<PAGE>


                                  UNITED STATES
                       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

                         Commission File number: 0-19750

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

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

34700 CAMPUS DRIVE, FREMONT, CALIFORNIA                     94555
 (Address of principal executive offices)                (Zip Code)

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

           Securities registered pursuant to Section 12(b) of the Act:

        TITLE OF EACH CLASS                             NAME OF EACH EXCHANGE
              None                                       ON WHICH REGISTERED
                                                                None

           Securities registered pursuant to Section 12(g) of the Act:

                          COMMON STOCK, $.01 PAR VALUE

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 Form 10-K or any amendment to this Form
10-K.

The aggregate market value of voting stock, $.01 par value, held by
non-affiliates of the registrant as of February 28, 2001: $293,818,543.

Number of shares of Common Stock, $.01 par value, outstanding as of
February 28, 2001: 26,083,219.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following document are incorporated by reference into Part III
of this Form 10-K Report: the Proxy Statement for the Registrant's 2001 Annual
Meeting of Stockholders scheduled to be held on May 8, 2001.


<PAGE>



                                     PART I


ITEM 1. BUSINESS

     THIS FORM 10-K CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING THE
COMPANY'S PLANS REGARDING THE POSSIBLE COMMERCIAL LAUNCH OF INTRADOSE, TIMING
AND OUTCOME OF REGULATORY REVIEWS, ADDITIONAL PHASE II TRIALS FOR HEAD AND NECK
CANCER AND LIVER CANCER AND COMPLETION OF THE PHASE II STUDY OF TEZACITABINE FOR
COLON CANCER. ADDITIONAL FACTORS AND UNCERTAINTIES COULD CAUSE THE COMPANY'S
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN ANY SUCH
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK FACTORS" AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS FORM 10-K. THESE FORWARD-LOOKING STATEMENTS REPRESENT THE
COMPANY'S JUDGMENT AS OF THE DATE OF THE FILING OF THIS FORM 10-K. THE COMPANY
UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO
THESE FORWARD-LOOKING STATEMENTS, WHICH MAY BE MADE TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.

OVERVIEW

     Matrix(R) Pharmaceutical, Inc. ("Matrix" or "the Company") was incorporated
in California in February 1985 and reincorporated in Delaware in January 1992.
Matrix develops and manufactures novel drug product candidates for cancer based
on its internal research and development capabilities and through in-licensing
of product candidates from research institutions or other pharmaceutical
companies. The Company's contract manufacturing operation, Matrix Contract
Services, specializes in contract aseptic manufacturing for clinical and
commercial supply.

     The Company is a leader in the formulation and development of novel
pharmaceutical product candidates that are designed to improve the delivery of
cancer drugs for more effective treatment of solid tumors. The Company has
developed an aqueous-based protein gel system for delivery of water-soluble
chemotherapeutic agents and non-aqueous semi-solid systems for delivery of
chemotherapeutic agents that are poorly water-soluble. The aqueous-based
delivery system is a biodegradable collagen gel that is injected directly into
tumors. Two product candidates that utilize the Company's aqueous-based protein
gel systems have been, or are being, evaluated in human clinical trials. These
are IntraDose(R) (cisplatin/epinephrine) Injectable Gel and MPI 5020
Radiopotentiator. For IntraDose, the system incorporates cisplatin, the
well-established anti-cancer drug, and epinephrine, a blood vessel constrictor.
MPI 5020 incorporates fluorouracil (5-FU), another established anti-cancer drug.
The Company believes that this delivery system offers three distinct benefits.
First, there are fewer of the debilitating side effects commonly associated with
systemically administered chemotherapy. Second, drug concentration inside the
tumor is much higher than is possible with traditional systemic chemotherapy.
Third, the drug is retained at the injection site for sustained periods, which
increases exposure of cancer cells to drug.

     In addition to developing product candidates based on its technology, the
Company also in-licenses product candidates for development, utilizing its
expertise to identify and implement appropriate development strategies for
in-licensed compounds. In-licensed in 1998, tezacitabine (FMdC) is an
intravenously-administered therapeutic being developed for colorectal,
hematologic and other cancers.

MATRIX TECHNOLOGY

     AQUEOUS-BASED PROTEIN DELIVERY SYSTEMS. IntraDose and MPI 5020
Radiopotentiator are based on the Company's injectable gel technology, in which
a chemotherapeutic drug and, in IntraDose, a vasoconstrictor, are incorporated
into a bio-compatible and bio-degradable protein matrix to create an injectable
gel. This gel enables targeted delivery of anti-cancer drugs by direct injection
into solid tumors. The Matrix delivery system localizes the release of drug,
maintaining high drug concentrations at the tumor site and increasing the
duration of exposure of the targeted tissue to the therapeutic agent. The
activity of IntraDose is further enhanced by the addition of epinephrine, a
vasoconstrictor that reduces local blood flow and acts as a "chemical
tourniquet" to further hold the drug at the site of the disease.

     The Company believes that its technology may allow the development of new
products from established drugs or newer agents that may be available from other
companies or institutions. Whether the chosen drugs or compounds are
"off-patent" or are in-licensed from third parties when they are incorporated
into the Company's proprietary drug delivery system, the resulting products
would be proprietary to the Company. The Company, therefore, expects to be
competitive in


                                       1


<PAGE>


the marketplace and have a proprietary position in such products
for the length of the patents on its technology and resulting products.

     Cisplatin and fluorouracil, off-patent drugs, are widely used as systemic
agents to treat solid tumors. These chemotherapeutic drugs exert a cytotoxic
effect on dividing cells at various stages during their growth and
multiplication. Cells that undergo rapid and unregulated cell division are more
susceptible than normal cells to the effects of cytotoxic drugs. Unfortunately,
normal cells (E.G., bone marrow and gastrointestinal mucosa cells) rapidly
divide and are also sensitive to the cytotoxic drugs. This toxicity to normal
tissue limits the maximum dosing permitted with systemically administered
chemotherapeutic drugs and often results in a tolerated dose that is
substantially lower than the dose necessary to kill all diseased tissue.
Sub-optimal dosing contributes to the emergence of drug resistance among
remaining cancer cells, complicating further drug therapy.

     The Company believes that the principal advantages of its aqueous-based
protein gel technology include:

     -    SUSTAINED HIGH CONCENTRATIONS OF DRUG AT THE TARGET SITE. Maintaining
          high, local drug concentrations in the target tissue increases the
          exposure of diseased tissue to the drug.

     -    LOWERED SYSTEMIC TOXICITY. Concentrating the drug at the disease site
          and limiting the drug exposure of normal tissues reduces overall
          systemic toxicity, compared to systemic chemotherapy.

     -    SITE-SPECIFIC APPLICATION. Any accessible lesion or solid tumor, which
          can be seen, palpated, visualized with established imaging techniques,
          or accessed directly or by means of surgery or minimally invasive
          techniques can potentially be treated.

     -    APPLICABILITY TO A BROAD RANGE OF THERAPEUTIC COMPOUNDS. Many
          conventional drugs and novel biopharmaceuticals can be delivered using
          the aqueous-based protein gel technology. This may allow the Company
          to utilize new or approved drugs and other biological agents available
          from other companies or institutions, thus reducing the risk, cost and
          time involved in drug discovery.




                                       2
<PAGE>



PRODUCTS IN CLINICAL DEVELOPMENT

     The following table summarizes the Company's products in clinical
development, the primary indications for each product and the current
development status. The Company has worldwide commercial rights to all product
candidates except tezacitabine for which the Company has licensed worldwide
rights except for Japan.

<TABLE>
<CAPTION>


PRODUCT / INDICATION                                                DEVELOPMENT
                                                                    STATUS (1)
<S>                                                             <C>
INTRADOSE(R) (INTRATUMORAL INJECTION)
Head & Neck Cancer (2)                                          In FDA Registration
                                                                  (Completed two
                                                                Phase III Studies)

Combination with paclitaxel and carboplatin                          Phase II

Other Solid Tumors (3)                                        Completed Phase II/III

Liver Cancer - Primary Hepatocellular Cancer (HCC)                   Phase II

Liver Cancer - Metastatic Colorectal Cancer                           Phase II

TEZACITABINE (FMDC) INTRAVENOUS

Dose schedule studies                                                 Phase I

Non-Small Cell Lung Cancer                                      Completed Phase II

Colorectal Cancer                                                    Phase II

Hematologic Cancer (4)                                                Phase I

Combination with Cisplatin                                          Phase I/II

Combination with 5-FU                                               Phase I/II

MPI 5020 RADIOPOTENTIATOR (INTRATUMORAL INJECTION)

Recurrent breast cancer (Chest Wall Metastases)                  Completed Phase I
</TABLE>

(1)  The Company's product candidates are generally developed in the following
     stages: pre-clinical studies (preparing to file an Investigational New Drug
     ("IND") Application in the United States or a Clinical Trial Exemption
     ("CTX") in foreign countries); clinical trials (which may include Phases I,
     II, III and IV and variants or combinations of the foregoing); submission
     for market registration of a New Drug Application ("NDA") or Market
     Authorization Application ("MAA"), and clearance for marketing. See "--
     Government Regulation."

(2)  Enrollment for the two Phase III Head & Neck Cancer trials was completed in
     January 2000. An NDA was submitted to the FDA in January 2001 and accepted
     for filing in March 2001.

(3)  Other solid tumors include chest wall metastases from primary breast
     cancer, malignant melanomas and tumors of the esophagus.

(4)  Investigator sponsored IND study.



                                       3
<PAGE>


INTRADOSE INJECTABLE GEL

     Matrix is developing IntraDose Injectable Gel for head and neck cancer and
a variety of other solid tumors. Ninety percent of cancer patients suffer from
solid tumors (i.e., carcinomas and sarcomas). At the time of diagnosis,
approximately 70% of these patients have local or regionally advanced disease
with no evidence of metastatic disease. Conventional cancer therapies include
surgery, radiation and systemic drug therapy. Despite continued advances in
these treatments, they are limited by negative side effects (such as loss of
normal body functions, weakness, loss of appetite and nausea) that are the
result of killing, altering or removing normal cells and tissues. Therefore,
quality of life factors, such as pain management and control of other
tumor-related symptoms, remain important, as does the potential to slow disease
progression and possibly prolong survival.

     The Company's IntraDose product candidate represents a new approach to the
treatment of solid tumors. IntraDose is designed for direct injection into solid
tumors, including primary, metastatic and recurrent tumors. Imaging techniques,
such as endoscopy, ultrasound, computerized tomography ("CT scan") and magnetic
resonance imaging ("MRI scan") have substantially increased the number of solid
tumors diagnosed, which are potentially treatable by the Company's products. The
Company believes IntraDose may be effective when used as a single agent, as well
as when used in combination with conventional treatment modalities. In addition,
treatments with IntraDose may be given in any out-patient setting that is
equipped to administer cytotoxic drugs, offering the potential for
cost-effective treatment without in-patient hospitalization for surgery or
prolonged chemotherapy.

HEAD AND NECK CANCER

     The Company completed two randomized placebo-controlled Phase III clinical
trials for head and neck cancer during 2000. Head and neck cancer tumors were
recurrent or metastatic. The Company believes that these cancers are well-suited
to a direct injection with the Company's IntraDose product as they are visible,
palpable or easily accessible with an endoscope. The Company submitted an NDA to
the U.S. Food and Drug Administration ("FDA") in January 2001, which was
accepted for filing in March 2001, and plans to utilize data from its trials in
head and neck cancer to support its request for approval for IntraDose in the
United States and Western Europe.

     HEAD AND NECK CANCER MARKET. The 1998 prevalence of head and neck cancer in
the United States was estimated by Decision Resources, Inc. at 164,000 patients.
In addition, based on data from the American Cancer Society (ACS) and The
International Agency for Research on Cancer (IARC), a unit of the World Health
Organization, the Company estimates that approximately 40,000 new cases of head
and neck cancer were diagnosed in the United States in 2000 and 71,000 new cases
were diagnosed in the European Union in that same period. The incidence (number
of new cases per year) is highest in populations with high rates of cigarette
smoking and consumption of alcoholic beverages. Cancers of the head and neck are
predominately squamous cell carcinomas. Of these, approximately 60% to 70% are
diagnosed as later stage disease that has spread beyond the site of origin, and
30% to 40% are diagnosed as early stage disease that is localized. Cancers of
the head and neck are often difficult to treat with conventional surgery and
radiotherapy techniques. Tumor location can make surgical resection difficult or
impossible due to proximity to vital body structures and/or cosmetic or
functional considerations, while radiotherapy often damages surrounding healthy
tissues. The use of systemic chemotherapy in the management of head and neck
cancers has been limited by the difficulty of achieving adequate and lasting
tumor responses without incurring unacceptable side effects. This has led to a
continuing investigation of new chemotherapeutics and combinations of
chemotherapy, radiation, and surgery. Recurrence rates following initial
treatment with systemic chemotherapy, radiation and/or surgery have been
generally 50% or higher, and patients quickly reach their limit of surgery and
radiation therapy, and/or develop resistance to systemic chemotherapy.

     A standard course of systemic chemotherapy for patients with head and neck
cancer may sometimes require hospitalization with daily intravenous infusion of
chemotherapy agents. Patients who receive chemotherapy may also require
ancillary supportive treatments, such as intravenous fluids, nutritional
support, anti-emetics or growth factor support to control the toxic side effects
of the chemotherapy. Clinical results suggest that patients receiving IntraDose
are much less likely to require such supportive care.

     In June 1995, the Company announced initiation of two Phase III trials for
patients with head and neck cancer. The randomized double-blind,
placebo-controlled Phase III head and neck cancer trials were designed to enroll
approximately 180 evaluable patients, 90 patients in North America and 90
patients outside of North America. Patients enrolled in these Phase III trials
had advanced recurrent or metastatic disease. The study endpoints were objective
tumor response (I.E., durable tumor reduction of at least 50% for 28 days or
more) and achievement of pre-selected treatment



                                       4
<PAGE>


goals, such as prevention of obstruction of vital structures, pain control,
wound care, improvement in ability to hear, see and smell, prevention of tumors
breaking through the skin and other palliative patient benefits.

     One tumor was identified by the physician before the start of treatment as
most troublesome, that is, the tumor that was most clinically threatening or
symptomatic. Many patients received treatment to more than one tumor.

     Enrollment in these two studies was completed in January 2000 and initial
treatment and follow-up was completed in March 2000. All available data through
March 22, 2000 were analyzed. Any patients remaining on study at that time were
followed until they withdrew or they discontinued the study. Results of these
studies were released at the American Society of Clinical Oncology (ASCO) in May
2000.

COMBINED STUDY RESULTS. In the combined Phase III data, 29% of patients treated
with IntraDose achieved an objective tumor response of their most symptomatic or
clinically threatening tumor versus 2% for patients treated with the placebo, a
statistically significant result (p < 0.001). Approximately twice as many
patients achieved complete responses (19%) as partial responses (10%). Patient
benefit, defined as durable attainment of a single pre-selected goal, was
attained in 27% of the IntraDose-treated patients versus 12% of the
placebo-treated patients; the difference was statistically significant (p =
0.046). The association of objective tumor response with patient benefit was
statistically significant (p = 0.006); 47% of patients with a tumor response
achieved their predetermined benefit goal, compared to only 15% of
non-responders. These measurements of patient benefit are based only on the
primary pre-selected goal and do not reflect additional benefits that patients
may have received from treatment.

     Side effects of IntraDose therapy were generally limited to injection site
reactions, the most common of which was pain. The systemic side effects normally
associated with systemic cisplatin therapy were infrequent and easily managed.
In consultation with the FDA, study entry criteria were revised in 1997 to
exclude patients with neck tumors close to the carotid artery, who are
susceptible to cerebrovascular events including strokes and other serious
adverse events. During the early stages of the trials, 4 patients in the
reported data set experienced cerebrovascular side effects; none occurred after
the protocols were modified to exclude patients with tumors invading or in close
proximity to the carotid artery.

DURATION OF PATIENT RESPONSES

Response duration in the combined pivotal studies ranges from 30 days to 554
days with a median duration of 78 days. The majority of the patients continued
to respond at their last study visit, so the estimated median response duration
may be understated. Duration of response was measured from the first day the
response was observed until the earliest of (1) the progression of the most
troublesome tumor, (2) receipt by the patient of an intervening therapy, or (3)
discontinuation of the study by the patient, which sometimes occurred because of
progressive disease at site(s) not treated with IntraDose.

RESULTS FROM PLACEBO PATIENTS LATER TREATED WITH INTRADOSE

Patients who were initially randomized in the Phase III trials to receive
placebo and later received IntraDose because their disease was progressing,
responded to IntraDose at the same rate as those initially randomized to receive
IntraDose. Response rates for these two groups of patients are:

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------
                                         Patients Receiving        Patients Crossed Over to
                                          IntraDose During            IntraDose Therapy
                                        Randomized Portion of         Following Placebo
                                          Studies (n=119)             Treatment (n=41)
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
<S>                                           <C>                       <C>
     Tumor Response (Rate)                     35 (29%)                  11 (27%)
----------------------------------------------------------------------------------------------
     Complete Responses                        23 (19%)                   7 (17%)
----------------------------------------------------------------------------------------------
     Partial Response                          12 (10%)                   4 (10%)
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
     Achieved Clinical Benefit
     (expressed as attainment of a             32 (27%)                  11 (27%)
     single pre-selected patient or
     investigator goal)
----------------------------------------------------------------------------------------------
</TABLE>


                                       5
<PAGE>

COMPARISON OF PATIENTS WITH OR WITHOUT PRIOR PLATINUM TREATMENT

Objective response rates for patients treated with IntraDose were not lower in
patients who had received prior systemic intravenous cisplatin or carboplatin
treatment. Patients treated with IntraDose who had received prior treatment with
systemic platinum-based chemotherapy had an objective tumor response rate of
29%, while patients treated with IntraDose who had not received prior platinum
therapy had an objective tumor response rate of 30%. These results are
consistent with pre-clinical studies suggesting that IntraDose may have
additional mechanisms of action beyond that of systemically administered
cisplatin. Such mechanisms may make IntraDose effective in patients who were not
responsive to platinum therapy or who may have developed platinum-resistance
through previous therapy.

INDIVIDUAL STUDY RESULTS

     In the Phase III trial, conducted in North America with 86 patients, the
objective tumor response rate was 34% for IntraDose-treated patients versus 0%
for placebo-treated patients; the difference was statistically significant (p =
0.001). The pre-selected patient benefit was attained in 34% of the
IntraDose-treated patients versus 17% of the placebo-treated patients (p =
0.18).

     In the Phase III trial, conducted outside of North America with 92
patients, the objective tumor response rate was 25% for IntraDose-treated
patients versus 3% for placebo-treated patients; the difference was
statistically significant (p = 0.007). The pre-selected patient benefit was
attained in 19% of the IntraDose-treated patients versus 9% of the
placebo-treated patients (p = 0.24).

ADDITIONAL COMBINATION DRUG STUDY

     In March 2001, the Company initiated a Phase II study combining IntraDose
with two systemic chemotherapy agents (paclitaxel and carboplatin) for the
treatment of head and neck cancer. The objectives of the study are to evaluate
tumor response, time to progression, time and duration of response, overall
survival and safety.

INTRADOSE IN OTHER SOLID TUMORS

     In June 1995, two open-label Phase II trials in other solid tumors,
including primarily recurrent chest wall metastases from recurrent breast
cancer, esophageal cancer and malignant melanoma, as well as various other
carcinomas, were initiated. The two Phase II studies for other solid tumors were
open-label trials designed to include approximately 130 evaluable patients, 65
in the United States and 65 in Western Europe. These studies were completed in
1999.

     OTHER SOLID TUMOR MARKET. Tumors that can be accessed and injected directly
or by means of an endoscopic procedure or minimally invasive technique include
chest wall metastases from primary breast cancer, tumors of the esophagus and
malignant melanomas of the skin. Based on data from the American Cancer Society
and The International Agency for Research on Cancer, the Company believes that
approximately 43,000 such cases were diagnosed in the United States in 2000
(comprised of approximately 23,000 cases of metastatic breast cancer, 12,000
cases of esophageal cancer, and 8,000 cases of malignant melanoma) and that
approximately 42,500 cases were diagnosed in the European Union (approximately
16,000 cases of metastatic breast cancer, 22,000 cases of esophageal cancer, and
4,500 cases of metastatic malignant melanoma). Recurrent solid tumors of these
types were evaluated in the Company's open-label Phase II trials. Metastatic
tumors found in the chest wall and other locations are usually treated with
systemic chemotherapy or radiotherapy. However, this approach often leads to
short-lived response and the development of drug resistance or cumulative
radiation toxicity. Currently, there are few treatment options for these
recurrent tumors.

     In September 1998, the Company announced that the studies in other solid
tumors were fully enrolled with 127 patients. In November 1998, preliminary
clinical results were presented on a subset of patients at the 16th Annual
Chemotherapy Foundation Symposium. In May 1999, updated study results were
presented at the American Society of Clinical Oncology (ASCO). The completed
final reports for the twin studies presented data for 105 evaluable patients
with late-stage cancer, most of who had been previously treated with multiple
therapies such as surgery, radiation, and systemic chemotherapy. The patients
included 27 women with breast cancer, 25 patients with malignant melanoma, 18
patients with esophageal cancer, and 35 patients with a variety of recurrent and
metastatic tumors. For most of these patients, two or more tumors were treated,
including one that was identified by the physician before the start of treatment
as the "most troublesome," that is, the tumor that was most symptomatic or
threatening to the patient. These tumors were selected as the principal target
tumors--rather than non-symptomatic tumors--so that the Company could assess
whether the patients experienced a reduction in symptoms or other benefits from
treatment. Overall, the objective response rate for the most



                                       6
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troublesome tumor was 44%. All responses had to last for 28 days or more. Among
the subgroups of cancer patients, the response rates of the most troublesome
tumor were 52% in breast tumors, 44% in malignant melanomas, 39% in esophageal
cancer, and 40% in other types of cancers. Among the breast tumors, 6 of the 14
responses were complete (100% reduction of tumor volume) and 8 were partial (50%
or greater reduction of tumor volume for at least 28 days). Among the melanomas,
5 of the 11 responses were complete and 6 were partial; among the esophageal
patients, 7 patients of 18 had partial responses and none had complete
responses; and among other types of cancers, 8 of the 14 responses were complete
and 6 were partial responses.

     Another objective of the study was to determine whether patients
benefited from treatment. Patient benefit was based on the patient's progress
toward achieving a single pre-selected primary treatment goal (e.g., relief
of obstructive symptoms, pain relief, improved wound care, prevention of
tumor invasion). Overall, there was a positive association (p = 0.012)
between responses in the most troublesome tumor and achievement of patient
benefit. That is, patients with most troublesome tumor responses were more
likely to attain benefit than those without a response in their most
troublesome tumor. Patients with responses in the most troublesome tumor were
twice as likely to attain benefit as those without response in the
troublesome tumor. Among these patients, 41% of patients with recurrent
breast cancer (11/27) achieved a benefit, and 32% (8/25) of patients with
malignant melanoma, 28% (5/18) of patients with esophageal cancer, and 43%
(15/35) of patients with other types of cancer achieved durable clinical
benefits from treatment.

     The therapy was generally well-tolerated. In a safety analysis of all 126
patients treated in the two studies, the incidence of treatment-related nausea
and vomiting was lower (25% and 20%, respectively) than that usually seen with
intravenous cisplatin therapy. These symptoms were typically of mild to moderate
severity, and easily managed. As expected, the most commonly reported side
effects were local tissue reactions including but not limited to necrosis,
erythema (redness), and swelling at the treatment site and injection-related
pain. These effects were self-limited and followed a predictable course.

LIVER CANCER

     Two common types of liver cancer are primary hepatocellular cancer (HCC), a
cancer arising in the liver cells and cancers originating in other tissues (most
commonly colorectal cancer) that have metastasized to the liver. When possible,
surgery is the first line treatment for both types of liver cancer. However,
80-90% of newly diagnosed patients with liver tumors are inoperable due to tumor
location, tumor size and extent of disease. For unresectable liver cancer,
treatments have included the use of systemic chemotherapy, radiotherapy,
radiofrequency ablation, cryotherapy, hepatic arterial infusion of chemotherapy,
and chemoembolization (blocking or draining a blood vessel while injecting
chemotherapy), all of which are applicable to a minority of patients and have
had limited benefits. Due to the limited availability and effectiveness of
current therapies, the Company believes that at most 50% of all patients with
liver cancer are treated with curative intent. While surgical resection or liver
transplantation offer the only possibilities for long term survival, these are
applicable in only 10 to 20% of the cases. The Company believes that compared to
existing non-surgical alternatives, IntraDose may offer a new method of tumor
reduction and a potential to increase survival and improve quality of life, as
well as outpatient treatment flexibility.

PRIMARY LIVER CANCER

     Primary liver cancer is a significant health problem worldwide,
especially in the parts of the world where hepatitis B and C are prevalent
(E.G., Japan, Korea and Southeast Asia). HCC is the sixth most common cancer
worldwide, often developing secondary to cirrhosis and chronic viral
hepatitis. It is estimated that there were 500,000 new cases worldwide in
2000 according to IARC. The incidence of HCC in 2000 was estimated at 15,000
in the United States, 25,000 in the European Union and 51,000 in East Asia,
based on data available from the American Cancer Society and the
International Agency for Research on Cancer. However, some experts predict
that the incidence of HCC will increase due to the increasing prevalence of
chronic infection with hepatitis B and C. There are currently no FDA approved
drug or pharmaceutical therapies for the treatment of primary liver cancer.
The Company believes that this is an area where there is significant unmet
medical need.

     In 1997, the Company initiated an open-label Phase II trial for patients
with primary liver cancer at medical centers in the United States, Europe and
Hong Kong. This trial was designed to evaluate tumor response by measuring
volume changes in necrotic and viable tumor (as measured by CT scan), time to
tumor progression, pattern of disease progression, and patient survival.




                                       7
<PAGE>




     In May 2000, the Company announced results on the first 38 patients
enrolled in the trial. Fifty-five percent (21 of 38) of patients experienced a
response to therapy; the definition of response was based on treated tumors
only. Of the 21 responders, 9 experienced complete responses while the other 12
responders showed a reduction in viable tumor of at least 50%. Of the 21
patients who had a response, 12 remained in remission at the time of the interim
data analysis. All of the 9 patients who initially responded to therapy, but
went on to have progressive disease, experienced disease progression at a new,
untreated site in the liver. None of the patients exhibited disease progression
at the treatment site. Of the 17 non-responders, 24% experienced disease
progression at the treatment site and 41% progressed with new tumors in an
untreated area of the liver. Survival time for responding patients treated with
IntraDose was approximately 23 months. In January 2001, the Company completed
enrollment in the Phase II HCC study with 58 patients entered into the study.
The Company is expecting to release its final results of the study in the
second-half of 2001.

     Tumor response was determined utilizing investigator site-imaging
techniques to estimate and assess the amount of necrotic tissue versus viable
tumor in identified tumors; no independent review of the imaging response has
been used in determining tumor response, and the Company expects that an
independent review could lead to differing measurements of tumor response.

     The treatment procedure was generally well-tolerated when compared with
other therapies used for HCC; most adverse events were mild to moderate in
severity. Side effects included pain, transient hypertension, nausea, vomiting
and fever. Bleeding from the liver was fatal in one patient and another patient
died during treatment due to a possible hypersensitivity reaction to collagen in
the pulmonary microvasculature.

     During 2001, the Company plans to conduct additional Phase II trials for
HCC. These studies will expand the use of IntraDose to include HCC patients with
more tumors, larger total tumor volume and treatment of new tumors as they
develop in untreated parts of the liver. Key outcomes include tumor response and
patient survival.

COLORECTAL CANCER METASTATIC TO THE LIVER

     Colorectal cancer is the third most common cancer in the United States.
The Company believes that the number of new cases of colorectal cancer that
has metastasized to the liver is approximately 70,000 per year in the United
States and 210,000 worldwide. Liver metastases from colorectal cancer result
in significant cancer-related mortality worldwide.

     In March 1997, an open-label Phase II trial for patients with colorectal
cancer metastatic to the liver was initiated at medical centers in the United
States and Europe. In August 1999, the Company concluded enrollment and the
results were announced in October 2000. Nine of 31 (29%) patients who received
IntraDose responded to therapy based on evaluations of treated tumor volume and
necrosis made at the investigational site. These nine patients had initial
treated tumor volumes ranging from 5cm3 to 180cm3. Six patients experienced a
complete response (100% reduction in viable tumor volume of treated tumors)
while the other three patients demonstrated a partial response (at least a 50%
reduction of viable tumor volume). Eight of the nine treatment responders have
had durable responses with no relapse at the treatment site. The average
duration of response for the nine responders was seven months with the longest
response one year. The median survival time for all patients in the study from
the date of study entry was 19 months.

     The treatment procedure was generally well-tolerated within the context of
other therapies used for advanced colorectal cancer; most adverse events were
mild to moderate in severity. Side effects included pain, transient
hypertension, nausea, vomiting and fever.

     During 2001, the Company plans to conduct a new clinical trial in
colorectal cancer metastatic to the liver in combination with systemic
chemotherapy. This study will expand the use of IntraDose in combination with
systemic chemotherapy to include patients with more tumors, larger total tumor
volume and treatment of new tumors as they emerge in untreated parts of the
liver.



                                       8
<PAGE>


TEZACITABINE

     Tezacitabine, licensed from Hoechst Marion Roussel, Inc. in September 1998,
is a new chemical entity that belongs to a class of anti-cancer and anti-viral
agents known as nucleoside analogs. Several nucleoside analogs are marketed for
treatment of certain leukemias or lymphomas, malignancies of white blood cells.
In addition, another nucleoside analog is marketed for treatment of pancreatic
cancer and non-small cell lung cancer, both of which are solid malignancies.
Pre-clinical testing indicates that tezacitabine may have activity against
carcinomas and may also be active against cancers of hematopoietic or blood cell
origin.

     Tezacitabine is an analog of deoxycytidine, one of the four nucleotides, or
bases, that form DNA. Researchers believe tezacitabine has several modes of
action. The two most important of these are thought to be (1) DNA chain
termination during DNA replication and repair and (2) inhibition of
ribonucleotide reductase, an enzyme that synthesizes nucleotides (nucleic acid
bases) for incorporation into DNA. Tezacitabine can be incorporated directly
into the replicating strand of DNA. Once incorporated, the enzymes responsible
for further synthesis cannot add additional nucleotides to the DNA chain. This
causes the DNA chain to terminate before it is completely copied and leads to
the death of the cell. The incorporation of tezacitabine into DNA also
facilitates tezacitabine's inhibition of ribonucleotide reductase, reducing the
supply of the natural nucleic acid bases necessary for DNA replication.
Additionally, experiments indicate that tezacitabine suppresses production of a
protein that stimulates the growth of blood vessels near tumors, suggesting that
tezacitabine is also anti-angiogenic.

     Animal studies by Hoechst Marion Roussel and now by the Company indicate
that tezacitabine has activity in a broad spectrum of human and rodent tumors,
including tumors of the lung, colon, breast (estrogen-dependent and
independent), prostate, ovaries and pancreas. It has been shown in laboratory
studies to be a more effective DNA chain terminator and inhibitor of
ribonucleotide reductase than certain other nucleoside analogs with known
cytotoxic activity.

     In an intravenous dosage form, tezacitabine was generally well-tolerated in
four Phase I studies conducted by Hoechst Marion Roussel, Inc. Side effects
included fever, flushing and clinically manageable reductions in white blood
cell counts. Tezacitabine has a relatively long plasma half-life of three to six
hours, which also may make it more effective than other nucleoside analogs.
Kyowa Hakko, Ltd has completed a Phase I trial of an oral dosage form of
tezacitabine in Japan. The Company believes that an oral formulation may
eventually be of benefit by permitting outpatient administration.

COLON AND RECTAL CANCER

     The prevalence of colorectal cancer was estimated to be over 720,000
patients in the United States according to Decision Resources, Inc. and 507,000
in the European Union in 2000 according to The International Agency for Research
on Cancer. The incidence of colorectal cancer is increasing in both the United
States and Europe. The American Cancer Society estimates that there were 130,000
new cases of colorectal cancer in the United States in 2000. According to the
International Agency for Research on Cancer there were 181,000 new cases in the
European Union. Surgery is the primary treatment for colon and rectal cancer.
Approximately 80% of patients will not be candidates for surgical cure or have
recurrent cancer subsequent to surgery.

     Chemotherapy is used for palliation in patients who are not cured by
surgery; intravenous fluorouracil-based treatment is considered to be standard.
However, fluorouracil (5-FU) has been shown to be more cytotoxic (with increased
response rates, but with variable effects on survival) when given in combination
with leucovorin or methotrexate. Continuous-infusion fluorouracil regimens have
also resulted in increased response rates in some studies, with a modest benefit
in medium survival. Fluorouracil belongs to the class of drugs known as
fluoropyrimidines; several oral fluoropyrimidines are currently being evaluated
in Phase II-III trials, and an NDA was recently filed for one oral
fluropyrimidine, capecitabine, for advanced colorectal cancer. Approximately
15-20% of patients have a palliative partial response to fluoripyrimidines.

     Irinotecan (CPT-11) is a topisomerase-I inhibitor with a 10-20% partial
response rate in patients who have received no prior chemotherapy and in
patients progressing on 5-FU. Approximately 40% of patients have a palliative
partial response to 5-FU, leucovorin, and CPT-11 combination chemotherapy, and
this regimen is now considered standard palliative therapy in patients with
metastatic colorectal cancer.



                                       9
<PAGE>


     In May 1999, a Phase II study of tezacitabine in patients with colon cancer
was initiated by the Company in the United States. In 2000, the study was
expanded from 30 patients up to a maximum of 50 patients. This study is
currently in progress and is expected to be completed by the third quarter of
2001.

NON-SMALL CELL LUNG CANCER

     In February 1999, a Phase II study of tezacitabine in patients with
non-small cell lung cancer was initiated in the United States. In October 1999,
the Company closed enrollment in this Phase II study as the result of the
application of a predetermined stopping rule. Preliminary analysis of the
evaluable patients did not show sufficient clinical activity with tezacitabine
as a stand-alone therapy in this indication at the dose and regimen tested. The
Company may evaluate alternative dose levels and regimens in this indication.

TEZACITABINE COMBINATION THERAPIES

     Pre-clinical studies performed by the Company indicated synergistic or
additive activity of tezacitabine and certain other agents. In October 1999 and
February 2000, the Company commenced two Phase I/II studies to evaluate
tezacitabine in combination with cisplatin and tezacitabine and in combination
with 5-FU. Depending upon the results of these trials, the Company may conduct
additional trials to evaluate these tezacitabine combinations.

HEMATOLOGIC CANCER

     Matrix is also collaborating with the M.D. Anderson Cancer Center on a
Phase I investigator-sponsored study being conducted in adult hematologic cancer
(leukemia and lymphoma). The study commenced in November 1999 and interim data
were presented at the American Society for Hematology annual meeting. Some tumor
activity was seen in adult acute leukemia and adult non-Hodgkin's lymphoma
patients who had failed to respond following multiple other therapies. The
Company may consider additional trials to evaluate tezacitabine in adult
hematologic cancer.

MPI 5020 RADIOPOTENTIATOR

     Radiation therapy remains a critical tool in the management of many types
of solid tumors. However, radiation resistance, hypoxic tumor cells and normal
tissue sensitivity to radiation has limited the benefit of this therapy. Using
its platform technologies, the Company has demonstrated in pre-clinical
experiments that intratumoral delivery of radiopotentiating agents significantly
enhances the effects of radiation in solid tumors. The Company's lead candidate
in this area, MPI 5020, is a fluorouracil-based product that uses the Company's
aqueous protein gel technology.

     In 1997, the Company initiated a Phase I trial in chest wall metastatic
disease from recurrent breast cancer at medical centers in the United States.
This dose-escalation study was intended to evaluate the safety of MPI 5020 when
administered in conjunction with standard radiotherapy and to compare the effect
on tumor regression of tumors treated with MPI 5020 and radiotherapy to tumors
treated with radiotherapy alone.

     Preliminary information during this ongoing trial was reported at the
annual meeting of the American Society for Therapeutic Radiation and Oncology in
October 1998 and at the Annual San Antonio (Texas) Breast Cancer Symposium in
December 1998. Patients have been treated in five dose-escalation and
frequency-schedule treatment regimens, and the combined use of radiation therapy
and MPI 5020 has been found to be feasible and well-tolerated.

     The Company has concluded the dose-escalation phase of development. Both
MPI 5020 and IntraDose have been effective in animal studies when used in
combination with radiation. The Company is evaluating the further use of MPI
5020 and IntraDose in combination with radiation in human studies.

MANUFACTURING AND SUPPLY

     Matrix maintains worldwide manufacturing rights to all of its products. The
Company manufactures collagen gel for IntraDose and MPI 5020 in a 67,000 square
foot research and manufacturing facility in San Diego, California, which the
Company acquired in 1995. In March 1998, the Company entered into a sale and
leaseback agreement for the San Diego facility. See Item 2, "Properties."
Following extensive renovations, the San Diego facility became operational in
1998 for the non-sterile purification of collagen and aseptic processing and
sterile filling of collagen gels as well as for all materials-receiving
activities, labeling, packaging and shipping operations. The Company intends to
use the San Diego facility to meet its near-term clinical trials and long-term
commercial scale production requirements for collagen for its IntraDose



                                       10
<PAGE>


products. The Company also utilizes the San Diego facility for contract
manufacturing for other pharmaceutical and medical device companies in order to
generate revenues and offset operating costs. Matrix Contract Services, MCS,
which specializes in contract asceptic manufacturing for clinical and commercial
supply, accounted for 100% of the Company's revenues in 2000, while two
customers accounted for approximately 22% of this total. The facility has passed
inspection by the State of California but will require approval by the U.S. Food
and Drug Administration prior to commercialization of products manufactured
there. The Company has acquired supplies of tezacitabine sufficient for
anticipated near-term pre-clinical and clinical needs. For longer-term
production of tezacitabine, the Company plans to contract for chemical
production needs and utilize a combination of internal and contract
manufacturing for pharmaceutical production needs.

     The Company's ability to conduct clinical trials on a timely basis, to
obtain regulatory approvals and to commercialize its products will depend in
part upon its ability to manufacture its products, either directly or through
third parties, at a competitive cost and in accordance with applicable FDA and
other regulatory requirements, including cGMP regulations. Several of the
materials used in the Company's products are available from a limited number of
suppliers. These items, including collagen gel and various bulk drug substances,
have generally been available to Matrix on commercially reasonable terms. If the
Company's manufacturing facilities are not able to produce sufficient quantities
of collagen gel in accordance with applicable regulations, the Company would
have to obtain collagen gel from another source and gain regulatory approval for
that source. The Company has negotiated and intends to continue to negotiate
supply agreements, as appropriate, for the raw materials and components utilized
in its products.

SALES AND MARKETING

     The Company currently owns worldwide marketing rights for all its products
under development, except for tezacitabine in Japan. The Company's business
strategy is to market or co-market IntraDose and its other oncology product
candidates, if approved, in the United States and to license its products
outside the United States to pharmaceutical partners who have substantially
greater resources and experience in local markets. The Company has hired a
number of sales and marketing personnel, including a Vice President of Marketing
and Sales. The company plans to hire 25 to 35 sales representatives to market
IntraDose in the United States in preparation for FDA approval. A portion of
these employees will be hired prior to approval. See "Risk Factors - We Have
Limited Manufacturing and Sales and Marketing Experience."

PATENTS AND PROPRIETARY RIGHTS

     The Company's policy is to aggressively seek patent protection and to
enforce all of its intellectual property rights. In the United States, the
Company has eleven issued patents, one allowed patent, and four pending
applications. In Western Europe, the Company has three issued patents and seven
pending applications. The Company has four issued patents and several pending
applications in Japan. Ten of the eleven patents issued in the United States
relate to the Company's base technologies. The first of these patents claims
compositions consisting of collagen or fibrinogen as protein matrices, cytotoxic
and anti-proliferative drugs, and (optionally) a vasoconstrictive agent. This
patent also covers the method of use of these compositions in treating cancerous
or hyperproliferative lesions by local application; it expires in the United
States in 2003 and in Europe in 2005. A second patent, which expires in the
United States in 2007, includes pharmaceutical compositions consisting of a
range of cytotoxic agents (including radionuclides, etc.) in combination with
vasoconstrictive agents and (optionally) a variety of other tissue modifiers,
formulated in aqueous pharmacologically acceptable vehicles. The method of use
of these compositions in treating cancerous lesions by local application is also
covered. A third patent covers certain formulations of the ADV technology for
delivering water-insoluble anti-cancer drugs, and specifically covers
water-immiscible fatty acid ester matrices containing cytostatic agents and
their use for treating cancer via intralesional administration. Another patent
covering IntraDose composition of matter claims has been issued in the United
States and is in prosecution in Europe. This patent will expire in 2015 in the
United States and Europe (if approved). Two additional patents in the United
States, which expire in 2015, cover certain drug-containing collagen gels,
including MPI 5020, AccuSite and, potentially, other products developed by the
Company. The other issued patents cover a key aspect of the Company's collagen
manufacturing process, as well as other ancillary drug products.

     As part of the in-licensing agreement of tezacitabine, the Company has
received licenses to a patent portfolio on this technology in the United States,
Europe and many other countries, with the exception of Japan. The first of these
patent families is a composition-of-matter and method-of-use case covering
tezacitabine (and related compounds) and their use in treating neoplastic or
viral disease. The European patents in this family expire in 2009, and the last
of the U.S. patents in this family expires in 2014. A second patent family
covers the synthetic method by which tezacitabine is made; the last of these
patents expire in 2013 in the United States and Europe. Another U.S. patent
covers the use of combinations of tezacitabine and radiation (U.S. expiry 2014,
ex-U.S. in prosecution) and several other synthetic process and method-of-use



                                       11
<PAGE>



patents (combination chemotherapy with other cytotoxic drugs, combination
antiviral therapy, etc.) are issued in Europe or in prosecution in the United
States and Europe.

COMPETITION

     The development of therapeutic agents for human disease is intensely
competitive. Many different approaches are being developed or have already been
adopted for routine use for the management of diseases targeted by the Company.
Certain cancers and skin diseases are targets for therapeutic product
development at numerous entities, many of which have greater human and financial
resources than the Company. In addition, conventional drug therapy, surgery and
other more established treatments and modalities will compete with the Company's
products.

     The pharmaceutical industry is subject to rapid and substantial
technological change. Technological competition from pharmaceutical and
biotechnology companies, universities, governmental entities and others
diversifying into the field is intense and is expected to increase. Most of
these entities have significantly greater research and development capabilities,
as well as substantial marketing, financial and managerial resources, and
represent significant competition for the Company. Acquisitions of, or
investments in, competing biotechnology companies by large pharmaceutical
companies could increase such competitors' financial, marketing and other
resources. There can be no assurance that developments by others will not render
the Company's products or technologies noncompetitive, or that the Company will
be able to keep pace with technological developments. Competitors have developed
or are in the process of developing technologies that are, or in the future may
be, the basis for competitive products. Some of these products may have an
entirely different approach or means of accomplishing the therapeutic effect
than products being developed by the Company. These competing products may be
more effective and less costly than the products developed by the Company.

     The Company's competitive position depends upon, among other factors, its
ability to attract and retain qualified personnel, obtain patent protection or
otherwise develop proprietary products or processes and secure sufficient
capital resources to complete product development and regulatory processes. The
Company expects that competition among products approved for sale will be based,
among other factors, on product activity, safety, reliability, availability,
price, patent position and new usage and purchasing patterns established by
managed care and other group purchasing organizations.

GOVERNMENT REGULATION

     The Company and its products are subject to comprehensive regulation by the
FDA in the United States and by comparable authorities in other countries. These
national agencies and other federal, state, and local entities regulate, among
other things, the pre-clinical and clinical testing, safety, effectiveness,
approval, manufacture, labeling, marketing, export, storage, record keeping,
advertising, and promotion of the Company's products.

     The process required by the FDA before the Company's products may be
approved for marketing in the United States generally involves (i) pre-clinical
laboratory and animal tests; (ii) submission to the FDA of an IND, which must
become effective before clinical trials may begin; (iii) adequate and
well-controlled human clinical trials to establish the safety and efficacy of
the drug for its intended indication; (iv) submission to the FDA of an NDA, and;
(v) FDA review of the NDA in order to determine, among other things, whether the
drug is safe and effective for its intended uses. When a product contains more
than one active drug component, as do some of the Company's current product
candidates, the FDA may request that additional data be submitted in order to
demonstrate the contribution of each such component to clinical efficacy.

     Clinical trials are typically conducted in three sequential phases, which
may overlap. During Phase I, when the drug is initially given to human subjects,
the product is tested for safety, dosage tolerance, absorption, metabolism,
distribution and excretion. Phase II involves studies in a limited patient
population to (i) preliminarily evaluate the efficacy of the product for
specific, targeted indications, (ii) determine dosage tolerance and optimal
dosage, and (iii) identify possible adverse effects and safety risks. Phase III
trials further evaluate clinical efficacy and safety within an expanded patient
population at geographically dispersed clinical study sites. The FDA may suspend
clinical trials at any point in this process if it concludes that clinical
subjects are being exposed to an unacceptable health risk.

     FDA approval of the Company's products, including a review of the
manufacturing processes and facilities used to produce such products, is
required before such products may be marketed in the United States. The process
of obtaining approvals from the FDA can be costly, time consuming, and subject
to unanticipated delays. Any failure or delay in obtaining such approvals would
adversely affect the ability of the Company to market its proposed products.
Moreover,



                                       12
<PAGE>


even if regulatory approval is granted, such approval may include
significant limitations on indicated uses for which a product could be marketed.

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

     The proposed products and technologies of the Company may also be subject
to certain other federal, state, and local government laws and regulations,
including, but not limited to, various environmental laws, the Occupational
Safety and Health Act, and state, local, and foreign counterparts to such laws.
Compliance with such laws and regulations does not have, nor is such compliance
presently expected to have, a material adverse effect on the business of the
Company.

     In May 1999, IntraDose received Fast-Track designation for IntraDose.
Fast-Track designation allows the submission of portions of the NDA as sections
are completed. During 2000, IntraDose received Orphan Drug status for recurrent
or refractory head and neck cancer. Fast-Track designation and Orphan Drug
status does not imply any greater or lesser likelihood of a favorable or timely
review of the complete NDA.

     In January 2001, the Company announced that it completed its submission to
the FDA of its NDA for IntraDose. Earlier in 2000, the Company had previously
submitted the Pharmacology/Toxicology and Chemistry Manufacturing Controls
sections of the NDA. In March 2001, the FDA accepted the submission for filing
and designated the IntraDose application for standard review. According to the
published performance goals and procedures of the FDA Center for Drug Evaluation
and Research, the goal of the FDA is to complete standard reviews on NDA
submission in 2001 within 12 months. Acceptance of the submission by the FDA
does not imply that the FDA will complete its review in a timely manner or
approve the product. See "Risk Factors - The Regulatory Approval Process is
Expensive, Time Consuming, and Uncertain and May Prevent Us from Obtaining
Required Approvals for the Commercialization of Our Products or May Negatively
Impact the Ongoing Marketing of Approved Products."

RESEARCH AND DEVELOPMENT

     The Company's sponsored research and development expenses were
approximately $19,344,000, $17,483,000 and $20,186,000 in 2000, 1999, and 1998,
respectively.

EMPLOYEES

     As of December 31, 2000, the Company had a total of 106 full-time
employees, including 18 in research and development, 34 in medical and
regulatory affairs, biostatistics, and technical services, 32 in manufacturing,
and 22 in other departments. The Company believes that it has been successful in
attracting and retaining skilled and experienced personnel; however, competition
for such personnel is intense and there can be no assurance that the Company
will be successful at attracting and retaining qualified personnel in the
future. None of the Company's employees are covered by collective bargaining
agreements and management considers relations with its employees to be good.

     In 2001, the Company projects an increase in headcount of up to 50% in
preparation for commercial launch of IntraDose and increased medical and
clinical programs.



                                       13
<PAGE>


RISK FACTORS

THE REGULATORY APPROVAL PROCESS IS EXPENSIVE, TIME CONSUMING, AND UNCERTAIN AND
MAY PREVENT US FROM OBTAINING REQUIRED APPROVALS FOR THE COMMERCIALIZATION OF
OUR PRODUCTS OR MAY NEGATIVELY IMPACT THE ONGOING MARKETING OF APPROVED
PRODUCTS.

     The pre-clinical and clinical testing, manufacturing, and marketing of our
products are subject to extensive regulation by numerous governmental
authorities in the United States and other countries, including the Food and
Drug Administration, or FDA. Among other requirements, the FDA must approve our
product candidates, manufacturing processes and production facilities before we
may market our products in the United States. Similarly, a foreign governmental
authority must typically approve the marketing of a product before that
product's manufacturer can market it in a particular foreign country. We have
only limited experience in submitting and pursuing regulatory applications. The
process of obtaining FDA approvals can be costly, time-consuming and subject to
unanticipated delays, and we can give no assurance that the FDA will grant us
any approvals on a timely basis, or at all. We have no products approved by the
FDA and we do not expect to achieve profitable operations unless our product
candidates now under development receive FDA and foreign regulatory approval and
are thereafter commercialized successfully.

     The process of obtaining FDA regulatory approval involves a number of steps
that, taken together, may involve seven years or more from the initiation of
clinical trials and require the expenditure of substantial resources. Among
other requirements, this process requires that the product candidate undergo
extensive pre-clinical and clinical testing to demonstrate its safety and
efficacy for its intended uses. We must also file a New Drug Application, or
NDA, requesting FDA approval. When a product contains more than one component
that contributes to the product's effect, as do some of our current product
candidates, the FDA may request that additional data be submitted in order to
demonstrate the contribution of each such component to clinical efficacy.
Further, when we submit an NDA, the FDA must review and interpret our analysis
of the results of our clinical studies submitted as part of the NDA. An FDA
interpretation may differ from our analysis and we cannot assure that the FDA
will accept our data or our interpretation of that data. In addition, changes in
applicable law or FDA policy during the period of product development and FDA
regulatory review may result in the delay or rejection of our NDA. Any failure
to obtain, or delay in obtaining, FDA approvals would harm our ability to market
our proposed products. Moreover, even if FDA approval is granted, the approval
may include significant limitations on indicated uses for which a product could
be marketed.

     In addition, prior to approval of a product, the FDA must inspect and
accept the product's manufacturing facilities as being in compliance with its
current Good Manufacturing Practices, or GMP, regulations. We cannot assure that
the FDA will accept our San Diego manufacturing facility, and failure to receive
or maintain such acceptance would prevent us from successfully commercializing
our products.

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

     In May 1999, IntraDose received Fast-Track designation. Fast-Track
designation allows the submission of portions of the NDA as sections are
completed. During 2000, IntraDose received Orphan Drug status for recurrent or
refractory head and neck cancer. Fast-Track designation and Orphan Drug status
does not imply any greater or lesser likelihood of a favorable or timely review
of the complete NDA.

     In January 2001, the Company announced that it completed its submission to
the FDA of its NDA for IntraDose. In March 2001, the FDA accepted the submission
for filing and designated the IntraDose application for standard review.
According to the published performance goals and procedures of the FDA Center
for Drug Evaluation and Research, the goal of the FDA is to complete standard
reviews on NDA submission in 2001 within 12 months. Acceptance of the submission
by the FDA does not imply that the FDA will review the product in a timely
manner or approve the product.

     The processes required by European regulatory authorities before our
product candidates can be marketed in Western Europe are similar to those in the
United States. We must first complete appropriate pre-clinical laboratory and
animal tests as well as analytical product quality tests and then submit a
clinical trial exemption or similar documentation



                                       14
<PAGE>


before we can initiate human clinical trials. Upon completion of adequate and
well-controlled clinical trials in humans that establish that the drug is safe
and efficacious, we must obtain regulatory approval to market the drug product
from the relevant regulatory authorities.

CLINICAL TRIALS REQUIRED BY THE FDA AND OTHER REGULATORY AGENCIES CAN BE
LENGTHY, EXPENSIVE AND MAY NOT PROVIDE POSITIVE RESULTS.

     We have conducted and plan to continue to undertake extensive and costly
clinical testing to assess the safety and efficacy of our potential products. If
we fail to comply with FDA regulations applicable to clinical testing it could
result in delay, suspension, or cancellation of this testing, or refusal by the
FDA to accept the results of this testing. In addition, the FDA or we may modify
or suspend clinical trials at any time if the FDA concludes that the subjects or
patients participating in the trials are being exposed to unacceptable health
risks. Further, we cannot assure that human clinical testing will show any
current or future product candidate to be safe and effective or provide data
suitable for submission to the FDA.

     We are currently conducting multiple clinical trials in the United States
and certain foreign countries. The rate of completion of our clinical trials
depends upon, among other factors, the rate of patient enrollment. Patient
enrollment is a function of many factors, including the size of the patient
population, the nature of the protocol, the proximity of patients to clinical
sites and the eligibility criteria for the study. We experienced slower than
planned accrual of patients in two of our completed Phase III trials. Delays in
completing enrollment in other clinical studies may result in increased costs
and delays, which could harm our business. Generally, similar considerations
apply to clinical testing that is subject to regulatory oversight by foreign
authorities and/or that is intended to be used in connection with foreign
marketing applications.

     Additionally, we extended enrollment in a Phase II IntraDose trial beyond
the original number of patients planned for that study. Final study results may
be different from the preliminary outcomes as more patients have been entered
into the study and as patients are followed for a longer period of time.

WE HAVE A HISTORY OF LOSSES AND OUR FUTURE PROFITABILITY IS UNCERTAIN.

     We incorporated in 1985 and have experienced significant losses since that
date. As of December 31, 2000, our accumulated deficit was $211,288,000. Our net
loss for the years ended December 31, 2000, 1999, and 1998 was $23,321,000,
$20,998,000 and $21,349,000 respectively. We have generated limited revenues
from our products or product candidates and expect to incur significant
additional losses over the next several years. In order to achieve a profitable
level of operations, we must successfully develop products, obtain regulatory
approvals for our products, enter into agreements for product commercialization
outside the United States, and develop an effective sales and marketing
organization in the United States. We cannot assure that we will complete our
product development efforts, that we will obtain the required regulatory
approvals, that we will manufacture or market any products successfully, or that
we will achieve profitability.

WE WILL REQUIRE ADDITIONAL FINANCING TO DEVELOP AND COMMERCIALIZE OUR PRODUCTS.
ADDITIONAL FINANCING MAY NOT BE READILY AVAILABLE.

     We have expended and will continue to expend substantial funds to complete
the research and development of our product candidates. We may require
additional funds for these purposes and for the establishment of sales and
marketing functions through additional equity or debt financings, collaborative
arrangements with corporate partners or from other sources. We cannot assure
that such additional funds will be available on acceptable terms, if at all. Our
failure to raise additional funds would require us to scale back or eliminate
some or all of our research and development license programs to third parties of
products or technologies that we would otherwise seek to develop ourselves.
Based on our current operating plan, we believe that our existing capital
resources will be adequate to satisfy our capital needs through 2002.

WE HAVE LIMITED SALES AND MARKETING EXPERIENCE, AND IF WE ARE UNABLE TO DEVELOP
OUR OWN SALES AND MARKETING CAPABILITY, WE MAY BE UNSUCCESSFUL IN
COMMERCIALIZING OUR PRODUCTS.

     We intend to market and sell some of our product candidates, if
successfully developed and approved, through our own dedicated sales force in
the United States and through pharmaceutical licensees in Europe. We hope to
have a partner in place in several European countries in approximately six to
twelve months before pricing approval, although there is no assurance such a
partner will be obtained. We cannot assure that we will be able to establish a
successful direct sales organization or co-promotion or distribution
arrangements. In addition, we cannot assure that we will be able to fund our



                                       15
<PAGE>


marketing and sales expenses, some of which would be incurred before sales
commence. If we fail to establish a marketing and sales capability in the United
States or outside the United States we will not be able to successfully
commercialize our products.

WE HAVE LIMITED MANUFACTURING EXPERIENCE AND MAY NOT BE ABLE TO MANUFACTURE
PRODUCTS ON A COMMERCIAL SCALE.

     Our ability to conduct clinical trials on a timely basis, to obtain
regulatory approvals and to commercialize our products will depend in part upon
our ability to manufacture our products, either directly or through third
parties, at a competitive cost and in accordance with applicable FDA and other
regulatory requirements, including GMP regulations. We closed our manufacturing
facilities in San Jose and Milpitas, California in March 1998 and transferred
manufacturing personnel to a research and manufacturing facility in San Diego,
California that we acquired in 1995 to meet our anticipated long-term commercial
scale production requirements. We expect that the San Diego facility and
contract manufacturers should provide sufficient production capacity to meet our
clinical requirements. We cannot assure that we will be able to validate this
facility in a timely manner or that this facility will be adequate for our
long-term needs without delaying our ability to meet product demand or to
manufacture in a cost-effective manner. We expect to continue to use selected
contract manufacturers, in addition to our own manufacturing capability, for
some or all of our product components. If we fail to establish additional
manufacturing capacity on a timely basis we will not be able to successfully
commercialize our products.

OUR DEPENDENCE ON SUPPLIERS FOR MATERIALS COULD IMPAIR OUR ABILITY TO
MANUFACTURE OUR PRODUCTS.

     Several of the materials used in our product candidates are available from
a limited number of suppliers. These items, including collagen gel and various
bulk drug substances, have generally been available to us on commercially
reasonable terms. If our manufacturing facilities are not able to produce
sufficient quantities of collagen gel in accordance with applicable regulations,
we would have to obtain collagen gel from another source and gain regulatory
approval for that source. We cannot assure that we would be able to locate an
alternative, cost-effective and FDA approvable source of supply for collagen
gel.

     We have negotiated and intend to continue to negotiate supply agreements,
as appropriate, for the raw materials and components utilized in our products.
Any interruption of supply could impair our ability to manufacture our products,
complete clinical trials, or commercialize our products. In addition, the
issuance in 1996 of a U.S. patent for cisplatin, a chemotherapeutic drug that is
the active compound in our IntraDose Injectable Gel product, could limit our
ability to commercialize this product in the United States if the newly-issued
patent were upheld, if IntraDose were found to infringe that patent, and if we
were unable to obtain a license under that patent.

OUR PATENTS AND PROPRIETARY RIGHTS MAY NOT KEEP US FROM INFRINGING THE RIGHTS OF
OTHERS OR MAY NOT PROHIBIT POTENTIAL COMPETITORS FROM COMMERCIALIZING PRODUCTS.

     Our success depends in part on our ability to obtain patent protection for
our products and to preserve our trade secrets and operate without infringing on
the proprietary rights of third parties. We have not conducted an exhaustive
patent search and we cannot assure that patents do not exist or could not be
filed which would negatively affect our ability to market our products or
maintain our competitive position with respect to our products. Additionally,
our patents may not prevent others from developing competitive products using
related technology. Further, other companies that obtain patents claiming
products or processes useful to us may bring infringement actions against us. As
a result we may be required to obtain licenses from others to develop,
manufacture or market our products. We cannot assure that we will be able to
obtain any such licenses on commercially reasonable terms, if at all. We also
rely on trade secrets and proprietary know-how that we seek to protect, in part,
by confidentiality agreements with our employees, consultants, suppliers and
licensees. We cannot assure that these third parties will not breach these
agreements, that we would have adequate remedies for any breach, or that our
trade secrets will not otherwise become known or be independently developed by
competitors.

     We cannot assure that the U.S. Patent and Trademark Office, or PTO, will
approve our pending patent applications, or that any patent issued to, or
licensed by us will provide protection that has commercial significance. In this
regard, the patent position of pharmaceutical compounds and compositions is
particularly uncertain. Even issued patents may later be modified or revoked by
the PTO in proceedings instituted by others or us. In addition, we cannot assure
that our patents will afford protection against competitors with similar
compounds or technologies, that others will not obtain patents with claims
similar to those covered by our patents or applications, or that the patents of
others will not adversely affect our ability to conduct our business.



                                       16
<PAGE>


     In 1996, for instance, the PTO granted a composition-of-matter patent for
the cytotoxic drug cisplatin in the United States, which patent was exclusively
licensed to another pharmaceutical company. An earlier patent covering the use
of cisplatin in treating cancer was also licensed to this company, but expired
in December 1996. We believe on advice of patent counsel that our IntraDose
product candidate, which contains cisplatin, does not infringe this new
composition-of-matter patent. Moreover, the 7th U.S. District Court found the
key claims of this new patent invalid in October 1999. This ruling is currently
being appealed. If the court's decision is appealed and overturned, and if
IntraDose were found to infringe that upheld patent, we cannot assure that we
would be able to obtain a license to the patent on commercially reasonable
terms, if at all, in order to commercialize IntraDose in the United States.

     We believe that obtaining foreign patents may be more difficult than
obtaining domestic patents because of differences in patent laws, and recognize
that our patent position therefore may be stronger in the United States than
abroad. In addition, the protection provided by foreign patents, once they are
obtained, may be weaker than that provided by domestic patents.

RAPID TECHNOLOGICAL CHANGE AND SUBSTANTIAL COMPETITION MAY IMPAIR OUR BUSINESS.

     The pharmaceutical industry is subject to rapid and substantial
technological change. Technological competition in the industry from
pharmaceutical and biotechnology companies, universities, governmental entities
and others diversifying into the field is intense and is expected to increase.
Most of these entities have significantly greater research and development
capabilities, as well as substantially more marketing, financial and managerial
resources than us, and represent significant competition for us. Acquisitions
of, or investments in, competing biotechnology companies by large pharmaceutical
companies could increase these competitors' financial, marketing and other
resources. We cannot assure that developments by others will not render our
products or technologies noncompetitive or that we will be able to keep pace
with technological developments. Competitors have developed or are in the
process of developing technologies that are, or in the future may be, the basis
for competitive products. Some of these products may have an entirely different
approach or means of accomplishing similar therapeutic endpoints than products
that we are developing. These competing products may be more effective and less
costly than the products that we are developing. In addition, conventional drug
therapy, surgery and other more familiar treatments and modalities will compete
with our products.

     Any product that we successfully develop and for which we gain regulatory
approval must then compete for market acceptance and market share. Accordingly,
important competitive factors, in addition to completion of clinical testing and
the receipt of regulatory approval, will include product efficacy, safety,
timing and scope of regulatory approvals, availability of supply, marketing and
sales capability, reimbursement coverage, pricing and patent protection.

HEALTHCARE REFORM AND RESTRICTIONS ON REIMBURSEMENT MAY LIMIT OUR RETURNS ON OUR
PRODUCTS.

     The continuing efforts of governmental and third party payers to contain or
reduce the costs of health care through various means may affect the future
revenues, profitability, and availability of capital for biopharmaceutical
companies. For example, in certain foreign markets pricing or profitability of
prescription pharmaceuticals is subject to government control. In the United
States, there have been, and we expect that there will continue to be, a number
of federal and state proposals to implement similar government control. Specific
legislation is currently being reviewed concerning the reimbursement of oncology
drugs. While we cannot predict whether any such legislative or regulatory
proposals will be adopted, the announcement or adoption of such proposals could
negatively affect our prospects.

     Our ability to commercialize our products successfully will depend in part
on the extent to which appropriate oncology-related reimbursement levels for the
cost of such products and related treatment are obtained from government
authorities, private health insurers and other organizations, such as health
maintenance organizations, or HMOs. Third-party payers are increasingly
challenging the prices charged for medical products and services. Also, the
trend towards managed health care in the United States and the concurrent growth
of organizations like HMOs, which could control or significantly influence the
purchase of health care services and products, as well as legislative proposals
to reform health care or reduce government insurance programs, may limit prices
we can charge for our products. The cost containment measures that health care
payers and providers are instituting and the effect of any health care reform
could impair our ability to sell our products and may negatively affect our
business.



                                       17
<PAGE>


IF WE LOSE QUALIFIED MANAGEMENT AND SCIENTIFIC PERSONNEL OR ARE UNABLE TO
ATTRACT AND RETAIN SUCH PERSONNEL, WE MAY BE UNABLE TO SUCCESSFULLY DEVELOP OUR
PRODUCTS OR WE MAY BE SIGNIFICANTLY DELAYED IN DEVELOPING OUR PRODUCTS.

     Because of the specialized nature of our business, our ability to maintain
our competitive position depends on our ability to attract and retain qualified
management and scientific personnel. We operate in geographical areas where
competition for such critical resources is intense, time consuming and
expensive. We cannot assure that we will be able to continue to attract or
retain such persons.

WE MAY HAVE SIGNIFICANT PRODUCT LIABILITY EXPOSURE.

     We face an inherent business risk of exposure to product liability and
other claims in the event that the use of products during research or
commercialization is alleged to have resulted in adverse effects. While we will
continue to take precautions, we may not avoid significant product liability
exposure. Although we maintain product liability insurance for clinical studies
and contract service activities, this coverage may not be adequate. We may not
be able to obtain adequate insurance coverage for future clinical or commercial
activities at all, or at an acceptable cost. If we are sued for any injury
caused by our technology or products, our liability could exceed our assets.

WE USE HAZARDOUS MATERIALS IN OUR BUSINESS. ANY CLAIMS RELATING TO IMPROPER
HANDLING, STORAGE OR DISPOSAL COULD BE TIME CONSUMING AND COSTLY.

     Our research and development involves the controlled use of hazardous
materials, such as cytotoxic drugs, other toxic and carcinogenic chemicals and
various radioactive compounds. Although we believe that our safety procedures
for handling and disposing of such materials comply with the standards
prescribed by federal, state and local regulations, we cannot completely
eliminate the risk of accidental contamination or injury from these materials.
In the event of this type of accident, we could be held liable for any resulting
damages, and any such liability could be extensive. We are also subject to
substantial regulation relating to occupational health and safety, environmental
protection, hazardous substance control, and waste management and disposal. If
we fail to comply with such regulations, we could be subject to, among other
things, fines and criminal liability.

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

     In addition, bovine-sourced materials are of some concern because of
potential transmission of Bovine Spongiform Encephalopathy, or BSE. We have
taken precautions to minimize the risk of contamination of our collagen with
BSE-causing agents, including the use of United States-sourced hides. The
Committee for Proprietary Medicinal Products, a steering committee of the
European Medicines Evaluation Agency, has determined that materials made from
bovine skin are unlikely to result in any risk of contamination, indicating
minimal risk of transmission of BSE. However, marketing issues exist for Europe
because of high levels of concern by the public about BSE and should BSE spread
to the U.S., such concerns might also arise in the U.S. The Company has
developed a back-up plan using non-bovine derived collagen, but significant
risks may exist for such a program since non-bovine sourced collagen has not
been tested on humans, and it would not be ready for marketing for several
years.

OUR STOCK PRICE COULD CONTINUE TO BE VOLATILE AND SHAREHOLDERS MAY NOT BE ABLE
TO RESELL THEIR SHARES AT OR ABOVE THE PRICE THEY PAID FOR THEM. ADDITIONALLY,
WE HAVE NOT DECLARED ANY DIVIDENDS.

     The market price for our common stock has been highly volatile, and, in
addition, the market for biopharmaceutical and biotechnology companies'
securities has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies.


                                       18
<PAGE>


     The following factors, among others, could have significant impact on the
market for our common stock:


     -    Future announcements concerning us,

     -    Future announcements concerning our competitors,

     -    Future announcements concerning other biopharmaceutical products,

     -    Governmental regulation,

     -    Developments in patent or other proprietary rights,

     -    Litigation or public concern as to the safety of products that we or
          others have developed,

     -    Changes or announcements of changes in reimbursement policies,

     -    Period to period fluctuations in our operating results,

     -    Changes in estimates of our performance by securities analysts, and

     -    General market conditions.

     We have not paid any cash dividends on our Common Stock and do not
anticipate paying any dividends in the foreseeable future.

OUR ANTI-TAKEOVER PROVISIONS COULD DISCOURAGE POTENTIAL TAKEOVER ATTEMPTS.

     Some of the provisions of our Certificate of Incorporation and Bylaws may
make it more difficult for a third party to acquire, or discourage a third party
from attempting to acquire, control of us. These provisions could limit the
price that certain investors might be willing to pay in the future for shares of
our common stock. Our Board of Directors has the authority to issue shares of
preferred stock and to determine the price, rights, preferences, privileges and
restrictions of those shares without any further vote or action by the
stockholders.

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


                                       19
<PAGE>


                                   MANAGEMENT

EXECUTIVE OFFICERS OF THE COMPANY

Certain information about the Company's executive officers is set forth below:

<TABLE>
<CAPTION>

NAME                           AGE      POSITION
-----------------             ----      ------------------
<S>                           <C>       <C>

Michael D. Casey               55       Chairman, President and Chief Executive Officer

Jeffrey H. Cooper              45       Vice President, Finance

Jeanette C. Fritzky, R.Ph.     46       Vice President, Sales and Marketing

Richard D. Leavitt, M.D.       55       Senior Vice President, Medical Affairs

Ronald P. Lucas                58       Vice President, Operations

David W. Pritchard             47       Senior Vice President and Chief Financial Officer

Luana E. Staiger               50       Vice President, Regulatory Affairs and Quality Assurance
</TABLE>

     Mr. Casey was appointed to the position of Chairman in February 1999 and
has been President, Chief Executive Officer and a director of the Company since
October 1997. From November 1995 to December 1996, he was Executive Vice
President of Schein Pharmaceutical, Inc., ("Schein"), a generic and ethical
pharmaceutical company, and in December 1996 he was appointed President of the
retail and specialty products division of Schein. From June 1993 to November
1995, he served as President and Chief Operating Officer of Genetic Therapy,
Inc., a biopharmaceutical company. Mr. Casey was President of McNeil
Pharmaceutical, a unit of Johnson & Johnson, from 1989 to June 1993 and Vice
President, Sales and Marketing for the Ortho Pharmaceutical Corp. ("Ortho")
subsidiary of Johnson & Johnson from 1985 to 1989. Previously, he held a number
of sales and marketing positions with Ortho.

     Mr. Cooper has been Vice President of Finance since November 2000. From
August 1998 through October 2000, he served as Senior Director, Finance at the
Company. From September 1997 to July 1998, he was Corporate Controller for
Foundation Health, Inc., a health maintenance organization. From February 1995
through September 1997, he served as Finance Director of Matrix. From 1983
through 1994, he worked at Syntex Corporation, a multi-national pharmaceutical
company, in a variety of financial management positions including Senior
Accounting Manager and Director of Business Analysis. From 1980 to 1982, he
worked in public accounting at Deloitte & Touche LLP. Mr. Cooper is a Certified
Public Accountant in the State of California.

     Ms. Fritzky has been Vice President of Sales and Marketing since June 2000.
From May 1997 through May 2000, she held various sales and marketing positions
at Roche Laboratories, Inc., a global pharmaceutical company culminating in her
last position there as Executive Director, Sales and Marketing, Dermatology and
Oncology. From December 1992 until January 1997, Ms. Fritzky served as Director
of Marketing, Oncology, at Sanofi Winthrop, Inc., responsible for North American
Strategic Marketing and US in-line marketing of the oncology portfolio. Prior to
this, Ms. Fritzky held several sales and marketing positions of increasing
responsibility in both oncology and primary care during her tenure at Lederle
Laboratories from January 1988 to December 1992. Previously, Ms. Fritzky worked
as a Registered Pharmacist for 11 years in both hospital and retail settings.

     Dr. Leavitt was appointed Senior Vice President, Medical Affairs in April
2000. From November 1996 through April 2000, Dr. Leavitt served as Senior Vice
President, Medical and Regulatory Affairs. From June 1993 to November 1996, he
was Vice President, Clinical and Regulatory Affairs of Focal Incorporated, a
biopharmaceutical company. From 1991 to June 1993, he served as Director,
Clinical Research at Genetics Institute. From 1986 to 1991 he held various
management positions at Fujisawa USA, Fujisawa SmithKline Corporation, and
Centocor Incorporated. Prior to joining Centocor Incorporated, he was an
Assistant Professor at the University of Maryland School of Medicine and Johns
Hopkins University School of Medicine.



                                       20
<PAGE>

     Mr. Lucas was appointed Vice President, Operations in March 1996. From
September 1994 to February 1996, he was the Vice President of Operations at
Telios Pharmaceuticals ("Telios"), a division of Integra LifeSciences. Prior to
joining Telios, he was the Vice President of Operations from January 1991 to
September 1994 at IVAC Corporation, a division of Eli Lilly and Company. From
1986 to 1991, he was Director of Project Management and Director of
Manufacturing Operations at Hybritech, Inc., a division of Eli Lilly. He also
held a number of management and technical positions at Eli Lilly's corporate
headquarters in Indianapolis.

     Mr. Pritchard was appointed Senior Vice President and Chief Financial
Officer in January 2001. From 1993 to 2000, he was Vice President of Finance and
Business Development and Chief Financial Officer at Metabolex, Inc., a diabetes
drug discovery company. From 1984 to 1992, Mr. Pritchard held several senior
management positions at Triton Biosciences, starting as Director of marketing
and sales, and concluding as Senior Director of Corporate Development.
Previously, he licensed inventions for Stanford University and worked as a
chemist, a sales representative, and a senior marketing manager for Shell
Chemical, a division of Shell Oil.

     Ms. Staiger was appointed Vice President, Regulatory Affairs at the Company
in January 2001. From September 1996 through December 2000, she was Director of
Regulatory Affairs at the Company. She held the position of Associate Director
of Regulatory Affairs at Gilead Sciences from June 1993 to August 1996. From
February 1990 to May 1993, she served as Manager of Regulatory Affairs and
Quality Assurance for Landec Corporation, a developer and manufacturer of
specialty polymers, and from September 1986 to February 1990, held the position
of Manager of Regulatory Affairs for Syntex (U.S.A.) Inc. From August 1972 to
September 1986, she held various positions in research and development at Zoecon
Corporation, a developer of novel insect-control agents.

ITEM 2. PROPERTIES

     In March 1998, the Company entered into an agreement with a real estate
investment trust for the sale and leaseback of its San Diego manufacturing
facility structured as an $18,425,000 purchase and a $6,000,000 convertible loan
secured by specific manufacturing related building improvements. The lease has a
term of 13 years with options to renew for up to 25 years. Net cash from the
lease and loan agreement, after the payment of the existing mortgage and escrow
and other related fees, totaled approximately $13,798,000 and was used to fund
operating expenses and capital purchases.

     In September 1999, the Company entered into a three-year agreement to lease
out a portion of its San Diego manufacturing facility resulting in rental income
of $2,429,000 over the three year life of the lease. In May 2000, the lease was
amended to reflect the rental of additional space resulting in additional rental
income of $1,434,000 over the remaining lease term.

     In May 1994, the Company entered into an 18-year lease agreement beginning
in January 1996, for a facility totaling approximately 50,000 square feet in
Fremont, California. This facility includes administrative space and research
and development space. This lease has an escalation clause in which the annual
rent expense ranges from $420,000 to $1,034,000.

ITEM 3. LEGAL PROCEEDINGS

        None

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

     No matters were submitted to a vote of the Company's stockholders through
solicitation of proxies or otherwise during the last quarter of the fiscal year
ended December 31, 2000.



                                       21
<PAGE>


                                     PART II

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

     The Common Stock of Matrix Pharmaceutical, Inc. trades on the Nasdaq
National Market tier of the Nasdaq Stock Market under the symbol MATX. The
Company's Common Stock began trading on January 28, 1992. The following table
presents quarterly information on the high and low sale prices of the Company's
Common Stock for fiscal years 2000 and 1999, as regularly quoted on the Nasdaq
National Market.

<TABLE>
<CAPTION>

           FISCAL YEAR               HIGH             LOW
           -----------               ----             ---
<S>                              <C>             <C>
           2000

           1st Quarter           $  22.06        $   4.31
           2nd Quarter              14.94            6.75
           3rd Quarter              17.94           11.75
           4th Quarter              17.25           13.25

           1999

           1st Quarter           $   2.88        $   1.59
           2nd Quarter               9.00            1.88
           3rd Quarter               6.25            3.13
           4th Quarter               9.00            4.19
</TABLE>


     As of February 28, 2001, there were approximately 303 holders of record of
the Company's Common Stock. No dividends have been paid on the Common Stock
since the Company's inception, and the Company does not anticipate paying any
dividends in the foreseeable future.



                                       22
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

(In thousands, except per share amounts)
-------------------------------------------------------------------------------------------------------------------

                                                                   For the Years Ended December 31,
-------------------------------------------------------------------------------------------------------------------
                                                 1996           1997          1998           1999          2000
-------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<S>                                           <C>            <C>          <C>             <C>           <C>
Revenues from contract services              $     --       $     --      $     --        $    400      $  1,539

Operating costs and expenses
      Contract services                            --             --            --             260         1,006
      Research and development                 24,320         27,214        20,186          17,483        19,344
      In-license fee                               --             --         4,000              --            --
      General and administrative               11,428         14,270         6,649           5,762         7,399
      Special charges                              --          4,518            --              --            --
-------------------------------------------------------------------------------------------------------------------
         Total operating costs and expenses    35,748         46,002        30,835          23,505        27,749
===================================================================================================================

Loss from operations                          (35,748)       (46,002)      (30,835)        (23,105)      (26,210)
Interest income                                 6,534          5,561         4,491           3,091         3,100
Other income                                      659          1,819         6,791             569         1,186
Interest expense                               (1,088)        (1,109)       (1,796)         (1,553)       (1,397)
-------------------------------------------------------------------------------------------------------------------
Net loss                                     $(29,643)      $(39,731)     $(21,349)       $(20,998)     $(23,321)
===================================================================================================================

Basic and diluted net loss per
common share                                 $  (1.48)      $  (1.85)     $  (0.97)       $  (0.94)     $  (0.97)

Weighted average shares used in
computing basic and diluted net loss
per common share                               20,081         21,536        22,033          22,437        24,153


                                                                         December 31,
-------------------------------------------------------------------------------------------------------------------
                                                 1996           1997        1998            1999           2000
-------------------------------------------------------------------------------------------------------------------
SUMMARY OF CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and
      short-term  investments               $ 114,584      $  80,368      $ 66,545        $ 46,971      $ 53,976
Total assets                                  134,950        110,429        83,731          61,195        67,833
Total long-term liabilities                    11,734         22,161        19,131          16,556        14,479
Total stockholders' equity                    115,511         76,653        55,872          36,756        45,976
</TABLE>


                                       23
<PAGE>


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

     THIS FORM 10-K CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING THE
COMPANY'S PLANS REGARDING THE POSSIBLE COMMERCIAL LAUNCH OF INTRADOSE, TIMING
AND OUTCOME OF REGULATORY REVIEWS, ADDITIONAL PHASE II TRIALS FOR HEAD AND NECK
CANCER AND LIVER CANCER AND COMPLETION OF THE PHASE II STUDY OF TEZACITABINE FOR
COLON CANCER. ANY SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON MANAGEMENT'S
CURRENT EXPECTATIONS AND ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM EXPECTED RESULTS. FOR
ADDITIONAL INFORMATION, INCLUDING RISK FACTORS, SUCH AS NO ASSURANCE OF
REGULATORY APPROVALS; UNCERTAINTIES ASSOCIATED WITH CLINICAL TRIALS; HISTORY OF
LOSSES; FUTURE PROFITABILITY UNCERTAIN; ADDITIONAL FINANCING REQUIREMENTS AND
UNCERTAIN ACCESS TO CAPITAL MARKETS; LIMITED SALES AND MARKETING EXPERIENCE;
LIMITED MANUFACTURING EXPERIENCE; DEPENDENCE ON SOURCES OF SUPPLY; UNCERTAINTY
REGARDING PATENTS AND PROPRIETARY RIGHTS; RAPID TECHNOLOGICAL CHANGE AND
SUBSTANTIAL COMPETITION; UNCERTAINTY OF PHARMACEUTICAL PRICING; NO ASSURANCE OF
ADEQUATE REIMBURSEMENT; DEPENDENCE UPON QUALIFIED AND KEY PERSONNEL; PRODUCT
LIABILITY EXPOSURE; LIMITED INSURANCE COVERAGE; HAZARDOUS MATERIALS AND PRODUCT
RISKS; VOLATILITY OF STOCK PRICE; NO DIVIDENDS; AND ANTI-TAKEOVER PROVISIONS,
PLEASE SEE THE "RISK FACTORS" SECTION INCLUDED IN THIS FORM 10-K AS WELL AS
OTHER FACTORS DISCUSSED BELOW AND ELSEWHERE IN THIS REPORT. THE COMPANY
DISCLAIMS, HOWEVER, ANY INTENT OR OBLIGATION TO UPDATE THESE FORWARD-LOOKING
STATEMENTS.

     The following discussion should be read in conjunction with the
consolidated financial statements and related notes included on pages 33-45.

OVERVIEW

     The Company has a history of operating losses and expects to incur
substantial additional losses over the next several years as it continues to
develop its products. For the period from its inception to December 31, 2000,
the Company has incurred a cumulative net loss of $211,288,000.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2000 AND 1999

REVENUE

     Revenues for the year ended December 31, 2000 increased to $1,539,000
compared to $400,000 for the year ended December 31, 1999. Higher revenues were
generated by Matrix Contract Services, MCS, which specializes in contract
aseptic manufacturing for clinical and commercial supply, due to growth in the
customer base, larger contracts, and repeat business.

OPERATING COSTS AND EXPENSES

     MCS operating costs, for the year ended December 31, 2000, increased to
$1,006,000 compared to $260,000 for the same period of 1999. Higher spending to
support the growth in the contract manufacturing operation was the cause for the
year-over-year increase in operating costs.

     Research and development expenses for 2000 increased by 11% to $19,344,000
compared to $17,483,000 for 1999. The increase was primarily due to contracting
and consulting expenses in support of the New Drug Application (NDA). This was
partially offset by lower clinical trial expenses, reduced salaries and wages,
and depreciation.

     General and administrative expenses for 2000 increased by 28% to $7,399,000
compared to $5,762,000 for 1999. The increase was due to market preparation
expenses for IntraDose(R), increased contracting and consulting expenses, and
higher recruiting and relocation costs.

INTEREST AND OTHER INCOME, NET

     Interest and other income (net) was $2,889,000 for the year ended December
31, 2000 compared to $2,107,000 for the same period of 1999. This increase was
primarily due to higher interest earned on cash and investment balances.




                                       24
<PAGE>


TAXES

     As of December 31, 2000, the Company had federal and state net operating
loss carryforwards of approximately $208,000,000 and $51,000,000, respectively.
The Company also had federal research and development tax credit carryforwards
of approximately $4,200,000. The federal net operating loss and credit
carryforwards will expire at various dates beginning in the year 2001 through
2020, if not utilized. The state of California net operating losses will expire
at various dates beginning in 2001 through 2005, if not utilized.

YEARS ENDED DECEMBER 31, 1999 AND 1998

REVENUE

     Revenues for the year ended December 31, 1999 were $400,000. The Company
had no revenues for the same period of 1998. Revenues from MCS were the cause
for the year-over-year increase in revenue.

OPERATING COSTS AND EXPENSES

     The Company's contract manufacturing operating costs for the year ended
December 31, 1999 were $260,000. The Company had no operating costs for the same
period of 1998. MCS costs were the cause for the year-over-year increase in
operating costs.

     Research and development expenses for 1999 decreased by 13% to $17,483,000
compared to $20,186,000 for 1998. The decrease was due to reduced clinical trial
program costs including the other solid tumor program which was completed during
the fourth quarter of 1998, lower per patient costs for the Company's IntraDose
programs, lower depreciation, personnel costs and certain manufacturing costs at
the San Diego facility. This was partially offset by higher rental expense at
the San Diego facility and by the higher costs associated with the FMdC clinical
trial program. The increase in the San Diego rent expense is due to lower rental
income from the sublease of a portion of the facility.

     For the year ended December 31, 1999, there was no license fee expense as
compared to the $4,000,000 license fee in 1998, which was an initial payment to
in-license a systemic anticancer agent known as FMdC that is in the early stages
of clinical development.

     General and administrative expenses for 1999 decreased by 13% to $5,762,000
compared to $6,649,000 for 1998. The decrease was due to lower personnel costs,
consulting, legal, and relocation expenses.

INTEREST AND OTHER INCOME, NET

     Interest and other income (net) was $2,107,000 for the year ended December
31, 1999 compared to $9,486,000 for the same period of 1998. This decrease was
primarily due to the receipt of $4,000,000 from a settlement with an insurance
company and $2,108,000 from the gain on sale and leaseback of the San Diego
facility, both of which occurred in 1998. Additionally, interest income
decreased by 31% to $3,091,000 for the twelve months ended December 31, 1999
from $4,491,000 for the same period of 1998, due to lower average cash balances
during the year. This was offset by decreased interest expense by 14% to
$1,553,000 for 1999 as compared to $1,796,000 for 1998, due to the payoff of
certain equipment leases and declining interest payments on equipment loans.

LIQUIDITY AND CAPITAL RESOURCES

     At December 31, 2000, the Company had $53,976,000 in cash, cash equivalents
and marketable securities, compared to $46,971,000 at December 31, 1999. The
increase of $7,005,000 in cash, cash equivalents and short-term investments
during the year ended December 31, 2000 reflects the July 2000 sale of 2,500,000
shares of newly issued common stock to selected institutional investors that
resulted in net proceeds of approximately $29,000,000 to the Company.
Additionally, cash receipts of $3,355,000 related to stock option exercises and
payments on notes receivable from stockholders were received over the
twelve-month period ended December 31, 2000. This was partially offset by the
use of $23,650,000 to fund operating activities, payments of $1,171,000 on debt
and capital lease obligations and capital purchases of $528,000.





                                       25
<PAGE>


     The Company has financed its operations and capital asset acquisitions from
its inception through the sale of equity securities, interest income, and
capital lease and debt financing. The Company expects to finance its continued
operating requirements principally with cash on hand and marketable securities,
additional capital that may be generated through equity and debt financings,
collaborative agreements and revenues generated from MCS and IntraDose(R) if
approved by the FDA.

     The Company's working capital and capital requirements will depend on
numerous factors, including the progress of the Company's commercial and
research and development programs, pre-clinical testing and clinical trial
activities, the timing and cost of obtaining regulatory approvals, the levels of
resources that the Company devotes to the development of manufacturing and
marketing capabilities, technological advances and the status of competitors.

     The Company expects to incur substantial additional costs relating to the
continued clinical development of its anti-cancer products, continued research
and development programs, the development of manufacturing capabilities, and
general working capital requirements. The Company anticipates that its existing
and committed capital resources will enable it to maintain its current and
planned operations through 2002. The Company may require additional outside
financing to complete the process of bringing current products to market, if
approved by the FDA, and there can be no assurance that such financing will be
available on favorable terms, if at all.

     The Company expects revenues to increase as MCS continues to develop its
clinical and commercial supply business. Also, if the FDA approves the Company's
NDA application, related revenues may commence before the end of 2001. Operating
costs and expenses are expected to grow 25% due to increased headcount and other
resources to prepare for the commercial launch of IntraDose(R). In addition, the
Company plans to expand its Medical and Clinical development programs and incur
higher MCS costs.


                                       26
<PAGE>





ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's financial investment securities consist of certificates of
deposit, commercial paper, master notes, and municipal bonds. These financial
investment securities all mature in 2001 and their estimated fair value
approximates cost. The following table provides information about the Company's
debt securities that are sensitive to changes in interest rates and mature in
2001 and 2002. The table presents principal cash flows and related
weighted-average interest rates by expected maturity dates.

<TABLE>
<CAPTION>

                                                                                                                 Fair Value
(dollars inthousands)                  2001       2002       2003     2004     2005     THEREAFTER     TOTAL      12/31/00
                                       ----       ----       ----     ----     ----     ----------     -----     ---------
<S>                                   <C>        <C>        <C>      <C>      <C>      <C>             <C>       <C>
LIABILITIES
Long-term Debt, including
 Current Portion:
   Fixed Rate
      Alexandria                       $    --    $  6,000   $   --   $   --   $  --    $   --         $  6,000   $  6,000
      Imperial Bank                      1,416       4,868       --       --      --        --            6,284      6,284
      Minolta                                9           6       --       --      --        --               15         15
      Xerox                                 32          36       18       12       4        --              102        102
                                       -------    --------   -----    ------   -----    ------         --------   ---------
                                       $ 1,457    $ 10,910   $   18   $   12   $   4    $   --         $ 12,401   $ 12,401
Average Interest Rate                      9.5%
</TABLE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>


       Index to Consolidated Financial Statements:
      <S>                                                             <C>
       Consolidated Balance Sheets
       Years Ended December 31, 1999 and 2000                          Page 33

       Consolidated Statements of Operations
       Years Ended December 31, 1998, 1999 and 2000                    Page 34

       Consolidated Statement of Stockholders' Equity
       Years Ended December 31, 1998, 1999 and 2000                    Page 35

       Consolidated Statements of Cash Flows
       Years Ended December 31, 1998, 1999 and 2000                    Page 36

       Notes to Consolidated Financial Statements                      Page 37

       Report of Ernst & Young LLP, Independent Auditors               Page 46
</TABLE>


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

        None



                                       27
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this item (with respect to Directors) is hereby
incorporated by reference from the information under the caption "Election of
Directors" contained in the Company's definitive Proxy Statement, to be filed
with the Securities and Exchange Commission in connection with the solicitation
of proxies for its Annual Meeting of Stockholders to be held on May 8, 2001 (the
"Proxy Statement"). The required information concerning Executive Officers of
the Company is contained in Item 1, Part 1 of this Form 10-K under the caption
"Executive Officers of the Company" on pages 20 and 21. The information required
by Section 16(a) is incorporated by reference from the information under the
caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934"
in the Proxy Statement.


ITEM 11. EXECUTIVE COMPENSATION

     The information required by this item is incorporated by reference from the
information under the caption "Election of Directors, Summary of Cash and
Certain Other Compensation, Options and Stock Appreciation Rights, Option
Exercises and Holdings" of the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is incorporated by reference from the
information under the caption "Stock Ownership of Management and Certain
Beneficial Owners" in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
in the Proxy Statement.



                                       28
<PAGE>




                                     PART IV


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

(a)  FINANCIAL STATEMENTS

     The following financial statements and supplemental data are filed as part
of this Form 10-K. See Index to Consolidated Financial Statements under Item 8.

<TABLE>
<CAPTION>

        Index to Consolidated Financial Statements:
       <S>                                                             <C>

        Consolidated Balance Sheets
        Years Ended December 31, 1999 and 2000                          Page 33

        Consolidated Statements of Operations
        Years Ended December 31, 1998, 1999 and 2000                    Page 34

        Consolidated Statement of Stockholders' Equity
        Years Ended December 31, 1998, 1999 and 2000                    Page 35

        Consolidated Statements of Cash Flows
        Years Ended December 31, 1998, 1999 and 2000                    Page 36

        Notes to Consolidated Financial Statements                      Page 37

        Report of Ernst & Young LLP, Independent Auditors               Page 46
</TABLE>


(b)  FINANCIAL STATEMENT SCHEDULES

     All schedules are omitted because they are not applicable or are not
required or the information required to be set forth therein is included in the
consolidated financial statements or notes thereto.

(c)  REPORTS ON FORM 8-K

     No reports on Form 8-K were filed by the Registrant during the quarter
ended December 31, 2000.



                                       29
<PAGE>



(d)  EXHIBITS

<TABLE>
<CAPTION>

NUMBER   EXHIBIT

------   ---------------------------------------------------------------------------------
<S>      <C>
3.1      Certificate of Designation of Preferences of Preferred Shares of the
         Company as filed with the Delaware Secretary of State on August 25,
         1994 (Incorporated by reference to Exhibit 5.3 filed with the Company's
         Form 8-K as filed with the Securities and Exchange Commission on
         September 27, 1994)

3.1(b)   Restated Certificate of Incorporation filed with the Delaware Secretary
         of State on August 13, 1992

3.2      Amended and restated bylaws (Incorporated by reference to exhibit 3.2
         filed with the Company's Form 10-Q as filed with the Securities and
         Exchange Commission on May 11, 1995).

3.3      Certificate of Designation of Preferences of Preferred Shares of the
         Company as filed with the Delaware Secretary of State on August 25,
         1994 (Incorporated by reference to Exhibit 5.3 filed with the Company's
         Form 8-K as filed with the Securities and Exchange Commission on
         September 27, 1994)

3.4      Certificate of Designations of Series B Junior Participating Preferred
         Stock of the Company filed with the Delaware Secretary of State on May
         24, 1995 (Incorporated by reference to Exhibit 3.4 as filed with the
         Company's Form 10-Q for the quarter ended June 30, 1995.)

4.1      Amended and Restated Registration Rights Agreement between the Company
         and the investors listed therein dated August 26, 1994 (Incorporated by
         reference to Exhibit 5.2 filed with Company's Form 8-K as filed with
         the Securities and Exchange Commission on September 27, 1994)

4.2      Rights Agreement between the Company and the First National Bank of
         Boston dated May 18, 1995 (Incorporated by reference to Exhibit No. 1
         to the Company's Registration Statement on Form 8-A dated May 17,
         1995).

10.1(a)  Series B Preferred Stock Purchase Agreement dated July 29, 1987

10.2(a)  Series B Preferred Stock Purchase Agreement dated June 30, 1988

10.3(a)  Series C Preferred Stock Purchase Agreement dated May 24, 1990

10.4(a)  Amendment Agreement dated May 24, 1990

10.5(a)  Stock Restriction Agreement between the Company and Edward E. Luck,
         dated July 29, 1987

10.6(a)  Stock Restriction Agreement between the Company and Dennis M. Brown,
         Ph.D. dated July 29, 1987

10.7(a)  Agreement to Issue Warrant dated December 17, 1988

10.8(a)  Series B Preferred Stock Warrant issued to Western Technology
         Investment dated December 30, 1988

10.9(a)  Series B Preferred Stock Warrant issued to USX Credit Corporation dated
         December 30, 1988

10.10(a) Series B Preferred Stock Warrant issued to Highline Financial Services,
         Inc. dated December 30, 1988

10.11(a) Form of Common Stock Purchase Warrant

10.12(a) Voting Agreement dated May 24, 1990, as amended

10.14(b) Form of Restricted Stock Purchase Agreement

10.15(b) Form of Stock Purchase Agreement (Repurchase Right with Escrow)

10.16(b) Form of Stock Option Agreement

10.17(b) Form of Stock Pledge Agreement

10.22(a) Technology Assignment Agreement between the Company and Edward E. Luck
         and Dennis M. Brown, Ph.D. dated July 29, 1987

10.23(a)*Supply Agreement between the Company and **** dated December 22, 1988

10.25(c) Form of Indemnification Agreement

10.26(d) Form of Recapitalization

10.27(b) Lease between the Company and Becton Dickinson Corporation, dated
         November 16, 1992

10.29(b) Equipment Lease Agreement between the Company and General Electric
         Capital Corporation, dated December 17, 1992

10.30    Settlement Agreement and General Release dated February 2, 1993
         (Incorporated herein by reference to Exhibit 19.1 filed with the
         Company's Form 10-Q as filed with the Securities and Exchange
         Commission on May 14, 1993)

10.36*   Lease between the Company and Calaveras Associates II, dated August 4,
         1993 (Incorporated herein by reference to the exhibit of the same
         number filed with the Company's Form 10-Q as filed with the Securities
         and Exchange Commission on November 12, 1993)

_____________________

*     Confidential treatment has been granted with respect to certain portions
      of this agreement.

(a)   Incorporated herein by reference to the exhibits of the same number filed
      with the Company's Registration Statement on Form S-1 (File No. 33-44459)
      as filed with the Securities and Exchange Commission on December 19, 1991.

(b)   Incorporated herein by reference to the exhibits of the same number filed
      with the Company's Form 10-K as filed with the Securities and Exchange
      Commission on March 31, 1993.

(c)   Incorporated herein by reference to the exhibit of the same number filed
      with Amendment No. 1 to the Company's Registration Statement on Form S-1
      (File No. 33-44459) as filed with the Securities and Exchange Commission
      on January 23, 1992.

(d)   Incorporated herein by reference to the exhibit of the same number filed
      with Amendment No. 2 to the Company's Registration Statement on Form S-1
      (File No. 33-44459) as filed with the Securities and Exchange Commission
      on January 27, 1992.



                                       30
<PAGE>


10.38    Lease between the Company, John Arrillaga and Richard T. Peery Separate
         Property Trust, dated May 9, 1994 (Incorporated herein by reference to
         the exhibit of the same number filed with the Company's Form 10-Q as
         filed with the Securities and Exchange Commission on August 12, 1994)

10.39    Investment Agreement by and between the Company and the investors
         listed therein dated August 26, 1994 (Incorporated herein by reference
         to Exhibit 5.1 filed with the Company's Form 8-K as filed with the
         Securities and Exchange Commission on September 27, 1994)

10.40    Equipment Lease Agreement between the Company and Financing For Science
         International, Inc. dated September 1, 1994 (Incorporated by reference
         to the exhibit of the same number filed with the Securities and
         Exchange Commission on November 2, 1994)

10.41    Form of Stock Purchase Agreement by and between the Company and the
         investors listed therein dated July 14, 1995 and July 21, 1995
         (Incorporated by reference to Exhibit No. 4.1 to the registration
         Statement on Form S-3, Registration No. 33-94854, filed with the
         Securities and Exchange Commission on July 21, 1995, as amended)

10.42    Termination and Repurchase Agreement between the Company and Medeva
         dated September 18, 1995 (Incorporated by reference to exhibit No. 10.1
         to the Company's Registration Statement on Form S-3 (file No. 33-96556)
         as filed with the Securities and Exchange Commission on September 25,
         1995)

10.43    Equipment Lease Agreement between the Company and Lease Management
         Services, Inc. dated August 28, 1995 (Incorporated herein by reference
         to exhibit No. 10.3 filed with the Company's Form 10-Q as filed with
         the Security and Exchange Commission on November 7, 1995)

10.44    Contract of Purchase and Sale and Joint Escrow Instructions between the
         Company and the Federal Deposit Insurance Corporation dated November 2,
         1995 (Incorporated herein by reference to the exhibit of the same
         number filed with the Company's Form 10-K as filed with the Securities
         and Exchange Commission on March 1, 1996)

10.45    Industrial Multi-Tenant Lease agreement dated July 15, 1996 between the
         Company, as landlord and Advanced Tissue Sciences, Inc., as tenant
         filed herewith. (Incorporated herein by reference to the exhibit of the
         same number filed with the Company's Form 10-Q as filed with the
         Securities and Exchange Commission on August 8, 1996)

10.46*   Settlement and License Agreement effective as of May 23, 1997 by and
         between Collagen Corporation and the Company (Incorporated herein by
         reference to the exhibit of the same number filed with the Company's
         Form 10-Q as filed with the Securities and Exchange Commission on
         August 13, 1997)

10.47*   Distribution Agreement made as of August 4, 1997 by and between the
         Company and Altana, Inc. (Incorporated herein by reference to the
         exhibit of the same number filed with the Company's Form 10-Q as
         filed with the Securities and Exchange Commission on August 8, 1997)

10.48(e) 1988 Restricted Stock Plan (Amended and Restated through March 19,
         1997)

10.49(f) Form of Stock Issuance Agreement

10.50(g) 1991 Directors Stock Option Plan (Amended and Restated through March
         19, 1997)

10.51(h) Form of Non-Statutory Stock Option Agreement

10.52    Imperial Bank Credit Agreement date October 8, 1997 (Incorporated
         herein by reference to the exhibit of the same number filed with the
         Company's Form 10-K as filed with the Securities and Exchange
         Commission on March 27, 1998)

10.53    Option Acceleration Program dated January 27, 1998 (Incorporated herein
         by reference to the exhibit of the same number filed with the Company's
         Form 10-K as filed with the Securities and Exchange Commission on
         March 27, 1998)

10.54    Termination of Lease Agreement with Becton Dickinson (Incorporated
         herein by reference to the exhibit of the same number filed with the
         Company's Form 10-K as filed with the Securities and Exchange
         Commission on March 27, 1998)

10.55    Employment Agreement between the Company and Michael D. Casey
         (Incorporated herein by reference to the exhibit of the same number
         filed with the Company's Form 10-K as filed with the Securities and
         Exchange Commission on March 27, 1998)

10.56    Purchase and Sale Agreement and Joint Escrow Instructions by and
         between Alexandria Real Estate Equities, Inc. and Matrix
         Pharmaceutical, Inc. dated February 3, 1998 (Incorporated herein by
         reference to the exhibit of the same number filed with the Company's
         Form 10-Q as filed with the Securities and Exchange Commission on May
         7, 1998)

10.57    Lease by and between ARE-4757 Nexus Centre, LLC and Matrix
         Pharmaceutical, Inc. dated March 25, 1998 (Incorporated herein by
         reference to the exhibit of the same number filed with the Company's
         Form 10-Q as filed with the Securities and Exchange Commission on May
         7, 1998)

10.58    Loan and Security Agreement by and between ARE-4757 Nexus Centre, LLC,
         and Matrix Pharmaceutical, Inc. dated March 25, 1998 (Incorporated
         herein by reference to the exhibit of the same number filed with the
         Company's Form 10-Q as filed with the Securities and Exchange
         Commission on May 7, 1998)

10.59    Matrix Pharmaceutical, Inc. v. Chubb Customs Ins. Co., et al.
         Settlement Agreement (Incorporated herein by reference to the exhibit
         of the same number filed with the Company's Form 10-Q as filed with the
         Securities and Exchange Commission on May 7, 1998)

10.60*   License Agreement by and between Hoechst Marion Roussel, Inc. and
         Matrix Pharmaceutical, Inc. dated September 22, 1998 (Incorporated
         herein by reference to the exhibit of the same number filed with the
         Company's Form 10-Q as filed with the Securities and Exchange
         Commission on November 10, 1998)

10.61(i) Matrix Pharmaceutical, Inc. 1999 Employee Stock Purchase Plan

10.62    Amendment to the Employment Agreement between the Company and Michael
         D. Casey (Incorporated herein by reference to the exhibit of the
         same number filed with the Company's Form 10-K as filed with the
         Securities and Exchange Commission on March 14, 2000)

10.63    Purchase Agreement (Incorporated by reference to exhibit 10.7 filed
         with the Company's Form 10-Q as filed with the Securities and Exchange
         Commission on August 2, 2000)

23.1     Consent of Ernst & Young LLP, Independent Auditors
</TABLE>

_________________________

*     Confidential treatment has been granted with respect to certain portions
      of this agreement.

(e)   Incorporated by reference to Exhibit 99.1 of Registration Statement on
      Form S-8 (No. 333-32213).

(f)   Incorporated by reference to Exhibit 99.6 of Registration Statement on
      Form S-8 (No. 333-32213).

(g)   Incorporated by reference to Exhibit 99.7 of Registration Statement on
      Form S-8 (No. 333-32213).

(h)   Incorporated by reference to Exhibit 99.8 of Registration Statement on
      Form S-8 (No. 333-32213).

(i)   Incorporated by reference to Exhibit 99.9 of Registration Statement on
      Form S-8 (No. 333-32213).



                                       31
<PAGE>


                                   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.

                                       MATRIX PHARMACEUTICAL, INC.


Date: March 14, 2001                   BY: /s/ Michael D. Casey
     ----------------------                ---------------------------
                                           Michael D. Casey
                                           President and Chief Executive Officer

                                POWER OF ATTORNEY

      KNOW ALL PERSONS BY THESE PRESENTS:

      That the undersigned officers and directors of Matrix Pharmaceutical,
Inc., a Delaware corporation, do hereby constitute and appoint David W.
Pritchard the lawful attorney and agent, with power and authority to do any and
all acts and things and to execute any and all instruments which said attorney
and agent determines may be necessary or advisable or required to enable said
corporation to comply with the Securities Exchange Act of 1934, as amended, and
any rules or regulations or requirements of the Securities and Exchange
Commission in connection with this Form 10-K. Without limiting the generality of
the foregoing power and authority, the powers granted include the power and
authority to sign the names of the undersigned officers and directors in the
capacities indicated below to this Form 10-K, to any and all amendments, and to
any and all instruments or documents filed as part of or in conjunction with
this Form 10-K or amendments or supplements thereof, and each of the undersigned
hereby ratifies and confirms all that said attorney and agent shall do or cause
to be done by virtue hereof. This Power of Attorney may be signed in several
counterparts.

      IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.

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

<TABLE>
<CAPTION>

<S>                                         <C>
Date:    March 14, 2001                     /s/ Michael D. Casey
      -----------------------               -------------------------------
                                            Michael D. Casey
                                            Chairman, President and
                                            Chief Executive Officer
                                            (Principal Executive Officer)

Date:    March 14, 2001                     /s/ David W. Pritchard
     ------------------------               -------------------------------
                                            David W. Pritchard
                                            Senior Vice President and
                                            Chief Financial Officer
                                            (Principal Financial Officer)

Date:    March 14, 2001                     /s/ Eric K. Brandt
     ------------------------               -------------------------------
                                            Eric K. Brandt
                                            Director

Date:    March 14, 2001                     /s/ J. Stephan Dolezalek
     ------------------------               -------------------------------
                                            J. Stephan Dolezalek
                                            Director

Date:    March 14, 2001                     /s/ Stephen B. Howell, M.D.
     ------------------------               -------------------------------
                                            Stephen B. Howell, M.D.
                                            Director

Date:    March 14, 2001                     /s/ Marvin E. Jaffe, M.D.
     ------------------------               -------------------------------
                                            Marvin E. Jaffe, M.D.
                                            Director

Date:    March 14, 2001                     /s/ Bradley G. Lorimier
     ------------------------               -------------------------------
                                            Bradley G. Lorimier
                                            Director

Date:     March 14, 2001                    /s/ Julius L. Pericola
     ------------------------               -------------------------------
                                            Julius L. Pericola
                                            Director
</TABLE>


                                       32
<PAGE>



<TABLE>
<CAPTION>


                           MATRIX PHARMACEUTICAL, INC.
                           CONSOLIDATED BALANCE SHEETS


(in thousands, except share and per share amounts)                                           December 31,
------------------------------------------------------------------------------------------------------------------
                                                                                      1999                2000
------------------------------------------------------------------------------------------------------------------
ASSETS
<S>                                                                              <C>                 <C>
Current assets:
       Cash and cash equivalents                                                  $  16,042           $  31,878
       Short-term investments                                                        30,929              22,098
       Other current assets                                                           1,805               2,074
------------------------------------------------------------------------------------------------------------------
              Total current assets                                                   48,776              56,050

Property and equipment, net                                                          11,860              10,924
Long-term notes from related parties                                                    455                 405
Deposits and other assets                                                               104                 454
------------------------------------------------------------------------------------------------------------------
                                                                                  $  61,195           $  67,833
==================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
       Accounts payable                                                           $   1,612           $   1,803
       Accrued compensation                                                           1,349               1,590
       Accrued clinical trial costs                                                   1,447                 559
       Other accrued liabilities                                                      1,698               1,409
       Current portion of deferred other income                                         560                 560
       Current portion of debt and capital lease obligations                          1,217               1,457
------------------------------------------------------------------------------------------------------------------
              Total current liabilities                                               7,883               7,378
Debt and capital lease obligations, less current portion                             12,356              10,944
Deferred other income                                                                 4,200               3,535
------------------------------------------------------------------------------------------------------------------
              Total long-term liabilities                                            16,556              14,479
Stockholders' equity:
       Common stock, $0.01 par value per share; 60,000,000 shares authorized,
          22,707,521 shares issued and outstanding in 1999; 25,873,998 shares
          issued and outstanding in 2000                                                226                 259
       Additional paid-in capital                                                   226,827             258,348
       Notes receivable from shareholders                                            (2,145)             (1,344)
       Deferred compensation                                                            (77)                 --
       Accumulated other comprehensive income (loss)                                   (108)                  1
       Accumulated deficit                                                         (187,967)           (211,288)
------------------------------------------------------------------------------------------------------------------
              Total stockholders' equity                                             36,756              45,976
------------------------------------------------------------------------------------------------------------------
                                                                                  $  61,195           $  67,833
==================================================================================================================
</TABLE>


                                   (see accompanying notes)



                                       33
<PAGE>


<TABLE>
<CAPTION>

                           MATRIX PHARMACEUTICAL, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS


(in thousands, except per share amounts)
------------------------------------------------------------------------------------------------------------------

                                                                     For the Years Ended December 31,
------------------------------------------------------------------------------------------------------------------
                                                               1998               1999                  2000
------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                <C>                    <C>
Revenues from contract services                              $    --            $  400                $  1,539

Operating costs and expenses
      Contract services                                           --               260                   1,006
      Research and development                                20,186            17,483                  19,344
      In-license fee                                           4,000                --                      --
      General and administrative                               6,649             5,762                   7,399
------------------------------------------------------------------------------------------------------------------
          Total costs and expenses                            30,835            23,505                  27,749
------------------------------------------------------------------------------------------------------------------

Loss from operations                                         (30,835)          (23,105)                (26,210)
Interest income                                                4,491             3,091                   3,100
Other income                                                   6,791               569                   1,186
Interest expense                                              (1,796)           (1,553)                 (1,397)
------------------------------------------------------------------------------------------------------------------
Net loss                                                  $  (21,349)        $ (20,998)             $  (23,321)
==================================================================================================================

Basic and diluted net loss per
      common share                                        $    (0.97)        $   (0.94)               $  (0.97)

==================================================================================================================

Weighted average shares used in
      computing basic and diluted net
      loss per common share                                   22,033            22,437                  24,153
==================================================================================================================
</TABLE>

                            (see accompanying notes)

                                       34

<PAGE>

                          MATRIX PHARMACEUTICAL, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

(in thousands, except share and per share amounts)
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                      Accum-
                                                                                                      ulated
                                                                              Notes                   Other
                                                                              Receivable              Compre-              Total
                                                                  Additional  from         Deferred   hensive  Accum-      Stock-
                                                         Common   Paid-in     Share-       Compen-    Income   ulated      holders'
                                                         Stock    Capital     holders      sation     (Loss)   Deficit     Equity
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>        <C>         <C>          <C>        <C>      <C>         <C>
Balance at December 31, 1997                           $    219   $ 224,925   $  (2,313)   $ (539)    $  (19)  $ (145,620) $ 76,653

Comprehensive loss:
    Net loss                                                  -           -           -         -          -      (21,349)  (21,349)
    Net unrealized gain on marketable securities              -           -           -         -         64            -       64
                                                                                                                           --------
Comprehensive loss                                                                                                          (21,285)
                                                                                                                           --------
Issuance of 186,355 shares of common stock to
    employees and investors for cash under the stock
    option plan (from $0.10 to $3.94 per share)               1          71           -         -          -            -        72
Issuance of  81,026 shares to employees under
    employee savings and retirement plan (from
    $2.63 to $4.63 per share)                                 -         309           -         -          -            -       309
Amortization of deferred compensation                         -           -           -       184          -            -       184
Forfeitures of deferred compensation                          -        (123)          -       123          -            -         -
Repayment of notes receivable from shareholders               -           -          31         -          -            -        31
Repurchase of 20,973 shares of common stock                   -         (92)          -         -          -            -       (92)
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998                           $    220   $ 225,090   $  (2,282)   $ (232)    $   45   $ (166,969) $ 55,872


Comprehensive loss:
    Net loss                                                  -           -           -         -          -      (20,998)  (20,998)
    Net unrealized loss on marketable securities              -           -           -         -       (153)           -      (153)
                                                                                                                           --------
Comprehensive loss                                                                                                          (21,151)
                                                                                                                           --------
Issuance of  477,100 shares of common stock to
    employees and investors for cash under the stock
    option plan (from $0.10 to $3.94  per share)              5       1,520           -         -          -            -     1,525
Issuance of  91,710 shares to employees under
    Employee savings and retirement plan (from
    $2.63 to $4.63 per share)                                 1         279           -         -          -          280
Amortization of deferred compensation                         -           -           -       155          -            -       155
Repayment of notes receivable from shareholders               -           -         137         -          -            -       137
Repurchase of 15,656 shares of common stock                   -         (62)          -         -          -            -       (62)
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999                              $ 226    $226,827   $  (2,145)    $ (77)$     (108)   $(187,967)  $36,756

Comprehensive loss:
    Net loss                                                  -           -           -         -          -      (23,321)  (23,321)
    Net unrealized loss on marketable securities              -           -           -         -        109            -       109
                                                                                                                           --------
Comprehensive loss                                                                                                          (23,212)
                                                                                                                           --------
Issuance of 558,030 shares of common stock to
    employees and investors for cash under the stock
    option plan (from $0.10 to $8.63  per share)              7       2,215           -         -          -            -     2,222
Issuance of 24,222 shares to employees under
    employee savings and retirement plan (from
  $4.75 to $15.56 per share) and 98,109 shares under
  the Employee Stock Purchase Plan                            1         274           -         -          -            -       275
Issuance of 2,500,000 shares of common stock for
    cash at $12.50 per share (less issuance costs)           25      29,116           -         -          -            -    29,141
Amortization of deferred compensation                         -           -           -        77          -            -        77
Stock compensation expense                                    -          89                                                      89
Repayment of notes receivable from shareholders               -           -         801         -          -            -       801
Repurchase of 13,884 shares of common stock                   -        (173)          -         -          -            -      (173)
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000                              $ 259  $  258,348   $  (1,344)   $    -    $     1   $ (211,288) $ 45,976
====================================================================================================================================
</TABLE>

                             (see accompanying notes)

                                       35

<PAGE>



                          MATRIX PHARMACEUTICAL, INC.
                       CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

(in thousands)
---------------------------------------------------------------------------------------------------------------



                                                                        For the Years Ended December 31,
---------------------------------------------------------------------------------------------------------------
                                                                     1998            1999            2000
---------------------------------------------------------------------------------------------------------------
<S>                                                             <C>             <C>             <C>
Cash flows used in operating activities:
     Net loss                                                   $   (21,349)    $   (20,998)    $   (23,321)
     Adjustments to reconcile net loss to net cash used by
     operating activities:
         Depreciation and amortization                                2,259           1,644           1,477
         Amortization of deferred compensation                          184             155              77
         Amortization of deferred income                               (560)           (560)           (560)
         Gain on sale & leaseback transaction                        (1,882)             --              --
         Repurchase of marketing rights                                (500)           (500)           (500)
         Other                                                          218             402             109
     Changes in assets and liabilities:
         Other current assets                                        (1,279)            852            (269)
         Deposits and other assets                                      482               5            (350)
         Notes receivable from related parties                          346             304              50
         Accounts payable                                            (1,524)            336             191
         Accrued compensation                                           172             255             241
         Deferred other income                                         (177)           (195)           (105)
         Restructuring costs                                         (1,550)           (513)             --
         Accrued clinical trial costs                                  (283)            (58)           (888)
         Other accrued liabilities                                      346            (285)            211
---------------------------------------------------------------------------------------------------------------
         Net cash used by operating activities                      (25,097)        (19,156)        (23,637)
Cash flows from investing activities:
     Capital expenditures                                            (1,016)           (398)           (541)
     Proceeds from sale of fixed assets                              17,744              --              --
     Net maturities of short-term investments                        18,944          10,766           8,831
---------------------------------------------------------------------------------------------------------------
         Net cash flows provided by investing activities             35,672          10,378           8,290
Cash flows from financing activities:
     Repayment of mortgage loan from sale                            (9,840)             --              --
     Payments on debt and capital lease obligations                  (1,718)         (1,900)         (1,172)
     Repayment of notes receivable from shareholders                     32             137             801
     Debt and capital lease financing                                 6,000              --              --
     Net cash proceeds from issuance of common stock                     72           1,743          31,554
---------------------------------------------------------------------------------------------------------------
     Net cash flows provided by (used in) financing activities       (5,454)            (20)         31,183
Net increase (decrease) in cash and cash equivalents                  5,121          (8,798)         15,836
Cash and cash equivalents at the beginning of period                 19,719          24,840          16,042
---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of period                    $  24,840        $ 16,042         $31,878
===============================================================================================================
Supplemental disclosure of cash flow information:
       Interest paid                                              $   1,669        $  1,443         $ 1,331
</TABLE>



                              (see accompanying notes)


                                       36


<PAGE>





                           MATRIX PHARMACEUTICAL, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION. Matrix Pharmaceutical, Inc. (the "Company") was
incorporated in California on February 11, 1985 and reincorporated in
Delaware in January 1992. The Company develops and manufactures novel drug
candidates for cancer based on its internal research and development
capabilities and through in-licensing of product candidates from other
pharmaceutical companies. The Company's contract manufacturing operation,
Matrix Contract Services, specializes in contract aseptic manufacturing for
clinical and commercial supply.

     The Company matured from its development stage to an operating company
in 2000. As such, its financial statements are no longer prepared on a
development stage basis. The Company has incurred net losses since inception
and is expected to incur such losses for the next several years. To date, the
Company has funded its operations primarily through stock issuances, capital
asset lease financing and debt.

     Certain amounts have been reclassified to conform with current period
classification. The reclassifications had no impact on the Company's
historical operating results or financial position.

     REVENUE RECOGNITION. To date, the Company's primary source of revenue
relates to its contract aseptic manufacturing for clinical and commercial
supply. The Company recognizes such revenue when shipment has occurred, the
sales price is fixed or determinable and collectibility is probable. These
criteria are met at the time the product is shipped.

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

     CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS. The Company
invests its excess cash in government and corporate debt securities. Highly
liquid investments with original maturities of three months or less at the
date of acquisition are considered by the Company to be cash equivalents. All
other investments are reported as short-term investments.

     MARKETABLE SECURITIES AVAILABLE-FOR-SALE. All marketable securities are
classified as available-for-sale. Available-for-sale securities are carried
at fair value, with unrealized gains and losses reported as a separate
component of stockholders' equity. The amortized cost of debt securities in
this category is adjusted for amortization of premiums and accretions of
discounts to maturity. Such amortization is included in interest income.
Realized gains and losses and declines in value judged to be other than
temporary for available-for-sale securities are included in interest and
other expense. The cost of securities sold is based on the specific
identification method.

     DEPRECIATION AND AMORTIZATION. The Company depreciates property and
equipment using the straight-line method over the assets' estimated useful
lives. Laboratory, operating and office equipment and furniture are
depreciated over 10 years and computer equipment over five years. Leasehold
improvements are depreciated over the shorter of the estimated useful life or
the lease term. Amortization of equipment under capital leases is included
with depreciation expense.

     RESEARCH AND DEVELOPMENT. The Company expenses research and development
costs as incurred.

     STOCK BASED COMPENSATION. The Company accounts for its stock-based
compensation arrangements using the intrinsic-value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and accordingly, has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123 (FAS 123), "Accounting
for Stock-Based Compensation." These provisions require the Company to
disclose pro forma net loss and net loss per share amounts as if compensation
expense related to certain stock awards were recognized based on the fair
value accounting rules under FAS 123 (see Note 9). Stock based compensation
arrangements to non-employees are accounted for in accordance with FAS 123
and EITF 96-18, using a fair value approach, and the compensation cost of
such arrangements are subject to remeasurement over their vesting terms, as
earned.


                                       37

<PAGE>

     NET LOSS PER SHARE. Basic and diluted loss per share has been calculated
using the weighted average common shares outstanding. Common equivalent
shares from stock options and warrants are not included in the diluted loss
per share calculations because their inclusion would be anti-dilutive.

     SEGMENTS.  The Company operates in a single operating  segment and,
therefore,  no additional  segment  disclosures have been provided.

     USE OF ESTIMATES. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could
differ from these estimates.

     CONCENTRATIONS OF SALES.  Sales to two customers represents
approximately 22% of the total revenue reported in 2000.

     RECENT ACCOUNTING PRONOUNCEMENTS. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Financial Instruments and Hedging Activities"
("SFAS 133") which is required to be adopted in years beginning after June
15, 2000. Because of the Company's minimal use of derivatives, management
does not anticipate that the adoption of the new Statement will have a
significant effect on earnings or on the financial position of the Company.


2.  FINANCIAL INSTRUMENTS

                         Available for Sale Securities

<TABLE>
<CAPTION>

(IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------------

                                                  2000                                           1999
                                  ---------------------------------------        ---------------------------------------




                                                    Gross                                     Gross
                                               Unrealized       Estimated                Unrealized       Estimated
                                                    Gains            Fair                     Gains            Fair
                                     Cost         (Losses)          Value        Cost       (Losses)          Value
------------------------------------------------------------------------------------------------------------------------
<S>                               <C>          <C>              <C>            <C>       <C>              <C>
U.S. government securities        $  8,850                      $  8,850       $  8,100                   $ 8,100
Certificates of deposit             16,747              3         16,750         25,773         (44)       25,729
Commercial paper                    12,850             (5)        12,845          5,200                     5,200
Federal agencies                    14,399             (4)        14,395
Master notes                            13                            13          3,444                     3,444
Repurchase agreements                   20                            20          2,385                     2,385
------------------------------------------------------------------------------------------------------------------------
           Total                  $ 52,879             (6)      $ 52,873         44,902         (44)      $44,858
========================================================================================================================
</TABLE>

     Included in cash equivalents at December 31, 2000 and 1999 are
$30,781,000 and $13,929,000, respectively, of available-for-sale securities.
All available-for-sale securities have maturities of less than one year.

3.  GAIN ON SALE AND LEASEBACK TRANSACTION

     In March 1998, the Company completed an agreement with a real estate
investment trust for the sale and leaseback of its San Diego
office/laboratory and manufacturing facility and an adjacent parcel of land.
The transaction was structured as an $18,425,000 sale and a $6,000,000
convertible loan secured by specific manufacturing related building
improvements. Under the terms of the agreement, the Company will lease the
facility for 13 years with options to renew up to an additional 25 years.
Matrix will pay an average of $2,114,000 in annual lease expense.

     This rental expense is partially offset by rental income from a portion
of the facility leased to another bio-pharmaceutical company. In 1996, the
Company entered into an agreement to lease out a portion of its San Diego
manufacturing facility. The original lease, which had a term of two years
ending July 1998, was extended through July

                                       38

<PAGE>

1999 resulting in rental income of $4,472,000 during the three-year period.
In September 1999, the Company entered into a three-year agreement to lease
out a portion of its San Diego manufacturing facility resulting in rental
income of $2,429,000 over the three-year life of the lease. In May 2000, the
lease was amended to reflect the rental of additional space resulting in
additional rental income of $1,434,000 over the remaining lease term.

     Net cash from the lease and loan agreement, after the payment of the
existing mortgage and escrow and other related fees, totaled approximately
$13,798,000 and is being used to fund operating expenses and capital
purchases. The total gain on the transaction is $5,769,000, of which
$1,882,000 was recognized during the year ended December 31, 1998 as an
immediate gain while the remaining balance has been deferred and is being
recorded to income over the 13-year lease term.

4.  OTHER INCOME

     Other income during 1998 of $6,791,000 includes the receipt of
$4,000,000 from a settlement with an insurance company, $2,108,000 from the
gain on sale and leaseback of the San Diego facility and $560,000 from
amortization of a five-year non-compete agreement.

5.  PROPERTY AND EQUIPMENT

     Property and equipment is stated at cost and consists of the following:

<TABLE>
<CAPTION>

(IN THOUSANDS)
---------------------------------------------------------------------------------------------------------------------------
December 31,                                                                            1999              2000
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>                <C>
Leasehold improvements                                                              $   9,010          $  9,078
Laboratory and operating equipment                                                      6,404             6,532
Office and computer equipment                                                           3,512             3,848
---------------------------------------------------------------------------------------------------------------------------
                                                                                       18,926            19,458
Less accumulated depreciation and amortization                                         (7,066)           (8,534)
---------------------------------------------------------------------------------------------------------------------------
Net property and equipment                                                          $  11,860          $ 10,924
===========================================================================================================================
</TABLE>

6.  DEBT AND CAPITAL LEASE OBLIGATIONS

     As noted in Footnote 3, the Company completed an agreement with a real
estate investment trust for the sale and leaseback of its San Diego
office/laboratory and manufacturing facility and an adjacent parcel of land.
The transaction was structured as an $18,425,000 sale and a $6,000,000
convertible loan secured by specific manufacturing-related building
improvements. The loan bears interest at 11% per annum and the entire
principal balance is due on March 26, 2002. The Company has the right, prior
to the maturity date, to cause the lender to convert the loan to a lease
agreement based upon the attainment of certain strategic alliances or joint
ventures with a cumulative value in excess of $15,000,000 as measured by
initial and milestone payments. In the event the Company meets certain
milestones and chooses to exercise this option, rent shall be increased by
$660,000 per year from approximately $1,920,000 as per the lease agreement.
The lender also has the right to purchase the improvements in exchange for
the outstanding principal balance of the loan up to $6,000,000 and to convert
the loan to a lease agreement at any time during the loan period.

     In October 1997, the Company entered into a five-year equipment
financing agreement for $10,000,000. The loan bears 9% interest per annum and
matures in 2002.

     Assets purchased under debt (installment notes) or capital lease
financing arrangements consist of building and related improvements,
leasehold improvements, laboratory, operating, office and computer equipment
with a cost of approximately $14,034,000 at December 31, 1999 and 2000.
Accumulated depreciation of these assets totaled approximately $4,296,000 and
$5,305,000 at December 31, 1999 and 2000, respectively. The weighted average
interest rate for debt and capital lease obligations was 9.9% in 1999 and
2000. Future payments under capital leases, including interest of $20,000,
total $139,000 as of December 31, 2000.


                                       39

<PAGE>

     Future payments under debt obligations, are as follows at December 31,
2000:

<TABLE>
<CAPTION>

  (IN THOUSANDS)
  --------------------------------------------------------------------------------------------------------
                                                                                             Installment
  Years ending December 31,                                                                        Notes
  --------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>
  2001                                                                                       $       1,457
  2002                                                                                              10,910
  Thereafter                                                                                            34
  --------------------------------------------------------------------------------------------------------
  Total                                                                                             12,401
  Current portion                                                                                    1,457
  --------------------------------------------------------------------------------------------------------
  Amounts due after one year                                                                 $      10,944
  ========================================================================================================
</TABLE>

7.  OPERATING LEASE COMMITMENTS

     The Company leased facilities in Fremont and San Diego in the State of
California. Rent expense and sublease income under all of these arrangements
respectively was approximately $2,346,000 in 1998, $2,673,000 in 1999 and
$2,611,000 in 2000. Non-cancellable rental commitments under building and
equipment operating leases are as follows at December 31, 2000:

<TABLE>
<CAPTION>
(IN  THOUSANDS)
---------------------------------------------------------------------------------------------------------------------------
                                                                                                     Sublease
Years ending December 31,                                                       Commitments            Income         Net
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                <C>            <C>
2001                                                                                2,644          $  (1,521)     $  1,123
2002                                                                                2,633             (1,035)        1,598
2003                                                                                2,803                 --         2,803
2004                                                                                2,880                 --         2,880
2005                                                                                2,911                 --         2,911
Thereafter                                                                         19,440                 --        19,440
---------------------------------------------------------------------------------------------------------------------------
Total minimum lease payments                                                       33,311          $  (2,556)     $ 30,755
===========================================================================================================================
</TABLE>

     The Company entered into an eighteen-year lease agreement beginning in
January 1996, for a facility totaling approximately 50,000 square feet in
Fremont, California. This facility includes administrative and research and
development usage. This lease has an escalation clause in which the annual
rent expense ranges from $420,000 to $1,034,000.

    The Company entered into an agreement with a real estate investment trust
for the sale and leaseback of its San Diego manufacturing facility in March
1998. The lease has a term of 13 years with options to renew for up to 25
years in which the annual rent expense ranges from $1,920,000 to $2,373,000.

8.  STOCKHOLDERS' EQUITY

    PREFERRED SHARE PURCHASE RIGHTS PLAN. On April 17, 1995, the Company's
Board of Directors adopted a Preferred Share Purchase Rights Plan under which
stockholders receive one one-hundredth Series B junior participating
preferred share purchase rights for each share of Matrix common stock. The
rights will be distributed as a non-taxable dividend, will expire on May 28,
2005, and will be exercisable only if a person or group acquires 20% or more
of the Company's common stock or announces a tender offer for 20% or more of
the Company's common stock. The Board of Directors designated 150,000 shares
as Series B junior participating preferred stock. As of December 31, 2000, no
shares were issued or outstanding.


                                       40

<PAGE>

9. STOCK OPTION PLANS

     1991 DIRECTORS' STOCK OPTION PLAN. The Board of Directors adopted a
Directors Stock Option Plan (the "Directors Plan") in 1991. Under the
Directors Plan, as originally adopted, each individual who first becomes a
non-employee member of the Board of Directors was automatically granted a
non-statutory option to purchase 40,000 shares of common stock, which would
vest over a three-year period. Each non-employee director (upon re-election
to the Board) automatically received an option to purchase 3,000 shares of
common stock, which vest over a one-year period. In May 1994, an additional
200,000 shares were reserved for issuance pursuant to the Directors' Plan. In
March 1997, the Directors' Plan was amended such that all vested, unexercised
options would remain outstanding for the full 10-year option term, regardless
of whether the optionee continued to serve on the Board. At the same time, an
additional 250,000 shares were reserved for issuance under the Director's
Plan. In May 2000, the Directors Plan was amended to effect the following
changes: (i) reduce the number of shares of Common Stock subject to the
automatic option grant made to an individual who first joins the Company's
Board of Directors as a non-employee director from 40,000 to 20,000 shares;
(ii) increase the number of shares subject to the automatic option grant made
to an individual upon re-election to the Company's Board of Directors as a
non-employee director from 3,000 to 10,000 shares; (iii) make both the
initial and annual re-election options immediately vested and exercisable for
all the option shares upon grant and (iv) extend the term of the Directors
Plan through December 31, 2005. The aggregate maximum number of shares which
may be issued under the automatic option grant program is 592,858 shares. At
December 31, 2000, the total number of common shares reserved for issuance
under director's stock options was 592,858, of which 390,967 were exercisable
and 103,033 remain available for grant. In 2000, 110,000 shares were granted
and 13,000 stock options were exercised.

     1988 RESTRICTED STOCK PLAN. The Company's 1988 Restricted Stock Plan
("the Plan") permits the Company to (i) grant incentive options at 100
percent of fair value at the date of grant; (ii) grant non-qualified options
at 85 percent of fair value or greater; and (iii) grant purchase rights
authorizing the sale of common stock at 85 percent of fair value subject to
stock purchase agreements. Options may become exercisable immediately or in
installments over time as specified in each option agreement. Shares
purchasable under immediately exercisable options and under purchase rights
may be subject to repurchase by the Company in the event of termination of
employment; the Company's repurchase right shall lapse in one or more
installments over the purchaser's period of service. The term of the Plan was
initially ten years, but was extended in March of 1997 through December 31,
2002 and again in February 2000 through December 31, 2005. Options have a
maximum term of ten years, except options granted to ten-percent
stockholders, which have a maximum term of five years. From May 1994 to June
1997, an additional 3,300,000 shares of common stock were reserved for
issuance pursuant to the Plan. In March 1999 and May 2000, an additional
400,000 shares and 1,100,000 shares, respectively were reserved for issuance
pursuant to the Plan. At December 31, 2000, the total number of common shares
reserved for issuance under restricted stock options was 6,130,953 of which
956,462 remain available for grant.

     SHARED INVESTMENT PROGRAM. In March 1997, the Board of Directors
authorized a special risk-sharing arrangement designated as the Shared
Investment Program ("the Program"). Under the Program, the Company's
executive officers and other key managerial personnel were given the
opportunity to purchase shares of Common Stock in an individually designated
amount per participant determined by a Committee of the Board of Directors. A
total of 370,000 shares were purchased under the Program by nine eligible
employees at $6.25 per share, the fair market value of the Common Stock on
June 25, 1997, for an aggregate consideration of $2,312,500. The purchase
price was paid through the participant's delivery of a full-recourse
promissory note payable to the Company. Each note bears interest at 6.69%
compounded semi-annually and has a maximum term of nine years. The notes are
secured by a pledge of the purchased shares with the Company. The Company
recorded notes receivables from participants in this program originally for
$2,312,500 in the equity section in the Consolidated Balance Sheet. At
December 31, 2000 the remaining balance of the original notes was $1,343,750.

                                       41

<PAGE>



Activity under the 1988 Restricted Stock Plan is as follows:


<TABLE>
<CAPTION>
                                                                     Stock awards and         Weighted average
                                              Shares                  stock options                   exercise
                                             available                 outstanding                       price
                                            --------------           -----------------      ---------------------
<S>                                         <C>                      <C>                    <C>
Balances at December 31, 1997                 1,073,775                  2,467,255            $      4.13


Grants of options                              (834,750)                   834,750            $      3.40

Exercise of options and issuance of
  stock awards                                       --                   (186,355)           $      0.42
Forfeitures                                     580,811                   (580,811)           $      4.05
                                               --------                  ---------
Balances at December 31, 1998                   819,836                  2,534,839            $      3.88

Additional authorization                        400,000                         --
Grants of options                            (1,111,575)                 1,111,575            $      3.80
Exercise of options and issuance of
  stock awards                                       --                   (477,100)           $      3.08
Forfeitures                                     283,416                   (283,416)           $      3.22
                                               --------                  ---------
Balances at December 31, 1999                   391,677                  2,885,898            $      4.05


Additional authorization                      1,100,000                         --
Grants of options                              (873,800)                   873,800            $     12.89
Exercise of options and issuance of
  stock awards                                       --                   (545,030)           $      3.26
Forfeitures                                     338,585                   (338,585)           $      5.89
                                               --------                  ---------
Balances at December 31, 2000                   956,462                  2,876,083            $      6.70
                                               ========                  =========
</TABLE>

Ranges of exercise price for 2000 are as follows:

<TABLE>
<CAPTION>
                                                OPTIONS OUTSTANDING                            OPTIONS EXERCISABLE
                                 -----------------------------------------------------   -----------------------------
                                                                           Weighted-
                                 Stock awards        Weighted-               average                        Weighted-
                                    and stock          average             remaining        Number of         average
                                      options         exercise           contractual       exercisable       exercise
Exercise price range              outstanding            price        life (in years)      options              price
-----------------------------    -------------       -----------      ---------------    -------------    ------------
<S>                              <C>                 <C>              <C>                <C>              <C>
  $     0.00      $     2.60          391,596         $    2.15                 6.8          181,947       $    2.09
  $     2.61      $     5.20        1,310,477         $    3.89                 6.5        1,077,284       $    3.91
  $     5.21      $     7.80          326,712         $    6.85                 7.8          128,229       $    6.82
  $     7.81      $    10.40          184,250         $    9.65                 9.3           21,961       $    9.18
  $    10.41      $    13.00          110,248         $   11.44                 5.7           76,692       $   11.27
  $    13.01      $    15.60          525,050         $   14.49                 9.4                -       $    0.00
  $    15.61      $    18.20           27,750         $   15.94                 9.6                -       $    0.00
                                 -------------       --- -------      --------------    -------------    ---- -------
                                    2,876,083         $    6.70                 7.4        1,486,113       $    4.39
                                 =============       === =======      ==============    =============    ==== =======
</TABLE>

     On October 29, 1997, the Board of Directors approved a resolution to
offer eligible employees, including executive officers, holding stock options
granted under the Plan, the opportunity to exchange their existing stock
options for new options at the then current fair market value of $3.94 per
share. The resolution maintains the same vesting schedule for unvested shares
as was applicable for the existing stock options, but increases the service
period for those shares previously vested. Vested existing options exchanged
for the new options vested 50% after six months and 50% after one year.

     The Company applies APB 25, "Accounting for Stock Issued to Employees."
Pro forma information regarding net loss per share is required by SFAS 123,
"Accounting for Stock-Based Compensation," and has been determined as if the
Company had accounted for its employee and director stock options under the
fair value method described in that Statement. The Black-Scholes option
pricing model is used to calculate the fair value of these options for 1998,
1999, and 2000 with the following assumptions: dividend yield and expected
life of zero % and 4 years, respectively, for all three years, volatility
factors of 0.74 for 1998, 1.03 for 1999 and 1.03 for 2000 and a risk-free
interest rate of 6.1% for 1998, 6.7% for 1999 and 5.1% for 2000.

                                       42

<PAGE>

     The Black-Scholes options 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 options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options. However, the Company has presented the pro forma net
loss and pro forma basic and diluted net loss per common share using the
assumptions noted above.

     Had compensation costs for the Company's stock option plans been
determined based upon the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under SFAS 123, the
Company's net loss and net loss per share for 1998, 1999 and 2000 would have
been as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------------------------------------------------------------------------------------------------------------
                                                                                   For the Years ended December 31,
                                                                                1998            1999             2000
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>            <C>              <C>
Net loss - as reported                                                          $ (21,349)     $ (20,998)       $ (23,321)
Net loss - pro forma                                                            $ (22,525)     $ (22,807)       $ (26,927)
Basic and diluted net loss per share - as reported                              $   (0.97)     $   (0.94)       $   (0.97)
Basic and diluted net loss per share - pro forma                                $   (1.02)     $   (1.02)       $   (1.11)
</TABLE>

         The weighted average fair value of options granted at fair market value
during 1998, 1999, and 2000, is estimated at $2.01, $1.36 and $9.55,
respectively, on the date of grant. The weighted average fair value of options
granted at below fair market value during 1999 is estimated at $0.92 on the date
of grant. No options were granted at below fair market value in 1998 or 2000.

         SFAS 123 is effective for options granted by the Company commencing
January 1, 1995. All options granted before January 1, 1995 have not been valued
and no pro forma compensation expense has been recognized. However, any option
granted before January 1, 1995 that was repriced in 1996 is treated as a new
grant within 1996 and valued accordingly. In addition, as compensation expense
is recognized over the vesting period of the option, the proforma effect was not
fully reflected until 1999.

         1999 EMPLOYEE STOCK PURCHASE PLAN. In May 1999, the "1999 Employee
Stock Purchase Plan" was approved by the shareholders with an initial 700,000
shares reserved. The Plan permits eligible employees to acquire shares of the
Company's common stock through periodic payroll deductions of up to 15% of total
compensation. No more than 3,000 shares may be purchased on any purchase date
per employee. Each offering period will have a maximum duration of 24 months.
The price at which the common stock may be purchased is 85% of the lesser of the
fair market value of the Company's common stock on the first day of the
applicable offering period or on the last day of the respective purchase period.
Under the Plan in 2000, 98,109 shares were issued. As of December 31, 2000 under
the Plan, 98,109 shares in total have been issued.

10. INCOME TAXES

         As of December 31, 2000, the Company had federal and state net
operating loss carryforwards of approximately $208,000,000 and $51,000,000,
respectively. The Company also had federal research and development tax credit
carryforwards of approximately $4,200,000. The federal net operating loss and
credit carryforwards will expire at various dates beginning in the year 2001
through 2020, if not utilized. The state of California net operating losses will
expire at various dates beginning in 2001 through 2005, if not utilized.

         Utilization of the Company's net operating loss carryforwards and
credits may be subject to an annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986 and similar state provisions.
The Company does not expect the limitation to impact its ability to utilize all
of its current net operating loss and credit carryforwards.

                                      43

<PAGE>

         Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets for financial reporting and
the amount used for income tax purposes. Significant components of the Company's
deferred tax assets for federal and state income taxes for the years ended
December 31, 1999 and 2000 are as follows:

<TABLE>
<CAPTION>
(In  thousands)
--------------------------------------------------------------------------------------------------------------------------
At December 31,                                                                       1999              2000
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>               <C>
Deferred tax assets
     Net operating loss carryforwards                                              $ 64,400          $ 73,700
     Research credits                                                                 6,200             6,500
     Other                                                                            9,400             7,200
--------------------------------------------------------------------------------------------------------------------------

     Total deferred tax assets                                                       80,000            87,400
     Valuation allowance for deferred tax assets                                    (80,000)          (87,400)
--------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets                                                            $     --          $     --
==========================================================================================================================
</TABLE>

         The net valuation allowance increased by $7,300,000 and $7,400,000
in 1999 and 2000, respectively.

11. RELATED PARTIES

         During the years ended December 31, 2000, 1999, and 1998, legal fees of
approximately $24,000, $72,000 and $244,000, respectively, were paid to Brobeck,
Phleger & Harrison, a law firm in which a current director of the Company
previously served as a senior partner.

         In 1997, a former director of the Company received $750,000 in exchange
for promissory notes secured by a deed of trust. The notes were payable in 1998
and accrued interest at 7% per annum. In 1998, the director repaid $346,000 of
principal and accrued interest of $4,000. The remaining balance of $404,000 was
repaid during 1999.

         During 1997, two officers received $100,000 and $500,000, respectively,
in exchange for non-interest bearing promissory notes secured by deeds of trust.
During 1999, one former officer received $100,000 in exchange for an interest
bearing promissory note secured by a deed of trust and the note was repaid in
2000. During 2000, one officer received $100,000 in exchange for an
interest-bearing promissory note secured by a deed of trust. The loans are to be
forgiven over a period of three to seven years from their inception and one loan
was amended in October 1999 to be forgiven in full upon receipt of marketing
approval from the FDA for IntraDose. The compensation charge relating to the
forgiveness is being amortized on a straight-line basis over the original note
terms.

12. EMPLOYEE SAVINGS AND RETIREMENT PLAN

         The Company adopted a 401(k) savings and retirement plan in January
1990. The 401(k) Plan covers all eligible employees who are 21 years of age or
older. In May 1996, the Board of Directors approved a matching contribution
under the Company's 401(k) Plan. Under this program the Company makes a matching
contribution on behalf of each eligible employee equal to 50% of their
respective salary deferral contribution (which began on January 1, 1997). At the
end of each quarter, the Company issues new shares of its common stock, using
the fair market value, for its matching contribution. Company matching
contributions were $295,000, $280,000, and $282,000 in 1998, 1999, and 2000,
respectively.

13. FMdC LICENSE AGREEEMENT

         In September 1998, the Company entered into an agreement to license a
systemic anti-cancer agent known as FMdC for $4,000,000. Under the terms of the
license agreement, the Company may be obligated to make additional milestone
payments as follows: payment upon commencement of phase III clinical trials of
$3,000,000 and payment upon market approval of $8,000,000.


                                      44

<PAGE>

14. QUARTERLY RESULTS OF OPERATIONS

         The following is a summary of the quarterly results of operations for
the years ended December 31, 2000 and 1999.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                               MAR. 31      JUN. 30      SEPT. 30      DEC. 31
-------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>          <C>           <C>
2000
Revenues from contract services               $    170      $   262      $    620      $    487

Operating costs and expenses                     5,740        6,857         6,829         8,323
-------------------------------------------------------------------------------------------------------
Loss from operations                            (5,570)      (6,595)       (6,209)       (7,836)

Interest and other income, net                     414          521           910         1,044
-------------------------------------------------------------------------------------------------------
Net loss                                        (5,156)      (6,074)       (5,299)       (6,792)
-------------------------------------------------------------------------------------------------------
Basic and diluted net loss per common share   $ (0.22)      $(0.26)      $  (0.21)     $  (0.26)
-------------------------------------------------------------------------------------------------------


-------------------------------------------------------------------------------------------------------
1999
Revenues from contract services               $    --       $   --       $    135      $    265

Operating costs and expenses                    5,767        6,033          5,733         5,972
-------------------------------------------------------------------------------------------------------
Loss from operations                           (5,767)      (6,033)        (5,598)       (5,707)

Interest and other income, net                    636          507            466           498
-------------------------------------------------------------------------------------------------------
Net loss                                       (5,131)      (5,526)        (5,132)       (5,209)
-------------------------------------------------------------------------------------------------------
Basic and diluted net loss per common share   $ (0.23)      $(0.25)      $  (0.23)     $  (0.23)
-------------------------------------------------------------------------------------------------------
</TABLE>


                                      45

<PAGE>


                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


The Board of Directors and Stockholders
Matrix Pharmaceutical, Inc.


We have audited the accompanying consolidated balance sheets of Matrix
Pharmaceutical, Inc. as of December 31, 1999 and 2000, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with 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 Matrix
Pharmaceutical, Inc. at December 31, 1999 and 2000, and the consolidated results
of its operations and cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States.


                                                         /s/ ERNST & YOUNG LLP


Palo Alto, California
January 20, 2001


                                      46