<PAGE>   1
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                       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, 1998

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                FOR THE TRANSITION PERIOD FROM        TO

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

                         Commission file number 0-23012


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

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


             Delaware                               84-1173453
             --------                               ----------
     (State of incorporation)            (I.R.S. Employer Identification No.)

                              2860 Wilderness Place
                             Boulder, Colorado 80301
                    (Address of principal executive offices)

                  Registrant's telephone number: (303) 444-5893

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

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 [ ]

The number of shares of the registrant's Common Stock, par value $.01 per share,
outstanding as of July 31, 1998 was 28,535,189.


<PAGE>   2


                          NEXSTAR PHARMACEUTICALS, INC.
                               INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
                                                                                                                      PAGE
                                                                                                                      ----
<S>                                                                                                                     <C>
PART I.  FINANCIAL INFORMATION

Item 1.    Financial Statements

   Condensed Consolidated Balance Sheets -- June 30, 1998 and December 31, 1997..........................................3

   Condensed Consolidated Statements of Operations -- Three Months and Six Months Ended
       June 30, 1998 and 1997............................................................................................4

   Condensed Consolidated Statements of Cash Flows -- Six Months Ended June 30, 1998 and 1997............................5

   Notes to Condensed Consolidated Financial Statements..................................................................6

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


PART II. OTHER INFORMATION

Item 1.    Legal Proceedings............................................................................................13

Item 2.    Changes in Securities........................................................................................13

Item 4.    Submission of Matters to a Vote of Security Holders..........................................................13

Item 6.    Exhibits and Reports on Form 8-K.............................................................................14

SIGNATURES .............................................................................................................15
</TABLE>



                                       2
<PAGE>   3



PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

                          NEXSTAR PHARMACEUTICALS, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                 June 30,           December 31,
                                                                                  1998                 1997
                                                                              --------------      --------------
                                                                               (Unaudited)
<S>                                                                           <C>                 <C>           
ASSETS
Current assets:
   Cash and cash equivalents                                                  $   56,242,000      $   39,292,000
   Marketable securities                                                          10,101,000          24,997,000
   Accounts receivable                                                            42,179,000          34,623,000
   Inventories                                                                    12,678,000          14,606,000
   Prepaid expenses and other                                                      3,885,000           3,872,000
                                                                              --------------      --------------
Total current assets                                                             125,085,000         117,390,000

Property, plant and equipment, net of
   accumulated depreciation and amortization                                      47,152,000          44,778,000
Patent and trademark costs, net of accumulated amortization                        5,815,000           5,623,000
Other noncurrent assets                                                            3,779,000           2,752,000
                                                                              ==============      ==============
Total assets                                                                  $  181,831,000      $  170,543,000
                                                                              ==============      ==============

LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:
   Short-term borrowings                                                      $    5,760,000      $    5,034,000
   Accounts payable                                                                5,273,000           5,237,000
   Accrued compensation and employee benefits                                      3,978,000           4,338,000
   Accrued litigation settlement and related expenses due within one year          1,822,000           1,273,000
   Accrued interest payable                                                        2,083,000           2,083,000
   Other accrued expenses                                                          6,394,000           4,037,000
   Long-term obligations due within one year                                       4,864,000           5,445,000
                                                                              --------------      --------------
Total current liabilities                                                         30,174,000          27,447,000

Accrued litigation settlement expenses due after one year                          8,315,000           8,767,000
Long-term obligations due after one year                                          12,650,000           8,327,000
Convertible subordinated debentures                                               80,000,000          80,000,000

Commitments and contingencies

Stockholders' equity:
   Common stock                                                                      285,000             274,000
   Additional paid-in capital                                                    226,731,000         216,159,000
   Deferred compensation                                                            (104,000)           (151,000)
   Cumulative translation adjustment                                                (401,000)           (394,000)
   Accumulated deficit                                                          (175,819,000)       (169,886,000)
                                                                              --------------      --------------
Total stockholders' equity                                                        50,692,000          46,002,000
                                                                              --------------      --------------
Total liabilities and stockholders' equity                                    $  181,831,000      $  170,543,000
                                                                              ==============      ==============
</TABLE>



See notes to condensed consolidated financial statements.



                                       3

<PAGE>   4


                          NEXSTAR PHARMACEUTICALS, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)




<TABLE>
<CAPTION>
                                                      Three Months Ended                  Six Months Ended
                                                           June 30,                           June 30,
                                                ------------------------------      ------------------------------
                                                    1998               1997             1998               1997
                                                ------------      ------------      ------------      ------------
<S>                                             <C>               <C>               <C>               <C>         
Revenues:
   Product revenues                             $ 26,530,000      $ 22,088,000      $ 50,047,000      $ 42,096,000
   License fee                                            --                --         3,000,000                --
   Royalties                                       1,123,000                --         1,809,000                --
   Collaborative agreements and contracts            600,000           638,000         1,350,000         1,159,000
   Interest income                                   772,000           491,000         1,502,000           829,000
                                                ------------      ------------      ------------      ------------
Total revenues                                    29,025,000        23,217,000        57,708,000        44,084,000
                                                ------------      ------------      ------------      ------------

Expenses:
   Cost of goods sold                              5,321,000         5,520,000        10,161,000         9,976,000
   Research and development                       13,197,000        12,580,000        26,507,000        25,337,000
   Selling, general and administrative            12,132,000        12,281,000        23,288,000        25,108,000
   Interest expense                                1,695,000         1,004,000         3,390,000         1,528,000
                                                ------------      ------------      ------------      ------------
Total expenses                                    32,345,000        31,385,000        63,346,000        61,949,000
                                                ------------      ------------      ------------      ------------

Loss before provision for income taxes            (3,320,000)       (8,168,000)       (5,638,000)      (17,865,000)
Provision for income taxes                            32,000            95,000           295,000           119,000
                                                ------------      ------------      ------------      ------------

Net loss                                        $ (3,352,000)     $ (8,263,000)     $ (5,933,000)     $(17,984,000)
                                                ============      ============      ============      ============

Net loss per share                              $      (0.12)     $      (0.31)     $      (0.21)     $      (0.68)
                                                ============      ============      ============      ============

Shares used in computing net loss per share       27,923,000        26,447,000        27,696,000        26,436,000
                                                ============      ============      ============      ============
</TABLE>

See notes to condensed consolidated financial statements.


                                       4

<PAGE>   5


                          NEXSTAR PHARMACEUTICALS, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                         SIX MONTHS ENDED
                                                                                             JUNE 30,
                                                                                ------------------------------
                                                                                    1998              1997
                                                                                ------------      ------------
<S>                                                                             <C>               <C>          
OPERATING ACTIVITIES
Net loss                                                                        $ (5,933,000)     $(17,984,000)
Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization of property, plant and equipment               4,800,000         4,824,000
      Amortization of intangible assets                                              745,000           882,000
      Compensation expense related to grant of options and sales of stock,
         including amortization of deferred compensation                              47,000           137,000
      Other                                                                          (27,000)          (99,000)
      Changes in operating assets and liabilities:
         Accounts receivable                                                      (7,413,000)       (5,883,000)
         Inventories                                                               1,928,000           (14,000)
         Prepaid expenses and other                                                  (13,000)         (451,000)
         Other noncurrent assets                                                  (1,969,000)          (13,000)
         Accounts payable                                                            382,000        (5,699,000)
         Accrued compensation and employee benefits                                 (360,000)          (77,000)
         Other accrued expenses                                                    2,331,000           298,000
                                                                                ------------      ------------
Net cash used in operating activities                                             (5,482,000)      (24,079,000)

INVESTING ACTIVITIES
Maturities of marketable securities, net                                          14,896,000        10,486,000
Additions to property, plant and equipment                                        (5,593,000)       (3,385,000)
Proceeds from sale of investment in life science enterprise                               --         2,683,000
Additions to patent costs                                                           (545,000)         (729,000)
Deletions from (additions to) other noncurrent assets                                550,000          (318,000)
                                                                                ------------      ------------
Net cash provided by investing activities                                          9,308,000         8,737,000

FINANCING ACTIVITIES
Proceeds from short-term borrowings, net                                             726,000         1,765,000
Proceeds from sale-leaseback transactions                                                 --         1,997,000
Payments on capital lease obligations                                             (1,642,000)       (2,279,000)
Proceeds from issuance of long-term debt                                           4,324,000        16,404,000
Repayments on long-term debt                                                        (867,000)       (1,586,000)
Proceeds from sale of common stock, net of offering costs                         10,583,000           642,000
                                                                                ------------      ------------
Net cash provided by financing activities                                         13,124,000        16,943,000
                                                                                ------------      ------------

Net increase in cash and cash equivalents                                         16,950,000         1,601,000
Cash and cash equivalents at beginning of period                                  39,292,000        21,542,000
                                                                                ------------      ------------
Cash and cash equivalents at end of period                                      $ 56,242,000      $ 23,143,000
                                                                                ============      ============
</TABLE>



See notes to condensed consolidated financial statements.




                                       5



<PAGE>   6

                          NEXSTAR PHARMACEUTICALS, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998
                                   (UNAUDITED)

NOTE 1:   BASIS OF PRESENTATION

          The accompanying unaudited condensed consolidated financial statements
          have been prepared in accordance with generally accepted accounting
          principles for interim financial information and with the instructions
          to Form 10-Q and Article 10 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 of normal
          recurring accruals) considered necessary for a fair presentation have
          been included. Operating results for the three-month and six-month
          periods ended June 30, 1998 are not necessarily indicative of the
          results that may be expected for the year ending December 31, 1998.
          For further information, refer to the consolidated financial
          statements and footnotes thereto included in the Company's annual
          report on Form 10-K for the year ended December 31, 1997.

          Certain reclassifications have been made to prior year amounts to
          agree with the current year presentation.

NOTE 2:   INVENTORIES

          Inventories are summarized as follows:

<TABLE>
<CAPTION>
                                   June 30, 1998   December 31, 1997
                                   -------------   -----------------
<S>                                 <C>              <C>         
              Finished goods        $  4,759,000     $  3,512,000
              Work in process          5,275,000        8,161,000
              Raw materials            2,644,000        2,933,000
                                    ------------     ------------
              Total inventories     $ 12,678,000     $ 14,606,000
                                    ============     ============
</TABLE>

NOTE 3:   EARNINGS (LOSS) PER SHARE

          Effective December 31, 1997, the Company adopted Financial Accounting
          Standards Board ("FASB") Statement No. 128, "Earnings Per Share"
          ("Statement No. 128"), which replaced the calculation of primary and
          fully diluted earnings per share with basic and diluted earnings per
          share. Unlike primary earnings per share, basic earnings per share
          excludes any dilutive effects of options, warrants and convertible
          securities. Diluted earnings per share is very similar to the previous
          fully diluted earnings per share. Earnings per share amounts for all
          periods presented conform to Statement No. 128.

          The Company's basic and diluted net loss per share is computed using
          the weighted average number of shares of common stock outstanding.
          Common equivalent shares from stock options, warrants and convertible
          securities are excluded from the computation of diluted earnings per
          share as their effect is antidilutive. The impact of Statement No. 128
          on the calculation of net loss per share for the three and six months
          ended June 30, 1998 and 1997 was not material.

NOTE 4:   REPORTING CHANGES

          Effective January 1, 1998, the Company adopted FASB Statement No. 131,
          "Disclosures about Segments of an Enterprise and Related Information"
          ("Statement No. 131"). Statement No. 131 establishes standards for the
          way that public business enterprises report information about
          operating segments in annual financial statements and requires that
          those enterprises report selected information about operating segments
          in interim financial reports. It also establishes standards for
          related disclosures about products and services, geographic areas and
          major customers. The Company has reviewed its operations and does not
          believe that it has any operating segments which are currently
          reportable.


                                       6
<PAGE>   7

NOTE 5:   COMMITMENTS AND CONTINGENCIES AND SALE OF UNREGISTERED SECURITIES

          In May 1996, the Company's Spanish subsidiary entered into an
          agreement to borrow 500 million Spanish Pesetas with such borrowing
          being secured by the subsidiary's accounts receivable. In February
          1997, the agreement was amended to increase the amount that the
          subsidiary could borrow to 750 million Spanish Pesetas. On April 1,
          1998, the Company's Spanish subsidiary terminated the loan as to new
          borrowings and the balance of the loan is being reduced as accounts
          receivable securing the loan are paid off. On June 30, 1998, the
          outstanding balance of the loan was 270 million Spanish Pesetas ($1.8
          million on June 30, 1998).

          On May 27, 1998, the Company entered into a three-part collaboration
          with Glaxo Wellcome in which (a) Glaxo Wellcome received a
          non-exclusive right to practice the Company's proprietary SELEX
          process for target validation; (b) the Company received the exclusive
          rights to develop and commercialize a liposomal formulation of Glaxo
          Wellcome's proprietary topoisomerase I inhibitor (lurtotecan), a
          compound that has completed Phase II clinical trials for the treatment
          of various cancers; and (c) Glaxo Wellcome acquired 962,117 shares of
          the Company's common stock, $.01 par value (the "Shares"), for $10
          million. The Shares were sold in a private offering in reliance on
          Section 4(2) of the Securities Act of 1933, as amended, since Glaxo
          Wellcome is a sophisticated investor. In connection with the sale of
          the Shares, Glaxo Wellcome was granted certain registration rights.




                                       7
<PAGE>   8


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

OVERVIEW

         This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among other things, risks associated with the
following: reliance on a single product for a substantial portion of the
Company's revenues; general economic and business conditions, including
fluctuations in currency exchange rates; competition; technological advances;
ability to obtain rights to technology; ability to obtain and enforce patents;
ability to commercialize and manufacture products; results of clinical studies;
results of research and development activities; availability of qualified
personnel; changes in, or failure to comply with, governmental regulations;
ability to obtain adequate financing in the future; and other factors referenced
under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997. In particular, statements preceded by, followed by
or that include the words "expects", "anticipates" and "plans" are or may
constitute forward-looking statements. The Company's stockholders and potential
investors should consider carefully these risks and uncertainties in evaluating
NeXstar Pharmaceuticals' financial condition and results of operations.
AmBisome, DaunoXome, MiKasome and NeXstar Pharmaceuticals are registered
trademarks of the Company.

         NeXstar Pharmaceuticals is an integrated biopharmaceutical company
engaged in the discovery, development, manufacture and marketing of proprietary
pharmaceutical products to treat life-threatening and other serious oncological,
hematological and infectious diseases.

         The Company markets AmBisome, a liposomal formulation of amphotericin
B, for the treatment of life-threatening fungal infections and DaunoXome, a
liposomal formulation of the anticancer agent daunorubicin, which is used as a
first line therapy for the treatment of HIV-associated Kaposi's sarcoma. The
Company currently relies on sales of AmBisome in Europe for a substantial
majority of its product revenues and expects sales of AmBisome in Europe to
account for a majority of its revenues during the remainder of 1998. In the
second quarter of 1998, AmBisome received French approval and is now approved in
every European Union country.

         The Company is conducting Phase II clinical trials for MiKasome, the
Company's liposomal formulation of amikacin, a potent aminoglycoside antibiotic.
These trials are assessing the effect of MiKasome in patients with (a) chronic
urinary tract infections, (b) infections related to stable Pseudomonas-colonized
cystic fibrosis and (c) nosocomial (hospital-acquired) pneumonia. Pending
results of these trials, the Company anticipates beginning its first Phase III
trial for MiKasome in 1999. The Company also plans to initiate Phase I clinical
trials for NX 211, its liposomal topoisomerase inhibitor, for oncological
indications in the first half of 1999. The timing of the clinical trials for
MiKasome and NX 211 may be affected by many factors including, among others,
unanticipated delays; unexpected preclinical or clinical trial results, as
applicable; and difficulties in enrolling patients. There can be no assurance
that the Company will be able to meet the time schedule which it has established
for any of its products.

         Several of the Company's SELEX process-derived compounds (including
aptamer antagonists to vascular endothelial growth factor ("VEGF") and aptamers
which inhibit the activity of certain selectins) are in preclinical or early
preclinical development. In July 1998, the Company filed an Investigational New
Drug ("IND") application in the U.S. for its antagonist to VEGF for the
treatment of the most severe ("wet") form of age-related macular degeneration.

         In connection with a majority of its European sales, the Company prices
its products in the currencies of the countries into which they are sold (the
"Payment Currencies"), and revenues in the past have been and in the future
could be adversely affected by currency fluctuations. A significant majority of
the Company's manufacturing costs are in U.S. Dollars. Therefore, any decline in
the value of the Payment Currencies relative to the U.S. Dollar is likely to
negatively impact gross margins for the Company's products since the Company's
manufacturing costs would stay approximately the same while its revenue in terms
of U.S. Dollars would decline. Sales in Germany, the U.K., Italy and Spain
together accounted for 54% and 55%, 


                                       8

<PAGE>   9

respectively, of the Company's product revenues for the three months and six
months ended June 30, 1998. The Company prices its products in each of these
four countries in the local currency.

         NeXstar Pharmaceuticals hedges certain of its foreign currency
exposures, with respect to its outstanding trade accounts receivable and
accounts payable, through the use of forward contracts. NeXstar Pharmaceuticals
does not currently enter into speculative foreign currency transactions and does
not write speculative options. In the future, the Company may begin currency
hedging in connection with anticipated revenues and expenses and may use options
in addition to forward contracts. Such hedging will be done solely for the
purpose of protecting the Company from foreign currency fluctuations. The
Company recognizes a gain or loss for each forward contract equal to the
difference between the contract rate and the market rate on each balance sheet
date which is recorded as a selling, general and administrative expense. At
present, no deferred accounting is used in connection with the Company's hedging
activities. Notwithstanding its hedging activities (which have not always
included fully hedging against potential gains or losses), the Company has in
the past recognized foreign exchange gains and losses. There can be no assurance
that significant gains or losses will not be incurred in the future.

RESULTS OF OPERATIONS

Three months and six months ended June 30, 1998

         PRODUCT REVENUES. Product revenues increased 20% and 19% to $26.5
million and $50.0 million for the three months and six months ended June 30,
1998, respectively, from $22.1 million and $42.1 million for the corresponding
periods in 1997 primarily due to an increase in unit sales of AmBisome in
European markets. Gains from increased unit sales were offset by a reduction in
the average selling price (as calculated in U.S. Dollars) compared to the
corresponding periods of 1997, approximately half of which reduction was due to
the appreciation in the value of the U.S. Dollar compared to the European
currencies received in payment for the product. A significant majority of the
Company's product sales are in European currencies. Absent an increase in the
price of the Company's products throughout Europe or a general decline in the
value of the U.S. Dollar versus most leading European currencies, the continued
strength of the U.S. Dollar may significantly impact the Company's revenues as
denominated in U.S. Dollars. As a result of the U.S. approval of AmBisome in the
third quarter of 1997, the Company anticipates that a greater percentage of
sales during future periods will occur outside of Europe.

         LICENSE FEE. In the first quarter of 1998, the Company recorded a $3
million milestone payment from Sumitomo Pharmaceuticals Co., Ltd. related to
AmBisome rights in Japan.

         ROYALTIES. During the three months and six months ended June 30, 1998,
the Company received royalties of $1.1 million and $1.8 million, respectively,
in connection with the sale of AmBisome in the U.S. following the third quarter
1997 approval of AmBisome by the U.S. Food and Drug Administration. This amount
will increase if the amount of sales of AmBisome in the U.S. increases.

         COLLABORATIVE AGREEMENTS AND CONTRACTS. Collaborative agreement and
contract revenues were $600,000 and $1.4 million for the three months and six
months ended June 30, 1998, respectively, compared to $638,000 and $1.2 million
for the corresponding periods of 1997. Collaborative agreement and contract
revenue fluctuations are generally the result of changes in the number of funded
research projects as well as the timing and performance of contract benchmarks.

         INTEREST INCOME. Interest income increased to $772,000 and $1.5 million
for the three months and six months ended June 30, 1998, respectively, compared
to $491,000 and $829,000 for the corresponding periods of 1997. Interest income
generally fluctuates as a result of the average amount of cash available for
investment and prevailing interest rates.

         COST OF GOODS SOLD. Cost of goods sold was $5.3 million and $10.2
million, or 20% of product revenues, for the three months and six months ended
June 30, 1998, respectively, compared to $5.5 million and $10.0 million, or 25%
and 24% of product revenues, for the corresponding periods of 1997. The decrease
in cost of goods sold as a percentage of product revenue was primarily due to a
reduction in the average manufacturing cost of the products sold by the Company.
The decrease was partially offset by a reduction in the average revenue per vial
of product sold due in part to increased sales of AmBisome to Fujisawa
Healthcare, Inc. ("Fujisawa") at cost in connection with the October 1, 1997
sales launch of AmBisome 


                                       9
<PAGE>   10

in the U.S. Pursuant to an agreement between the two firms, the Company and
Fujisawa co-promote AmBisome in the United States and the Company sells AmBisome
to Fujisawa at cost for sale in the U.S. In addition, the Company receives 20%
of the gross profits from all U.S. sales. If the Company's sales of AmBisome to
Fujisawa increase as a percentage of total AmBisome sales, the cost of goods
sold as a percentage of revenues is expected to increase. Cost of goods sold
consists primarily of raw materials, allocations of overhead, labor and
equipment costs and charges associated with services provided by outside
vendors.

         RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 5% and 5% to $13.2 million and $26.5 million for the three months and
six months ended June 30, 1998, respectively, compared to $12.6 million and
$25.3 million for the corresponding periods of 1997. The increase in research
and development expenses is attributable in part to increased costs related to
toxicity studies and clinical studies for MiKasome. For the three months and six
months ended June 30, 1998, $669,000 and $1.3 million, respectively, of research
and development expenses were sponsored by third parties compared to $584,000
and $1.1 million for the corresponding periods in 1997. Research and development
expenses consist primarily of salaries and benefits for scientific, regulatory,
quality control and pilot manufacturing personnel, consultants, supplies,
occupancy costs and depreciation of laboratory equipment and facilities.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased 2% and 7% to $12.1 million and $23.3 million
for the three months and six months ended June 30, 1998, respectively, compared
to $12.3 million and $25.1 million for the corresponding periods of 1997. The
decrease was primarily related to (a) a decrease in litigation expenses due to
the settlement in August 1997 of patent litigation between the Company and The
Liposome Company, Inc. ("TLC") related to whether AmBisome infringed TLC's
patents because of the manner in which it is freeze dried and (b) a credit
recorded in connection with the settlement of a fully reserved outstanding loan
due to the Company from a biotechnology firm. During the three months and six
months ended June 30, 1997, patent litigation expenses were $1.5 million and
$3.7 million, respectively. The decrease in selling, general and administrative
expenses was partially offset by accounting charges recorded in connection with
the settlement with TLC. In the settlement agreement between TLC and the Company
(the "Settlement Agreement"), the Company is required to make payments which
began in 1998 based on AmBisome sales over the next several years. Because the
payments are subject to certain minimum and maximum payments, the Company
recorded accounting charges in 1997 of $10.0 million, which represented the net
present value of all future minimum payments it is required to make. Beginning
in 1998, the Company is recording an amortization expense each quarter related
to the difference between all future minimum payments and the expense recorded
in 1997. In addition, beginning in 1998, the Company is expensing the difference
between the minimum and maximum payments, if any. The Company does not expect
the difference between its future minimum and maximum payments to TLC to be
material. The decrease during the first half of 1998 was also partially offset
by an expansion in the Company's French sales force in anticipation of the third
quarter 1998 launch of AmBisome. The Company recognized foreign exchange losses
of $7,000 and $61,000 for the three months and six months ended June 30, 1998,
respectively, compared to losses of $51,000 and $89,000 for the corresponding
periods in 1997.

         INTEREST EXPENSE. Interest expense increased to $1.7 million and $3.4
million for the three months and six months ended June 30, 1998, respectively,
from $1.0 million and $1.5 million for the corresponding periods of 1997. The
increase was primarily due to interest payable under the $80 million of 6 1/4%
Convertible Subordinated Debentures due 2004, on which interest was payable from
July 31, 1997 and additional borrowings in connection with several equipment
lease and financing arrangements.

         NET LOSS. The Company reported a net loss of $3.4 million and $5.9
million, or $0.12 and $0.21 per share, for the three months and six months ended
June 30, 1998, respectively, compared to a net loss of $8.3 million and $18.0
million, or $0.31 and $0.68 per share, for the corresponding periods of 1997.




                                       10
<PAGE>   11


LIQUIDITY AND CAPITAL RESOURCES

         The Company's cash and cash equivalents and marketable securities
position at June 30, 1998 was $66.3 million compared to $64.3 million on
December 31, 1997. The $2.1 million increase in cash and cash equivalents and
marketable securities position was primarily the result of the following:

<TABLE>
<S>                                                        <C>          
         Net cash used in operating activities                $    (5,482,000)
         Additions to property, plant and equipment                (5,593,000)
         Proceeds from short-term borrowings, net                     726,000
         Payments on capital lease obligations                     (1,642,000)
         Proceeds from issuance of long-term debt                   4,324,000
         Repayments on long-term debt                                (867,000)
         Proceeds from sale of common stock, net                   10,583,000
         Other                                                          5,000
                                                              ---------------
                                                              $     2,054,000
                                                              ===============
</TABLE>

          The Company invests its cash and cash equivalents and marketable
securities in interest-bearing investment grade securities.

          The Company's accounts receivable balance at June 30, 1998 was $42.2
million as compared to $34.6 million on December 31, 1997. The increase in
accounts receivable as of June 30, 1998 compared to December 31, 1997 relates
primarily to the increased amount and timing of product sales. Payment practices
vary significantly between countries and increased sales in countries in which
payments tend to be slower, often as a result of the pace at which governmental
entities reimburse the Company's customers, have in the past increased and in
the future may increase the average length that accounts receivable are
outstanding and may increase the financial risk of certain of the Company's
customers. In certain countries, in particular Greece, Italy and Spain, in which
payments have been slow, the amount of accounts receivable owed to the Company
is significant. The Company continually seeks improvement in its collection
process to maximize its cash flow from product sales in a timely manner.

         As of June 30, 1998, the Company's inventory value was $12.7 million
compared to $14.6 million as of December 31, 1997.

         For the six months ended June 30, 1998, the Company had $4.3 million in
proceeds from facilities improvement and capital equipment financing
transactions. As of June 30, 1998, $1.1 million was available under agreements
relating to the financing of manufacturing equipment, general laboratory and
scientific equipment, office equipment, furniture and fixtures and facilities
improvements.

         In September 1997, the Company entered into a $10 million unsecured
line of credit (the "Credit Agreement") with a financial institution. As of June
30, 1998, the Company had borrowings of $4.0 million under the Credit Agreement
with an average interest rate of 8.25%. The Credit Agreement, which includes a
foreign exchange facility, terminates on September 1, 1998. Under the terms of
the Credit Agreement, the Company is required to maintain certain financial
ratios and there are limitations on the Company's ability to incur additional
debt or to engage in certain significant transactions. The Company is currently
discussing an extension to the Credit Agreement.

         In May 1996, the Company's Spanish subsidiary entered into an agreement
to borrow 500 million Spanish Pesetas with such borrowing being secured by the
subsidiary's accounts receivable. In February 1997, the agreement was amended to
increase the amount that the subsidiary could borrow to 750 million Spanish
Pesetas. On April 1, 1998, the Company's Spanish subsidiary terminated the loan
as to new borrowings and the balance of the loan is being reduced as accounts
receivable securing the loan are paid off. On June 30, 1998, the outstanding
balance of the loan was 270 million Spanish Pesetas ($1.8 million on June 30,
1998).

         The Company believes that in the future it may be advisable to augment
its cash in order to fund all of its activities, including potential product
acquisitions. Therefore, the Company will consider raising cash whenever market
conditions are favorable. Such capital may be raised through additional public
or private financing, as well as collaborative relationships,



                                       11

<PAGE>   12

borrowings and other available sources. In addition, in the course of its
business, the Company evaluates products and technologies held by third parties
which, if acquired, could result in the development of product candidates by the
Company or which complement technologies currently being developed by the
Company. The Company expects from time to time to be involved in discussions
with other entities concerning the Company's potential acquisition of rights to
additional pharmaceutical products. In the event that the Company acquires such
products or third-party technologies, the Company may find it necessary or
advisable to obtain additional funding.

         The Company's future capital requirements will be substantial and will
depend on, and could increase as a result of, many factors, including progress
of the Company's research, drug discovery and development programs; whether the
Company acquires interests in products currently held by third parties; the
results and costs of preclinical and clinical testing of the Company's products,
if developed; the time and costs involved in obtaining regulatory approvals; the
costs involved in filing, prosecuting and enforcing patent claims; competing
technological and market developments; the Company's success in entering into
collaborative agreements; changes in collaborative research relationships; the
costs associated with potential commercialization of its products, if any,
including the development of additional manufacturing, marketing and sales
capabilities; the cost and availability of third-party financing for capital
expenditures; and administrative and legal expenses. In particular, the Company
expects to have significant cash requirements in the near future as a result of,
but not limited to, increased clinical studies, which are required in order to
obtain approvals and expand the indications and markets for the Company's
products. There can be no assurance that additional or sufficient financing will
be available, or, if available, that it will be available on acceptable terms.
If additional funds are raised by issuing equity securities of the Company,
dilution to then existing stockholders may result. If adequate funds are not
available, the Company may be required to significantly curtail one or more of
its research and development programs or commercialization efforts or obtain
funds through arrangements with collaborative partners or others on less
favorable terms than might otherwise be available.

         It is the Company's belief that the costs to the Company as a result of
the computer programming issue involving the year 2000 will not be material, but
no assurance can be given that there will not be some unforeseen issue, in
particular, in connection with third parties' computer systems, that may
materially affect the Company's operations.




                                       12
<PAGE>   13


PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

                  The Company believes that there will continue to be
         significant litigation in the pharmaceutical industry regarding patents
         and other intellectual property rights, but cannot predict the
         likelihood of it being involved in any disputes. Any new litigation
         could consume a substantial portion of the Company's resources
         regardless of the outcome of such litigation.

                  Both the Company and certain of its competitors have filed
         oppositions against each other as to patents granted by the European
         Patent Office and patents granted by the Japanese Patent Office. The
         Liposome Company, Inc. ("TLC") and the University of California each
         has patents or patent applications relating to active drug loading
         techniques that the owners could claim are used in the manufacture of
         products such as DaunoXome. The Company has opposed the grant of a
         European and a Japanese patent owned by TLC and is involved in an
         interference proceeding with a U.S. patent application owned by the
         University of California relating to such loading technology.

ITEM 2.    CHANGES IN SECURITIES

                  See Note 5 to the Financial Statements.

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

                  The following matters were submitted to the stockholders for
         approval at the Company's Annual Meeting of Stockholders held on May
         27, 1998. The total number of shares present, in person or by proxy,
         and entitled to vote at the annual meeting was 22,814,246. For each
         proposal, the number of shares voting for and against and the number of
         shares abstaining, if any, are set forth below:

1.       The election of seven directors to serve until the next annual meeting
         and until their successors have been elected and qualified. The
         following persons were elected as directors of the Company and received
         the number of votes set forth below:

<TABLE>
<CAPTION>
         Directors                                For              Against
         ---------                                ---              -------
<S>                                           <C>                  <C>    
         Lawrence M. Gold, Ph.D.              22,381,286           432,960
         John D. Baldeschwieler, Ph.D.        22,444,201           370,045
         Judith A. Hemberger, Ph.D.           22,441,898           372,348
         David I. Hirsh, Ph.D.                22,442,440           371,806
         Roger G. Kennedy                     22,406,610           407,636
         Patrick J. Mahaffy                   22,374,285           439,961
         Rodman W. Moorhead, III              22,442,713           371,533
</TABLE>

2.       Ratification of the appointment of Ernst & Young LLP as Independent
         Auditors of the Company for the fiscal year ending December 31, 1998:

<TABLE>
<S>                                           <C>       
         For:                                 22,626,240
         Against:                                161,767
         Abstain:                                 26,239
</TABLE>




                                       13
<PAGE>   14


ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

         (a)      EXHIBITS

         10.1     Amendment, dated April 30, 1998, between Sumitomo
                  Pharmaceuticals Co., Ltd. ("Sumitomo") and the Registrant to
                  the License and Distribution Agreement, dated September 26,
                  1996, between Sumitomo and the Registrant.

         11.1     Statement Re: Computation of Net Loss Per Share.

         27.1     Financial Data Schedule.

         (b)      REPORTS ON FORM 8-K

                  On May 29, 1998, the Company filed a report on Form 8-K with
                  regard to the entering into of agreements with Glaxo Wellcome
                  pursuant to which the Company licensed certain technology
                  rights to Glaxo Wellcome, Glaxo Wellcome licensed drug rights
                  to the Company and the Company sold $10 million of its common
                  stock to Glaxo Wellcome.




                                       14
<PAGE>   15


                                   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.


                                NEXSTAR PHARMACEUTICALS, INC.



Dated: August 13, 1998          By:  /S/PATRICK J. MAHAFFY
                                   ---------------------------------
                                   Patrick J. Mahaffy
                                   President and Chief
                                   Executive Officer


Dated: August 13, 1998          By:   /S/MICHAEL E. HART
                                   ---------------------------------
                                   Michael E. Hart
                                   Vice President and Chief Financial Officer
                                   (Principal Financial Officer and
                                   Principal Accounting Officer)




                                       15



<PAGE>   16

                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                   DESCRIPTION
------                   -----------
<S>        <C>
  10.1     Amendment, dated April 30, 1998, between Sumitomo
           Pharmaceuticals Co., Ltd. ("Sumitomo") and the Registrant to
           the License and Distribution Agreement, dated September 26,
           1996, between Sumitomo and the Registrant.

  11.1     Statement Re: Computation of Net Loss Per Share.

  27.1     Financial Data Schedule.
</TABLE>