UNITED STATES
                 SECURITIES AND EXCHANGE COMMISSION

                       Washington, D.C. 20549


                              FORM 10-Q


(X)    QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE
       SECURITIES  EXCHANGE  ACT OF  1934  FOR THE  QUARTERLY  PERIOD
       ENDED JUNE 30, 1997

                                 OR

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


       Commission File Number: 0-21022


                    SHAMAN PHARMACEUTICALS, INC.
       (Exact name of registrant as specified in its charter)


                     Delaware                                      94-3095806
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
                                                          Identification Number)

213 East Grand Avenue, South San Francisco, California         94080
      (Address of principal executive offices)              (ZIP Code)


Registrant's telephone number, including area code:         415-952-7070



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

Number of shares of Common  Stock,  $.001 par value,  outstanding  as
of July 31, 1997:  17,538,952


                                      -1-

<PAGE>



                      SHAMAN PHARMACEUTICALS, INC.

                          INDEX FOR FORM 10-Q

                             June 30, 1997
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                            PAGE
                                                                          NUMBER

PART I                FINANCIAL INFORMATION

Item 1.               Financial Statements

                      Condensed  Balance Sheets as of June 30, 1997            3
                      and December 31, 1996
                      

                      Condensed Statements of Operations for the               4
                      three and six months ended June 30, 1997 and
                      June 30, 1996

                      Condensed Statements of Cash Flows for the               5
                      six months ended June 30, 1997 and June 30,
                      1996

                      Notes to Condensed Financial Statements                  6

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


PART II               OTHER INFORMATION

Item 1.               Legal Proceedings                                       15

Item 2.               Changes in Securities                                   15

Item 3.               Defaults in Senior Securities                           15

Item 4.               Submission  of Matters to a Vote of  Security           15
                      Holders

Item 5.               Other Information                                       16

Item 6.               Exhibits and Reports on Form 8-K                        17


SIGNATURES                                                                    19

                                      
</TABLE>

                                      -2-

<PAGE>


PART I.  FINANCIAL INFORMATION.

      Item 1.  Financial Statements
<TABLE>
<CAPTION>

                      SHAMAN PHARMACEUTICALS, INC.
                        CONDENSED BALANCE SHEETS

<S>                                                    <C>                  <C>
                                                  June 30,         December 31,
                                                    1997              1996                       
                                                 ----------       ------------
                                                 (Unaudited)
    ASSETS

Current assets:
   Cash and cash equivalents                      $ 19,114,053    $  16,051,251

   Short-term investments                            4,541,359          481,677
   Prepaid expenses and other current assets           530,570          938,872
                                                    ----------       ----------

Total current assets                                24,185,982       17,471,800

Property and equipment, net                          4,416,729        4,776,925

Other assets                                           128,080          128,080
                                                   -----------      -----------

Total assets                                      $ 28,730,791     $ 22,376,805               
                                                 =============    =============
                                              

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable and other                      $ 1,567,941      $ 1,445,616
    accrued expenses
   Accrued clinical trial costs                        461,383        1,233,014
   Accrued professional fees                           894,302          689,216
   Accrued compensation                                212,038          332,738
   Advances - contract research                      2,133,605        1,883,605
   Current installments of long-term                 2,453,652        2,246,795
    obligations
                                                   -----------      -----------

Total current liabilities                            7,722,921        7,830,984

Long-term obligations, excluding                     5,261,726        2,568,931
current installments

Stockholders' equity:
   Preferred stock                                         400              400
   Common stock                                         17,531           13,921
   Additional paid-in capital                      110,988,052       94,604,455
   Deferred compensation and other                    (400,023)         (20,250)
    adjustments
   Accumulated deficit                             (94,859,816)     (82,621,636)
                                                   -----------      -----------

Total stockholders' equity                          15,746,144       11,976,890
                                                   -----------      -----------

Total liabilities and stockholders'              $  28,730,791    $  22,376,805
equity
                                                    ==========       ==========
</TABLE>

   NOTE:  The balance  sheet at  December  31,  1996 has been  derived  from the
   audited  financial  statements  at that date but does not  include all of the
   information  and  footnotes   required  by  generally   accepted   accounting
   principles for complete financial statements.

   See notes to condensed financial statements.


                                      -3-

<PAGE>

<TABLE>
<CAPTION>

                      SHAMAN PHARMACEUTICALS, INC.
                   CONDENSED STATEMENTS OF OPERATIONS
                              (Unaudited)



                       Three Months Ended June 30,     Six Months Ended June 30,
                       --------------------------      ------------------------
                                          
                              1997         1996            1997         1996
                           ----------   ----------      ----------   ----------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Revenue from collaborative
  agreements                  $875,000    $500,000      $1,750,000   $1,000,001

Operating expenses:
Research and development     5,537,830   4,672,565      11,553,198    9,470,936

General and administrative   1,718,247     904,271       2,709,346    1,772,474
                            ----------  ----------      ----------   ----------

Total operating expenses     7,256,077   5,576,836      14,262,544   11,243,410
                             ---------   ---------      ----------   ----------

Loss from operations        (6,381,077) (5,076,835)    (12,512,544) (10,243,409)

Other income(expense):

    Interest income            303,628     269,654         554,740      587,758
    Interest expense          (178,989)   (163,743)       (280,383)    (326,008)
                             ---------- ----------      ----------   ----------

Net loss                   $(6,256,438)$(4,970,924)   $(12,238,187) $(9,981,659)
                           ============ ===========   ============ ============

Net loss per share         $     (0.36) $    (0.37)    $     (0.75) $     (0.75)
                           =========== ===========    ============  ===========

Shares used in calculation 
of net loss per share       17,263,000  13,378,000      16,359,000   13,356,000

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

</TABLE>



   See notes to condensed financial statements.


                                      -4-

<PAGE>

<TABLE>
<CAPTION>


                      SHAMAN PHARMACEUTICALS, INC.
                   CONDENSED STATEMENTS OF CASH FLOWS
            Increase (Decrease) in Cash and Cash Equivalents
                              (Unaudited)


                                                      Six Months Ended June 30,
                                                   ----------------------------

                                                       1997            1996
                                                   -----------     ------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Operating activities:

Net loss                                          $ (12,238,190)   $ (9,981,659)
                                            

Adjustments to reconcile net loss to net
   cash used in operating activities:

    Depreciation and amortization                     1,018,331       1,289,613

    Changes in operating assets and liabilities:

      Prepaid expenses, other current assets and
         other assets                                   408,302        (148,930)
        
      Accounts payable, accrued expenses and
        contract research advances                     (314,910)        646,632
                                                    -----------     -----------

Net cash used in operating activities                (11,126,467)    (8,194,344)
                                                    ------------   ------------


Investing activities:

  Purchases of short and long-term investments       (5,051,129)    (10,951,386)

  Maturities of available-for-sale investments          986,097      17,833,314

  Capital expenditures                                 (543,908)       (652,290)
                                                    -----------     -----------


Net cash provided (used in) by investing activities  (4,608,940)      6,229,638



Financing activities:

  Proceeds from issuance of common stock             15,898,557         312,438

  Proceeds from long-term obligations                 5,000,000         600,000

  Principal payments on long-term obligations        (2,100,348)       (691,696)
                                                    -----------     -----------
Net cash provided by (used in) financing activities  18,798,209         220,742



Net increase (decrease) in cash and cash equivalents  3,062,802      (1,743,964)


Cash and cash equivalents at beginning of period     16,051,251       9,210,123
                                                    -----------     -----------

Cash and cash equivalents at end of period         $ 19,114,053     $ 7,466,159
                                                   ============    ============


</TABLE>

See notes to condensed financial statements.


                                      -5-


<PAGE>


                          SHAMAN PHARMACEUTICALS, INC.

                    NOTES TO CONDENSED FINANCIAL STATEMENTS

                                 June 30, 1997
                                  (Unaudited)



1. Basis of Presentation
    
         Shaman Pharmaceuticals, Inc. ("Shaman" or the "Company") discovers and
develops  novel  pharmaceutical  products for major human  diseases by isolating
active  compounds  from  tropical  plants.  The Company has three  compounds  in
clinical  development:  Provir,  an oral  product  for the  treatment  of watery
diarrhea;  Virend,  a  topical  antiviral  for  the  treatment  of  herpes;  and
nikkomycin Z, an oral  antifungal for the treatment of endemic  mycoses.  Shaman
also has an active Type II diabetes  research  program which serves as the basis
for its collaborations with Lipha, Lyonnaise Industrielle Pharmaceutique s.a., a
wholly-owned subsidiary of Merck KGaA, Darmstadt,  Germany ("Lipha/Merck"),  and
with Ono Pharmaceutical Co., Ltd. ("Ono") of Osaka, Japan.

         The accompanying  unaudited  condensed  financial  statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and in accordance with the  instructions to Form 10-Q and
Rule  10-01 of  Regulation  S-X.  Accordingly,  they do not  include  all of the
information and footnotes required by generally accepted  accounting  principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal  recurring  adjustments)  considered  necessary for a
fair presentation have been included.  The results of operations for the interim
periods shown herein are not necessarily indicative of operating results for the
entire year.

         This unaudited  financial  data should be read in conjunction  with the
audited financial  statements and notes thereto included in the Company's Annual
Report on Form 10-K/A,  for the fiscal year ended December 31, 1996,  filed with
the Securities and Exchange Commission on March 13, 1997.

2.       Common Stock Equity Financing

         In April 1997,  the Company  sold  1,600,000  shares of Common Stock at
$4.97 per share in a registered  direct public offering,  marketed solely by the
Company,  which yielded gross proceeds of $7.95 million.  The offering price was
based on a 20-day volume weighted  average closing sale price of Shaman's Common
Stock. The net proceeds of approximately $7.75 million from the offering will be
used for the  continued  research  and  clinical  development  of the  Company's
existing product candidates.


                                      -6-

<PAGE>

3.   Secured Loan

     In May  1997,  the  Company  obtained  a $5.0  million  term loan to payoff
pre-existing  debt,  finance capital asset  acquisitions  and finance  continued
research and clinical  development of the Company's existing product candidates.
The loan is  payable  in  thirty-six  (36) equal  monthly  installments  and the
interest  rate is 14.58%.  The lender was granted  warrants to purchase  200,000
shares of the Company's  Common Stock at $6.25 per share,  which are exercisable
over a ten (10) year period.

4.       Loss per Share

         In February  1997,  the  Financial  Accounting  Standards  Board issued
Statement  No.  128,  Earnings  per Share,  which is  required  to be adopted on
December 31, 1997. Under the new  requirements for calculating  primary earnings
per share,  the dilutive  effect of stock options will be excluded.  The Company
does not anticipate any material impact on the calculated loss per share because
stock options and warrants are currently  excluded from the computation as their
effect is antidilutive.

5.       Subsequent Event

         Senior Convertible Notes


         In June 1997, the Company  entered into Note Purchase  Agreements  with
several  investors  pursuant  to which it will  issue  $10.0  million  of senior
convertible notes (the "1997 Private Placement").  After deducting approximately
$400,000  in  expenses  and fees  (plus  the  issuance  from  such  issuance  of
equivalent  notes to the placement  agent in the principal  amount of $400,000),
the net proceeds to the Company will be  approximately  $9.6 million.  The notes
will  mature  in July  2000,  and bear  interest  at a rate of 5.5%  per  annum.
Interest  on the notes may be paid in Common  Stock or cash at the option of the
Company.  Initially,  the notes are convertible into Common Stock of the Company
at 100% of the low  trading  price  during a  designated  time  period  prior to
conversion  provided that the  conversion  price will not be less than $5.50 per
share. Starting in November 1997, the notes are convertible into Common Stock of
the Company at a 10%  discount  from the low trading  price  during a designated
time period  prior to the  conversion.  On July 23,  1997,  the Company  filed a
registration  statement for the resale of shares issued upon conversion of these
notes.  The  private  placement  will  close  at such  time as the  registration
statement is declared  effective by the Securities and Exchange  Commission (the
"Commission").

         At the date of issuance of the Notes, an allocation of a portion of the
proceeds of the Notes equal to the  intrinsic  value of the  conversion  feature
that is "in the  money"  will be  reflected  as a  non-cash  charge to  interest
expense.  Such charge will be reflected in the third quarter ended September 30,
1997. The Company  believes this  accounting  treatment is consistent  with that
required by the Commission.


                                      -7-

<PAGE>



                          SHAMAN PHARMACEUTICALS, INC.

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

Overview

         Shaman  Pharmaceuticals,  Inc. ("Shaman" or the  "Company")  discovers 
and develops novel pharmaceutical products for major human diseases by isolating
active compounds from tropical plants.  The Company has three  compounds in 
clinical development:  Provir,  an oral  product for the  treatment  of watery  
diarrhea; Virend,  a topical  antiviral for the treatment of herpes;  and 
nikkomycin Z, an oral antifungal for the treatment of endemic mycoses.  Shaman 
also has an active Type  II  diabetes  research  program  which  serves  as  the
basis  for  its collaborations  with  Lipha,  Lyonnaise  Industrielle   
Pharmaceutique s.a., a wholly-owned subsidiary of Merck KGaA, Darmstadt, Germany
("Lipha/Merck"),  and with Ono Pharmaceutical Co., Ltd. ("Ono") of Osaka, Japan.

         The Company began  operations  in March 1990.  To date,  Shaman has not
sold any products and does not anticipate  receiving product revenue in the near
future.  The Company's  accumulated  deficit at June 30, 1997, was approximately
$94.9 million.  Shaman expects to continue to incur  substantial  and increasing
losses over the next several years,  due primarily to the expense of preclinical
studies,  clinical trials and its ongoing research program.  The Company expects
that losses will  fluctuate  from quarter to quarter and that such  fluctuations
could  be  substantial.  Shaman  has  financed  its  research,  development  and
administrative  activities  through  various  private  placements  of its equity
securities,  an initial  public  offering  of Common  Stock in January  1993,  a
follow-on  offering in December  1993, a registered  direct  public  offering in
January 1997, a registered  direct public offering in April 1997, a secured loan
in May 1997,  collaborative  agreements with pharmaceutical  companies and, to a
lesser extent, through equipment and leasehold improvement lease financings.

Results of Operations

Six Months Ended June 30, 1997 and June 30, 1996

         The Company  recorded  collaborative  revenues of $875,000 and $500,000
for the quarters ended June 30, 1997 and 1996, respectively,  and $1,750,000 and
$1,000,000  for the six  months  ended  June 30,  1997 and  1996,  respectively.
Revenues  for the quarter and six months ended June 30, 1997  resulted  from the
Company's  on-going research funding from Ono and research funding from Shaman's
collaboration  with  Lipha/Merck.  Revenues for the quarter and six months ended
June 30, 1996 resulted solely from the Company's  ongoing  research funding from
Ono. The Company  expects  that  revenues  from  collaborative  agreements  will
continue to  fluctuate  in the future as  development  of its various  compounds
proceeds and new products are partnered for development and commercialization.


                                      -8-

<PAGE>

         Research and  development  expenses were  $5,538,000 and $4,673,000 for
the quarters ended June 30, 1997 and 1996,  respectively,  and  $11,553,000  and
$9,471,000 for the six months ended June 30, 1997 and 1996,  respectively.  This
increase  reflects  additional  funding for the clinical  development of Provir,
partially  offset by a decrease in  expenditures  for the  Company's  Virend and
nikkomycin Z development programs.  Research and development expenses are likely
to increase in 1997 as products  continue  through  development  and the Company
maintains an active diabetes research program.

         General and  administrative  expenses were  $1,718,000 and $904,000 for
the quarters  ended June 30, 1997 and 1996,  respectively,  and  $2,709,000  and
$1,772,000 for the six months ended June 30, 1997 and 1996,  respectively.  This
increase is primarily  attributable  to  additional  legal  expenses  related to
certain disputes relating to the Company's  intellectual property rights as well
as increased  expenses  associated  with market  research for the Company's lead
product, Provir. The Company's general and administrative expenses are likely to
increase  in  1997  as a  result  of  continued  market  research  and  business
development  activities  as well as  increased  legal  expenses  related  to the
Company's intellectual property rights.

         Interest  income was $304,000 and $270,000 for the quarters  ended June
30, 1997 and 1996,  respectively,  and  $555,000 and $588,000 for the six months
ended June 30, 1997 and 1996,  respectively.  Interest income  increased for the
quarter  ended June 30, 1997,  compared to the  comparable  1996 period,  due to
higher average cash and investment  balances from the equity  financing in April
1997 and the secured loan in May 1997.  Interest  income  decreased  for the six
months  ended June 30, 1997,  compared  with the six months ended June 30, 1996,
due to lower  average cash  balances  during the 1997 period.  Interest  expense
increased for the quarter  ended June 30, 1997,  compared with the quarter ended
June 30, 1996, due to the Company's secured debt financing in May 1997. Interest
expense decreased for the six months ended June 30, 1997,  compared with the six
months ended June 30, 1996 due to lower average debt balances.


Liquidity and Capital Resources

         In June 1997, the Company  entered into Note Purchase  Agreements  with
several  investors  pursuant  to which it will  issue  $10.0  million  of senior
convertible notes (the "1997 Private Placement").  After deducting approximately
$400,000  in  expenses  and fees  (plus  the  issuance  from  such  issuance  of
equivalent  notes to the placement  agent in the principal  amount of $400,000),
the net proceeds to the Company will be  approximately  $9.6 million.  The notes
will  mature  in July  2000,  and bear  interest  at a rate of 5.5%  per  annum.
Interest  on the notes may be paid in Common  Stock or cash at the option of the
Company.  Initially,  the notes are convertible into Common Stock of the Company
at 100% of the low  trading  price  during a  designated  time  period  prior to
conversion  provided that the  conversion  price will not be less than $5.50 per
share. Starting in November 1997, the notes are convertible into Common Stock of
the Company at a 10%  discount  from the low trading  price  during a designated
time period  prior to the  conversion.  On July 23,  1997,  the Company  filed a
registration  statement for the resale of shares issued upon conversion of these
notes.  The  private  placement  will  close  at such  time as the  registration
statement is declared  effective by the Securities and Exchange  Commission (the
"Commission").

 
                                      -9-

<PAGE>

        In May  1997,  the  Company  obtained  a $5.0  million  term loan to 
payoff pre-existing  debt,  finance capital asset  acquisitions  and finance  
continued research and clinical  development of the Company's existing product 
candidates. The loan is payable in thirty-six (36) equal monthly installments  
and the interest  rate is 14.58%.  The lender was granted  warrants to purchase 
200,000 shares of the Company's Common Stock at $6.25 per share,  which are 
exercisable over a ten (10) year period.

         In April 1997,  the Company  sold  1,600,000  shares of Common Stock at
$4.97 per share in a registered  direct public offering,  marketed solely by the
Company,  which yielded gross proceeds of $7.95 million.  The offering price was
based on a 20-day volume weighted  average closing sale price of Shaman's Common
Stock. The net proceeds of  approximately  $7.75 million from this offering will
be used for the  continued  research and clinical  development  of the Company's
existing product candidates.

         In January 1997, the Company sold 2,000,000 shares of Common Stock in a
registered  direct public  offering for gross proceeds of $9.0 million.  The net
proceeds of approximately  $8.11 million from this offering will be used for the
continued  research and clinical  development of the Company's  existing product
candidates.

         As of  June  30,  1997,  the  Company's  cash,  cash  equivalents,  and
short-term  investments  totaled $23.7  million,  compared with $16.5 million at
December 31,  1996,  with an average  investment  maturity of three and one-half
months and three months, respectively. The Company invests excess cash according
to its investment policy that provides guidelines with regard to liquidity, type
of investment, credit rating and concentration limits.

         In September 1996, the Company  entered into a five-year  collaborative
agreement with Lipha/Merck to jointly develop Shaman's  antihyperglycemic drugs.
In exchange for development and marketing  rights in all countries except Japan,
South Korea,  and Taiwan (which are covered under an earlier  agreement  between
Shaman  and Ono),  Lipha/Merck  will  provide  up to $9.0  million  in  research
payments and up to $10.5 million in equity  investments  priced at a 20% premium
to a multi-day  volume weighted  average price of the Company's  Common Stock at
the time of purchase.  Complete  research  funding  under the  collaboration  is
dependent upon the initiation of human clinical  trials of at least one compound
by September 23, 1998. The agreement  also provides for  additional  preclinical
and clinical  milestone  payments to the Company in excess of $10.0  million per
compound  for  each   antihyperglycemic   drug  developed  and   commercialized.
Lipha/Merck   will  bear  all  preclinical,   clinical,   regulatory  and  other
development expenses associated with the compounds selected under the agreement.
In addition,  as products are  commercialized,  Shaman will receive royalties on
all product sales outside the United States and up to 50% of the profits (if the
Company exercises its co-promotion  rights) or royalties on all product sales in
the United States.  Certain  milestone  payments will be credited against future
royalty  payments,  if any, due to the Company from sales of products  developed
pursuant to the agreement.

         In July 1996, the Company closed a private placement (the "1996 Private
Placement")  pursuant  to  Regulation  S under the  Securities  Act of 1933,  as
amended,  in which it received  gross  proceeds of $3.3  million for the sale of


                                      -10-

<PAGE>

400,000 shares of Series A Convertible Preferred Stock and for the issuance of a
six-year  warrant to purchase 550,000 shares of the Company's Common Stock at an
exercise price of $10.184 per share.  In addition to the sale of Preferred Stock
and  warrant,  the  Company  has the right,  from time to time during the period
beginning January 1997 and ending July 2000, to sell up to 1,200,000  additional
shares of Common Stock to the  investor at a formula  price of 100% or 101% of a
multi-day  average of the  Company's  Common Stock price at the time of sale. If
the Company  exercises  this right,  the investor has the option to increase the
shares purchased by up to an aggregate of 527,500 shares.  Pursuant to the terms
of the 1997 Private  Placement,  the Company may not  exercise  this right until
late February 1998.

         The Company expects to incur  substantial  additional costs relating to
the  continued  preclinical  and clinical  testing of its  products,  regulatory
activities and research and development programs.  The Company believes that its
cash, cash equivalents and investment balances of approximately $23.7 million at
June 30, 1997,  the  collaborative  revenue  committed by  Lipha/Merck  and Ono,
Lipha/Merck's  commitment to purchase  additional  equity,  Shaman's  additional
rights to sell Common Stock under the 1996 Private Placement,  and proceeds from
the  1997  Private  Placement  (see  Note  5 to  Notes  to  Condensed  Financial
Statements  --  Subsequent  Event) will be adequate to fund current  operations,
including  payments due under  long-term  obligations,  through the end of 1998.
Milestone payments which may be received by the Company from Ono and Lipha/Merck
would extend the Company's  capacity to finance its operations beyond that time.
However,  there can be no assurances that these milestones will be achieved, nor
that additional funding, if needed, will be available on reasonable terms, or at
all.

Future Outlook

In  addition  to  historical  information,  this  report  contains  predictions,
estimates,  and other  forward-looking  statements within the meaning of Section
27A of the  Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended.  Actual results could differ  materially  from
any future performance  suggested in this report as a result of the risk factors
set forth below under the caption  "Risk  Factors" and  elsewhere in this report
and in the  Company's  Annual  Report on Form 10-K/A,  for the fiscal year ended
December 31, 1996,  filed with the Securities  and Exchange  Commission on March
13, 1997.


                                      -11-
<PAGE>


Risk Factors

         History of Operating  Losses;  Products  Still in  Development;  Future
Profitability  Uncertain.  Shaman's  potential  products  are  in  research  and
development.  In order to generate  revenues or profits,  the Company,  alone or
with others, must successfully develop, test, obtain regulatory approval for and
market its  potential  products.  No assurance  can be given that these  product
development efforts will be successful,  that required regulatory approvals will
be  obtained,  or that  the  products,  if  developed  and  introduced,  will be
successfully marketed or achieve market acceptance.

         Additional  Financing  Requirements  and  Uncertain  Access to  Capital
Markets. The Company has significant  long-term capital requirements and, in the
event Shaman receives regulatory approval for any of its products, it will incur
substantial   expenditures  to  develop   manufacturing,   sales  and  marketing
capabilities.  In addition, Note Purchase Agreements entered into by the Company
in  connection  with the 1997  Private  Placement,  provide  that under  certain
circumstances,  the Company  would be required to redeem all or some  portion of
the $10.4 million principal due thereunder, which redemption could significantly
accelerate the Company's cash expenditures and capital  requirements  beyond the
levels  currently  anticipated.  The Company will need to raise additional funds
through  additional equity or debt financings,  collaborative  arrangements with
corporate  partners or from other  sources.  No assurance  can be given that any
additional  funds will be available to the Company on  acceptable  terms,  if at
all. The Company may seek to raise funds through private or public  issuances of
equity  securities  at any time or times as it  deems  market  conditions  to be
favorable.

         No Assurance of FDA Approval for Marketing;  Government Regulation. The
Company's activities with respect to research, preclinical development, clinical
trials, manufacturing and marketing in the United States and other countries are
subject to extensive regulation by numerous governmental  authorities including,
but not limited  to, the Food and Drug  Administration  ("FDA").  The process of
obtaining FDA and other  required  regulatory  approvals is lengthy and requires
the expenditure of substantial resources. Success cannot be assured. In order to
obtain FDA approval,  the Company must perform  clinical tests to demonstrate to
the FDA's  satisfaction  that a product is safe and  effective  for its intended
uses.  The Company may encounter  problems in clinical  trials which could cause
the FDA or the Company to delay or suspend clinical trials. Further, the Company
must  demonstrate  that it is  capable  of  manufacturing  bulk  product  to the
relevant  standards.  There can be no assurance that any of the Company's future
studies will demonstrate their intended result, that the Company's products will
not have  undesirable  side effects  that may prevent or limit their  commercial
use, or that the FDA will otherwise approve any of the Company's products.

         Dependence on Sources of Supply.  The Company  currently imports all of
the plant  materials from which its products are derived from countries in South
and Latin  America,  Africa and Southeast  Asia. To the extent that its products
cannot be  economically  synthesized  or  otherwise  produced,  the Company will
continue  to be  dependent  upon a supply of raw plant  material.  While  Shaman
believes it has good  relationships  with the local governments and suppliers of
these plant materials, the Company does not have formal agreements in place with
all of its suppliers.


                                      -12-
 
<PAGE>

        Limited  Manufacturing  and  Marketing  Experience  and  Capacity.  The
Company currently  produces  products only in quantities  necessary for clinical
trials  and does not have the  staff  or  facilities  necessary  to  manufacture
products  in  commercial  quantities.  As a  result,  the  Company  must rely on
collaborative partners or third-party manufacturing facilities, which may not be
available on  commercially  acceptable  terms  adequate  for Shaman's  long-term
needs. The Company currently has no marketing or sales staff. To the extent that
the Company does not or is unable to enter into  co-promotion  agreements  or to
arrange for third party  distribution  of its products,  significant  additional
resources will be required to develop a marketing and sales force.

         Rapid   Technological   Change   and   Substantial   Competition.   The
pharmaceutical  industry  is  subject  to rapid  and  substantial  technological
change.  Technological competition from pharmaceutical companies,  biotechnology
companies and universities is intense. Many of these entities have significantly
greater research and development capabilities, as well as substantial marketing,
manufacturing,  financial and managerial  resources,  and represent  significant
competition  for the Company.  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.

         Uncertainty  Regarding  Patents and Proprietary  Rights.  The Company's
success  depends in part on its  ability  to obtain  patent  protection  for its
products and to preserve its trade  secrets.  No assurance can be given that the
Company's patent  applications  will be approved,  that any patents will provide
the Company with  competitive  advantages for its products or that they will not
be  successfully  challenged or circumvented  by the Company's  competitors.  In
addition,  patents do not necessarily prevent others from developing competitive
products.  The Company has not  conducted  an  exhaustive  patent  search and no
assurance  can be given that  patents  do not exist or could not be filed  which
would have an adverse effect on the Company's ability to market its products.

         Uncertainty of Health Care  Reimbursement and Reform.  Shaman's ability
to successfully  commercialize  its products may depend in part on the extent to
which reimbursement for the cost of such products and related treatments will be
available from  government  health  administration  authorities,  private health
insurers  and  other  organizations.  Significant  uncertainty  exists as to the
pricing, availability of distribution channels and reimbursement status of newly
approved healthcare products.

         Possible  Volatility of Stock Price.  The market price of the Company's
common stock,  like the stock prices of many publicly traded  biotechnology  and
smaller  pharmaceutical  companies,  has  been  and may  continue  to be  highly
volatile.


                                      -13-

<PAGE>

         Environmental   Regulation.   In  connection   with  its  research  and
development   activities  and  its  periodic  manufacturing  of  clinical  trial
materials,  the  Company is subject to  federal,  state and local  laws,  rules,
regulations and policies governing the use,  generation,  manufacture,  storage,
air emission, effluent discharge, handling and disposal of certain materials and
wastes.  Although the Company  believes that it has complied with these laws and
regulations  in all  material  respects  and has not been  required  to take any
action to correct any noncompliance,  there can be no assurance that the Company
will not be required to incur significant costs to comply with environmental and
health and safety regulations in the future.


                                      -14-

<PAGE>

<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


PART II    OTHER INFORMATION

Item 1.    Legal Proceedings

           None.

Item 2.    Changes in Securities

           None.

Item 3.    Defaults in Senior Securities

           None.

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

      (a)  The Annual Meeting of Stockholders of Shaman Pharmaceuticals, Inc.               
           was held on May 22, 1997.

      (b) The  following  Directors  were elected to serve as Class II directors
          for two years or until their successors are elected and qualified:

           Name                           Position
           G. Kirk Raab                   Chairman of the Board
           Herbert H. McDade, Jr.         Class II Director
           M. David Titus                 Class II Director

           The  following  Directors  continue  to serve their two year terms as
           elected at last year's Annual Meeting held on May 23, 1996:

           Name                           Position
           Lisa A. Conte                  Class I Director
           John Young                     Class I Director

      (c)  The  matters  voted  upon at the  meeting  and  voting of the
           stockholders with respect thereto are as follows:

           (i)  The  election of Class II directors to hold office for a
                term of two years from the Annual Meeting.

                G. Kirk Raab
                For:  13,933,942          Withheld:  688,298

                Herbert H. McDade, Jr.:
                For:  13,935,702          Withheld:  686,538

                M. David Titus:
                For:  13,943,345          Withheld:  678,895
     

                                      -15-


<PAGE>

           (ii) Approval of an Amendment  and  Restatement  of the  Company's
           Restated  Certificate  of  Incorporation  to  increase  the number of
           authorized  shares of Common Stock thereunder from 25,000,000  shares
           to 40,000,000 shares:

                For:  13,714,219          Against: 663,653
                Abstain: 93,003           Broker Non-Votes:  151,365

           (iii) Approval of a series of Amendments to the Company's 1992 Stock 
                 Option Plan (the "Plan") including:

                1) an increase  in the  maximum  number of shares of the
                   Company's common stock authorized for issuance under the Plan
                   by an additional 700,000 shares,

                2) an  increase  in the  maximum  number of  shares  for which
                   options  may be granted  to any one  individual from 500,000
                   shares to 750,000 shares, 

                For: 10,965,972           Against:  3,157,965
                Abstain: 498,303          

           (iv) Ratification of the appointment of Ernst & Young LLP as the 
                Company's independent auditors for the year ending December 31, 
                1997.

                For: 14,516,908           Against:  48,379
                Abstain:  56,953


Item 5.    Other Information

           None.



                                      -16-

<PAGE>


Item 6.   Exhibits and Reports on Form 8-K

(a)        Exhibits

           Exhibit No.    Description

            3.1 (1)       Restated Certificate of Incorporation, as filed 
                          with the Delaware Secretary of State on June 3, 1997.

           10.55 (1)      License Agreement, dated as of March 19, 1997, by and
                          between Access Pharmaceuticals, Inc. and the 
                          Registrant.

           10.56 (1) +    Amended and Restated License Agreement, dated as of 
                          April, 1997, by and between Access Pharmaceuticals, 
                          Inc. and the Registrant.

           10.57 (1)      Loan and Security Agreement, dated as of May 7, 1997, 
                          between Registrant and MMC/GATX Partnership No.  I.

           10.57A (1)     First Amendment to Loan and Security Agreement, dated 
                          as of June 30, 1997, by and between Registrant and
                          MMC/GATX Partnership No. I.

           10.58 (1)      Secured Promissory Note, dated May 16, 1997,issued  
                          in favor of MMC/GATX Partnership No. I.

           10.59 (1)      Warrant, issued May 7, 1997, in favor of MMC/GATX 
                          Partnership No. I.

           10.60 (1)      Amendment to Warrants, dated May 7, 1997, MMC/GATX 
                          Partnership No. I and Registrant.

           10.61 (1)      Engagement Agreement, dated April 17, 1997, by and
                          between Registrant and Diaz &  Altschul Capital, LLC.
          
           10.62 (1)      Amendment to Engagement Agreement, dated June 30,
                          1997, by and between Registrant and Diaz & Altschul
                          Capital, LLC.

           10.63 (1)      Form of Note Purchase Agreement, dated as of June 30,
                          1997, by and between Registrant and certain investors.

           10.64 (2)      Shaman Pharmaceuticals, Inc. 1992 Stock Option Plan
                          (as Amended and Restated on February 14, 1997).

           10.65 (2)      Form of Non-Employee Director Automatic Stock Option 
                          Agreement.

 
                                      -17-

<PAGE>


           27             Financial Data Schedule.

 (b)       Reports on Form 8-K.

           No reports on Form 8-K were filed during the quarter ended June 30,
           1997.


</TABLE>

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

+ Confidential  treatment pursuant to Rule 406 under the Securities Act of 1933,
  as amended, has been requested for certain portions of this agreement.

(1)  Incorporated  herein by reference  to exhibits  filed on July 23, 1997 with
     Registrant's Registration Statement on Form S-3, File No.
     333-31843.

(2)  Incorporated herein by reference to Exhibits 99.1 and 99.5, respectively,
     to Registrant's Registration Statement on Form S-8 No. 333-30365 filed with
     the Commission on June 30, 1997.


                                      -18-
<PAGE>




                               SIGNATURES



      Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

Dated:  August 14, 1997


                               Shaman Pharmaceuticals, Inc.
                                  (Registrant)


                                /s/ Lisa A. Conte
                               -----------------------------------
                                Lisa A. Conte
                                President, Chief Executive Officer and Chief
                                Financial Officer
                               (principal executive officer & principal 
                                financial and accounting officer )



                                      -19-