying consolidated balance sheets of SciClone
Pharmaceuticals, Inc. as of December 31, 2000 and 1999, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the three years in the period ended December 31, 2000. Our audits also include
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 referred to above present fairly,
in all material respects, the consolidated financial position of SciClone
Pharmaceuticals, Inc. at December 31, 2000 and 1999, and the consolidated
results of its operations and its cash flows for the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

                                          /s/ ERNST & YOUNG LLP

Palo Alto, California
January 26, 2001

                                        36
<PAGE>   38

                         SCICLONE PHARMACEUTICALS, INC.

                          CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                              DECEMBER 31,     DECEMBER 31,
                                                                  2000             1999
                                                              -------------    -------------
<S>                                                           <C>              <C>
Current assets:
  Cash and cash equivalents.................................  $  21,981,000    $   1,828,000
  Short-term investments....................................        516,000        1,793,000
  Accounts receivable, net of allowances of $394,000 in 2000
     and $74,000 in 1999....................................      8,621,000        4,343,000
  Inventory.................................................      2,020,000        1,081,000
  Prepaid expenses and other current assets.................      1,233,000          685,000
  Assets available-for-sale.................................             --        1,184,000
                                                              -------------    -------------
          Total current assets..............................     34,371,000       10,914,000
Property and equipment, net.................................        214,000          235,000
Other assets................................................      1,582,000        1,975,000
                                                              -------------    -------------
          Total assets......................................  $  36,167,000    $  13,124,000
                                                              =============    =============

                            LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable..........................................  $   2,327,000    $     825,000
  Accrued compensation and employee benefits................        787,000          730,000
  Accrued clinical trials expense...........................        202,000          258,000
  Accrued professional fees.................................        281,000          865,000
  Other accrued expenses....................................        453,000          203,000
  Other current liabilities.................................         40,000          942,000
                                                              -------------    -------------
          Total current liabilities.........................      4,090,000        3,823,000
Convertible notes payable...................................      4,000,000               --
Shareholders' equity:
  Common stock, no par value; 75,000,000 shares authorized;
     32,209,286 and 25,258,395 shares issued and
     outstanding............................................    144,815,000      124,328,000
  Accumulated other comprehensive income....................          8,000            2,000
  Accumulated deficit.......................................   (116,746,000)    (115,029,000)
                                                              -------------    -------------
          Total shareholders' equity........................     28,077,000        9,301,000
                                                              -------------    -------------
          Total liabilities and shareholders' equity........  $  36,167,000    $  13,124,000
                                                              =============    =============
</TABLE>

                See notes to consolidated financial statements.
                                        37
<PAGE>   39

                         SCICLONE PHARMACEUTICALS, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                     ------------------------------------------
                                                        2000           1999            1998
                                                     -----------    -----------    ------------
<S>                                                  <C>            <C>            <C>
Revenues:
  Product sales....................................  $15,357,000    $ 9,091,000    $  3,625,000
  Contract revenue.................................           --        307,000         100,000
                                                     -----------    -----------    ------------
          Total revenues...........................   15,357,000      9,398,000       3,725,000
                                                     -----------    -----------    ------------
Cost of product sales..............................    3,113,000      1,761,000       1,036,000
                                                     -----------    -----------    ------------
Gross margin.......................................   12,244,000      7,637,000       2,689,000
                                                     -----------    -----------    ------------
Operating expenses:
  Research and development.........................    4,182,000      4,604,000       9,293,000
  Marketing........................................    8,328,000      5,911,000       5,391,000
  General and administrative.......................    2,930,000      2,978,000       3,714,000
                                                     -----------    -----------    ------------
          Total operating expenses.................   15,440,000     13,493,000      18,398,000
                                                     -----------    -----------    ------------
Loss from operations...............................   (3,196,000)    (5,856,000)    (15,709,000)
Writedown of note receivable from former officer...           --             --      (5,944,000)
Interest and investment income, net................    1,479,000        389,000         582,000
                                                     -----------    -----------    ------------
Net loss...........................................   (1,717,000)    (5,467,000)    (21,071,000)
Deemed dividend on issuance of preferred stock.....           --             --      (3,143,000)
                                                     -----------    -----------    ------------
Net loss attributable to common shareholders.......  $(1,717,000)   $(5,467,000)   $(24,214,000)
                                                     -----------    -----------    ------------
Basic and diluted net loss per share...............  $     (0.06)   $     (0.26)   $      (1.48)
                                                     ===========    ===========    ============
Weighted average shares used in computing basic and
  diluted net loss per share.......................   29,904,924     21,162,936      16,335,096
                                                     ===========    ===========    ============
</TABLE>

                See notes to consolidated financial statements.
                                        38
<PAGE>   40

                         SCICLONE PHARMACEUTICALS, INC.

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                      NOTE
                                                                   RECEIVABLE     ACCUMULATED
                                             COMMON STOCK             FROM           OTHER                           TOTAL
                                       -------------------------     FORMER      COMPREHENSIVE    ACCUMULATED    SHAREHOLDERS'
                                         SHARES        AMOUNT        OFFICER        INCOME          DEFICIT         EQUITY
                                       ----------   ------------   -----------   -------------   -------------   -------------
<S>                                    <C>          <C>            <C>           <C>             <C>             <C>
Balance at December 31, 1997.........  17,343,358   $107,034,000   $(5,944,000)    $(18,000)     $ (85,348,000)  $ 15,724,000
Issuance of common stock from
  exercise of stock options and
  warrants and employee stock
  purchase plan......................      97,591        529,000            --           --                 --        529,000
Conversion of preferred stock to
  common stock.......................   3,168,404      3,083,000            --           --                 --      3,083,000
Shares issued in asset purchase......     924,703      2,192,000            --           --                 --      2,192,000
Writedown of note receivable from
  former officer.....................          --             --     5,944,000           --                 --      5,944,000
Net loss.............................          --             --            --           --        (21,071,000)   (21,071,000)
Net unrealized gain on
  available-for-sale securities......          --             --            --       27,000                 --         27,000
                                                                                                                 ------------
Total comprehensive loss.............                                                                             (21,044,000)
Deemed dividend on issuance of
  preferred stock....................          --      3,143,000            --           --         (3,143,000)            --
                                       ----------   ------------   -----------     --------      -------------   ------------
Balance at December 31, 1998.........  21,534,056    115,981,000            --        9,000       (109,562,000)     6,428,000
Retirement of common stock from
  former officer.....................  (1,882,500)            --            --           --                 --             --
Issuance of common stock from
  exercise of stock options, warrants
  and employee stock purchase plan...     361,427        581,000            --           --                 --        581,000
Issuance of common stock bonus.......     411,330        565,000            --           --                 --        565,000
Issuance of common stock in asset
  purchase...........................      50,297         69,000            --           --                 --         69,000
Issuance of common stock to
  vendors............................     153,223        189,000            --           --                 --        189,000
Issuance of common stock from private
  placements.........................   4,331,079      6,430,000            --           --                 --      6,430,000
Conversion of preferred stock to
  common stock.......................     299,483        513,000            --           --                 --        513,000
Net loss.............................          --             --            --           --         (5,467,000)    (5,467,000)
Net unrealized loss on
  available-for-sale securities......          --             --            --       (7,000)                --         (7,000)
                                                                                                                 ------------
Total comprehensive loss.............                                                                              (5,474,000)
                                       ----------   ------------   -----------     --------      -------------   ------------
Balance at December 31, 1999.........  25,258,395    124,328,000            --        2,000       (115,029,000)     9,301,000
                                       ----------   ------------   -----------     --------      -------------   ------------
Issuance of common stock from
  exercise of stock options, warrants
  and employee stock purchase plan...   5,752,819     11,160,000            --           --                 --     11,160,000
Issuance of common stock from private
  placements.........................   1,198,072      9,327,000            --           --                 --      9,327,000
Net loss.............................          --             --            --           --         (1,717,000)    (1,717,000)
Net unrealized loss on
  available-for-sale securities......          --             --            --        6,000                 --          6,000
                                                                                                                 ------------
Total comprehensive loss.............                                                                              (1,711,000)
                                       ----------   ------------   -----------     --------      -------------   ------------
Balance at December 31, 2000.........  32,209,286   $144,815,000   $        --     $  8,000      $(116,746,000)  $ 28,077,000
                                       ==========   ============   ===========     ========      =============   ============
</TABLE>

                See notes to consolidated financial statements.
                                        39
<PAGE>   41

                         SCICLONE PHARMACEUTICALS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                     ------------------------------------------
                                                        2000           1999            1998
                                                     -----------    -----------    ------------
<S>                                                  <C>            <C>            <C>
Operating activities:
  Net loss.........................................  $(1,717,000)   $(5,467,000)   $(21,071,000)
Adjustments to reconcile net loss to net cash used
  in operating activities:
  Depreciation and amortization....................      529,000        626,000         351,000
  Writedown of note receivable from former
     officer.......................................           --             --       6,139,000
  Non-cash charge on acquisition of technology
     rights........................................           --             --       1,511,000
  Non-cash income from the foreclosure of loan from
     former officer................................           --       (242,000)             --
  Changes in operating assets and liabilities:
     Accounts receivable...........................   (4,278,000)    (3,042,000)       (276,000)
     Inventory.....................................     (939,000)       272,000         693,000
     Prepaid expenses and other assets.............      621,000        (51,000)     (1,499,000)
     Accounts payable and other accrued expenses...      851,000        441,000         (97,000)
     Accrued clinical trials expense...............      (57,000)    (2,144,000)      1,192,000
     Accrued professional fees.....................     (584,000)       134,000         (87,000)
     Accrued compensation and employee benefits....       57,000        564,000        (209,000)
                                                     -----------    -----------    ------------
          Net cash used in operating activities....   (5,517,000)    (8,909,000)    (13,353,000)
                                                     -----------    -----------    ------------
Investing activities:
  Purchase of property and equipment...............      (99,000)       (42,000)        (99,000)
  Payment on acquisition of technology rights......           --             --        (407,000)
  Sale of marketable securities, net...............    1,283,000        120,000       7,388,000
                                                     -----------    -----------    ------------
          Net cash provided by investing
            activities.............................    1,184,000         78,000       6,882,000
                                                     -----------    -----------    ------------
Financing activities:
  Proceeds from issuance of Series C preferred
     stock, net....................................           --             --       3,931,000
  Proceeds from issuance of common stock, net......   20,486,000      6,934,000         529,000
  Payment on notes receivable from former and
     current officers..............................           --        235,000       1,882,000
  Proceeds from issuance of convertible note.......    4,000,000             --              --
                                                     -----------    -----------    ------------
          Net cash provided by financing
            activities.............................   24,486,000      7,169,000       6,342,000
                                                     -----------    -----------    ------------
Net increase (decrease) in cash and cash
  equivalents......................................   20,153,000     (1,662,000)       (129,000)
Cash and cash equivalents, beginning of year.......    1,828,000      3,490,000       3,619,000
                                                     -----------    -----------    ------------
Cash and cash equivalents, end of year.............  $21,981,000    $ 1,828,000    $  3,490,000
                                                     ===========    ===========    ============
Supplemental schedule of non cash financing and
  investing activities:
  Issuance of common stock in lieu of bonus........  $        --    $   565,000    $         --
  Issuance of common stock for professional fees...  $        --    $   189,000    $         --
  Issuance of common stock in asset purchase.......  $        --    $    69,000    $  2,192,000
  Conversion of preferred stock to common stock....  $        --    $   513,000    $  3,083,000
</TABLE>

                See notes to consolidated financial statements.
                                        40
<PAGE>   42

                         SCICLONE PHARMACEUTICALS, INC.

                        NOTES TO CONSOLIDATED FINANCIALS

NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  The Company

     SciClone Pharmaceuticals, Inc. ("SciClone" or the "Company") is a global
biopharmaceutical company that develops and commercializes novel medicines for
treating a broad range of the world's most serious diseases. The Company's
current product development and commercial activities are focused on hepatitis
B, hepatitis C, cancer and cystic fibrosis.

  Basis of Presentation

     The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. The principal office of the Company's
subsidiary is located in Hong Kong. All significant intercompany accounts and
transactions have been eliminated.

  Use of Estimates

     The preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

  Cash Equivalents and Investments

     Cash equivalents consist of highly liquid investments with original
maturities of three months or less. All cash equivalents are carried at cost
plus accrued interest, which approximates market.

     Under the Company's lease agreement, we are required to have a line of
credit in the amount of $317,000. This line of credit is secured by certificate
of deposits that total $317,000.

     The Company has classified its entire investment portfolio as
available-for-sale and records these investments at fair value, as determined by
available market information, on the balance sheet. The portfolio primarily
consists of U.S. Government securities and short-term and long-term debt
instruments. Unrealized holding gains or losses are included in accumulated
other comprehensive income. The amortized cost of debt securities classified as
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in investment income along
with interest earned. Realized gains or losses, and declines in value judged to
be other than temporary are also included in investment income. Management
believes the credit risk associated with these investments is limited due to the
nature of investments.

     For the years ended December 31, 2000, 1999 and 1998, net unrealized gains
(loss) of approximately $6,000, $(7,000) and $27,000, respectively, were charged
to accumulated other comprehensive income.

  Property and Equipment

     Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the respective
assets (three to five years) on the straight-line basis. Depreciation expense
for the years ended December 31, 2000, 1999 and 1998 were $120,000, $184,000 and
$194,000, respectively.

  Assets Available-for-sale

     In July 1995, the Company extended a loan to one of its former board
members and former executive officers in the principal amount of $95,000 which
carries an interest rate of 7.375%. In December 1995, the Company extended an
additional loan to this individual in the principal amount of $600,000, which
carried an

                                        41
<PAGE>   43
                         SCICLONE PHARMACEUTICALS, INC.

                  NOTES TO CONSOLIDATED FINANCIALS (CONTINUED)

interest rate of 7.50%. The loans were due and payable in December 1997 after
which they became subject to an additional 3.5% accelerated interest. The loans
were secured by a second deed of trust on residential property owned by this
individual. At December 31, 1998, these loans had not been repaid and the
Company fully reserved for this loan. In January 1999, the Company foreclosed on
the loans and was in possession of the underlying property. The Company recorded
the net value of the property in assets available-for-sale at approximately
$1,184,000, the related assumed mortgage liability in other current liabilities
at approximately $942,000, and other income at approximately $242,000. In
November 2000, the Company sold the property and recorded an additional $21,000
in other income from the sale.

  Other Assets

     Other assets include the following:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                      ------------------------
                                                         2000          1999
                                                      ----------    ----------
<S>                                                   <C>           <C>
Intangible product rights...........................  $2,456,000    $2,456,000
Accumulated amortization............................    (955,000)     (546,000)
                                                      ----------    ----------
                                                       1,501,000     1,910,000
Other...............................................      81,000        65,000
                                                      ----------    ----------
                                                      $1,582,000    $1,975,000
                                                      ==========    ==========
</TABLE>

     Product rights acquired are being amortized over six years beginning in
September 1998 (See Note 5). The Company identifies and records impairment
losses, as circumstances dictate, on intangible product rights when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets.

     In July 1998 the Company acquired the worldwide rights to ZADAXIN from
Alpha 1 Biomedicals, Inc. ("A1B"), the original developer of ZADAXIN for
approximately $1,800,000. The transaction eliminated the Company's royalty
obligation to A1B with respect to all sales of ZADAXIN after the acquisition
date. The A1B transaction allowed SciClone to market ZADAXIN worldwide, except
in Italy, Spain and Portugal, where Sclavo S.p.A. ("Sclavo"), an international
pharmaceutical entity, owned exclusive marketing rights. In April 1998, the
Company acquired ZADAXIN rights for Italy, Spain and Portugal from Sclavo S.p.A.
for approximately $1,400,000.

     In connection with the foregoing transactions, the Company estimated the
fair market value of the intangible assets purchased to be approximately
$2,500,000 and wrote off the remaining $700,000.

     Although the Company has a history of operating and cash flow losses, the
Company believes that there is no impairment to the intangible assets because
ZADAXIN was approved for sale in 21 countries as of March 22, 2001, principally
as a treatment for hepatitis B or hepatitis C. Based on the Company's
anticipated financial results for ZADAXIN sales from 2000 to 2004, it has
determined that the net present value of the future cash flows exceed the
carrying amount of the asset.

  Foreign Currency Translation

     The Company has determined the U.S. dollar to be the functional currency
for its wholly owned subsidiary. Adjustments resulting from translation are
included in results of operations and have not been significant.

                                        42
<PAGE>   44
                         SCICLONE PHARMACEUTICALS, INC.

                  NOTES TO CONSOLIDATED FINANCIALS (CONTINUED)

  Revenue Recognition

     The Company recognizes revenue from product sales at the time of shipment
and recognizes contract/ grant revenue when services have been performed. Sales
to distributors are recognized at time of shipment when titles to the products
are transferred to them. The distributors do not have contractual right of
return.

     In 2000, the Company adopted Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). This summarizes certain areas
of the staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. Management believes that the
Company has complied with the guidance of SAB 101. The adoption of certain
provisions of SAB 101 did not have a material impact on the Company's financial
position or results of operations.

  Research and Development

     Research and development expenditures are charged to operations as
incurred.

  Income Taxes

     Income tax expense is based on reported results of operations before
extraordinary items and income taxes. Deferred income taxes reflect the impact
of temporary differences between the amount of assets and liabilities recognized
for financial reporting purposes and such amounts recognized for tax purposes.
These deferred taxes are measured by applying current tax laws. Based on the
Company's lack of earnings history, deferred tax assets have been fully offset
by a valuation allowance.

  Retirement Benefits

     The Company has a pre-tax savings plan covering substantially all U.S.
employees, which qualifies under Section 401(k) of the Internal Revenue Code.
Under the plan, eligible employees may contribute a portion of their pre-tax
salary, subject to certain limitations. The Company contributes and matches 50%
of the employee contributions, up to 15% of the employee's salary. Company
contributions, which can be terminated at the Company's discretion, were
$58,000, $17,000 and $24,000 for the years ended December 31, 2000, 1999, and
1998, respectively. The plan commenced on January 1, 1991.

  Net Loss Per Share

     The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
128 requires the presentation of basic earnings (loss) per share and diluted
earnings (loss) per share, if more dilutive, for all periods presented. In
accordance with SFAS 128, basic net loss per share has been computed using the
weighted average number of shares of common stock outstanding during the period.
The weighted average number of shares excludes shares held as collateral against
a former officer's loan. Diluted net loss per share has not been presented as
the result would be antidilutive given the Company's history of net losses.

     Had the Company been in a net income position, diluted earnings per share
would have included the shares used in the computation of basic net loss per
share as well as an additional 6,396,577, 9,822,008 and 4,223,978 shares in
2000, 1999 and 1998, respectively, related to outstanding options and warrants
not included in the calculation of basic net loss per share.

  Accounting for Stock-Based Compensation

     As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company accounts for
its stock option and employee stock purchase plans under the provisions of
Accounting Principles Board Opinion 25 ("APB 25") and related Interpreta-

                                        43
<PAGE>   45
                         SCICLONE PHARMACEUTICALS, INC.

                  NOTES TO CONSOLIDATED FINANCIALS (CONTINUED)

tions. Accordingly, the Company does not recognize compensation expense in
accounting for its stock option and employee stock purchase plans for awards
which have an exercise price equal to the fair value of the Company's common
stock on the date of the grant.

     The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS 123 and Emerging Issues Task Force
("EITF") 96-18. Warrants issued in connection with equity and debt arrangements
are valued using the Black-Scholes option valuation model. Warrants issued to
placement agents and similar parties in connection with equity financing are
accounted as stock issuance cost with an equal amount recorded as additional
paid-in capital. Warrants issued to purchasers of the Company's equities are not
specifically accounted for as their value is a sub-component of additional
paid-in capital. The fair value of warrants issued in connection with debt
arrangements, if material, is accounted for as a debt discount and amortized as
additional interest expense over the term of the related debt.

     In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of Opinion No. 25" for (a) the definition of employee for
purposes of applying Opinion No. 25, (b) the criteria for determining whether a
plan qualifies as a noncompensatory plan, (c) the accounting consequences of
various modifications to the terms of a previously fixed stock option or award,
and (d) the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 became effective July 1, 2000, but certain
conclusions cover specific events that occur after either December 15, 1998, or
January 12, 2000. The adoption of certain provisions of FIN 44 did not have a
material impact on the Company's financial position or results of operations.

  Reporting Comprehensive Income (Loss)

     The Company reports unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation adjustments in
comprehensive income (loss). For the year periods ended December 31, 2000, 1999
and 1998, total comprehensive loss attributable to common shareholders amounted
to $1,711,000, $5,474,000 and $21,044,000 respectively.

  Segment Information

     Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131") establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. SFAS 131 also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The Company
operates in one segment (see Note 9).

  Concentration of Credit Risk

     The People's Republic of China, like Japan and certain other Asian markets,
uses a tiered method to import and distribute products. The distributors make
the sales in the country, but the product is imported for them by licensed
importers. In 1997, the Company sold to one principal importer/agent who then
resold to four distributors inside the People's Republic of China. Reflecting
the expansion and stability of the Company's sales to the People's Republic of
China in 1998, the Company began working extensively with a second importing
agent in addition to the agent used in 1997. This enabled the expansion of sales
to the four distributors. For the year ended December 31, 2000, distributors in
China accounted for 86% of the Company's product sales. The Company performs
on-going credit evaluations of its customers' financial condition, and generally
does not require collaterals from its customers. The Company maintains reserves
for credit losses, and such losses have been within management's expectation.

                                        44
<PAGE>   46
                         SCICLONE PHARMACEUTICALS, INC.

                  NOTES TO CONSOLIDATED FINANCIALS (CONTINUED)

  Recent Accounting Pronouncement

     In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which is required to be adopted for the year ending December 31, 2001.
The Company does not anticipate that the adoption of SFAS 133 will have a
significant effect on results of operations or the financial position of the
Company.

  Reclassifications

     Certain prior year amounts have been reclassified to conform to the current
year's presentation.

NOTE 2 -- INVESTMENTS

     The following is a summary of available-for-sale securities:

<TABLE>
<CAPTION>
                                                         AVAILABLE-FOR-SALE SECURITIES
                                             ------------------------------------------------------
                                                              GROSS         GROSS        ESTIMATED
                                              AMORTIZED     UNREALIZED    UNREALIZED       FAIR
                                                COST          GAINS         LOSSES         VALUE
                                             -----------    ----------    ----------    -----------
<S>                                          <C>            <C>           <C>           <C>
DECEMBER 31, 2000:
  Corporate obligations....................  $18,482,000      $   --          $--       $18,482,000
  Corporate equity securities..............           --       8,000          --              8,000
                                             -----------      ------          --        -----------
                                             $18,482,000      $8,000          $--       $18,490,000
                                             ===========      ======          ==        ===========
DECEMBER 31, 1999:
  Corporate obligations....................  $ 1,791,000      $   --          $--         1,791,000
  Corporate equity securities..............           --       2,000          --              2,000
                                             -----------      ------          --        -----------
                                             $ 1,791,000      $2,000          $--       $ 1,793,000
                                             ===========      ======          ==        ===========
</TABLE>

     As of December 31, 2000, the average portfolio duration was less than one
year.

NOTE 3 -- INVENTORIES

     Inventories are stated at the lower of cost (first-in, first-out basis) or
market. Inventories consisted of the following:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                      ------------------------
                                                         2000          1999
                                                      ----------    ----------
<S>                                                   <C>           <C>
Raw materials.......................................  $1,750,000    $1,035,000
Finished goods......................................     270,000        46,000
                                                      ----------    ----------
                                                      $2,020,000    $1,081,000
                                                      ==========    ==========
</TABLE>

                                        45
<PAGE>   47
                         SCICLONE PHARMACEUTICALS, INC.

                  NOTES TO CONSOLIDATED FINANCIALS (CONTINUED)

NOTE 4 -- PROPERTY AND EQUIPMENT

     Property and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                      ------------------------
                                                         2000          1999
                                                      ----------    ----------
<S>                                                   <C>           <C>
Office furniture and fixtures.......................  $  328,000    $  331,000
Office equipment....................................     894,000       823,000
Leasehold improvements..............................      96,000       239,000
                                                      ----------    ----------
                                                       1,318,000     1,393,000
Less accumulated depreciation.......................   1,104,000     1,158,000
                                                      ----------    ----------
Net property and equipment..........................  $  214,000    $  235,000
                                                      ==========    ==========
</TABLE>

NOTE 5 -- COLLABORATIVE AGREEMENTS

     In April 1999, the Company licensed to Sigma-Tau semi-exclusive ZADAXIN
development and marketing rights in Italy and Spain, and exclusive rights in
Switzerland. In March 2000, this license was expanded and amended to include
Switzerland and all the countries in the European Union and Sigma-Tau was made
exclusive licensee in these countries.

     In September 1998, the Company acquired all rights of Sclavo S.p.A. to
ZADAXIN in Italy, Spain and Portugal, including Sclavo's marketing approval for
ZADAXIN in Italy as an influenza vaccine adjuvant. The purchase price consisted
of $297,000 in cash, 375,000 shares of the Company's common stock, and warrants
to purchase 375,000 shares of common stock at an exercise price of $4.125 per
share, which warrants were exercised in January 2000.

     Pursuant to its 1994 license agreement with A1B, the Company obtained
worldwide marketing, development and manufacturing rights to ZADAXIN, with the
exception of Italy, Spain and Portugal. In April 1997, SciClone entered into an
arrangement with A1B to administer the sublicense activities of the A1B licensee
for Italy, Spain and Portugal. Under this 1997 agreement, the Company also
acquired control of A1B's patent portfolio for ZADAXIN. In December 1997,
SciClone and A1B entered into an Asset Purchase Agreement pursuant to which the
Company acquired A1B's worldwide rights to ZADAXIN, which rights A1B licensed
from Hoffmann-LaRoche, Inc. and F. Hoffmann-LaRoche AG, and eliminated the
Company's and its current and future sublicensee's royalty obligations to A1B
with respect to future sales of ZADAXIN. In July 1998, the Company and A1B
closed the Asset Purchase Agreement. In accordance with the agreement, the
Company issued to A1B 600,000 shares of common stock and loaned to A1B $210,000
in exchange for the assets described above.

     In connection with the foregoing transactions with Sclavo and A1B, the
Company estimated the fair market value of the intangible assets purchased to be
approximately $2,500,000 and wrote off the remaining $700,000.

     In October 1996, the Company entered into an agreement with Schering-Plough
K.K., giving Schering-Plough K.K. exclusive marketing rights to ZADAXIN in
Japan. Under the agreement Schering-Plough K.K. has initiated development of
ZADAXIN as monotherapy for the treatment of hepatitis B and hepatitis C.
Historically, Schering-Plough K.K. managed the development process and the
parties shared certain development expenses. The Company has the right to
participate directly in the development process and now manages the process
using a Japanese clinical research organization and Schering-Plough K.K. as a
consultant. Schering-Plough K.K. continues to have exclusive marketing rights to
ZADAXIN in Japan

     In April 1996, the Company acquired an exclusive license to CPX, a
synthetic compound, from the National Institutes of Health ("NIH"). The NIH
developed CPX as a potential treatment for cystic fibrosis.

                                        46
<PAGE>   48
                         SCICLONE PHARMACEUTICALS, INC.

                  NOTES TO CONSOLIDATED FINANCIALS (CONTINUED)

Under this license agreement, the Company is obligated to pay the NIH a minimum
annual royalty payment and, upon product approval, the NIH will receive a
milestone payment in addition to royalties based on a percentage of CPX net
sales revenue.

NOTE 6 -- INCOME TAXES

     The Company uses the liability method to account for income taxes as
required by FASB Statement No. 109, "Accounting for Income Taxes." Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities. Deferred
tax assets and liabilities are measured using enacted tax rates and laws that
will be in effect when the differences are expected to reverse.

     The domestic and foreign components of loss before income tax are as
follows at December 31:

<TABLE>
<CAPTION>
                                                2000           1999            1998
                                             -----------    -----------    ------------
<S>                                          <C>            <C>            <C>
Domestic...................................  $(3,287,000)   $(4,968,000)   $(16,241,000)
Foreign....................................    1,570,000       (499,000)     (4,830,000)
                                             -----------    -----------    ------------
Loss before income tax expense.............  $(1,717,000)   $(5,467,000)   $(21,071,000)
                                             ===========    ===========    ============
</TABLE>

     Significant components of the Company's deferred tax assets and liabilities
at December 31:

<TABLE>
<CAPTION>
                                                         2000          1999
                                                      -----------   -----------
<S>                                                   <C>           <C>
ASSETS
Net operating loss carryforwards....................  $20,057,000   $16,685,000
R&D credit carryforwards............................    2,847,000     2,270,000
Note receivable written off for financial
  reporting.........................................    1,069,000     1,230,000
Other...............................................    1,741,000     1,755,000
                                                      -----------   -----------
Gross deferred tax assets...........................   25,714,000    21,940,000
Valuation allowance.................................  (25,714,000)  (21,940,000)
                                                      -----------   -----------
          Total deferred tax asset..................  $        --   $        --
                                                      -----------   -----------
LIABILITIES
Net unrealized gains on available-for-sale
  securities........................................           --            --
Other...............................................           --            --
                                                      -----------   -----------
          Total deferred tax liability..............           --            --
                                                      -----------   -----------
Net deferred tax assets.............................           --            --
                                                      ===========   ===========
</TABLE>

     The valuation allowance increased by approximately $3,774,000, $1,200,000
and $5,670,000 in the years ended December 31, 2000, 1999 and 1998,
respectively. Deferred tax assets relating to carryforwards as of December 31,
2000 include approximately $8,067,000 associated with stock option activity for
which any subsequently recognized tax benefits will be credited directly to
shareholders' equity.

     At December 31, 2000, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $56,485,000 which expire in the
years 2006 through 2020. The difference between the cumulative losses for
financial reporting purposes and federal income tax purposes is primarily
attributable to losses incurred by the Company's foreign subsidiaries. At
December 31, 2000, the Company has federal tax credit carryforwards of
approximately $2,600,000, which expire in the years 2009 through 2020.

     Because of the "change in ownership" provisions of the Internal Revenue
Code, a portion of the Company's net operating loss carryforwards and tax credit
carryforwards may be subject to an annual limitation regarding their utilization
against taxable income in future periods. As a result of the annual

                                        47
<PAGE>   49
                         SCICLONE PHARMACEUTICALS, INC.

                  NOTES TO CONSOLIDATED FINANCIALS (CONTINUED)

limitation, a portion of these carryforwards may expire before ultimately
becoming available to reduce future income tax liabilities.

NOTE 7 -- COMMITMENTS AND CONTINGENCIES

  Leases

     The Company leases its main office facility under a non-cancelable lease
agreement which expires in August 2005. The lease is for a period of five years
and requires the Company to pay insurance and taxes and its pro-rata share of
operating expenses. The Company also leases various office facilities abroad
under non-cancelable lease agreements, expiring in 2001. Rental expense in 2000,
1999 and 1998 was $498,000, $398,000 and $461,000 respectively. Minimum future
rental commitments amount to $1,280,000 in 2001 and $1,289,000 in 2002 and
$1,236,000 in 2003 and $1,225,000 in 2004 and $1,260,000 in 2005.

  Royalties

     Under the August 1997 ZADAXIN Patent License Agreement with The Fitzsimons
Army Medical Center of the U.S. Army ("Army"), the Company is obligated to pay
the Army a minimum annual royalty, and upon commercialization of ZADAXIN, the
Company will be obligated to pay to Army a royalty based on a percentage of
ZADAXIN net sales revenue.

     Under the April 1996 CPX license agreement with the NIH, the Company is
obligated to pay the NIH a minimum annual royalty and, upon commercialization of
CPX, the Company will be obligated to pay to NIH a royalty based on a percentage
of CPX net sales revenue. During 2000, 1999 and 1998 the Company paid $10,000
related to the minimum annual royalty.

  Convertible Notes Payable

     In December 2000, we completed a $4 million senior unsecured convertible
note with an investment affiliate of UBS AG, one of the world's five largest
financial institutions, The new $4 million note is convertible into 407,610
shares of our common stock at a fixed conversion price of $9.8133 per share. The
note will accrue interest at a rate of 6% per year and will mature in December
2005. The note is not convertible prior to December 2001. We also received
$900,000 for granting the investor the right to purchase approximately $5.9
million of senior unsecured convertible notes due December 2005. If issued, the
notes will bear no interest (zero coupon) and will be convertible into 407,610
shares of our common stock at a fixed conversion price of $14.5066 per share.

NOTE 8 -- SHAREHOLDERS' EQUITY

  Common Stock, Preferred Stock and Warrants

     In March 2000, the Company licensed to Sigma-Tau exclusive development and
marketing rights to ZADAXIN in Europe. SciClone retains all rights to ZADAXIN in
the U.S. Under the agreement, Sigma-Tau will fund the pan-European pivotal phase
3 hepatitis C trial of ZADAXIN and also fund more than one-third of the
Company's clinical expenses for a complementary pivotal phase 3 hepatitis C
trial in the U.S. Both the U.S. and European ZADAXIN pivotal phase 3 hepatitis C
trials are planned to start this year.

     In March 2000, the Company completed a $3,100,000 million self-placed
private placement to Sigma-Tau consisting of 198,072 shares of common stock,
five-year warrants to purchase 200,000 shares of common stock at $15.67 per
share and five-year warrants to purchase 200,000 shares of common stock at
$31.33 per share. Sigma Tau has no registration rights with respect to the
shares purchased or issuable upon exercise of the warrants. As of December 31,
2000, none of the foregoing redeemable warrants had been exercised.

                                        48
<PAGE>   50
                         SCICLONE PHARMACEUTICALS, INC.

                  NOTES TO CONSOLIDATED FINANCIALS (CONTINUED)

     In January 2000, the Company completed a $6,100,000 private placement to
Brown Simpson Asset Management, a strategic institutional investor. Brown
Simpson purchased 1,000,000 shares of the Company's common stock at a price of
$6.00 per share, a slight premium to market, and five-year warrants to purchase
800,000 shares of the Company's common stock at an exercise price of $7.00 per
share. The shares issued upon exercise of the warrants, if any, may not be sold
prior to October 18, 2000 if the market price is less than $10.00 per share. As
of December 31, 2000, none of the foregoing redeemable warrants had been
exercised.

     On July 21, 1999, the Company completed a $3,620,000 private placement to
strategic institutional investors led by Brown Simpson Asset Management and The
New York Life Insurance Company. The offering consisted of units of 2,515,934
shares of common stock and redeemable warrants to purchase 2,515,934 shares of
common stock. Each unit was priced at $1.59 and consisted of one share of common
stock and one five-year redeemable warrant to purchase one share of common stock
at an exercise price of $1.72 per share. In connection with this private
placement, the Company's placement agents received five-year redeemable warrants
to purchase 345,933 shares of common stock at an exercise price of $1.83 per
share. As of December 31, 2000, all of the 2,515,934 investor warrants had been
exercised for aggregate proceeds to the Company of approximately $4,327,000.

     On July 2, 1999, the Company completed a $1,810,000 private placement to
strategic institutional and accredited investors. The offering consisted of
units of 1,370,145 shares of common stock and redeemable warrants to purchase
1,370,145 shares of common stock. Each unit was priced at $1.46 and consisted of
one share of common stock and one five-year redeemable warrant to purchase one
share of common stock, at an exercise price of $ 1.33 per share. In connection
with this private placement, the Company's placement agents received five-year
redeemable warrants to purchase 183,179 shares of common stock, at an exercise
price of $1.66 per share. As of December 31, 2000, all of the 1,370,145 investor
warrants had been exercised for aggregate proceeds to the Company of
approximately $1,822,000.

     In May 1999, the Company issued 411,330 shares of common stock to the
Company's employees in lieu of cash bonuses.

     In April 1999, Sigma-Tau paid $1,000,000 for 445,000 shares of the
Company's unregistered common stock. The Sigma-Tau Group may not sell the shares
until April 12, 2001. In addition, the Sigma-Tau Group was not granted any
registration rights covering resale of the shares.

     In June 1998, the Company entered into an agreement with an institutional
investor for an equity line which allowed the Company to access up to $32
million through sales of its common stock over a two-year period, subject to
certain limitations. The decision to draw any funds and the timing for any such
draw was solely at the Company's discretion. The Company was not obligated to
draw any minimum amount under the equity line and did not draw any amounts under
the equity line. As a commitment fee to the investor, the Company issued
five-year warrants to purchase 300,000 shares of its common stock at an exercise
price of $3.50 per share and five-year warrants to purchase 200,000 shares of
its common stock at an exercise price of $5.53 per share. The Company cancelled
the equity line in November 1999. As of December 31, 2000, none of the foregoing
warrants had been exercised.

     In April 1998, the Company sold 661,157 shares of Series C preferred stock
at $6.05 per share and received $3,931,000 in net proceeds from the offering. In
the second quarter ended June 30, 1998, the Company recognized a deemed dividend
in the amount of $3,143,000 in connection with the issuance of the Series C
preferred stock. This amount was computed in accordance to EITF Appendix D-60,
"Accounting for the Issuance of Convertible Preferred Stock and Debt Securities
with a Nondetachable Conversion Feature" ("EITF D-60"), because the Series C
preferred stock had a beneficial conversion feature at the date of issue that
allowed it to be converted to common stock at a discount to the common stock's
market price at the date of conversion. This amount increased net loss per share
attributable to common shareholders and was calculated as required by the SEC.
As of December 31, 1998 all but 58,356 shares of Series C preferred stock

                                        49
<PAGE>   51
                         SCICLONE PHARMACEUTICALS, INC.

                  NOTES TO CONSOLIDATED FINANCIALS (CONTINUED)

were converted into 3,168,404 shares of common stock. In January 1999, 46,922 of
the remaining 58,536 shares were converted into 299,483 shares of common stock
and 11,434 of such remaining shares of Series C preferred stock were redeemed at
a conversion price of approximately $0.95 per common share. As a result, there
are no shares of Series C preferred stock outstanding. In conjunction with the
offering, the Company granted to the investors five-year warrants to purchase
100,000 shares of common stock at an exercise price of $5.67 per share. As of
December 31, 2000, 37,500 of the 100,000 investor warrants had been exercised
for aggregate proceeds to the Company of approximately $213,000.

  Stock Award Plans

     In August 1991, the Board of Directors and shareholders of the Company
approved the 1991 Stock Plan (the "1991 Plan") and reserved 1,300,000 shares for
issuance thereunder. In May 1993, the Board of Directors and shareholders of the
Company approved a 2,150,000 share increase in the shares reserved under the
1991 Plan. The 1991 Plan permits the award of incentive or nonqualified stock
options and shares of common stock under restricted stock purchase agreements.
In January 1992, the Board of Directors and shareholders of the Company approved
the 1992 Stock Plan (the "1992 Plan") and reserved 240,000 shares for issuance
thereunder. The 1992 Plan permits the award of incentive or nonqualified stock
options which must be exercised in cash. In June 1995, the Board of Directors
and the shareholders of the Company approved the 1995 Equity Incentive Plan (the
"1995 Plan") and reserved 1,250,000 shares for issuance thereunder. The 1995
Plan permits the award of incentive or nonqualified stock options and shares of
common stock under restricted stock awards. In May 1997, the Board of Directors
and Shareholders of the Company approved a 750,000 share increase in the shares
reserved under the 1995 Plan. In June 1998, the Board of Directors and
shareholders of the Company approved a 1,500,000 share increase in the shares
reserved under the 1995 Plan.

     Under the 1991, 1992 and 1995 Plans, options are exercisable upon
conditions determined by the Board of Directors and expire ten years from the
date of grant. Options are generally granted at fair market value on the date of
grant and vest over time, generally four years.

     In June 1995, the Board of Directors and the shareholders of the Company
approved the Nonemployee Director Stock Option Plan (the "Nonemployee Director
Plan") and reserved 250,000 shares for issuance thereunder. The Nonemployee
Director Plan automatically grants nonqualified stock options to nonemployee
directors upon their appointment or first election to the Company's Board of
Directors ("Initial Grant") and annually upon their reelection to the Board of
Directors at the Company's Annual Meeting of Shareholders ("Annual Grant"). The
options are granted at fair market value on the date of grant. Initial Grants
vest annually over a period of three years. Annual Grants vest monthly over a
period of one year.

     In July 1996, the Board of Directors and shareholders of the Company
approved the 1996 Employee Stock Purchase Plan (the "ESPP") and reserved 500,000
shares for issuance thereunder. All full-time employees are eligible to
participate in the ESPP. Under the terms of the ESPP, employees can choose to
have up to 15% of their salary withheld to purchase the Company's common stock.
The purchase price of the stock is the lower of 85% of the fair market value as
of the first trading day of each quarterly participation period, or as of the
last trading day of each quarterly participation period. Under the ESPP, the
Company sold 144,505, 47,038, and 46,738 shares to employees in 2000, 1999 and
1998 respectively.

                                        50
<PAGE>   52
                         SCICLONE PHARMACEUTICALS, INC.

                  NOTES TO CONSOLIDATED FINANCIALS (CONTINUED)

     The following table summarizes the stock option activity under the 1991,
1992 and 1995 plans and the Nonemployee Director Plan:

<TABLE>
<CAPTION>
                                                                               WEIGHTED
                                                                               AVERAGE
                                                                               EXERCISE
                                                    SHARES        SHARES        PRICE
                                                  AVAILABLE       UNDER       OF SHARES
                                                  FOR GRANT       OPTION      UNDER PLAN
                                                  ----------    ----------    ----------
<S>                                               <C>           <C>           <C>
BALANCE AT DECEMBER 31, 1997....................   2,840,977     3,058,734      $5.80
  Options canceled..............................     478,456      (478,456)      5.60
  Options granted...............................  (1,018,500)    1,018,500       2.51
  Options exercised.............................          --       (49,800)      3.00
                                                  ----------    ----------
BALANCE AT DECEMBER 31, 1998....................   2,300,933     3,548,978       4.92
                                                  ----------    ----------
  Options canceled..............................   1,195,985    (1,195,985)      4.43
  Options granted...............................  (2,243,062)    2,243,062       1.38
  Options exercised.............................          --       (34,238)      1.03
                                                  ----------    ----------
BALANCE AT DECEMBER 31, 1999....................   1,253,856     4,561,817       3.34
                                                  ----------    ----------
  1995 Plan shares reserved.....................   1,250,000            --         --
  Nonemployee Director Plan shares reserved.....     250,000            --         --
  Options canceled..............................      56,366       (56,366)      1.43
  Options granted...............................    (931,250)      931,250      10.46
  Options exercised.............................          --    (1,010,624)      2.48
                                                  ----------    ----------
BALANCE AT DECEMBER 31, 2000....................   1,878,972     4,426,077      $5.00
                                                  ==========    ==========
</TABLE>

     The following table summarizes information concerning outstanding and
exercisable options as of December 31, 2000:

<TABLE>
<CAPTION>
                                   OPTIONS OUTSTANDING
                          --------------------------------------      OPTIONS EXERCISABLE
                                          WEIGHTED                  -----------------------
                                           AVERAGE      WEIGHTED                   WEIGHTED
                                          REMAINING     AVERAGE                    AVERAGE
                            NUMBER       CONTRACTUAL    EXERCISE      NUMBER       EXERCISE
RANGE OF EXERCISE PRICES  OUTSTANDING       LIFE         PRICE      EXERCISABLE     PRICE
------------------------  -----------    -----------    --------    -----------    --------
<S>                       <C>            <C>            <C>         <C>            <C>
$ 1.22 - $ 1.56              833,909        8.49         $ 1.28        732,301      $ 1.28
$ 1.59 - $ 2.38              955,395        7.95           1.94        655,492        1.88
$ 2.47 - $ 5.38            1,041,384        5.82           4.43        930,451        4.56
$ 5.50 - $10.50              732,539        6.05           7.04        583,640        6.60
$10.75 - $10.75              761,850        9.64          10.75             --          --
$12.50 - $12.50              101,000        2.66          12.50        101,000       12.50
                           ---------                                 ---------
                           4,426,077        7.41           5.00      3,002,884        3.84
                           =========                                 =========
</TABLE>

     Pro forma information regarding net loss and net loss per share is required
by SFAS 123 and has been determined as if the Company had accounted for its
stock awards under the fair value method of that Statement. The fair value for
the options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for 2000, 1999 and
1998 risk-free interest rates of 6.00%, 6.00% and 4.73% respectively; dividend
yields of 0%; volatility factors of the expected market price of the Company's
stock of 0.97 for 2000 and 0.91 for 1999 and 0.87 for 1998 and a weighted
average expected life of the option of 3.90 years for 2000 and 3.92 years for
1999 and 4.30 years for 1998. The fair value for the employee stock purchases
was also estimated using the Black-Scholes model with the following assumptions
for 2000, 1999 and 1998 risk-free interest rate of 6.00%, 6.00% and 4.73%
respectively; dividend yield of 0%; expected volatility of 0.97, 0.91 and 0.80
respectively, and expected life of 0.25 years.

                                        51
<PAGE>   53
                         SCICLONE PHARMACEUTICALS, INC.

                  NOTES TO CONSOLIDATED FINANCIALS (CONTINUED)

     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock awards have characteristics
significantly different from those of traded options, and because changes in
subjective input assumptions can materially affect the fair value estimate, in
the Company's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options and stock
purchases.

     Had compensation expense for the Company's option and employee purchase
plans been determined based on the fair value at the grant date for awards in
2000, 1999 and 1998 consistent with the provisions of SFAS 123, the Company's
net loss and net loss per share would have been adjusted to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
                                                2000           1999            1998
                                             -----------    -----------    ------------
<S>                                          <C>            <C>            <C>
Net loss attributable to common
  shareholders -- as reported..............  $(1,717,000)   $(5,467,000)   $(24,214,000)
                                             ===========    ===========    ============
Net loss -- pro forma......................  $(3,679,000)   $(7,896,000)   $(26,142,000)
                                             ===========    ===========    ============
Net loss attributable to common
  shareholders per share -- as reported....  $     (0.06)   $     (0.26)   $      (1.48)
                                             ===========    ===========    ============
Net loss per share -- pro forma............  $     (0.12)   $     (0.37)   $      (1.60)
                                             ===========    ===========    ============
</TABLE>

     The effects of applying SFAS 123 for pro forma disclosures are not likely
to be representative of the effects on reported net loss for future years. Pro
forma net loss for the year ended December 31, 1997 reflects compensation
expense for three years' vesting while the years ended December 31, 1998, 1999
and 2000 will reflect compensation expense for four years' vesting of
outstanding stock awards.

  Reserved Shares

     As of December 31, 2000, the Company has reserved shares of common stock
for future issuance as follows:

<TABLE>
<S>                                                         <C>
Options outstanding.......................................  4,426,077
Warrants outstanding......................................  1,970,500
                                                            ---------
                                                            6,396,577
                                                            =========
</TABLE>

NOTE 9 -- SIGNIFICANT GEOGRAPHIC INFORMATION

     The Company operates in one business segment, the development and
commercialization of specialist-oriented proprietary drugs for the treatment of
chronic and life threatening diseases. Currently, the Company's principal focus
has been the development and commercialization of ZADAXIN and the development of
CPX.

     The Chief Executive Officer has been identified as the Chief Operating
Decision Maker ("CODM") because he has final authority over resource allocation
decisions and performance assessment. The CODM does not receive discrete
financial information about the individual components.

     The Company's domestic operations primarily consist of product development.
The Company's wholly owned international subsidiary, SciClone Pharmaceuticals
International Ltd., is based in Hong Kong and is in engaged sales and marketing
and product distribution worldwide.

                                        52
<PAGE>   54
                         SCICLONE PHARMACEUTICALS, INC.

                  NOTES TO CONSOLIDATED FINANCIALS (CONTINUED)

     Information regarding geographic areas is as follows:

<TABLE>
<CAPTION>
                                2000                       1999                      1998
                       -----------------------    ----------------------    ----------------------
                                        LONG                      LONG                      LONG
                         PRODUCT       LIVED       PRODUCT       LIVED       PRODUCT       LIVED
                          SALES        ASSETS       SALES        ASSETS       SALES        ASSETS
                       -----------    --------    ----------    --------    ----------    --------
<S>                    <C>            <C>         <C>           <C>         <C>           <C>
U.S..................  $        --    $101,000    $       --    $153,000    $       --    $243,000
China................   13,174,000      12,000     7,906,000      14,000     3,118,000      82,000
Others...............    2,183,000     101,000     1,185,000      68,000       507,000      66,000
                       -----------    --------    ----------    --------    ----------    --------
          Total......  $15,357,000    $214,000    $9,091,000    $235,000    $3,625,000    $391,000
                       ===========    ========    ==========    ========    ==========    ========
</TABLE>

NOTE 10 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED
                                         ---------------------------------------------------------
                                          MARCH 31        JUNE 30      SEPTEMBER 30    DECEMBER 31
                                         -----------    -----------    ------------    -----------
<S>                                      <C>            <C>            <C>             <C>
2000:
  Total revenues.......................  $ 3,499,000    $ 4,206,000     $4,675,000     $2,977,000
  Cost of product sales................  $   735,000    $   849,000     $  914,000     $  616,000
  Gross margin.........................  $ 2,764,000    $ 3,357,000     $3,761,000     $2,361,000
  Net loss.............................  $  (875,000)   $  (589,000)    $ (137,000)    $ (117,000)
  Basic and diluted net loss per
     share.............................  $     (0.03)   $     (0.02)    $    (0.00)    $    (0.00)
1999:
  Total revenues.......................  $ 1,777,000    $ 2,108,000     $2,513,000     $2,999,000
  Cost of product sales................  $   359,000    $   397,000     $  429,000     $  576,000
  Gross margin.........................  $ 1,418,000    $ 1,711,000     $2,084,000     $2,423,000
  Net loss.............................  $(2,623,000)   $(1,511,000)    $ (797,000)    $ (535,000)
  Basic and diluted net loss per
     share.............................  $     (0.13)   $     (0.07)    $    (0.03)    $    (0.02)
</TABLE>

                                        53
<PAGE>   55

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

     Not Applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The executive officers and directors of the Company, their ages as of March
5, 2001 and certain other information about them are set forth below:

<TABLE>
<CAPTION>
                NAME                   AGE                           POSITION
                ----                   ---                           --------
<S>                                    <C>    <C>
Donald R. Sellers....................  56     President, Chief Executive Officer, Interim Chief
                                              Financial Officer and Director, SciClone
                                              Pharmaceuticals, Inc.; Managing Director, SciClone
                                              Pharmaceuticals International Ltd.
Alfred R. Rudolph, M.D...............  53     Chief Operating Officer
Richard A. Waldron...................  47     Chief Financial Officer
Jere E. Goyan, Ph.D..................  70     Chairman of the Board of Directors
John D. Baxter, M.D..................  60     Director
Edwin C. Cadman, M.D.................  55     Director
Rolf H. Henel........................  63     Director
Jon S. Saxe..........................  64     Director
Dean S. Woodman......................  72     Director
</TABLE>

     Donald R. Sellers has served as the Company's Chief Executive Officer since
April 1996 and as President and Director since January 1996. From May 1993 to
present, he has also served as Managing Director, SciClone Pharmaceuticals
International Ltd., the international arm of the Company. From 1990 to 1993, Mr.
Sellers was Corporate Vice President of Getz Bros., a U.S.-based international
trading company, as well as President of one of their Japanese operations. From
1983 to 1990, Mr. Sellers was employed by Sterling Drug International, initially
as Vice President of Marketing and Operations in Asia and later as President of
their Latin American Andina Group. Mr. Sellers began his pharmaceutical career
in 1973 with Pfizer as Country Manager, Vietnam and Hong Kong, and he later
worked with the Revlon Healthcare Group as Director of Worldwide Exports and
Pacific Area Director. Mr. Sellers spent five years in Military Intelligence
serving with Special Forces and as a Counter-Intelligence Special Agent. He has
an AB degree from Lafayette College and a Masters of International Management
degree with honors from the American Graduate School of International
Management.

     Alfred R. Rudolph, M.D. joined the Company in April 1997 as Chief Technical
Officer and was promoted to Chief Operating Officer in August 1997 with
responsibility for clinical, scientific, and manufacturing affairs and quality
assurance. From January 1995 to September 1995, Dr. Rudolph was President and
Chief Operating Officer of Neptune Pharmaceuticals, Inc., a marine-based natural
product screening company. Dr. Rudolph was Senior Vice President of T Cell
Sciences, Inc., a biotechnology company, from December 1991 to September 1994
and was Vice President, Medical Affairs from March 1990 to December 1991. Dr.
Rudolph was Director of Clinical Operations at Cetus Corporation from 1984 to
1989, and Clinical Assistant Professor of Medicine at UCSF during this period.
Prior to that, he worked at Bristol Myers in cancer drug development. Dr.
Rudolph holds a B.S. in Electrical Engineering from the University of Rochester,
and his fellowship training in Hemotology-Oncology was done at Syracuse
University.

     Richard A. Waldron joined the Company in March 2001 as Chief Financial
Officer. Prior to joining SciClone he was Vice President and Chief Financial
Officer from June 1999 to August 2000 for Genelabs Technologies, Inc., a
biotechnology company. From July 1995 through March 1999 he was Vice President
and Chief Financial Officer of GeneMedicine, Inc., a biotechnology company
engaged in gene therapy. From 1990 to 1995, he was a managing director and the
head of finance for technology-based companies at Rauscher Pierce Refsnes, Inc.,
an investment banking firm. From 1985 to 1990, he was a senior vice president

                                        54
<PAGE>   56

responsible for health care investment banking at Cowen & Company. Mr. Waldron
received his M.B.A degree with honors from Harvard University and his A.B.
degree magna cum laude in Economics from Princeton University.

     Jere E. Goyan, Ph.D. has been a Chairman of the Board of Directors of the
Company since July 1997 and has been a director of the Company since January
1992. Currently, Dr. Goyan is President of Goyan and Hart Associates, a private
consulting firm. From May 1993 until December 1998, Dr. Goyan was President,
Chief Operating Officer, and a director of Alteon, Inc., a biotechnology
company. He also served Alteon as Acting Chief Executive Officer from July 1993
until May 1994 and as Senior Vice President for Research and Development from
January 1993 to May 1993. Dr. Goyan was the Commissioner of the U.S. Food and
Drug Administration from October 1979 to January 1981. He was Dean of the School
of Pharmacy University of California, San Francisco and Professor of Pharmacy
and Pharmaceutical Chemistry from 1967 through 1992. He joined the faculty of
UCSF in 1963 as an associate professor after serving on the faculty of the
University of Michigan, College of Pharmacy from 1956 to 1963. Dr. Goyan also
currently serves as a director of Emisphere Technologies, Inc. and of Penwest
Pharmaceuticals. Dr. Goyan also serves as a consultant to various companies and
corporations.

     John D. Baxter, M.D. has been a director of the Company and the Chairman of
its Scientific Advisory Board since June 1991. Dr. Baxter has been associated
with the University of California, San Francisco ("UCSF") since 1970. He has
been Professor of Medicine since 1979, Chief of the Endocrinology Section,
Parnassus Campus from 1980 to 1997 and Director of UCSF's Metabolic Research
Unit from since 1981 to 2000. Dr. Baxter was a founder and served as a director
of California Biotechnology, Inc. (now Scios Nova, Inc.), and of Kao Bio A.B.,
both biotechnology companies.

     Edwin C. Cadman, M.D. has been a director of the Company and a member of
its Scientific Advisory Board since November 1991. Since November 1, 1999, Dr.
Cadman has been Dean of the John A. Burns School of Medicine at the University
of Hawaii. From January 1994 to October 31, 1999, Dr. Cadman was Senior Vice
President of Medical Affairs and Chief of Staff at Yale New Haven Hospital,
where he was Chief of the Medical Service from 1987 through December 1993. From
1987 to October 31, 1999, Dr. Cadman was Professor of Medicine at Yale
University, where he was Chairman of the Department of Medicine from 1987
through December 1993. Prior to these positions, he was Director of the Cancer
Research Institute at UCSF.

     Rolf H. Henel joined the Company as a director in June 1997. Mr. Henel is a
partner in Naimark & Associates, Inc., a healthcare consulting firm, since
September 1994. Mr. Henel was Executive Director of Performance Effectiveness
Corporation, Inc., a pharmaceutical consulting and education company, from April
1993 to December 1998. From 1978 to 1993, Mr. Henel was with American Cyanamid
Company, most recently as President of the Cyanamid International Lederele
Division. Mr. Henel is also a director of Penwest Pharmaceuticals, a
pharmaceutical company, based in Patterson, New York. He also Chairman of the
Board of the Bergen Community Blood Services Foundation and Board Treasurer of
the Bergen Community Regional Blood Center, both not-for-profit 501(C)(3)
corporations.

     Jon S. Saxe joined the Company as a director in August 2000. Mr. Saxe was
President of Protein Design Labs, Inc. from 1995 to May 1999, and currently
serves as a director of the company. From mid-1993 to 1995, Mr. Saxe was
president of Saxe Associates, Inc., consultants to venture capital firms and
biotechnology, diagnostic, and pharmaceutical companies. He was president and
CEO of Synergen, Inc., a biotechnology company, from 1989 to 1993. Mr. Saxe is
former Vice President, licensing and corporate development and head of patent
law for Hoffmann-LaRoche Inc., where he worked from 1960 to 1989. Mr. Saxe
received his JD from George Washington University School of Law and his LL.M.
from New York University School of Law. In addition to Protein Design Labs, Inc.
he serves as a director of Incyte Genomics Inc., InSite Vision, Inc., ID
Biomedical, Inc., Questcor Pharmaceuticals, Inc., First Horizon Pharmaceuticals,
Inc. and private companies.

     Dean S. Woodman joined the Company as a director in August 2000. Mr.
Woodman is managing director of Woodman Capital Group, L.L.C., a boutique
investment banking firm, and a senior consultant to the investment banking
division at ING Barings L.L.C., an international investment banking firm. From
July 1989 to June 1999, he was a managing director at Furman Selz, an investment
banking firm acquired in 1999 by
                                        55
<PAGE>   57

ING Barings L.L.C. Mr. Woodman was a Managing Director in the investment banking
group of Hambrecht & Quist (now Chase H&Q) from October 1984 to March 1988. He
was a founding partner of Robertson Colman Stephens & Woodman (now Robertson
Stephens), an investment banking firm, in 1978, and of Woodman Kirkpartrick &
Gilbreath, an investment banking firm, in 1982. Mr. Woodman worked in the
investment banking division of Merrill Lynch for 23 years where he spent 16
years as director of West Coast corporate financing until 1978. He is currently
a Director of MarineMax, Inc.

     Directors serve one year terms or until their successors are elected and
qualified. Executive officers serve at the discretion of the Board of Directors.

     There are no family relationships among any of the directors or executive
officers of the Company.

     The information required by Item 405 of Regulation S-K is incorporated by
reference from the definitive proxy statement for the Company's 2001 Annual
Meeting of Shareholders to be filed with the Commission pursuant to Regulation
14A not later than 120 days after the end of the fiscal year covered by this
Form (the "Proxy Statement") under the caption "SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE."

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this Item is incorporated by reference from the
Proxy Statement under the caption "EXECUTIVE COMPENSATION."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item is incorporated by reference from the
Proxy Statement under the caption "STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item is incorporated by reference from the
Proxy Statement under the captions "TRANSACTIONS WITH MANAGEMENT" and "EXECUTIVE
COMPENSATION -- Compensation Committee Interlocks and Insider Participation."

                                        56
<PAGE>   58

                                    PART IV

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

     (a) The following documents are filed as part of this Report:

          (1) Financial Statements. The following financial statements of the
     Company are contained on pages 35 - 53 of this Report on Form 10-K:

          Report of Ernst & Young LLP, Independent Auditors.

          Consolidated Balance Sheets at December 31, 2000 and 1999.

          Consolidated Statements of Operations for each of the three years
     ended December 31, 2000, 1999 and 1998.

          Consolidated Statement of Shareholders' Equity for the three years
     ended December 31, 2000, 1999 and 1998.

          Consolidated Statements of Cash Flows for each of the three years
     ended December 31, 2000, 1999 and 1998.

          Notes to Consolidated Financial Statements.

          (2) Financial Statement Schedules

          The following schedule is filed as part of this Report:

          Schedule II -- Valuation and Qualifying Accounts for each of the three
     years ended December 31, 2000, 1999 and 1998.

          All other schedules have been omitted because they are either
     inapplicable or the required information has been given in the consolidated
     financial statements or the notes hereto.

          (3) Exhibits.

          Refer to Item 14(c) below.

     (b) REPORTS ON FORM 8-K.

     None

     (c) EXHIBITS.

     Exhibits (numbered in accordance with Item 601 of Regulation S-K):

<TABLE>
<CAPTION>
      EXHIBIT
      NUMBER                             DESCRIPTION
      -------                            -----------
    <S>          <C>
     3(i).1(1)   Restated Articles of Incorporation.
     3(i).2(2)   Certificate of Amendment of Restated Articles of
                 Incorporation.
     3(i).3(14)  Certificate of Determination.
     3(i).4      Certificate of Determination Regarding the terms of the
                 Series C Preferred Stock.
     3(ii).1(1)  Bylaws.
     3(ii).2(2)  Certificate of Amendment of Bylaws.
     4.2(14)     Rights Agreement dated as of July 25, 1997 between the
                 Registrant and Chase Mellon Shareholder Services, L.L.C.
     4.3*        6% Convertible Note dated as of December 7, 2000 by the
                 Registrant in favor of UBS AG, London Branch.
     4.4*        Option Agreement dated as of October 26, 2000 by and between
                 the Registrant and UBS AG, London Branch.
     4.5*        Amendment No. 1 to Option Agreement dated as of December 19,
                 2000 by and between the Registrant and UBS AG, London
                 Branch.
</TABLE>

                                        57
<PAGE>   59

<TABLE>
<CAPTION>
      EXHIBIT
      NUMBER                             DESCRIPTION
      -------                            -----------
    <S>          <C>
    10.7(2)**    Registrant's 1991 Stock Plan, together with forms of
                 agreements thereunder.
    10.8(1)**    Registrant's 1992 Stock Plan, together with forms of
                 agreements thereunder.
    10.10(1)     Lease, dated September 10, 1991, between the Registrant and
                 Spieker-Singleton68 concerning property, located at 901
                 Mariners Island Boulevard, San Mateo, California, as amended
                 (the "Spieker Lease").
    10.11(7)     Amendment No. 4 to Spieker Lease, dated October 4, 1994.
    10.12(9)     Amendment No. 7 to Spieker Lease, dated November 14, 1995.
    10.13(8)**   Registrant's 1995 Equity Incentive Plan, together with forms
                 of agreement thereunder.
    10.14(8)**   Registrant's 1995 Nonemployee Director Stock Option Plan,
                 together with forms of agreement thereunder.
    10.16        Second Amendment of Employment Agreement dated December,
                 2000 between the Registrant and Donald R. Sellers.
    10.17(10)    License Agreement effective April 19, 1996 between the
                 Registrant and the National Institute of Health Office of
                 Technology Transfer.
    10.19(11)    Amendment No. 8 to Spieker Lease, dated August 26, 1996.
    10.20        Amendment No. 14 to Spieker Lease dated November 21, 2000.
    10.21(15)    Alpha Rights Acquisition Agreement by and between the
                 Registrant and Alpha 1 Biomedicals, Inc., dated December 17,
                 1997.
    10.22(16)*   Expanded and Amended Alpha 1 License, Distributorship and
                 Supply Agreement by and between the Company and Sigma-Tau
                 Industrie Farmadeutiche Riunite S.p.A. dated as of March 3,
                 2000.
    10.23(17)    Preferred Stock Investment Agreement by and among the
                 Company, Halifax Fund, L.P., Themis Partners L.P. and
                 Heracles Fund dated as of March 27, 1998.
    10.24(17)    Registration Rights Agreement by and among Registrant,
                 Halifax Fund, L.P., Themis Partners L.P. and Heracles Fund
                 dated as of April 1, 1998.
    10.26(18)    Warrant to purchase up to 200,000 shares of Common Stock of
                 the Company issued to Cheyenne LLC dated as of June 30,
                 1998.
    10.27(18)    Registration Rights Agreement by and between the Company and
                 Cheyenne LLC dated as of June 30, 1998.
    10.28(19)    Acquisition Agreement between the Company and Sclavo S.p.A.
                 dated April 20,1998.
    10.29(19)    First Amendment to Acquisition Agreement between the Company
                 and Sclavo S.p.A., dated April 20, 1998.
    10.30(19)    Stock Purchase Warrant to purchase up to 375,000 shares of
                 Common Stock of the Company issued to Sclavo S.p.A. dated
                 September 3, 1998.
    10.31(19)*   Registration Rights Agreement by and between the Company and
                 UBS AG, London Branch dated as of February 16, 2001.
    10.32        Change in Control Agreement between the Company and Alfred
                 Rudolph dated as of November 19, 1999.
    10.33        Change in Control Agreement between the Company and Donald
                 R. Sellers dated as of November 19, 1999.
    21.1         Subsidiaries of Registrant.
    23.1         Consent of Ernst & Young LLP, Independent Auditors.
    24.1         Powers of Attorney. See page 60.
</TABLE>

---------------
   * Certain information in this exhibit has been omitted and filed separately
     with the Securities and Exchange Commission pursuant to a confidential
     treatment request under 17 C.F.R. Sections 200, 80(b)(4), 200.83 and
     230.46.

  ** Management compensatory plan or arrangement.

 (1) Incorporated by reference from the Company's Registration Statement on Form
     S-l (No. 33-45446), declared effective by the Commission on March 17, 1992.

                                        58
<PAGE>   60

 (2) Incorporated by reference from the Company's Registration Statement on Form
     S-8 (No. 33-66832) filed with the Commission on August 3, 1993.

 (7) Incorporated by reference from the Company's Annual Report on Form 10-K for
     the year ended December 31, 1994.

 (8) Incorporated by reference from the Company's Registration Statement on Form
     S-8 (No. 33-80911) filed with the Commission on December 28, 1995.

 (9) Incorporated by reference from the Company's Annual Report on Form 10-K for
     the year ended December 31, 1995.

(10) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
     for the quarter ended March 31, 1996.

(11) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
     for the quarter ended June 30, 1996.

(14) Incorporated by reference from the Company's Current Report on Form 8-K
     filed on October 14, 1997.

(15) Incorporated by reference from the Company's Current Report on Form 8-K
     filed on January 26, 1998.

(16) Incorporated by reference from the Company's Form 8-K filed on April 20,
     2000.

(17) Incorporated by reference from the Company's Annual Report on Form 10-K for
     the year ended December 31, 1998.

(18) Incorporated by reference to the Company's Current Report on Form 8-K filed
     on July 23, 1998.

(19) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
     on November 17, 1998.

                                        59
<PAGE>   61

                                   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.

                                          SCICLONE PHARMACEUTICALS, INC.

                                          By: /s/   DONALD R. SELLERS
                                            ------------------------------------
                                                     Donald R. Sellers
                                               President and Chief Executive
                                                           Officer

Date: March 29, 2001

                               POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Donald R. Sellers and Richard A. Waldron,
and each of them, his attorneys-in-fact and agents, each with the power of
substitution and resubstitution, for him in any and all capacities, to sign any
and all amendments to this Report on Form 10-K, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary, to be done in connection therewith,
as fully as to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
either of them, or their or his substitute or substitutes, may do or cause to be
done by virtue hereof.

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

<TABLE>
<CAPTION>
                   SIGNATURE                                        TITLE                          DATE
                   ---------                                        -----                          ----
<S>                                               <C>                                         <C>

             /s/ DONALD R. SELLERS                  President and Chief Executive Officer     March 29, 2001
------------------------------------------------                   Director
              (Donald R. Sellers)                        Principal Executive Officer

             /s/ RICHARD A. WALDRON                        Chief Financial Officer            March 29, 2001
------------------------------------------------         Principal Financial Officer
              (Richard A. Waldron)

                /s/ IVAN B. HUI                              Corporate Controller             March 29, 2001
------------------------------------------------         Principal Accounting Officer
                 (Ivan B. Hui)

            /s/ JOHN D. BAXTER, M.D.                               Director                   March 29, 2001
------------------------------------------------
             (John D. Baxter, M.D.)

           /s/ EDWIN C. CADMAN, M.D.                               Director                   March 29, 2001
------------------------------------------------
            (Edwin C. Cadman, M.D.)

            /s/ JERE E. GOYAN, PH.D.                    Chairman of Board of Directors        March 29, 2001
------------------------------------------------
             (Jere E. Goyan, Ph.D.)

               /s/ ROLF H. HENEL                                   Director                   March 29, 2001
------------------------------------------------
                (Rolf H. Henel)

                /s/ JON S. SAXE                                    Director                   March 29, 2001
------------------------------------------------
                 (Jon S. Saxe)

              /s/ DEAN S. WOODMAN                                  Director                   March 29, 2001
------------------------------------------------
               (Dean S. Woodman)
</TABLE>

                                        60
<PAGE>   62

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

                         SCICLONE PHARMACEUTICALS INC.

<TABLE>
<CAPTION>
                                                         ADDITIONS
                                                  ------------------------
                                   BALANCE AT     CHARGED TO    CHARGED TO
                                  BEGINNING OF    COSTS AND       OTHER                      BALANCE AT
          DESCRIPTION                PERIOD        EXPENSES      ACCOUNTS     DEDUCTIONS    END OF PERIOD
          -----------             ------------    ----------    ----------    ----------    -------------
<S>                               <C>             <C>           <C>           <C>           <C>
YEAR ENDED DECEMBER 31, 2000
  Reserves and allowances
     deducted from asset
     accounts:
     Allowance for uncollectable
       accounts.................    $ 74,000       $320,000      $     --      $     --       $394,000
     Inventory Reserve..........    $ 81,000       $ 69,000      $     --      $     --       $150,000
YEAR ENDED DECEMBER 31, 1999
  Reserves and allowances
     deducted from asset
     accounts:
     Allowance for uncollectable
       accounts.................    $ 76,000       $     --      $     --      $  2,000       $ 74,000
     Inventory Reserve..........    $129,000       $     --      $     --      $ 48,000       $ 81,000
YEAR ENDED DECEMBER 31, 1998
  Reserves and allowances
     deducted from asset
     accounts:
     Allowance for uncollectable
       accounts.................    $250,000       $     --      $     --      $174,000       $ 76,000
     Inventory Reserve..........    $325,000       $     --      $     --      $196,000       $129,000
</TABLE>

                                        61
<PAGE>   63

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
                                                                           SEQUENTIALLY
  EXHIBIT                                                                    NUMBERED
  NUMBER                               EXHIBIT                                 PAGE
  -------                              -------                             ------------
<S>          <C>                                                           <C>
 3(i).1(1)   Restated Articles of Incorporation.
 3(i).2(2)   Certificate of Amendment of Restated Articles of
             Incorporation.
 3(i).3(14)  Certificate of Determination.
 3(i).4      Certificate of Determination Regarding the terms of the
             Series C Preferred Stock.
 3(ii).1(1)  Bylaws.
 3(ii).2(2)  Certificate of Amendment of Bylaws.
 4.2(14)     Rights Agreement dated as of July 25, 1997 between the
             Registrant and Chase Mellon Shareholder Services, L.L.C.
 4.3*        6% Convertible Note dated as of December 7, 2000 by the
             Registrant in favor of UBS AG, London Branch.
 4.4*        Option Agreement dated as of October 26, 2000 by and between
             the Registrant and UBS AG, London Branch.
 4.5*        Amendment No. 1 to Option Agreement dated as of December 19,
             2000 by and between the Registrant and UBS AG, London
             Branch.
10.7(2)**    Registrant's 1991 Stock Plan, together with forms of
             agreements thereunder.
10.8(1)**    Registrant's 1992 Stock Plan, together with forms of
             agreements thereunder.
10.10(1)     Lease, dated September 10, 1991, between the Registrant and
             Spieker-Singleton68 concerning property, located at 901
             Mariners Island Boulevard, San Mateo, California, as amended
             (the "Spieker Lease").
10.11(7)     Amendment No. 4 to Spieker Lease, dated October 4, 1994.
10.12(9)     Amendment No. 7 to Spieker Lease, dated November 14, 1995.
10.13(8)**   Registrant's 1995 Equity Incentive Plan, together with forms
             of agreement thereunder.
10.14(8)**   Registrant's 1995 Nonemployee Director Stock Option Plan,
             together with forms of agreement thereunder.
10.16        Second Amendment of Employment Agreement dated December,
             2000 between the Registrant and Donald R. Sellers.
10.17(10)    License Agreement effective April 19, 1996 between the
             Registrant and the National Institute of Health Office of
             Technology Transfer.
10.19(11)    Amendment No. 8 to Spieker Lease, dated August 26, 1996.
10.20        Amendment No. 14 to Spieker Lease dated November 21, 2000.
10.21(15)    Alpha Rights Acquisition Agreement by and between the
             Registrant and Alpha 1 Biomedicals, Inc., dated December 17,
             1997.
10.22(16)*   Expanded and Amended Alpha 1 License, Distributorship and
             Supply Agreement by and between the Company and Sigma-Tau
             Industrie Farmadeutiche Riunite S.p.A. dated as of March 3,
             2000.
10.23(17)    Preferred Stock Investment Agreement by and among the
             Company, Halifax Fund, L.P., Themis Partners L.P. and
             Heracles Fund dated as of March 27, 1998.
10.24(17)    Registration Rights Agreement by and among Registrant,
             Halifax Fund, L.P., Themis Partners L.P. and Heracles Fund
             dated as of April 1, 1998.
10.26(18)    Warrant to purchase up to 200,000 shares of Common Stock of
             the Company issued to Cheyenne LLC dated as of June 30,
             1998.
10.27(18)    Registration Rights Agreement by and between the Company and
             Cheyenne LLC dated as of June 30, 1998.
10.28(19)    Acquisition Agreement between the Company and Sclavo S.p.A.
             dated April 20,1998.
10.29(19)    First Amendment to Acquisition Agreement between the Company
             and Sclavo S.p.A., dated April 20, 1998.
</TABLE>

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<PAGE>   64

<TABLE>
<CAPTION>
                                                                           SEQUENTIALLY
  EXHIBIT                                                                    NUMBERED
  NUMBER                               EXHIBIT                                 PAGE
  -------                              -------                             ------------
<S>          <C>                                                           <C>
10.30(19)    Stock Purchase Warrant to purchase up to 375,000 shares of
             Common Stock of the Company issued to Sclavo S.p.A. dated
             September 3, 1998.
10.31(19)*   Registration Rights Agreement by and between the Company and
             UBS AG, London Branch dated as of February 16, 2001.
10.32        Change in Control Agreement between the Company and Alfred
             Rudolph dated as of November 19, 1999.
10.33        Change in Control Agreement between the Company and Donald
             R. Sellers dated as of November 19, 1999.
21.1         Subsidiaries of Registrant.
23.1         Consent of Ernst & Young LLP, Independent Auditors.
24.1         Powers of Attorney. See page 60.
</TABLE>

---------------
   * Certain information in this exhibit has been omitted and filed separately
     with the Securities and Exchange Commission pursuant to a confidential
     treatment request under 17 C.F.R. Sections 200, 80(b)(4), 200.83 and
     230.46.

  ** Management compensatory plan or arrangement.

 (1) Incorporated by reference from the Company's Registration Statement on Form
     S-l (No. 33-45446), declared effective by the Commission on March 17, 1992.

 (2) Incorporated by reference from the Company's Registration Statement on Form
     S-8 (No. 33-66832) filed with the Commission on August 3, 1993.

 (7) Incorporated by reference from the Company's Annual Report on Form 10-K for
     the year ended December 31, 1994.

 (8) Incorporated by reference from the Company's Registration Statement on Form
     S-8 (No. 33-80911) filed with the Commission on December 28, 1995.

 (9) Incorporated by reference from the Company's Annual Report on Form 10-K for
     the year ended December 31, 1995.

(10) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
     for the quarter ended March 31, 1996.

(11) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
     for the quarter ended June 30, 1996.

(14) Incorporated by reference from the Company's Current Report on Form 8-K
     filed on October 14, 1997.

(15) Incorporated by reference from the Company's Current Report on Form 8-K
     filed on January 26, 1998.

(16) Incorporated by reference from the Company's Form 8-K filed on April 20,
     2000.

(17) Incorporated by reference from the Company's Annual Report on Form 10-K for
     the year ended December 31, 1998.

(18) Incorporated by reference to the Company's Current Report on Form 8-K filed
     on July 23, 1998.

(19) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
     on November 17, 1998.

                                        63