10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2003

OR

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

For the transition period from      to      

Commission file number: 0-19825

SCICLONE PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware	94-3116852
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer Identification no.)

901 Mariner’s Island Blvd., Suite 205, San Mateo, California	94404
(Address of principal executive offices)	(Zip code)

(650) 358-3456
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

     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 o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

     Yes x      No o

     As of June 30, 2003, 38,257,025 shares of the registrant’s Common Stock, no par value, were issued and outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	Item 1. Condensed Consolidated Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		Notes to Condensed Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 2. Changes in Securities and Use of Proceeds
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits and Reports on Form 8-K
		SIGNATURES
		INDEX TO EXHIBITS
Exhibit 10.1
Exhibit 10.2
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

SCICLONE PHARMACEUTICALS, INC.

INDEX

		PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002		3
	Condensed Consolidated Statements of Operations for the Three-month and Six-month periods ended June 30, 2003 and 2002		4
	Condensed Consolidated Statements of Cash Flows for the Six-month periods ended June 30, 2003 and 2002		5
	Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			11
Item 3. Quantitative and Qualitative Disclosures About Market Risk			27
Item 4. Controls and Procedures			27
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds			28
Item 4. Submission of Matters to a Vote of Security Holders			28
Item 6. Exhibits and Reports on Form 8-K			30
Signatures			32

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

SCICLONE PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

		June 30,			December 31,
		2003			2002
		(unaudited)			(Note 1)
ASSETS
Current assets:
	Cash and cash equivalents	$	25,363,000		$	20,233,000
	Restricted short-term investments		685,000			685,000
	Other short-term investments		324,000			232,000
	Accounts receivable, net of allowance of $638,000 in 2003 and 2002		11,923,000			9,276,000
	Inventories		2,936,000			3,431,000
	Prepaid expenses and other current assets		2,358,000			2,297,000
Total current assets			43,589,000			36,154,000
Property and equipment, net			90,000			111,000
Intangible assets, net			647,000			682,000
Other assets			148,000			164,000
Total assets		$	44,474,000		$	37,111,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable	$	4,213,000		$	3,150,000
	Accrued compensation and employee benefits		839,000			1,089,000
	Accrued clinical trials expense		739,000			966,000
	Accrued professional fees		546,000			679,000
	Deferred revenue		895,000			895,000
	Other accrued expenses		224,000			259,000
Total current liabilities			7,456,000			7,038,000
Deferred revenue			671,000			1,119,000
Convertible notes payable			5,600,000			5,600,000
Commitments and contingencies
Shareholders’ equity:
	Common stock, no par value; 75,000,000 shares authorized; 38,257,025 and 36,904,916 shares issued and outstanding at June 30, 2003 and December 31, 2002, respectively		161,334,000			156,290,000
	Accumulated other comprehensive income		167,000			79,000
	Accumulated deficit		(130,754,000	)		(133,015,000	)
Total shareholders’ equity			30,747,000			23,354,000
Total liabilities and shareholders’ equity		$	44,474,000		$	37,111,000

See notes to condensed consolidated financial statements

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SCICLONE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

			Three months ended						Six months ended
			June 30,						June 30,
			2003			2002			2003			2002
Product sales			$	16,207,000		$	4,048,000		$	21,207,000		$	7,996,000
Contract revenue				224,000			224,000			448,000			224,000
Total revenue				16,431,000			4,272,000			21,655,000			8,220,000
Cost of product sales				2,931,000			815,000			3,947,000			1,607,000
Gross margin				13,500,000			3,457,000			17,708,000			6,613,000
Operating expenses:
		Research and development		4,308,000			3,771,000			8,091,000			6,297,000
		Sales and marketing		3,025,000			2,066,000			5,254,000			4,074,000
		General and administrative		1,035,000			955,000			2,047,000			1,947,000
Total operating expenses				8,368,000			6,792,000			15,392,000			12,318,000
Income (loss) from operations				5,132,000			(3,335,000	)		2,316,000			(5,705,000	)
Interest and investment income				43,000			76,000			96,000			152,000
Interest and investment expense				(90,000	)		(90,000	)		(181,000	)		(180,000	)
Other income (expense), net				39,000			4,000			31,000			(15,000	)
Net income (loss)			$	5,124,000		$	(3,345,000	)	$	2,262,000		$	(5,748,000	)
Earnings per share:
	Basic net income (loss) per share		$	0.14		$	(0.10	)	$	0.06		$	(0.17	)
	Diluted net income (loss) per share		$	0.13		$	(0.10	)	$	0.06		$	(0.17	)
Weighted average shares used in computing:
		Basic net income (loss) per share		37,672,876			33,595,568			37,497,477			33,092,358
		Diluted net income (loss) per share		40,490,411			33,595,568			39,338,964			33,092,358

See notes to condensed consolidated financial statements

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SCICLONE PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

			Six months ended
			June 30,
			2003			2002
Operating activities:
Net income (loss)			$	2,262,000		$	(5,748,000	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
	Depreciation and amortization			90,000			292,000
	Changes in operating assets and liabilities:
		Accounts receivable		(2,647,000	)		(867,000	)
		Inventories		495,000			164,000
		Prepaid expenses and other current assets		(59,000	)		777,000
		Accounts payable and other accrued expenses		1,027,000			(151,000	)
		Accrued compensation and employee benefits		(250,000	)		(298,000	)
		Accrued clinical trials expense		(226,000	)		817,000
		Accrued professional fees		(132,000	)		(18,000	)
		Deferred revenue		(448,000	)		2,461,000
Net cash provided by (used in) operating activities				112,000			(2,571,000	)
Investing activities:
	Purchase of property and equipment			(20,000	)		(43,000	)
	Payment on purchase of marketable securities			(4,000	)		(7,000	)
Net cash used in investing activities				(24,000	)		(50,000	)
Financing activities:
	Proceeds from issuance of common stock, net of financing costs			5,042,000			10,524,000
Net cash provided by financing activities				5,042,000			10,524,000
Net increase in cash and cash equivalents				5,130,000			7,903,000
Cash and cash equivalents, beginning of period				20,233,000			15,518,000
Cash and cash equivalents, end of period			$	25,363,000		$	23,421,000

See notes to condensed consolidated financial statements

5

SCICLONE PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements
(unaudited)

1.	Basis of Presentation
	The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles consistent with those applied in, and should be read in conjunction with, the audited financial statements for the year ended December 31, 2002 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission. The interim financial information reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented and are not necessarily indicative of results for subsequent interim periods or for the full year. The condensed consolidated balance sheet data at December 31, 2002 is 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.
2.	Significant Accounting Policies
	Revenue Recognition
	The Company recognizes revenue from product sales at the time of shipment. There are no significant customer acceptance requirements or post shipment obligations on the part of the Company. Sales to importing agents or distributors are recognized at time of shipment when title to the product is transferred to them, and they do not have contractual rights of return except under limited terms regarding product quality. However, the Company will replace products that have expired or are deemed to be damaged or defective when delivered. Payments by the importing agents and distributors are not contingent upon sale to the end user by the importing agents or distributors.
	Contract revenue for research and development is recorded as earned based on the performance requirements of the contract. Nonrefundable contract fees for which no further performance obligations exist, and there is no continuing involvement by the Company, are recognized on the earlier of when the payments are received or when collection is assured.
	Revenue associated with substantive performance milestones is recognized based on the achievement of the milestones, as defined in the respective agreements and provided that (i) the milestone event is substantive and its achievement is not reasonably assured at the inception of the agreement, and (ii) there are no future performance obligations associated with the milestone payment.
	Net Income (Loss) Per Share
	Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) per share includes any dilutive impact from convertible debt, stock options and warrants outstanding using the treasury stock method.

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The following is a reconciliation of the numerator and denominator used in basic and diluted income (loss) per share computations for the three-month and six-month periods in 2003 and 2002, respectively:

			Three months ended					Six months ended
			June 30,					June 30,
			2003		2002			2003		2002
Numerator:
Net income (loss)			$	5,124,000	$	(3,345,000	)	$	2,262,000	$	(5,748,000	)
Effect of dilutive securities:
	Interest on convertible note			24,000		—			—		—
Net income (loss) used for diluted income (loss) per share			$	5,148,000	$	(3,345,000	)	$	2,262,000	$	(5,748,000	)
Denominator:
Weighted-average shares outstanding used for basic income (loss) per share				37,672,876		33,595,568			37,497,477		33,092,358
Effect of dilutive securities:
		Stock options		2,241,170		—			1,637,493		—
		Warrants		299,835		—			203,994		—
		Convertible note		276,530		—			—		—
Weighted-average shares and dilutive stock options used for diluted income (loss) per share				40,490,411		33,595,568			39,338,964		33,092,358

Accounting For Stock-Based Compensation

The Company accounts for its stock option and employee stock purchase plans under the provisions of Accounting Principles Board Opinion 25 (“APB 25”) and related Interpretations. Accordingly, the Company does not recognize compensation expense in accounting for its stock option and employee stock purchase plans for awards to employees and directors granted with exercise prices at fair market value.

Pro forma information regarding net income (loss) and net income (loss) per share is required by Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation” (“SFAS 123”) and has been determined as if the Company had accounted for its stock awards under the fair value method of that Statement. The fair value for the options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the three month and six month periods ended June 30, 2003 and the corresponding period in 2002: risk-free interest rates of 2.00%; dividend yield of 0%; volatility factors of the expected market price of the Company’s common stock of 0.95, respectively, and a weighted average expected life of the option of 4.00 years.

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

The following table illustrates the Company’s pro forma net income (loss) and net income (loss) per share, had compensation expense for the Company’s option and employee purchase plans been determined based on the fair value at the grant date consistent with the provisions of SFAS 123, as amended by SFAS 148:

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	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2003			2002			2003			2002
Net income (loss) — as reported	$	5,124,000		$	(3,345,000	)	$	2,262,000		$	(5,748,000	)
Total stock-based employee compensation expense determined under the fair value based method for all awards		(731,000	)		(591,000	)		(1,300,000	)		(1,116,000	)
Net income (loss) — pro forma	$	4,393,000		$	(3,936,000	)	$	962,000		$	(6,864,000	)
Basic net income (loss) per share — as reported	$	0.14		$	(0.10	)	$	0.06		$	(0.17	)
Diluted net income (loss) per share — as reported	$	0.13		$	(0.10	)	$	0.06		$	(0.17	)
Basic net income (loss) per share — pro forma	$	0.12		$	(0.12	)	$	0.03		$	(0.21	)
Diluted net income (loss) per share — pro forma	$	0.11		$	(0.12	)	$	0.03		$	(0.21	)

	The effects of applying SFAS 123 for pro forma disclosures are not likely to be representative of the effects on reported net income (loss) for future years due to the different number of options granted each year.
3.	Comprehensive Income (Loss)
	For the three-month periods ended June 30, 2003 and 2002, the Company’s total comprehensive income (loss) amounted to $5,233,000 and $(3,359,000), respectively. For the six-month periods ended June 30, 2003 and 2002, the Company’s total comprehensive income (loss) amounted to $2,350,000 and $(5,724,000), respectively.
4.	Available-For-Sale Securities
	The following is a summary of available-for-sale securities at June 30, 2003 and December 31, 2002:

				Gross		Estimated
		Amortized		Unrealized		Fair
		Cost		Gains		Value
June 30, 2003:
	Certificate of deposit	$	791,000	$	—	$	791,000
	U.S. government obligations		10,685,000		—		10,685,000
	Corporate equity securities		51,000		167,000		218,000
		$	11,527,000	$	167,000	$	11,694,000
December 31, 2002:
	Certificate of deposit	$	787,000	$	—	$	787,000
	U.S. government obligations		13,723,000		—		13,723,000
	Corporate equity securities		51,000		79,000		130,000
		$	14,561,000	$	79,000	$	14,640,000

As of June 30, 2003, the available-for-sale securities are included as follows: $10,685,000 in cash and cash equivalents; $685,000 in restricted short-term investments and $324,000 in other short-term investments. As of December 31, 2002, the available-for-sale securities are included as follows: $13,723,000 in cash and cash equivalents; $685,000 in restricted short-term investments and $232,000 in other short-term investments.

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5.	Inventories
	The following is a summary of inventories at June 30, 2003 and December 31, 2002:

	June 30,		December 31,
	2003		2002
Raw materials	$	1,662,000	$	2,190,000
Work in progress		197,000		159,000
Finished goods		1,077,000		1,082,000
	$	2,936,000	$	3,431,000

6.	Intangible Assets
	The following is a summary of intangible assets:

	June 30,			December 31,
	2003			2002
Product rights	$	2,456,000		$	2,456,000
Accumulated amortization		(1,809,000	)		(1,774,000	)
	$	647,000		$	682,000

	Acquired ZADAXIN product rights are being amortized on a straight-line basis beginning in September 1998. Amortization expense for the three-month and six-month periods ended June 30, 2003 was $17,500 and $35,000, respectively. Amortization expense for the three-month and six-month periods ended June 30, 2002 was $102,000 and $204,000, respectively. Amortization expense in 2002 was based on an estimated useful life of six years. For the years ending December 31, 2003 through 2012, annual amortization expense is expected to be $70,000. The Company reassessed the estimated useful life of the assets as of January 1, 2003 to be an additional eight years through 2012. Based upon the progress in the ZADAXIN clinical trials and the Company’s actual experience of product sales, the Company assessed that the acquired product rights will be useful to the Company through 2012 when the European patent for the use of ZADAXIN in the treatment of hepatitis C expires. The Company’s policy is to identify and record impairment losses, as circumstances dictate, on intangible product rights when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. The Company reassesses the useful life of these assets in accordance with current facts and circumstances.
7.	Minimum Purchase Requirements
	The Company does not have any minimum purchase requirements under its contract manufacturing supply agreements for ZADAXIN and CPX.
8.	Deferred Revenue
	In January 2002, the Company received $2,685,000 from its European partner, Sigma-Tau under the terms of its collaborative agreement announced in late December 2001. This receipt has been recorded as deferred revenue and is being recognized as contract revenue over the course of the ZADAXIN hepatitis C U.S. clinical program beginning in April 2002 and the period of sharing the

9

	clinical data from this program with Sigma-Tau, the substantive performance requirements under the contract. For the three-month and six-month periods ended June 30, 2003, the Company recognized $224,000 and $448,000 as contract revenue.
9.	Shareholders’ Equity
	In January 2003, the Company completed a $1,800,000 direct placement to affiliates of Sigma-Tau less $13,000 in financing-related costs. The affiliates purchased 504,938 shares of the Company’s common stock at $3.5648 per share. The shares issued were restricted securities, and Sigma-Tau and its affiliates are not permitted to sell any of the shares purchased in this private placement until January 24, 2004.
	During the quarter ended June 30, 2003, the Company received approximately $2,513,000 from the exercise of outstanding warrants to purchase 562,500 shares of common stock by institutional investors.
10.	Subsequent Event
	On July 28, 2003, the Company announced the reincorporation from the State of California to the State of Delaware had been completed. In connection with the reincorporation, the Company terminated its shareholder rights agreement.

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

Special Note Regarding Forward-Looking Statements

     This Report contains 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. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by us. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes” or similar expressions are intended to identify forward-looking statements including those statements we make regarding sales and demand for ZADAXIN, ZADAXIN’s potential, our future financial results, the timing and outcome of clinical trials, anticipated sales and cost of product sales, allocation of financial resources to certain trials and programs, research and development expense levels, sales and marketing expense levels, future commercialization and marketing efforts and general and administrative and other operating expense levels. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors including, but not limited to, those described under the caption “Risk Factors” in this Form 10-Q. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Overview

     SciClone Pharmaceuticals, Inc. is a biopharmaceutical company engaged in the development and commercialization of therapeutics to treat life-threatening diseases. We are currently evaluating our lead product, ZADAXIN, a thymosin alpha 1 compound in several late-stage clinical trials, including two phase 3 clinical trials in the United States for the treatment of patients with the hepatitis C virus, or HCV, who have failed previous HCV therapies. Nearly half of all HCV patients who undergo current therapy fail to respond. We believe the worldwide market for HCV therapies was approximately $2.5 billion in 2002 and will exceed $9 billion in 2012. If approved by the FDA, we expect ZADAXIN to complement existing HCV therapies and to expand the HCV market opportunity. In addition to the HCV trials, we are also evaluating ZADAXIN in a recently completed phase 3 hepatitis B virus, or HBV, clinical trial in Japan, an ongoing phase 2 malignant melanoma clinical trial in Europe and two ongoing phase 2 liver cancer trials in the United States. Our other drug development candidates include SCV-07, a potentially orally available therapeutic to treat viral and infectious diseases, and other products to treat cystic fibrosis.

     We recently completed a phase 3 clinical trial in Japan, using ZADAXIN as an HBV monotherapy. We believe the data reported from this trial show that ZADAXIN could be a safe and effective addition to therapies currently available in Japan for the treatment of hepatitis B. We intend to use these data as the basis for a regulatory filing in Japan for the treatment of chronic hepatitis B.

     In Europe, we are working with our exclusive marketing partner, Sigma-Tau, for the development and commercialization of ZADAXIN. We and Sigma-Tau intend to use data from our U.S. phase 3 HCV clinical trials, if they are positive, to pursue regulatory approval for ZADAXIN for this indication in Europe. In addition, Sigma-Tau is evaluating ZADAXIN in Europe in a phase 2 malignant melanoma clinical trial. We are also evaluating the use of ZADAXIN in other indications, including liver cancer.

     ZADAXIN has been approved for sale in China for the treatment of HBV and by the ministries of health in over 30 countries for various antiviral and oncological indications. We estimate that ZADAXIN

11

has been administered to over 10,000 patients to date in both clinical and commercial use, alone and in combination with antiviral and anticancer drugs, without producing any reported ZADAXIN-specific significant side effects or toxicities.

     We have maintained exclusive commercial and marketing rights to ZADAXIN for all indications in the United States. We have intellectual property protection for ZADAXIN as a therapy for HCV with patent protection until 2015 in the United States and until 2012 in Japan and the major commercial markets in Europe. ZADAXIN is patent protected in Japan as a therapy for the treatment of HBV until 2012.

     Our objective is to be a leader in the development and commercialization of novel drugs that can be effective primarily in the treatment of infectious diseases and cancer. We plan to pursue this objective by:

• Successfully commercializing ZADAXIN in the United States;

• Continuing to expand sales of ZADAXIN;

• Focusing our resources on developing late-stage products; and

• Selectively in-licensing or acquiring new products.

Results of Operations

     Total Revenue

     Product sales were $16,207,000 and $21,207,000 for the three-month and six-month periods ended June 30, 2003, as compared to $4,048,000 and $7,996,000 for the corresponding periods in 2002. The growth in the 2003 periods was largely a result of a previously unanticipated increase in sales of ZADAXIN to hospitals in China. This increase was related to the use of immune system enhancers in connection with the treatment of severe acute respiratory syndrome, or SARS. As the SARS epidemic has become more contained, we expect sales in the third quarter and in future quarters will be more consistent with sales patterns in prior quarters.

     For the three-month and six-month periods ended June 30, 2003, all of our product sales were derived from sales of ZADAXIN. Sales to customers in China accounted for approximately 90% and 89% of this revenue for the three-month and six-month periods, respectively.

     Contract revenue was $224,000 and $448,000 for the three-month and six-month periods ended June 30, 2003, as compared to $224,000 for each of the corresponding periods in 2002. The contract revenue we recognized was in connection with funds we received from Sigma-Tau in January 2002. This revenue will be recognized as contract revenue over the course of the ZADAXIN hepatitis C U.S. clinical program and the period of sharing the clinical data from this program with Sigma-Tau in accordance with the requirements under our contract with Sigma Tau.

     Cost of Product Sales

     Cost of product sales were $2,931,000 and $3,947,000 for the three-month and six-month periods ended June 30, 2003 as compared to $815,000 and $1,607,000 for the corresponding periods in 2002. The increase was primarily due to higher unit sales of product. We expect cost of product sales to vary from quarter to quarter, depending upon the level of ZADAXIN sales, the absorption of fixed product-related costs, and any charges associated with excess or expiring finished product inventory.

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     Research and Development

     Research and development expenses were $4,308,000 and $8,091,000 for the three-month and six-month periods ended June 30, 2003, as compared to $3,771,000 and $6,297,000 for the corresponding periods in 2002. The increase in the three-month and six-month periods ended June 30, 2003 was primarily to support our ZADAXIN phase 3 clinical trials in the U.S. and Japan. The initiation and continuation of ZADAXIN clinical trials have had, and will continue to have, the largest and most significant effect on our research and development expenses. In general, we expect product research and development expenses to increase in absolute dollars over the next several quarters and to vary from quarter to quarter.

     Sales and Marketing

     Sales and marketing expenses were $3,025,000 and $5,254,000 for the three-month and six-month periods ended June 30, 2003, as compared to $2,066,000 and $4,074,000 for the corresponding periods in 2002. The increase was primarily related to an increase in sales of ZADAXIN. We expect our sales and marketing expenses to vary from quarter to quarter and to increase in the next several years as we expect to expand our commercialization and marketing efforts.

     General and Administrative

     General and administrative expenses were $1,035,000 and $2,047,000 for the three-month and six-month periods ended June 30, 2003, as compared to $955,000 and $1,947,000 for the corresponding periods in 2002. In the near term, we expect general and administrative expenses to vary from quarter to quarter as we increase our general and administrative activities and resources to support increased expenditures on preclinical and clinical trials, testing, regulatory, pre-commercialization and marketing activities.

     Interest and Investment Income

     Interest and investment income was $43,000 and $96,000 for the three-month and six-month periods ended June 30, 2003, as compared to $76,000 and $152,000 for the corresponding periods in 2002. The decrease was primarily due to lower interest rates.

     Liquidity and Capital Resources

     At June 30, 2003 and December 31, 2002, the Company had $26,372,000 and $21,150,000, respectively, in cash, cash equivalents and short-term investments, $685,000 of which was restricted cash at each date. The short-term investments consist primarily of highly liquid marketable securities.

     Net cash provided by operating activities amounted to $112,000 for the six-month period ended June 30, 2003 as compared to net cash used in operating activities in the amount of $2,571,000 in the corresponding period in 2002. The change was primarily due to net income in the 2003 period compared to net loss in the 2002 period and increases in accounts payable partially offset by increases in accounts receivable during the six-month period ended June 30, 2003 and an increase of $2,461,000 in deferred revenue during the 2002 period.

     Net cash provided by financing activities amounted to $5,042,000 for the six-month period ended June 30, 2003 and consisted of $2,513,000 from the exercise of outstanding warrants to purchase common stock by institutional investors, gross proceeds of $1,800,000 from a direct placement to affiliates of Sigma-Tau in January 2003, less $13,000 in financing-related costs, $631,000 related to

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exercises of outstanding options under our employee stock option plans, and $111,000 from the issuance of common stock under our employee stock purchase plan.

     Our contractual obligations and other commitments as of June 30, 2003 were as follows:

	Payments Due by Period
Contractual			Less than 1
Obligations	Total		year		1-3 years		4-5 years		After 5 years
Convertible notes payable	$	5,600,000	$	—	$	5,600,000	$	—	$	—
Operating leases		5,551,000		650,000		4,028,000		873,000		—
Minimum annual royalty obligations		390,000		65,000		195,000		130,000		—
Total contractual obligations	$	11,541,000	$	715,000	$	9,823,000	$	1,003,000	$	—

			Amount of Commitment Expiration Per Period
Other Commercial	Total Amounts		Less than 1
Commitments	Committed		year		1-3 years		4-5 years		After 5 years
Letters of Credit	$	685,000	$	685,000		—		—		—

     None of our officers or directors was involved in any related party transactions with the Company in the three-month and six-month periods ended June 30, 2003 and 2002.

     Management intends to give priority use of the Company’s financial resources to ZADAXIN clinical programs in the United States. We also expect to use cash in coming quarters to increase inventory levels. This increase will allow us to carefully manage the changes in suppliers we are undertaking. Management believes our existing capital resources and interest on funds available are adequate to maintain our current and planned operations through at least the next twelve months. We will need to obtain additional capital to support our long-term product development. Assuming approval of ZADAXIN by the U.S. FDA and other regulatory authorities, we may also require additional capital for our commercialization programs. The need, timing and amount of additional funding will depend upon numerous factors, including the level of ZADAXIN sales, the timing and amount of manufacturing costs related to ZADAXIN, the availability of complementary products, technologies and businesses, the initiation and continuation of preclinical and clinical trials and testing, particularly ZADAXIN trials in the U.S. and Japan, the timing of regulatory approvals, developments in relationships with existing or future collaborative parties and the status of competitive products. In the event we need to raise additional financing, the unavailability or the inopportune timing of any financing could prevent or delay our long-term product development and commercialization programs, either of which would severely hurt our business.

Risk Factors

     You should carefully consider the risks described below, in addition to the other information in this report on Form 10-Q, before making an investment decision. Each of these risk factors could adversely affect our business, financial condition, and operating results as well as adversely affect the value of an investment in our common stock.

If we are unable to commercialize ZADAXIN in various markets for multiple indications, particularly in the United States for the treatment of HCV, our business will be harmed.

     Our ability to achieve and sustain operating profitability depends in large part on our ability to commence, execute and complete clinical programs and obtain additional regulatory approvals, for ZADAXIN and other drug candidates, particularly in the United States, Europe and Japan. We are also dependent on our ability to increase ZADAXIN sales in existing markets, and launch ZADAXIN in new markets. In particular, our ability to achieve and sustain profitability will depend in large part on our

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ability to commercialize ZADAXIN for the treatment of HCV in the United States. We cannot assure you that we will achieve significant levels of sales or that we will receive approval for ZADAXIN for the treatment of HCV in the United States or for the treatment of HCV or other indications in other countries. If we are unable to do so, our business will be harmed.

If we do not obtain regulatory approval for ZADAXIN for the intended indications that we are evaluating, our revenues will be limited and we will not become profitable.

     Our ability to execute on our business strategy requires that we obtain regulatory approval for the use of ZADAXIN, particularly for the treatment of HCV in the United States, both HBV and HCV in Japan and both HCV and malignant melanoma in Europe. If our current phase 3 trials in the United States and current and future trials in Europe yield favorable results, we intend to submit applications for marketing approval of ZADAXIN for the treatment of HCV in the United States and through our partner, Sigma-Tau, for the treatment of HCV and malignant melanoma in Europe. Based on the results of our recently completed phase 3 trial in Japan, we intend to submit a regulatory filing for the treatment of HBV in Japan. In addition, we also would intend to use our US phase 3 HCV clinical data as a major supportive element in seeking marketing approval of ZADAXIN for the treatment of HCV in Japan. The regulatory approval process in the United States, Europe and Japan is demanding and typically requires 12 months or more in the United States and 18 months or more in Europe and Japan from the date of submission of a New Drug Application. We have committed significant resources, including capital and time, to develop ZADAXIN, particularly for HCV in the United States, with the goal of obtaining such approvals. If we do not obtain these approvals, we will be unable to achieve any substantial increase in our revenue.

     All new drugs, including our products, which have been developed or are under development are subject to extensive and rigorous regulation by the FDA and comparable agencies in state and local jurisdictions and in foreign countries. These regulations govern, among other things, the development, testing, manufacturing, labeling, storage, pre-market approval, importation, advertising, promotion, sale and distribution of our products. These regulations may change from time to time and new regulations may be adopted.

     Obtaining regulatory approval in developing countries is also time-consuming and expensive. In some countries where we are contemplating marketing and selling ZADAXIN, the regulatory approval process often relies on prior approvals obtained in the United States, Europe or Japan. Without such prior approvals, our ability to obtain regulatory approvals for ZADAXIN in these countries may be delayed or prevented. In addition, to secure these regulatory approvals, we will need, among other things, to demonstrate favorable results from additional clinical trials of ZADAXIN. Even if we are able to complete the clinical trials we have sponsored or are planning in a timely or cost-effective manner, these trials may not fulfill the applicable regulatory approval criteria, in which case we will not be able to obtain regulatory approval in these countries. We cannot assure you that we will ultimately obtain regulatory approvals in our targeted countries in a timely and cost-effective manner or at all. If we fail to obtain the required regulatory approvals to develop, market and sell our products in countries where we currently do not have such rights, our revenues will be limited.

     Satisfaction of government regulations may take several years and the time needed to satisfy them varies substantially based on the type, complexity and novelty of the pharmaceutical product. As a result, government regulation may cause us to delay the introduction of, or prevent us from marketing, our existing or potential products for a considerable period of time and impose costly procedures upon our activities. Even if we obtain regulatory approval for our products, such approval may impose limitations on the indicated uses for which our products may be marketed. Unsatisfactory data resulting from clinical

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trials may also adversely affect our ability to market and sell ZADAXIN in markets where it is approved for sale.

We will only be able to promote our products for approved indications, which could adversely affect their use and, therefore, our profitability.

     In the United States and most other countries, we may only promote products for those specific indications for which we have received regulatory approval. The approved indications typically are those for which extensive clinical trials have been conducted. For example, while we believe that ZADAXIN might be useful as a first course of therapy for all HCV patients, we do not have any ongoing clinical trials to show this, and consequently we do not currently expect to be able to market ZADAXIN for this indication. If the FDA or comparable regulatory agencies believe that we are marketing our products for indications other than those for which they have been approved, we could face severe consequences, including fines and removal of the product from the market.

If the results of our clinical trials are not favorable, we will be unable to obtain regulatory approval for the intended indications we are evaluating.

     To obtain regulatory approvals, we must, among other requirements, complete carefully controlled and well-designed clinical trials demonstrating that a particular drug is safe and effective for the applicable disease. We cannot depend on data from prior trial results to predict or demonstrate that our drug products are safe and efficacious under regulatory guidelines to qualify for commercial sale. We cannot assure you, nor can you rely on our previous clinical trial results to predict, that our ongoing or future clinical trials will yield favorable results. Adverse or inconclusive clinical results would prevent us from filing for regulatory approval of ZADAXIN for the indications that we are evaluating, and our current programs in those areas would fail.

     We are currently conducting phase 3 clinical trials based on the use of ZADAXIN in combination with pegylated interferon alpha for the treatment of HCV patients who did not previously respond to treatment. We cannot assure you that these phase 3 clinical trials will yield sufficient or adequate data to demonstrate appropriate safety and efficacy under FDA guidelines. Any failure to obtain sufficient or adequate data could delay or prevent us from securing FDA approval. In the past, Alpha-1 Biomedical, from which we acquired certain rights to thymosin alpha 1, conducted a phase 3 clinical trial of thymosin alpha 1 as a therapy for HBV that did not produce statistically significant results.

     Our HCV clinical trials have been designed to show that the combination of ZADAXIN and pegylated interferon alpha adds a significant clinical benefit when compared to the use of pegylated interferon alpha alone in non-responders. We cannot assure you that the results of this combination therapy will yield the favorable results we expect, or that the independent use of pegylated interferon alpha will not perform better than anticipated, which could reduce the chances that a new drug application, or NDA, will be approved. If the combination therapy of ZADAXIN and pegylated interferon alpha causes significant adverse side effects beyond those caused by pegylated interferon alpha alone, our clinical trials could be delayed, patients may drop out at a greater than anticipated rate, we may be forced to halt the trials or the FDA may reject an NDA due to safety issues. If any of the foregoing occurs, our efforts to market and sell ZADAXIN in the United States will be impaired, our business will suffer and the price of our stock may decline.

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If we experience delays in patient enrollment in our clinical trials, we may not be able to obtain regulatory approval in accordance with our anticipated timeline.

     In our two current phase 3 HCV clinical trials in the United States, one trial is treating patients with mild cirrhosis of the liver and the other trial is treating patients with no liver damage. If we are unable to enroll a sufficient number of patients in these trials, if enrollment is delayed or if patient drop out rates are higher than anticipated, our ability to proceed with our clinical trials and prepare an NDA would be adversely affected. We are experiencing competition for patients for both of our HCV trials, particularly for patients with mild cirrhosis of the liver, from trials sponsored by other commercial drug developers and from a trial sponsored by the National Institutes of Health. Competition for the enrollment of similar patients in other clinical trials or other delays in enrollment may prevent us from enrolling patients quickly enough to meet our current timing expectations for completing our phase 3 trials, which would delay the preparation of an NDA. If we are not able to fully enroll patients for these clinical trials or patient drop out rates are higher than anticipated, it could reduce the chances that our NDA will be approved.

We cannot predict the safety profile of the use of ZADAXIN when used in combination with other drugs.

     Many of our trials involve the use of ZADAXIN in combination with other drugs. Some of these drugs have caused adverse patient reactions. Even if ZADAXIN does not produce adverse side effects when used alone, we cannot predict how it will work with other drugs, including causing possible adverse side effects not directly attributable to the other drugs which could compromise the safety profile of ZADAXIN when used in certain combination therapies.

Due to the outbreak of SARS in China, sales of ZADAXIN in the second quarter of 2003 were significantly higher than expected and are not indicative of future sales.

     Our sales for the quarter ending June 30, 2003 increased substantially as a result of a previously unanticipated increase in sales of ZADAXIN to hospitals in China. This increase was related to the use of immune system enhancers, including ZADAXIN, in connection with the treatment of severe acute respiratory syndrome, or SARS. In future quarters, sales of ZADAXIN for the treatment of SARS could be affected by changes in treatment in China, changes in the rate of infection and the emergence of evidence as to the effectiveness or ineffectiveness of ZADAXIN or of other potential treatments for SARS.

     As the SARS epidemic has become more contained, we expect sales in the third quarter and in future quarters to be more consistent with sales patterns of prior quarters. We believe inventory levels at importers have or will shortly return to normal levels. However, if increased sales in the second quarter result in above normal inventory levels at the importers, such above normal inventory levels could result in decreased orders from importers and a related decrease in sales in future quarters relative to historic levels. We could experience fluctuations in sales in future quarters as a result of similar factors.

Our sales of ZADAXIN may fluctuate due to seasonality of product orders and sales in any quarter may not be indicative of future sales.

     Our sales for the quarter ending June 30, 2003 were greatly affected by the demand in China for ZADAXIN in connection with the treatment of SARS. It is not possible to predict at this time if SARS will re-emerge, like influenza, as a seasonal public health problem and what effect, if any, this would have on future sales of ZADAXIN. To the extent that ZADAXIN is purchased in connection with future

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outbreaks of SARS or other seasonal viral contagions, product sales could become more concentrated in certain quarters of the calendar year. Quarterly sales levels could fluctuate and sales in any quarter may not be indicative of sales in future periods.

If we fail to protect our products, technologies and trade secrets, we may not be able to successfully use, manufacture, market or sell our products, or we may fail to advance or maintain our competitive position.

     Our success depends significantly on our ability to obtain and maintain meaningful patent protection for our products and technologies and to preserve our trade secrets. Our pending patent applications may not result in the issuance of patents in the future. Our patents or patent applications may not have priority over others’ applications. Our existing patents and additional patents that may be issued, if any, may not provide a competitive advantage to us or may be invalidated or circumvented by our competitors. Others may independently develop similar products or design around patents issued or licensed to us. Patents issued to, or patent applications filed by, other companies could harm our ability to use, manufacture, market or sell our products or maintain our competitive position with respect to our products. Although many of our patents relating to ZADAXIN have expired, including composition of matter patents, we have rights to other patents and patent applications relating to ZADAXIN, including method of use patents with respect to the use of ZADAXIN for certain indications. If other parties develop ZADAXIN for other indications, including conducting clinical trials for such indications, our patents and other rights might not be sufficient to prohibit them from marketing ZADAXIN.

     Pharmaceutical products are either not patentable or have only recently become patentable in some of the countries in which we market or may market ZADAXIN. Past enforcement of intellectual property rights in many of these countries, including China in particular, has been limited or non-existent. Future enforcement of patents and proprietary rights in many other countries will likely be problematic or unpredictable. We are aware that other companies are marketing generic thymosin alpha 1 in China, possibly in violation of our trademark or other rights, and we expect such violations of our rights to continue. Moreover, the issuance of a patent in one country does not assure the issuance of a similar patent in another country. Claim interpretation and infringement laws vary by nation, so the extent of any patent protection is uncertain and may vary in different jurisdictions.

If we are involved in intellectual property claims and litigation, the proceedings may divert our resources and subject us to significant liability for damages, substantial litigation expense and the loss of our proprietary rights.

     Our commercial success depends in part on us not infringing valid, enforceable patents or proprietary rights of third parties, and not breaching any licenses that may relate to our technologies and products. We are aware of a third-party patent that may relate to our products and may cover a method of action used by ZADAXIN. We cannot assure you that our mechanism of action does not infringe on their claim. In addition, we may not be aware of all patents or patent applications that may impact our ability to make, use or sell any of our potential products. For example, US patent applications may be kept confidential while pending in the Patent and Trademark Office, and patent applications filed in foreign countries are often first published six months or more after filing. It is possible that we may unintentionally infringe these patents or other patents or proprietary rights of third parties. We may in the future receive notices claiming infringement from third parties as well as invitations to take licenses under third-party patents. Any legal action against us or our collaborative partners claiming damages and seeking to enjoin commercial activities relating to our products and processes affected by third-party rights may require us or our collaborative partners to obtain licenses in order to continue to manufacture or market the affected products and processes. Our efforts to defend against any of these claims,

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regardless of merit, would require us to devote resources and attention that could have been directed to our operations and growth plans. In addition, these actions may subject us to potential liability for damages. We or our collaborative partners may not prevail in a patent action and any license required under a patent may not be made available on commercially acceptable terms, or at all. Any conflicts resulting from the patent rights of others could significantly reduce the coverage of our patents and limit our ability to obtain meaningful patent protection.

     If other companies obtain patents with conflicting claims, we may be required to obtain licenses to those patents or develop or obtain alternative technology to manufacture or market the affected products and processes. We may not be able to obtain any such licenses on acceptable terms or at all. Any failure to obtain such licenses could delay or prevent us from pursuing the development or commercialization of our potential products. Our efforts to defend against any of these claims would require us to devote resources and attention that could have been directed to our operations and growth plans.

     We may need to initiate litigation, which could be time-consuming and expensive, to enforce our proprietary rights or to determine the scope and validity of others’ rights. If litigation results, a court may find our patents or those of our licensors invalid or may find that we have infringed on a competitor’s rights. If any of our competitors have filed patent applications in the United States which claim technology we also have invented, the Patent and Trademark Office may require us to participate in expensive interference proceedings to determine who has the right to a patent for the technology. These actions may subject us to potential liability for damages. We or our collaborative partners may not prevail in a patent action and any license required under a patent may not be made available on commercially acceptable terms, or at all.

We rely on third parties to supply our clinical trial and commercial products. Deficiencies in their work could delay or harm our sales or our trials or the approval process and harm our business.

     We rely on third parties, who are subject to regulatory oversight, to supply our clinical and commercial products. If unanticipated deficiencies in these suppliers occur, we could experience delays in our ability to assemble a timely and acceptable NDA. If sales of ZADAXIN were to increase dramatically, our third-party suppliers may not be able to supply ZADAXIN quickly enough, which could limit our ability to satisfy increased demand or could adversely affect the ability of these suppliers to provide products for our clinical trials. Not all of the ZADAXIN planned to be used in our HCV clinical trials has been manufactured and received. F. Hoffmann La-Roche is our exclusive supplier of pegylated interferon alpha for our current clinical trials, and we have not received all the pegylated interferon alpha to be used in the clinical trials. F. Hoffman La-Roche’s agreement with us to provide our supply of pegylated interferon alpha can be terminated by them without cause on 30-days’ notice, in which case we would need to purchase their product for use in the clinical trials. Any delay in receiving, or a recall of, pegylated interferon alpha or ZADAXIN, including by reason of Roche’s termination of its supply arrangement with us, could delay the clinical trials or detract from the integrity of the trial data. If any of the foregoing occurs, our ability to complete our clinical trials in the United States and to market and sell ZADAXIN worldwide will be delayed or impaired, our business will suffer and the price of our stock may decline. We have been in the process of qualifying a new additional manufacturer of ZADAXIN and if we encounter problems with this process of validation, our sales or our clinical trials could be adversely affected.

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If we are not able to establish and maintain adequate manufacturing relationships, the development and sale of our products could be impaired.

     To be successful, our products must be manufactured in commercial quantities, in compliance with regulatory requirements and at an acceptable cost. Manufacturing interruptions could significantly delay clinical development of potential products and reduce third-party or clinical researcher interest and support of proposed trials. These interruptions could also impede commercialization of our products, including sales of ZADAXIN in approved markets, and impair our competitive position. Any of these developments would harm our business.

     We are in the process of changing suppliers and such changes require qualification of the new suppliers with regulatory agencies, quality assurance and other steps which could cause delays or interruptions of supply. Although we are increasing inventories to prepare to manage any such occurrences, we may still experience interruptions in supply which could adversely affect our results.

     In some countries, a manufacturing change may require additional regulatory approvals. If we do not obtain the required regulatory approvals for a manufacturing change in a timely fashion, new ZADAXIN marketing approvals may be delayed or sales may be interrupted until the manufacturing change is approved. Either of these results would harm our business.

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

We may not be able to successfully develop or commercialize our products.

     While we have limited sales of ZADAXIN in certain markets, we do not yet have regulatory approval for ZADAXIN for our principal target markets, and, in this respect, ZADAXIN is still being developed. Our other products are in earlier stages of development than ZADAXIN. To fully develop our products, we will need to commit substantial resources to extensive research, development, pre-clinical testing, clinical trials, manufacturing scale-up and regulatory approval prior to being ready for sale. We cannot assure you that our efforts will produce commercially viable products. We face significant technological risks inherent in developing these products. We may also abandon some or all of our proposed products before they become commercially viable. If any of our products, even if developed and approved, cannot be successfully commercialized in a timely manner, our business will be harmed and the price of our stock may decline.

     We have not yet sold any product other than ZADAXIN. Our future revenue growth depends on increased market acceptance and commercialization of ZADAXIN in additional countries, particularly in the United States, Europe and Japan. If we fail to successfully market ZADAXIN, or if we cannot commercialize this drug in the United States and other additional markets, our revenue and operating results will suffer. Our future revenue will also depend in part on our ability to develop other commercially viable and accepted products. Market acceptance of our products will depend on many factors, including our ability to convince prospective customers to use our products as an alternative to other treatments and therapies and to convince prospective strategic partners to market our products effectively and to manufacture our products in sufficient quantities with acceptable quality and at an acceptable cost. In addition, doctors must opt to use treatments involving our products. If doctors elect

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to use a different course of treatment, demand for our drug products would be reduced. Failure to do any of the above will hurt our operations.

We rely on third-party clinical investigators to conduct our clinical trials and, as a result, we may encounter delays outside our control.

     We have limited experience in conducting and managing clinical trials and we rely, in part, on third parties, particularly clinical research organizations and our development partners, to assist us in managing and monitoring clinical trials. Our reliance on these third parties may result in delays in completing, or failure to complete, these clinical trials if third parties fail to fulfill their obligations to us.

We may need to obtain additional capital to support our long-term product development and commercialization programs.

     We believe our existing resources will be sufficient to complete our US phase 3 clinical trials However, we cannot assure you that such funds will be sufficient to complete the trials and, if the trials are successful and we receive FDA approval, to begin commercialization of ZADAXIN in the United Sates, or that such sales of ZADAXIN will result in profitable operations. In addition, we may need additional funds in the future to support future growth and achieve profitability. If we need to raise additional funds in the future and such funds are not available on reasonable terms, if at all, our commercialization efforts may be impeded, our revenues may be limited and our operating results may suffer.

We have a history of operating losses and an accumulated deficit. We expect to continue to incur losses in the near term and may never achieve profitability.

     We have experienced significant operating losses since our inception, and as of June 30, 2003, we had an accumulated deficit of approximately $131 million. We expect our operating expenses to increase over the next several years as we plan to dedicate substantially all of our resources to expanding our development, testing and marketing capabilities, particularly in the United States, and these losses may increase if we cannot increase or sustain revenue. As a result, we may never achieve profitability.

Our revenue is dependent on the sale of ZADAXIN in foreign countries, particularly China, and if we experience difficulties in our foreign sales efforts, our financial condition will be harmed.

     Our product revenue in the near term is highly dependent on the sale of ZADAXIN in foreign countries. If we experience difficulties in our foreign sales efforts, our business will suffer and our financial condition will be harmed. Substantially all of our ZADAXIN sales are to customers in China. Sales of ZADAXIN in China may be limited due to its low average personal income, lack of patient cost reimbursement, poorly developed infrastructure and existing and potential competition from other products, including generics. Several local companies have introduced lower priced locally manufactured generic competitive products. If these sales continue, there could be a negative impact on the price and the volume of ZADAXIN sold in China and this would harm our business.

     In addition, our ZADAXIN sales and operations in other parts of Asia, as well as in Latin America and the Middle East, are subject to a number of risks, including difficulties and delays in obtaining registrations, permits, pricing approvals and reimbursement and unexpected changes in regulatory requirements. In addition, we experience other issues with managing foreign sales operations including long payment cycles, difficulties in accounts receivable collection and, especially from significant customers, fluctuations in the timing and amount of orders. Operations in foreign countries also expose

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us to risks relating to difficulties in enforcing our proprietary rights, currency fluctuations, and adverse or deteriorating economic conditions.

     We do not have product sales in the United States with which to offset any decrease in our revenue from ZADAXIN sales in Asia, Latin America and the Middle East. In addition, some countries in these regions, including China, regulate pharmaceutical prices and pharmaceutical importation. These regulations may reduce prices for ZADAXIN to levels significantly below those that would prevail in an unregulated market, limit the volume of product which may be imported and sold or place high import duties on the product, any of which may limit the growth of our revenues or cause them to decline.

Because of China’s tiered method of importing and distributing finished pharmaceutical products, our quarterly results may vary substantially from one period to the next.

     China uses a tiered method to import and distribute finished pharmaceutical products. At each port of entry, and prior to moving the product forward to the distributors, government-licensed importing agents must process and evaluate each shipment to determine whether such shipment satisfies China’s quality assurance requirements. In order to efficiently manage this process, the importing agents typically place large, and therefore relatively few, orders within any six month period. Therefore, our sales to an importing agent can vary substantially from quarter to quarter depending on the size and timing of the orders, which has in the past and may in the future cause our quarterly results to fluctuate. We rely on four to six importers to supply substantially all of our product in China. Because we use a small number of importing agents in China, our receivables from any one importing agent are material, and if we were unable to collect receivables from any importer, our business and cash flow would be adversely affected.

We have limited sales, marketing and distribution capabilities, which may adversely affect our ability to successfully commercialize our products.

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

Commercialization of some of our products depends on collaborations with others. If our collaborators are not successful, or if we are unable to find future collaborators, we may not be able to properly develop and commercialize our products.

     We depend in part on our distributors and business partners to develop and/or promote our drugs, and if they are not successful in their efforts or fail to do so, our business will suffer. For example, Sigma-Tau is responsible for the development and marketing of ZADAXIN in Europe. We generally do not have control over the amount and timing of resources that our business partners devote to ZADAXIN, and they have not always performed as or when expected. If they do not perform their obligations as we expect, particularly obligations regarding clinical trials, our development expenses would increase and the development and/or sale of our products could be limited or delayed, which could hurt our business and cause our stock price to decline. In addition, our relationships with these companies may not be successful. Disputes may arise with our collaborators, including disputes over ownership rights to

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intellectual property, know-how or technologies developed with our collaborators. We may not be able to negotiate similar additional arrangements in the future to develop and commercialize ZADAXIN or other products.

If we make any acquisitions, we will incur a variety of costs and may never realize the anticipated benefits.

     If appropriate opportunities become available, we may attempt to acquire products, product candidates or businesses that we believe fit strategically with our business. We currently have no commitments or agreements with respect to material acquisitions. If we do undertake any transaction of this sort, the process of integrating an acquired product, product candidate or business may result in operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for our ongoing business development plans. Moreover, we may never realize the anticipated benefits of any acquisition. Future acquisitions could result in in-process research and development expenses, potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities and/or amortization or impairment of goodwill or other intangible assets, which could adversely affect our business, financial condition and results of operations.

We may lose market share or otherwise fail to compete effectively in the intensely competitive biopharmaceutical industry.

     Competition in the biopharmaceutical industry is intense, and we expect that competition will increase. Our success depends on our ability to compete in this industry, but we cannot assure you that we will be able to successfully compete with our competitors. Increased competitive pressure could lead to intensified price-based competition resulting in lower prices and margins, which would hurt our operating results.

     We are focused on developing ZADAXIN as a treatment for HCV and HBV and certain cancers. Several large biopharmaceutical companies have substantial commitments to interferon alpha, an approved drug for treating HBV and HCV, and to lamivudine and adefovir, approved drugs to treat HBV. We cannot assure you that we will compete successfully against our competitors or that our competitors, or potential competitors, will not develop drugs or other treatments for HCV, HBV, cancer and other diseases that will be superior to ours.

If we do not achieve our projected development goals in the time frames we announce and expect, the commercialization of our products may be delayed, the credibility of our management may be adversely affected and, as a result, our stock price may decline.

     For planning purposes, we estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product development goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of scientific studies and clinical trials and the submission of regulatory filings. From time to time, we publicly announce the expected timing of some of these milestones. All of these milestones are based on a variety of assumptions. The actual timing of these milestones can vary dramatically compared to our estimates, in many cases for reasons beyond our control. If we do not meet these milestones as publicly announced, the commercialization of our products may be delayed, the credibility of our management may be adversely affected, investors could be disappointed and, as a result, our stock price may decline.

If third-party reimbursement is not available or patients cannot otherwise pay for ZADAXIN, we may not be able to successfully market ZADAXIN.

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     Significant uncertainty exists as to the reimbursement status of new therapeutic products, such as ZADAXIN. We cannot assure you that third-party insurance coverage and reimbursement will be available for therapeutic products we might develop. The failure to obtain third-party reimbursement for our products, particularly in the United States, Europe and Japan, would harm our business. Further, we cannot assure you that additional limitations will not be imposed in the future in the United States on drug coverage and reimbursement due to proposed health care reforms. In many emerging markets where we have marketing rights to ZADAXIN, but where government resources and per capita income may be so low that our products will be prohibitively expensive, we may not be able to market our products on economically favorable terms, if at all.

     Efforts by governmental and third-party payors to contain or reduce health care costs or the announcement of legislative proposals or reforms to implement government controls could cause us to reduce the prices at which we market our drugs, which will reduce our gross margins and may harm our business.

If we lose key personnel or are unable to attract and retain additional, highly skilled personnel required for the expansion of our activities, our business will suffer.

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

We may be subject to product liability lawsuits, and our insurance may be inadequate to cover damages.

     Clinical trials or marketing of any of our current and potential products may expose us to liability claims from the use of these products. We currently carry product liability insurance. However, we cannot be certain that we will be able to maintain insurance on acceptable terms, if at all, for clinical and commercial activities or that the insurance would be sufficient to cover any potential product liability claim or recall. If we fail to have sufficient coverage, our business, results of operations and cash flows could be adversely affected.

We depend on international sales, and global conditions could negatively affect our operating results.

     A large majority of our sales are in China. Heightened tensions resulting from the current geopolitical conditions in the Middle East and North Korea and elsewhere could worsen, causing disruptions in foreign trade, which would harm our sales. In particular, our commercial product is manufactured in Europe and distributed by us from our operations in Hong Kong. Any disruption of our supply and distribution activities due to geopolitical conditions could decrease our sales and harm our operating results.

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If we are unable to comply with environmental and other laws and regulations, our business may be harmed.

     We are subject to various federal, state and local laws, regulations and recommendations relating to the use, manufacture, storage, handling and disposal of hazardous materials and waste products (including radioactive compounds and infectious disease agents), as well as safe working conditions, laboratory and manufacturing practices and the experimental use of animals. The extent of government regulation that might result from future legislation or administrative action in these areas cannot be accurately predicted.

     We do not currently maintain hazardous materials at our facilities. While we outsource our research and development programs involving the controlled use of biohazardous materials, if in the future we conduct these programs ourselves, we might be required to incur significant cost to comply with the environmental laws and regulations. Further, in the event of an accident, we would be liable for any damages that result, and the liability could exceed our resources.

Substantial sales of our stock or the exercise of options or warrants or the conversion of convertible securities may impact the market price of our common stock.

     As of June 30, 2003, stock options for 5,689,963 shares of common stock were outstanding, of which options to purchase 3,765,376 shares were exercisable. Also outstanding as of the same date were warrants exercisable for 1,008,000 shares of common stock at prices ranging from $2.25 to $7.00 per share, and two notes convertible into a total of 684,140 shares of common stock. The note holder has the right to purchase up to $8.3 million of additional convertible notes due on or before March 2006, which, if fully issued, will be convertible into 684,140 shares of our common stock. Upon exercise of options or warrants, or conversion of the notes, these issued shares of common stock will be freely tradable.

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

Our stock price may be volatile, and an investment in our stock could suffer a decline in value.

     The market price of our common stock has experienced, and may continue to experience, substantial volatility due to many factors, some of which we have no control over, including:

• results of clinical trials involving ZADAXIN;

• progress of ZADAXIN through the regulatory process, especially regulatory actions in the United States;

• announcements of technological innovations or new products by us or our competitors;

• government regulatory action affecting our drug products or our competitors’ drug products in both the United States and foreign countries;

• developments or disputes concerning patent or proprietary rights;

• changes in company assessments or financial estimates by securities analysts;

• actual or anticipated fluctuations in our operating results;

• general stock market conditions and fluctuations for the emerging growth and biopharmaceutical market sectors;

• economic conditions in the United States or abroad; and

• broad financial market fluctuations in the United States, Europe or Asia.

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     In the past, following periods of large price declines in the public market price of a company’s securities, securities class action litigation has often been initiated against that company. Litigation of this type could result in substantial costs and diversion of our attention and resources, which would hurt our business. Any adverse determination in litigation could also subject us to significant liabilities.

If our officers, directors and largest stockholders elect to act together, they may be able to control our management and operations, acting in their best interests and not necessarily those of other stockholders.

     As of June 30, 2003, our directors and officers owned or had the right to acquire approximately 8.2% of the outstanding shares of our common stock. Also as of June 30, 2003, our two largest stockholders, Sigma-Tau (and its affiliates) and Randal J. Kirk, owned in the aggregate approximately 17.7% of the outstanding shares of our capital stock. As a result, due to their concentration of stock ownership, our directors, officers and largest stockholders, if they act together, may be able to influence our management and operation and may be able to affect or influence all matters requiring a stockholder vote, including the election of all directors and the amendment of charter documents or the approval of a merger, sale of assets or other major corporate transactions.

     Although they are independent of each other and not part of a group, we recently obtained the support of Sigma-Tau and Mr. Kirk for our proposal to the stockholders to reincorporate in Delaware, and without that support we would not have been able to obtain the required stockholder approval for those matters.

Anti-takeover provisions in our charter documents and under Delaware law may make an acquisition of us, which may be beneficial to our stockholders, more difficult.

     Certain anti-takeover provisions of Delaware law and our charter documents as currently in effect may make a change in control of our company more difficult, even if a change in control would be beneficial to the stockholders. Prior to our recent reincorporation in Delaware, we had a shareholder rights plan, also commonly known as a “poison pill,” which we agreed to terminate in connection with obtaining shareholder approval for reincorporation. We currently do not intend to adopt a shareholder rights plan. However, our charter documents do contain certain anti-takeover provisions, including provisions in our certificate of incorporation providing that stockholders may not accumulate votes, stockholders’ meetings may be called by stockholders only if they hold 25% or more of our common stock and provisions in our bylaws providing that the stockholders may not take action by written consent. Additionally, our board of directors has the authority to issue 10 million shares of preferred stock and to determine the terms of those shares of stock without any further action by the stockholders. The rights of holders of our common stock are subject to the rights of the holders of any preferred stock that may be issued. The issuance of preferred stock could make it more difficult for a third party to acquire a majority of our outstanding voting stock. Delaware law also prohibits corporations from engaging in a business combination with any holders of 15% or more of their capital stock until the holder has held the stock for three years unless, among other possibilities, the board of directors approves the transaction. Our board of directors may use these provisions to prevent changes in the management and control of our company. Also, under applicable Delaware law, our board of directors may adopt additional anti-takeover measures in the future.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

     The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in highly liquid and high quality U.S. government and agency obligations. Our investments in U.S. government and agency obligations are subject to interest rate risk. To minimize the exposure due to an adverse shift in interest rates, we invest in short term securities and maintain an average maturity of less than one year. A hypothetical 60 basis point increase in interest rates would result in an approximate $88,392 decrease (0.6%) in fair value of our available-for-sale securities.

     The potential change noted above is based on sensitivity analyses performed on our financial position at June 30, 2003. Actual results may differ materially.

Item 4. Controls and Procedures

     Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

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PART II. OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds

(c) Recent Sales of Equity Securities

     During the quarter ended June 30, 2003, we received approximately $2,513,000 from the exercise of outstanding warrants to purchase 562,500 shares of common stock by institutional investors.

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

     We held our Annual Meeting of Shareholders on June 25, 2003 to elect seven (7) directors, to ratify Ernst & Young LLP as independent auditors, to reincorporate the Company as a Delaware corporation and adopt certain additional charter revisions, and to increase the number of shares which may be issued under the 1996 Employee Stock Purchase Plan.

     At the Annual Meeting of Shareholders, all of the director nominees were elected with voting as follows:

			Votes
	For		Withheld
Jere E. Goyan, Ph.D.		32,607,764		942,892
Donald R. Sellers		32,407,150		1,143,506
John D. Baxter, M.D.		32,579,891		970,765
Edwin C. Cadman, M.D.		32,609,414		941,242
Rolf H. Henel		32,699,327		851,329
Jon S. Saxe		32,642,228		908,428
Dean S. Woodman		32,612,289		938,367

     Shareholders ratified the appointment of Ernst & Young LLP as independent auditors for the Company for the fiscal year ending December 31, 2003. Voting was as follows: 33,108,792 for; 283,229, against; and 158,635 abstaining.

     Shareholders approved the reincorporation of SciClone Pharmaceuticals as a Delaware corporation. Voting was as follows: 20,580,489 for; 1,012,673 against; 116,975 abstaining; and 11,840,519 broker non-votes.

     Shareholders approved three additional charter revision proposals to eliminate cumulative voting, eliminate shareholder action by written consent and increase the percentage of shareholders required to call a special meeting of shareholders from ten to twenty-five percent. Voting was as follows:

• Elimination of Cumulative Voting – 19,815,967 for; 1,655,875 against; 238,295 abstaining; and 11,840,519 broker non-votes.

• Elimination of Shareholder Written Consent – 19,030,002 for; 2,400,829 against; 279,306 abstaining; and 11,840,519 broker non-votes.

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     Increase in Percentage of Shareholders Required to Call a Special Meeting – 19,041,085 for; 2,451,919 against; 217,133 abstaining; and 11,840,519 broker non-votes.

     Shareholders approved the increase in the maximum aggregate number of shares of Common Stock that may be issued under the Company’s 1996 Employee Stock Purchase Plan by 500,000 shares from 500,000 shares to 1,000,000 shares. Voting was as follows: 31,474,219 for; 1,790,337 against; and 286,100 abstaining.

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Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit Number	Description
3(i).1(1)	Amended and Restated Certificate of Incorporation.
3(ii).1(1)	Bylaws.
4.1(2)	Rights Agreement dated as of July 25, 1997 between the Registrant and Chase Mellon Shareholder Services, LLC.
4.2(1)*	First Amendment to Rights Agreement dated as of July 17, 2003 between the Registrant and Mellon Investor Services LLC.
4.3(3)*	6% Convertible Note dated as of December 7, 2000 by the Registrant in favor of UBS AG, London Branch.
4.4(3)*	Option Agreement dated as of October 26, 2000 by and between the Registrant and UBS AG, London Branch.
4.5(3)*	Amendment No. 1 to Option Agreement dated as of December 19, 2000 by and between the Registrant and UBS AG, London Branch.
4.6(4)*	6% Convertible Note dated as of March 21, 2001 by the Company in favor of UBS AG, London Branch.
4.7(4)*	Option Agreement dated as of February 16, 2001 by and between the Company and UBS AG, London Branch.
4.8(4)*	Amendment No.1 to Option Agreement dated as of March 21, 2001 by and between the Company and UBS AG, London Branch.
10.1(5)	Change in Control Agreement between the Company and Hans P. Schmid effective as of April 22, 2003.
10.2(5)**	Registrant’s 1996 Employee Stock Purchase Plan, as amended.
31.1(5)	Section 302 Certification of Chief Executive Officer.
31.2(5)	Section 302 Certification of Chief Financial Officer.
32.1(5)	Section 906 Certification of Chief Executive Officer.
32.2(5)	Section 906 Certification of Chief Financial Officer.

* Certain information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.46.

** Management compensatory plan or arrangement.

(1)	Incorporated by reference from the Company’s Current Report on Form 8-K filed on July 28, 2003.
(2)	Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 14, 1997.
(3)	Incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.
(4)	Incorporated by reference from the Company’s Quarterly Report on Form 10-Q on May 15, 2001.
(5)	Filed herewith.

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(b) Reports on Form 8-K

1.	On April 24, 2003, the Company filed a Current Report on Form 8-K pursuant to Item 7 and Item 12.
2.	On May 7, 2003, the Company filed a Current Report on Form 8-K pursuant to Item 5 and Item 7.
3.	On June 26, 2003, the Company filed a Current Report on Form 8-K pursuant to Item 5 and Item 7.

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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.

	SCICLONE PHARMACEUTICALS, INC. (Registrant)
Date: July 30, 2003	/s/ Richard A. Waldron Richard A. Waldron Chief Financial Officer (Principal Financial & Accounting Officer)

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INDEX TO EXHIBITS

		Sequentially
Exhibit		Numbered
Number	Exhibit	Page
3(i).1(1)	Amended and Restated Certificate of Incorporation
3(ii).1(1)	Bylaws
4.1(2)	Rights Agreement dated as of July 25, 1997 between the Registrant and Chase Mellon Shareholder Services, LLC
4.2(1)*	First Amendment to Rights Agreement dated as of July 17, 2003 between the Registrant and Mellon Investor Services LLC
4.3(3)*	6% Convertible Note dated as of December 7, 2000 by the Registrant in favor of UBS AG, London Branch
4.4(3)*	Option Agreement dated as of October 26, 2000 by and between the Registrant and UBS AG, London Branch
4.5(3)*	Amendment No. 1 to Option Agreement dated as of December 19, 2000 by and between the Registrant and UBS AG, London Branch
4.6(4)*	6% Convertible Note dated as of March 21, 2001 by the Company in favor of UBS AG, London Branch
4.7(4)*	Option Agreement dated as of February 16, 2001 by and between the Company and UBS AG, London Branch
4.8(4)*	Amendment No. 1 to Option Agreement dated as of March 21, 2001 by and between the Company and UBS AG, London Branch
10.1(5)	Change in Control Agreement between the Company and Hans P. Schmid effective as of April 22, 2003.
10.2(5)**	Registrant’s 1996 Employee Stock Purchase Plan, as amended
31.1(5)	Section 302 Certification of Chief Executive Officer
31.2(5)	Section 302 Certification of Chief Financial Officer
32.1(5)	Section 906 Certification of Chief Executive Officer
32.2(5)	Section 906 Certification of Chief Financial Officer

* Certain information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.46.

** Management compensatory plan or arrangement.

(1)	Incorporated by reference from the Company’s Current Report on Form 8-K filed on July 28, 2003.
(2)	Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 14, 1997.

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(3)	Incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.
(4)	Incorporated by reference from the Company’s Quarterly Report on Form 10-Q on May 15, 2001.
(5)	Filed herewith.

34 EX-10.1 3 f91868exv10w1.txt EXHIBIT 10.1 EXHIBIT 10.1 SCICLONE PHARMACEUTICALS, INC. CHANGE IN CONTROL AGREEMENT This Change in Control Agreement (the "Agreement") is effective as of April 22, 2003, by and between Hans P. Schmid (the "Employee") and SciClone Pharmaceuticals, Inc., a California corporation (the "Company"). RECITALS A. The Employee presently serves as Vice President, Finance, Administration & Business Development for the SPIL subsidiary of the Company and performs significant strategic and management responsibilities necessary to the continued conduct of the Company's business and operations. B. The Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility or occurrence of a Change in Control (as defined below) of the Company. C. The Board believes that it is imperative to provide the Employee with certain severance benefits upon the Employee's termination of employment following a Change in Control that will provide the Employee with enhanced financial security and provide sufficient incentive and encouragement to the Employee to remain with the Company following a Change in Control. AGREEMENT The Employee and the Company agree as set forth below: 1. Terms of Employment. The Company and the Employee agree that the Employee's employment is "at will" and that their employment relationship may be terminated by either party at any time, with or without cause, and, if applicable, in accordance with Section 2 below. If the Employee's employment with the Company terminates for any reason following a Change in Control, but on or before the first anniversary of the Change in Control, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement. During his or her employment with the Company, the Employee agrees to devote his or her full business time, energy and skill to his or her duties with the Company. These duties shall include, but not be limited to, any duties consistent with the Employee's position that may be assigned to the Employee from time to time by the Company or the Board. 2. Severance Benefits Upon Termination following a Change in Control. Subject to the limitations set forth in Sections 3 and 4 below, if the Employee's employment with the Company terminates following a Change in Control but on or before the first anniversary of such Change in Control, then the Employee shall be entitled to receive, in addition to the 1 compensation and benefits earned by the Employee through the date of his or her termination, severance benefits as follows: (a) Involuntary Termination. If the Employee's employment with the Company is terminated as a result of Involuntary Termination, then the Employee shall be entitled to receive the following severance benefits: (i) The Employee shall be entitled to receive severance pay in an amount equal to one hundred percent (100%) of his annual base salary as in effect at the time of such termination. Any severance to which the Employee is entitled pursuant to this section shall be paid in a lump sum, less applicable withholding, within thirty (30) days following the Employee's termination. (ii) With respect to any unvested options to purchase shares of the stock of the Company held by the Employee, the Employee shall immediately become vested in full in such options at the time of such termination. (iii) The Company shall, if permitted under the Company's existing health insurance plans, continue the Employee's existing group health insurance coverage. If not so permitted, the Company shall reimburse the Employee for any COBRA premiums paid by the Employee for continued group health insurance coverage. Such health insurance coverage or reimbursement of COBRA premiums shall continue until the earlier of (1) twelve (12) months after the date of the Employee's Involuntary Termination or (2) the date on which the Employee commences New Employment. (b) Voluntary Resignation; Termination For Cause. If the Employee's employment terminates by reason of the Employee's voluntary resignation (but not as a result of an Involuntary Termination) or as a result of the Employee's termination for Cause, then the Employee shall not be entitled to receive any severance pay or benefits under this Agreement. (c) Disability; Death. If the Company terminates the Employee's employment as a result of the Employee's Disability, or death, then the Employee shall not be entitled to receive any severance pay or benefits under this Agreement. 3. Release of Claims; Resignation. The Employee's entitlement to any severance pay or benefits under Section 2(a) is conditioned upon the Employee's execution and delivery to the Company of (a) a general release of known and unknown claims in the form attached hereto as Exhibit A and (b) a resignation from all of the Employee's positions with the Company, including from the Board of Directors and any committees thereof on which the Employee serves, in a form satisfactory to the Company. 4. Parachute Payments. In the event that any payment or benefit received or to be received by the Employee pursuant to this Agreement or otherwise (collectively, the "Payments") would result in a "parachute payment" as described in section 280G of the Internal Revenue Code of 1986, as amended, notwithstanding the other provisions of this Agreement, the amount of such Payments will not exceed the amount which produces the greatest after-tax 2 benefit to the Employee. For purposes of the foregoing, the greatest after-tax benefit will be determined within thirty (30) days of the occurrence of such payment to the Employee, in the Employee's sole and absolute discretion. If no such determination is made by the Employee within thirty (30) days of the occurrence of such payment, the Company will promptly make such determination in a fair and equitable manner. 5. Consulting Services. During the twenty-four (24) months following any Involuntary Termination for which the Employee receives the severance pay and benefits described in Section 2(a), the Employee shall be retained by the Company as an independent contractor to provide consulting services to the Company at its request for up to eight (8) hours per week. These services shall include any reasonable requests for information or assistance by the Company, including, but not limited to, the transition of the Employee's duties. Such services shall be provided at mutually convenient times. For the actual provision of such services, the Company shall pay to the Employee a consulting fee of $1,000 per day, plus reasonable out-of-pocket expenses (for example, travel and lodging). 6. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings: (a) "Cause" shall mean any of the following: (i) the Employee's theft, dishonesty, misconduct or falsification of any records of the Company, its successor, or any subsidiary of the Company or its successor (collectively, the "Company Group"); (ii) the Employee's misappropriation or improper disclosure of confidential or proprietary information of the Company Group; (iii) any intentional action by the Employee which has a material detrimental effect on the reputation or business of the Company Group; (iv) the Employee's failure or inability to perform any reasonable assigned duties after written notice from the Company Group of, and a reasonable opportunity to cure, such failure or inability; (v) any material breach by the Employee of any employment agreement between the Employee and the Company Group, which breach is not cured pursuant to the terms of such agreement; or (vi) the Employee's conviction of any criminal act which impairs the Employee's ability to perform his or her duties for the Company Group. (b) "Change in Control" shall mean: (i) a merger or other transaction in which the Company or substantially all of its assets is sold or merged and as a result of such transaction, the holders of the Company's common stock prior to such transaction do not own or control a majority of the outstanding shares of the successor corporation, (ii) the election of nominees constituting a majority of the Board which nominees were not approved by a majority 3 of the Board prior to such election, or (iii) the acquisition by a third party of twenty percent (20%) or more of the Company's outstanding shares which acquisition was without the approval of a majority of the Board in office prior to such acquisition. (c) "Constructive Termination" shall mean any one or more of the following: (i) without the Employee's express written consent, the assignment to the Employee, following the Change in Control, of any title or duties, or any limitation of the Employee's responsibilities, that are substantially inconsistent with the Employee's title(s), duties, or responsibilities with the Company Group immediately prior to the date of the Change in Control (including, but not limited to, Employee's failure to report to the Chief Executive Officer and/or failure to be a member of the executive staff); (ii) without the Employee's express written consent, the relocation of the principal place of the Employee's employment, following the Change in Control, to a location that is more than fifty (50) miles from the Employee's principal place of employment immediately prior to the date of the Change in Control, or the imposition of travel requirements substantially more demanding of the Employee than such travel requirements existing immediately prior to the date of the Change in Control; (iii) any failure by the Company Group, following the Change in Control, to pay, or any material reduction by the Company Group of, (1) the Employee's base salary in effect immediately prior to the date of the Change in Control, or (2) the Employee's bonus compensation, if any, in effect immediately prior to the date of the Change in Control (subject to applicable performance requirements with respect to the actual amount of bonus compensation earned by the Employee), unless base salary and/or bonus reductions comparable in amount and duration are concurrently made for a majority of the other employees of the Company Group who have substantially similar titles and responsibilities as the Employee; and (iv) any failure by the Company Group, following the Change in Control, to (1) continue to provide the Employee with the opportunity to participate, on terms no less favorable than those in effect for the benefit of any employee group which customarily includes a person holding the employment position or a comparable position with the Company Group then held by the Employee, in any benefit or compensation plans and programs, including, but not limited to, the Company Group's life, disability, health, dental, medical, savings, profit sharing, stock purchase and retirement plans, if any, in which the Employee was participating immediately prior to the date of the Change in Control, or in substantially similar plans or programs, or (2) provide the Employee with all other fringe benefits (or substantially similar benefits), including, but not limited to, relocation benefits, provided to any employee group which customarily includes a person holding the employment position or a comparable position with the Company Group then held by the Employee, which the Employee was receiving immediately prior to the date of the Change in Control. However, the foregoing conditions shall not constitute a Constructive Termination unless the Employee has given written notice of any such condition(s) to the Chairman of the Board and allowed the Company Group at least twenty (20) days thereafter to correct such condition(s). If 4 such condition(s) are not corrected within that twenty (20) day period, the Employee may give written notice of his Constructive Termination to the Board, which shall be an Involuntary Termination. (d) "Disability" means the inability of the Employee, in the opinion of a qualified physician, to perform the essential functions of the Employee's position with the Company Group, with or without reasonable accommodation, because of the sickness or injury of the Employee. (e) "Involuntary Termination" shall mean the occurrence of either of the following events after a Change in Control, but on or before the first anniversary of such Change in Control: (i) termination by Company Group of the Employee's employment without Cause; or (ii) the Employee's Constructive Termination. "Involuntary Termination" shall not include any termination of the Employee's employment that is (1) for Cause, (2) a result of the Employee's death or Disability, or (3) a result of the Employee's voluntary resignation. (f) "New Employment" shall mean any employment obtained by the Employee after the termination of the Employee's employment with the Company. 7. Nonsolicitation. During his or her employment with the Company, and for a period of one (1) year following the termination of his or her employment for any reason, the Employee shall not directly or indirectly recruit, solicit, or induce any person who on the date hereof is, or who subsequently becomes, an employee, sales representative or consultant of the Company, to terminate his or her relationship with the Company. 8. Successors. (a) Company's Successors. Any successor to the Company or to all or substantially all of the Company's business and/or assets shall be bound by this Agreement in the same manner and to the same extent as the Company. For all purposes under this Agreement, the term "Company" shall include any successor to the Company's business and/or assets. (b) Employee's Successors. All rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. The Employee shall have no right to assign any of his obligations or duties under this Agreement to any other person or entity. 5 9. Notice. (a) General. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Employee, mailed notices shall be addressed to the Employee at the home address which he most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary. (b) Notice of Termination. Any termination by the Company Group or the Employee of their employment relationship shall be communicated by a written notice of termination to the other party. 10. Miscellaneous Provisions. (a) No Duty to Mitigate. The Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement (whether by seeking New Employment or in any other manner), nor shall any such payment be reduced by any earnings that the Employee may receive from any other source. (b) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Company (other than the Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time. (c) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California. (d) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. (e) Arbitration. In the event of any dispute or claim relating to or arising out of the Employee's employment relationship with the Company, this Agreement, or the termination of the Employee's employment with the Company for any reason (including, but not limited to, any claims of breach of contract, wrongful termination, fraud or age, race, sex, national origin, disability or other discrimination or harassment), the Employee and the Company agree that all such disputes shall be fully, finally and exclusively resolved by binding arbitration conducted by the American Arbitration Association in San Mateo County, California. Judgment upon any decision or award rendered by the arbitrator may be entered in any court having jurisdiction over the matter. The Employee and the Company knowingly and willingly waive their respective rights to have any such disputes or claims tried to a judge or jury. 6 (f) Prior Agreements. This Agreement supersedes all prior understandings and agreements, whether written or oral, regarding the subject matter of this Agreement. IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written. SCICLONE PHARMACEUTICALS, INC. By: ________________________________ EMPLOYEE ____________________________________ Hans P. Schmid 7 EXHIBIT A RELEASE In exchange for the severance pay and benefits described in the Change in Control Agreement between SciClone Pharmaceuticals, Inc. (the "Company") and me of April 22, 2003, I hereby release the Company, its parents and subsidiaries, and their officers, directors, employees, attorneys, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, and causes of action of every kind and nature, whether known or unknown, based upon or arising out of any agreements, events, acts, omissions or conduct at any time prior to and including the execution date of this Release, including, but not limited to: all claims concerning my employment with the Company or the termination of that employment; all claims pursuant to any federal, state or local law, statute, or cause of action, including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Americans with Disabilities Act of 1990; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the California Fair Employment and Housing Act, as amended; tort law; contract law; wrongful discharge; race, sex, age or other discrimination or harassment; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing. I am knowingly, willingly and voluntarily releasing any claims I may have under the ADEA. I acknowledge that the consideration given for the release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (a) this Release does not apply to any rights or claims that may arise after I sign it; (b) I have the right to consult with an attorney prior to signing this Release; (c) I have twenty-one (21) days to consider this Release (although I may choose to voluntarily sign this Release earlier); (d) I have seven (7) days after I sign this Release to revoke it; and (e) this Release shall not be effective until the eighth day after it is signed by me. In giving this release, which includes claims that may be unknown to me at present, I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any unknown claims I may have, and I affirm that it is my intention to release all known and unknown claims that I have or may have against the parties released above. 1 This Release contains the entire agreement between the Company and me regarding the subjects above, and it cannot be modified except by a document signed by me and an authorized representative of the Company. EMPLOYEE Date:_____________________________ _______________________________________ Hans P. Schmid SCICLONE PHARMACEUTICALS, INC. Date:_____________________________ By: ___________________________________ Its: __________________________________ 2 EX-10.2 4 f91868exv10w2.txt EXHIBIT 10.2 EXHIBIT 10.2 SCICLONE PHARMACEUTICALS, INC. 1996 EMPLOYEE STOCK PURCHASE PLAN The following constitute the provisions of the 1996 Employee Stock Purchase Plan of SciClone Pharmaceuticals, Inc. 1. Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions. (a) "Board" shall mean the Board of Directors of the Company. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. (c) "Common Stock" shall mean the Common Stock of the Company. (d) "Company" shall mean SciClone Pharmaceuticals, Inc., a California corporation. (e) "Compensation" shall mean all regular straight time gross earnings, overtime and shift premium and shall not include payments for incentive compensation, incentive payments, bonuses, commissions and other compensation. (f) "Continuous Status as an Employee" shall mean the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of a leave of absence agreed to in writing by the Company, provided that such leave is for a period of not more than 90 days or reemployment upon the expiration of such leave is guaranteed by contract or statute. (g) "Contributions" shall mean all amounts credited to the account of a participant pursuant to the Plan. (h) "Designated Subsidiaries" shall mean the Subsidiaries which have been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. (i) "Employee" shall mean any person, including an Officer, who is customarily employed for at least twenty (20) hours per week and more than five (5) months in a calendar year by the Company or one of its Designated Subsidiaries. (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (k) "Purchase Date" shall mean the last day of each Purchase Period of the Plan. 1 (l) "Offering Date" shall mean the first business day of each Offering Period of the Plan, except that in the case of an individual who becomes eligible after the first business day of an Offering Period, the term "Offering Date" shall mean the first business day of the Purchase Period coinciding with or next succeeding the day on which that individual becomes an eligible Employee. Options granted after the first business day of an Offering Period will be subject to the same terms as the options granted on the first business day of such Offering Period except that they will have a different grant date (thus, potentially, a different exercise price) and, because they expire at the same time as the options granted on the first business day of such Offering Period, a shorter term. (m) "Offering Period" shall mean a period of twenty-four (24) months commencing on August 1 of every second year commencing August 1, 1996 (i.e., the second Offering Period will commence on August 1, 1998), except as otherwise determined under Section 11.(n) "Officer" shall mean a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (o) "Plan" shall mean this Employee Stock Purchase Plan. (p) "Purchase Period" shall mean a period of three (3) months within an Offering Period. (q) "Subsidiary" shall mean a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. 3. Eligibility. (a) Any person who is an Employee as of the Offering Date of a given Offering Period shall be eligible to participate in such Offering Period under the Plan, subject to the requirements of Section 5(a) and the limitations imposed by Section 423(b) of the Code. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any subsidiary of the Company, or (ii) if such option would permit his or her rights to purchase stock under all employee stock purchase plans (described in Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of fair market value of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. 4. Offering Periods and Purchase Periods. (a) Offering Periods. The Plan shall be implemented by a series of Offering Periods of twenty-four (24) months duration, with new Offering Periods commencing on or about August 1 of alternating years (or at such other time or times as may be determined by the Board of Directors). The first Offering Period shall commence on August 1, 1996 and continue until July 31, 1998. The Plan 2 shall continue until terminated in accordance with Section 19 hereof. The Board of Directors of the Company shall have the power to change the duration and/or the frequency of Offering Periods with respect to future offerings without shareholder approval if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first Offering Period to be affected. (b) Purchase Periods. Each Offering Period shall consist of eight (8) consecutive purchase periods of three (3) months duration. The last day of each Purchase Period shall be the "Purchase Date" for such Purchase Period. A Purchase Period commencing on August 1 shall end on the next October 31. A Purchase Period commencing on November 1 shall end on the next January 31. A Purchase Period commencing on February 1 shall end on the next April 30. A Purchase Period commencing on May 1 shall end on the next July 31. The first Purchase Period shall commence on August 1, 1996 and shall end on October 31, 1996. The Board of Directors of the Company shall have the power to change the duration and/or frequency of Purchase Periods with respect to future purchases without shareholder approval if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first Purchase Period to be affected. 5. Participation. (a) An eligible Employee may become a participant in the Plan by completing a subscription agreement on the form provided by the Company and filing it with the Company's payroll office prior to the applicable Offering Date, unless a later time for filing the subscription agreement is set by the Board for all eligible Employees with respect to a given offering. The subscription agreement shall set forth the percentage of the participant's Compensation (which shall be not less than 1% and not more than 15%) to be paid as Contributions pursuant to the Plan. (b) Payroll deductions shall commence on the first payroll following the Offering Date and shall end on the last payroll paid on or prior to the last Purchase Period of the Offering Period to which the subscription agreement is applicable, unless sooner terminated by the participant as provided in Section 10. 6. Method of Payment of Contributions. (a) The participant shall elect to have payroll deductions made on each payday during the Offering Period in an amount not less than one percent (1%) and not more than fifteen percent (15%) of such participant's Compensation on each such payday. All payroll deductions made by a participant shall be credited to his or her account under the Plan. A participant may not make any additional payments into such account. (b) A participant may discontinue his or her participation in the Plan as provided in Section 10, or, on one occasion only during each six (6) month period during an Offering Period, may increase or decrease the rate of his or her Contributions during the Offering Period by completing and filing with the Company a new subscription agreement. The change in rate shall be effective as of the beginning of the next calendar month following the date of filing of the new subscription agreement, if the agreement is filed at least ten (10) business days prior to such date and, if not, as of the beginning of the next succeeding calendar month. (c) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's payroll deductions may be decreased to 0% at such time during any Offering Period which is scheduled to end during the current calendar year 3 that the aggregate of all payroll deductions accumulated with respect to such Offering Period and any other Offering Period ending within the same calendar year equal $21,250. Payroll deductions shall re-commence at the rate provided in such participant's subscription Agreement at the be inning of the first Offering Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10. 7. Grant of Option. (a) On the Offering Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on each Purchase Date a number of shares of the Company's Common Stock determined by dividing such Employee's Contributions accumulated prior to such Purchase Date and retained in the participant's account as of the Purchase Date by the lower of (i) eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Offering Date, or (ii) eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Purchase Date; provided however, that (x) no participant shall be permitted to purchase more than 8,000 shares on any Purchase Date, (y) the maximum number of shares an Employee may purchase during each calendar year for which an option is outstanding shall be determined at the Offering Date by dividing $25,000 by the fair market value of a share of the Company's Common Stock on the Offering Date, and (z) such purchase shall be subject to the limitations set forth in Sections 3(b) and 13. The fair market value of a share of the Company's Common Stock shall be determined as provided in Section 7(b). (b) The option price per share of the shares offered in a given Offering Period shall be the lower of (i) 85% of the fair market value of a share of the Common Stock of the Company on the Offering Date; or (ii) 85% of the fair market value of a share of the Common Stock of the Company on the Purchase Date. The fair market value of the Company's Common Stock on a given date shall be determined by the Board in its discretion based on the closing price of the Common Stock for such date (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), as reported by the National Association of Securities Dealers Automated Quotation (Nasdaq) National Market or, if such price is not reported, the mean of the bid and asked prices per share of the Common Stock as reported by Nasdaq or, in the event the Common Stock is listed on a stock exchange, the fair market value per share shall be the closing price on such exchange on such date (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), as reported in The Wall Street Journal. 8. Exercise of Option. Unless a participant withdraws from the Plan as provided in paragraph 10, his or her option for the purchase of shares will be exercised automatically on each Purchase Date of an Offering Period, and the maximum number of full shares subject to the option will be purchased at the applicable option price with the accumulated Contributions in his or her account. The shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the participant on the Purchase Date. During his or her lifetime, a participant's option to purchase shares hereunder is exercisable only by him or her. 9. Delivery. As promptly as practicable after each Purchase Date of each Offering Period, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the shares purchased upon exercise of his or her option or the deposit of such number of shares with the broker selected by the Company for administration of Plan stock purchases, as determined by the Company. Any cash remaining to the credit of a participant's account under the Plan after a purchase 4 by him or her of shares at the termination of each Purchase Period, shall be carried over to the next Purchase Period if the Employee continues to participate in the Plan, or if the Employee does not continue to participate, shall be returned to said participant. 10. Voluntary Withdrawal, Termination of Employment. (a) A participant may withdraw all but not less than all the Contributions credited to his or her account under the Plan at any time prior to each Purchase Date by giving written notice to the Company. All of the participant's Contributions credited to his or her account will be paid to him or her promptly after receipt of his or her notice of withdrawal and his or her option for the current period will be automatically terminated, and no further Contributions for the purchase of shares will be made during the Offering Period. (b) Upon termination of the participant's Continuous Status as an Employee prior to the Purchase Date of an Offering Period for any reason, including retirement or death, the Contributions credited to his or her account will be returned to him or her or, in the case of his or her death, to the person or persons entitled thereto under Section 14, and his or her option will be automatically terminated. (c) In the event an Employee fails to remain in Continuous Status as an Employee of the Company for at least twenty (20) hours per week during the Offering Period in which the employee is a participant, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to his or her account will be returned to him or her and his or her option terminated. (d) A participant's withdrawal from an offering will not have any effect upon his or her eligibility to participate in a succeeding offering or in any similar plan which may hereafter be adopted by the Company. 11. Automatic Withdrawal. If the fair market value of the shares on any Purchase Date of an Offering Period, other than the final Purchase Date of an Offering Period, is less than the fair market value of the shares on the initial Offering Date for such Offering Period, then every participant shall automatically (i) be withdrawn from such Offering Period at the close of such Purchase Date and after the acquisition of shares for such Purchase Period, and (ii) be enrolled in a new twenty-four (24) month Offering Period commencing on the first business day subsequent to such Purchase Period, with subsequent Offering Periods commencing in twenty-four (24) month periods thereafter. 12. Interest. No interest shall accrue on the Contributions of a participant in the Plan. 13. Stock. (a) The maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be 1,000,000 shares, subject to adjustment upon changes in capitalization of the Company as provided in Section 18. If the total number of shares which would otherwise be subject to options granted pursuant to Section 7(a) on the Offering Date of an Offering Period exceeds the number of shares then available under the Plan (after deduction of all shares for which options have been exercised or are then outstanding), the Company shall make a pro rata allocation of the shares remaining available for option grant in as uniform a manner as shall be practicable and as it shall determine to be equitable. In such event, the Company shall give written 5 notice of such reduction of the number of shares subject to the option to each Employee affected thereby and shall similarly reduce the rate of Contributions, if necessary. (b) The participant will have no interest or voting right in shares covered by his or her option until such option has been exercised. (c) Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the name of the participant and his or her spouse. 14. Administration. The Board, or a committee named by the Board, shall supervise and administer the Plan and shall have full power to adopt, amend and rescind any rules deemed desirable and appropriate for the administration of the Plan and not inconsistent with the Plan, to construe and interpret the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. The composition of the committee shall be in accordance with the requirements to obtain or retain any available exemption from the operation of Section 16(b) of the Exchange Act pursuant to Rule 16b-3 promulgated thereunder. 15. Designation of Beneficiary. (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to the end of a Purchase Period but prior to delivery to him or her of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to the Purchase Date of an Offering Period. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. (b) Such designation of beneficiary may be changed by the participant (and his or her spouse, if any) at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 16. Transferability. Neither Contributions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, or as provided in Section 15) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 10. 17. Use of Funds. All Contributions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such Contributions. 18. Reports. Individual accounts will be maintained for each participant in the Plan. Statements of account will be given to participating Employees promptly following the Purchase Date, 6 which statements will set forth the amounts of Contributions, the per share purchase price, the number of shares purchased and the remaining cash balance, if any. 19. Adjustments Upon Changes in Capitalization; Corporate Transactions. (a) Adjustment. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but have not yet been placed under option (collectively, the "Reserves"), as well as the price per share of Common Stock covered by each option under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. (b) Corporate Transactions. In the event of the proposed dissolution or liquidation of the Company, the Offering Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each option under the Plan shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, to shorten the Offering Period then in progress by setting a new Purchase Date (the "New Purchase Date"). If the Board shortens the Offering Period then in progress in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify each participant in writing, at least ten (10) days prior to the New Purchase Date, that the Purchase Date for his or her option has been changed to the New Purchase Date and that his or her option will be exercised automatically on the New Purchase Date, unless prior to such date he or she has withdrawn from the Offering Period as provided in Section 10. For purposes of this paragraph, an option granted under the Plan shall be deemed to be assumed if, following the sale of assets or merger, the option confers the right to purchase, for each share of option stock subject to the option immediately prior to the sale of assets or merger, the consideration (whether stock, cash or other securities or property) received in the sale of assets or merger by holders of Common Stock for each share of Common Stock held on the effective date of the transaction (and if such holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if such consideration received in the sale of assets or merger was not solely common stock of the successor corporation or its parent (as defined in Section 424(e) of the Code), the Board may, with the consent of the successor corporation and the participant, provide for the consideration to be received upon exercise of the option to be solely common stock of the successor corporation or its parent equal in fair market value to the per share consideration received by holders of Common Stock and the sale of assets or merger. 7 The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, and in the event of the Company being consolidated with or merged into any other corporation. 20. Amendment or Termination. (a) The Board of Directors of the Company may at any time terminate or amend the Plan. Except as provided in Section 19, no such termination may affect options previously granted, nor may an amendment make any change in any option theretofore granted which adversely affects the rights of any participant. In addition, to the extent necessary to comply with Rule 16b-3 under the Exchange Act, or under Section 423 of the Code (or any successor rule or provision or any applicable law or regulation), the Company shall obtain shareholder approval in such a manner and to such a degree as so required. (b) Without shareholder consent and without regard to whether any participant rights may be considered to have been adversely affected, the Board (or its committee) shall be entitled to change the Offering Periods and Purchase Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan. 21. Notices. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 22. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 23. Term of Plan, Effective Date. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the shareholders of the Company. It shall continue in effect for a term of twenty (20) years unless sooner terminated under Section 20. 8 24. Additional Restrictions of Rule 16b-3. The terms and conditions of options granted hereunder to, and the purchase of shares by, persons subject to Section 16 of the Exchange Act shall comply with the applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, and such options shall contain, and the shares issued upon exercise thereof shall be subject to, such additional conditions and restrictions as may be required by Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. 9 EX-31.1 5 f91868exv31w1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION I, Donald R. Sellers, certify that: 1. I have reviewed this Form 10-Q of SciClone Pharmaceuticals, Inc. (the registrant); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 30, 2003 /s/ Donald R. Sellers ------------------------------- Donald R. Sellers Chief Executive Officer EX-31.2 6 f91868exv31w2.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATION I, Richard A. Waldron, certify that: 1. I have reviewed this Form 10-Q of SciClone Pharmaceuticals, Inc. (the registrant); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 30, 2003 /s/ Richard A. Waldron -------------------------------------------------- Richard A. Waldron Chief Financial Officer (Principal Financial & Accounting Officer) EX-32.1 7 f91868exv32w1.txt EXHIBIT 32.1 EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Donald R. Sellers, Chief Executive Officer of SciClone Pharmaceuticals, Inc. (the "Registrant"), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge: (1) the Quarterly Report on Form 10-Q of the Registrant, to which this certification is attached as an exhibit (the "Report"), fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: July 30, 2003 /s/ Donald R. Sellers ------------------------------- Donald R. Sellers Chief Executive Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to SciClone Pharmaceuticals, Inc. and will be retained by SciClone Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 8 f91868exv32w2.txt EXHIBIT 32.2 EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Richard A. Waldron, Chief Financial Officer of SciClone Pharmaceuticals, Inc. (the "Registrant"), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge: (1) the Quarterly Report on Form 10-Q of the Registrant, to which this certification is attached as an exhibit (the "Report"), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: July 30, 2003 /s/ Richard A. Waldron ---------------------------------- Richard A. Waldron Chief Financial Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to SciClone Pharmaceuticals, Inc. and will be retained by SciClone Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.1

                                                                    EXHIBIT 10.1


                         SCICLONE PHARMACEUTICALS, INC.
                          CHANGE IN CONTROL AGREEMENT

      This Change in Control Agreement (the "Agreement") is effective as of
April 22, 2003, by and between Hans P. Schmid (the "Employee") and SciClone
Pharmaceuticals, Inc., a California corporation (the "Company").

                                    RECITALS

      A.    The Employee presently serves as Vice President, Finance,
Administration & Business Development for the SPIL subsidiary of the Company and
performs significant strategic and management responsibilities necessary to the
continued conduct of the Company's business and operations.

      B.    The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication and objectivity of the
Employee, notwithstanding the possibility or occurrence of a Change in Control
(as defined below) of the Company.

      C.    The Board believes that it is imperative to provide the Employee
with certain severance benefits upon the Employee's termination of employment
following a Change in Control that will provide the Employee with enhanced
financial security and provide sufficient incentive and encouragement to the
Employee to remain with the Company following a Change in Control.

                                   AGREEMENT

      The Employee and the Company agree as set forth below:

      1.    Terms of Employment. The Company and the Employee agree that the
Employee's employment is "at will" and that their employment relationship may be
terminated by either party at any time, with or without cause, and, if
applicable, in accordance with Section 2 below. If the Employee's employment
with the Company terminates for any reason following a Change in Control, but on
or before the first anniversary of the Change in Control, the Employee shall not
be entitled to any payments, benefits, damages, awards or compensation other
than as provided by this Agreement. During his or her employment with the
Company, the Employee agrees to devote his or her full business time, energy and
skill to his or her duties with the Company. These duties shall include, but not
be limited to, any duties consistent with the Employee's position that may be
assigned to the Employee from time to time by the Company or the Board.

      2.    Severance Benefits Upon Termination following a Change in Control.
Subject to the limitations set forth in Sections 3 and 4 below, if the
Employee's employment with the Company terminates following a Change in Control
but on or before the first anniversary of such Change in Control, then the
Employee shall be entitled to receive, in addition to the


                                       1

compensation and benefits earned by the Employee through the date of his or her
termination, severance benefits as follows:


            (a)   Involuntary Termination. If the Employee's employment with the
Company is terminated as a result of Involuntary Termination, then the Employee
shall be entitled to receive the following severance benefits:

                  (i)   The Employee shall be entitled to receive severance pay
in an amount equal to one hundred percent (100%) of his annual base salary as in
effect at the time of such termination. Any severance to which the Employee is
entitled pursuant to this section shall be paid in a lump sum, less applicable
withholding, within thirty (30) days following the Employee's termination.

                  (ii)  With respect to any unvested options to purchase shares
of the stock of the Company held by the Employee, the Employee shall immediately
become vested in full in such options at the time of such termination.

                  (iii) The Company shall, if permitted under the Company's
existing health insurance plans, continue the Employee's existing group health
insurance coverage. If not so permitted, the Company shall reimburse the
Employee for any COBRA premiums paid by the Employee for continued group health
insurance coverage. Such health insurance coverage or reimbursement of COBRA
premiums shall continue until the earlier of (1) twelve (12) months after the
date of the Employee's Involuntary Termination or (2) the date on which the
Employee commences New Employment.

            (b)   Voluntary Resignation; Termination For Cause. If the
Employee's employment terminates by reason of the Employee's voluntary
resignation (but not as a result of an Involuntary Termination) or as a result
of the Employee's termination for Cause, then the Employee shall not be entitled
to receive any severance pay or benefits under this Agreement.

            (c)   Disability; Death. If the Company terminates the Employee's
employment as a result of the Employee's Disability, or death, then the Employee
shall not be entitled to receive any severance pay or benefits under this
Agreement.

      3.    Release of Claims; Resignation. The Employee's entitlement to any
severance pay or benefits under Section 2(a) is conditioned upon the Employee's
execution and delivery to the Company of (a) a general release of known and
unknown claims in the form attached hereto as Exhibit A and (b) a resignation
from all of the Employee's positions with the Company, including from the Board
of Directors and any committees thereof on which the Employee serves, in a form
satisfactory to the Company.

      4.    Parachute Payments. In the event that any payment or benefit
received or to be received by the Employee pursuant to this Agreement or
otherwise (collectively, the "Payments") would result in a "parachute payment"
as described in section 280G of the Internal Revenue Code of 1986, as amended,
notwithstanding the other provisions of this Agreement, the amount of such
Payments will not exceed the amount which produces the greatest after-tax


                                       2

benefit to the Employee. For purposes of the foregoing, the greatest after-tax
benefit will be determined within thirty (30) days of the occurrence of such
payment to the Employee, in the Employee's sole and absolute discretion. If no
such determination is made by the Employee within thirty (30) days of the
occurrence of such payment, the Company will promptly make such determination in
a fair and equitable manner.

      5.    Consulting Services. During the twenty-four (24) months following
any Involuntary Termination for which the Employee receives the severance pay
and benefits described in Section 2(a), the Employee shall be retained by the
Company as an independent contractor to provide consulting services to the
Company at its request for up to eight (8) hours per week. These services shall
include any reasonable requests for information or assistance by the Company,
including, but not limited to, the transition of the Employee's duties. Such
services shall be provided at mutually convenient times. For the actual
provision of such services, the Company shall pay to the Employee a consulting
fee of $1,000 per day, plus reasonable out-of-pocket expenses (for example,
travel and lodging).

      6.    Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:

            (a)   "Cause" shall mean any of the following:

                  (i)   the Employee's theft, dishonesty, misconduct or
falsification of any records of the Company, its successor, or any subsidiary of
the Company or its successor (collectively, the "Company Group");

                  (ii)  the Employee's misappropriation or improper disclosure
of confidential or proprietary information of the Company Group;

                  (iii) any intentional action by the Employee which has a
material detrimental effect on the reputation or business of the Company Group;

                  (iv)  the Employee's failure or inability to perform any
reasonable assigned duties after written notice from the Company Group of, and a
reasonable opportunity to cure, such failure or inability;

                  (v)   any material breach by the Employee of any employment
agreement between the Employee and the Company Group, which breach is not cured
pursuant to the terms of such agreement; or

                  (vi)  the Employee's conviction of any criminal act which
impairs the Employee's ability to perform his or her duties for the Company
Group.

            (b)   "Change in Control" shall mean: (i) a merger or other
transaction in which the Company or substantially all of its assets is sold or
merged and as a result of such transaction, the holders of the Company's common
stock prior to such transaction do not own or control a majority of the
outstanding shares of the successor corporation, (ii) the election of nominees
constituting a majority of the Board which nominees were not approved by a
majority


                                       3

of the Board prior to such election, or (iii) the acquisition by a third party
of twenty percent (20%) or more of the Company's outstanding shares which
acquisition was without the approval of a majority of the Board in office prior
to such acquisition.

            (c)   "Constructive Termination" shall mean any one or more of the
following:

                  (i)   without the Employee's express written consent, the
assignment to the Employee, following the Change in Control, of any title or
duties, or any limitation of the Employee's responsibilities, that are
substantially inconsistent with the Employee's title(s), duties, or
responsibilities with the Company Group immediately prior to the date of the
Change in Control (including, but not limited to, Employee's failure to report
to the Chief Executive Officer and/or failure to be a member of the executive
staff);

                  (ii)  without the Employee's express written consent, the
relocation of the principal place of the Employee's employment, following the
Change in Control, to a location that is more than fifty (50) miles from the
Employee's principal place of employment immediately prior to the date of the
Change in Control, or the imposition of travel requirements substantially more
demanding of the Employee than such travel requirements existing immediately
prior to the date of the Change in Control;

                  (iii) any failure by the Company Group, following the Change
in Control, to pay, or any material reduction by the Company Group of, (1) the
Employee's base salary in effect immediately prior to the date of the Change in
Control, or (2) the Employee's bonus compensation, if any, in effect immediately
prior to the date of the Change in Control (subject to applicable performance
requirements with respect to the actual amount of bonus compensation earned by
the Employee), unless base salary and/or bonus reductions comparable in amount
and duration are concurrently made for a majority of the other employees of the
Company Group who have substantially similar titles and responsibilities as the
Employee; and

                  (iv)  any failure by the Company Group, following the Change
in Control, to (1) continue to provide the Employee with the opportunity to
participate, on terms no less favorable than those in effect for the benefit of
any employee group which customarily includes a person holding the employment
position or a comparable position with the Company Group then held by the
Employee, in any benefit or compensation plans and programs, including, but not
limited to, the Company Group's life, disability, health, dental, medical,
savings, profit sharing, stock purchase and retirement plans, if any, in which
the Employee was participating immediately prior to the date of the Change in
Control, or in substantially similar plans or programs, or (2) provide the
Employee with all other fringe benefits (or substantially similar benefits),
including, but not limited to, relocation benefits, provided to any employee
group which customarily includes a person holding the employment position or a
comparable position with the Company Group then held by the Employee, which the
Employee was receiving immediately prior to the date of the Change in Control.

However, the foregoing conditions shall not constitute a Constructive
Termination unless the Employee has given written notice of any such
condition(s) to the Chairman of the Board and allowed the Company Group at least
twenty (20) days thereafter to correct such condition(s). If


                                       4

such condition(s) are not corrected within that twenty (20) day period, the
Employee may give written notice of his Constructive Termination to the Board,
which shall be an Involuntary Termination.

            (d)   "Disability" means the inability of the Employee, in the
opinion of a qualified physician, to perform the essential functions of the
Employee's position with the Company Group, with or without reasonable
accommodation, because of the sickness or injury of the Employee.

            (e)   "Involuntary Termination" shall mean the occurrence of either
of the following events after a Change in Control, but on or before the first
anniversary of such Change in Control:

                  (i)   termination by Company Group of the Employee's
employment without Cause; or

                  (ii)  the Employee's Constructive Termination.

"Involuntary Termination" shall not include any termination of the Employee's
employment that is (1) for Cause, (2) a result of the Employee's death or
Disability, or (3) a result of the Employee's voluntary resignation.

            (f)   "New Employment" shall mean any employment obtained by the
Employee after the termination of the Employee's employment with the Company.

      7.    Nonsolicitation. During his or her employment with the Company, and
for a period of one (1) year following the termination of his or her employment
for any reason, the Employee shall not directly or indirectly recruit, solicit,
or induce any person who on the date hereof is, or who subsequently becomes, an
employee, sales representative or consultant of the Company, to terminate his or
her relationship with the Company.

      8.    Successors.

            (a)   Company's Successors. Any successor to the Company or to all
or substantially all of the Company's business and/or assets shall be bound by
this Agreement in the same manner and to the same extent as the Company. For all
purposes under this Agreement, the term "Company" shall include any successor to
the Company's business and/or assets.

            (b)   Employee's Successors. All rights of the Employee hereunder
shall inure to the benefit of, and be enforceable by, the Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. The Employee shall have no right to assign
any of his obligations or duties under this Agreement to any other person or
entity.


                                       5

      9.    Notice.

            (a)   General. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the Employee,
mailed notices shall be addressed to the Employee at the home address which he
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its Secretary.

            (b)   Notice of Termination. Any termination by the Company Group or
the Employee of their employment relationship shall be communicated by a written
notice of termination to the other party.

      10.   Miscellaneous Provisions.

            (a)   No Duty to Mitigate. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking New Employment or in any other manner), nor shall any such payment be
reduced by any earnings that the Employee may receive from any other source.

            (b)   Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of the
Company (other than the Employee). No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.

            (c)   Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.

            (d)   Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.

            (e)   Arbitration. In the event of any dispute or claim relating to
or arising out of the Employee's employment relationship with the Company, this
Agreement, or the termination of the Employee's employment with the Company for
any reason (including, but not limited to, any claims of breach of contract,
wrongful termination, fraud or age, race, sex, national origin, disability or
other discrimination or harassment), the Employee and the Company agree that all
such disputes shall be fully, finally and exclusively resolved by binding
arbitration conducted by the American Arbitration Association in San Mateo
County, California. Judgment upon any decision or award rendered by the
arbitrator may be entered in any court having jurisdiction over the matter. The
Employee and the Company knowingly and willingly waive their respective rights
to have any such disputes or claims tried to a judge or jury.


                                       6

            (f)   Prior Agreements. This Agreement supersedes all prior
understandings and agreements, whether written or oral, regarding the subject
matter of this Agreement.

      IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
first above written.

                                            SCICLONE PHARMACEUTICALS, INC.



                                            By: ________________________________



                                            EMPLOYEE



                                            ____________________________________
                                            Hans P. Schmid


                                       7

                                   EXHIBIT A

                                    RELEASE


      In exchange for the severance pay and benefits described in the Change in
Control Agreement between SciClone Pharmaceuticals, Inc. (the "Company") and me
of April 22, 2003, I hereby release the Company, its parents and subsidiaries,
and their officers, directors, employees, attorneys, shareholders, successors,
assigns and affiliates, of and from any and all claims, liabilities, and causes
of action of every kind and nature, whether known or unknown, based upon or
arising out of any agreements, events, acts, omissions or conduct at any time
prior to and including the execution date of this Release, including, but not
limited to: all claims concerning my employment with the Company or the
termination of that employment; all claims pursuant to any federal, state or
local law, statute, or cause of action, including, but not limited to, the
federal Civil Rights Act of 1964, as amended; the federal Americans with
Disabilities Act of 1990; the federal Age Discrimination in Employment Act of
1967, as amended ("ADEA"); the California Fair Employment and Housing Act, as
amended; tort law; contract law; wrongful discharge; race, sex, age or other
discrimination or harassment; fraud; defamation; emotional distress; and breach
of the implied covenant of good faith and fair dealing.

      I am knowingly, willingly and voluntarily releasing any claims I may have
under the ADEA. I acknowledge that the consideration given for the release in
the preceding paragraph hereof is in addition to anything of value to which I
was already entitled. I further acknowledge that I have been advised by this
writing, as required by the ADEA, that: (a) this Release does not apply to any
rights or claims that may arise after I sign it; (b) I have the right to consult
with an attorney prior to signing this Release; (c) I have twenty-one (21) days
to consider this Release (although I may choose to voluntarily sign this Release
earlier); (d) I have seven (7) days after I sign this Release to revoke it; and
(e) this Release shall not be effective until the eighth day after it is signed
by me.

      In giving this release, which includes claims that may be unknown to me at
present, I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND
TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby waive and relinquish all
rights and benefits under that section and any law of any jurisdiction of
similar effect with respect to my release of any unknown claims I may have, and
I affirm that it is my intention to release all known and unknown claims that I
have or may have against the parties released above.


                                       1

      This Release contains the entire agreement between the Company and me
regarding the subjects above, and it cannot be modified except by a document
signed by me and an authorized representative of the Company.

                                         EMPLOYEE

Date:_____________________________       _______________________________________
                                         Hans P. Schmid

                                         SCICLONE PHARMACEUTICALS, INC.


Date:_____________________________       By: ___________________________________

                                         Its: __________________________________


                                       2

EX-10.2

                                                                    EXHIBIT 10.2


                         SCICLONE PHARMACEUTICALS, INC.
                       1996 EMPLOYEE STOCK PURCHASE PLAN

      The following constitute the provisions of the 1996 Employee Stock
Purchase Plan of SciClone Pharmaceuticals, Inc.

      1.    Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal
Revenue Code of 1986, as amended. The provisions of the Plan shall, accordingly,
be construed so as to extend and limit participation in a manner consistent with
the requirements of that section of the Code.

      2.    Definitions.

            (a)   "Board" shall mean the Board of Directors of the Company.

            (b)   "Code" shall mean the Internal Revenue Code of 1986, as
amended.

            (c)   "Common Stock" shall mean the Common Stock of the Company.

            (d)   "Company" shall mean SciClone Pharmaceuticals, Inc., a
California corporation.

            (e)   "Compensation" shall mean all regular straight time gross
earnings, overtime and shift premium and shall not include payments for
incentive compensation, incentive payments, bonuses, commissions and other
compensation.

            (f)   "Continuous Status as an Employee" shall mean the absence of
any interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of a leave of
absence agreed to in writing by the Company, provided that such leave is for a
period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute.

            (g)   "Contributions" shall mean all amounts credited to the account
of a participant pursuant to the Plan.

            (h)   "Designated Subsidiaries" shall mean the Subsidiaries which
have been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.

            (i)   "Employee" shall mean any person, including an Officer, who is
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.

            (j)   "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.

            (k)   "Purchase Date" shall mean the last day of each Purchase
Period of the Plan.


                                       1

            (l)   "Offering Date" shall mean the first business day of each
Offering Period of the Plan, except that in the case of an individual who
becomes eligible after the first business day of an Offering Period, the term
"Offering Date" shall mean the first business day of the Purchase Period
coinciding with or next succeeding the day on which that individual becomes an
eligible Employee.

                  Options granted after the first business day of an Offering
Period will be subject to the same terms as the options granted on the first
business day of such Offering Period except that they will have a different
grant date (thus, potentially, a different exercise price) and, because they
expire at the same time as the options granted on the first business day of such
Offering Period, a shorter term.

            (m)   "Offering Period" shall mean a period of twenty-four (24)
months commencing on August 1 of every second year commencing August 1, 1996
(i.e., the second Offering Period will commence on August 1, 1998), except as
otherwise determined under Section 11.(n) "Officer" shall mean a person who is
an officer of the Company within the meaning of Section 16 of the Exchange Act
and the rules and regulations promulgated thereunder.

            (o)   "Plan" shall mean this Employee Stock Purchase Plan.

            (p)   "Purchase Period" shall mean a period of three (3) months
within an Offering Period.

            (q)   "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.

      3.    Eligibility.

            (a)   Any person who is an Employee as of the Offering Date of a
given Offering Period shall be eligible to participate in such Offering Period
under the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code.

            (b)   Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or of any subsidiary of the Company, or (ii) if such option would permit
his or her rights to purchase stock under all employee stock purchase plans
(described in Section 423 of the Code) of the Company and its Subsidiaries to
accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of fair
market value of such stock (determined at the time such option is granted) for
each calendar year in which such option is outstanding at any time.

      4.    Offering Periods and Purchase Periods.

            (a)   Offering Periods. The Plan shall be implemented by a series of
Offering Periods of twenty-four (24) months duration, with new Offering Periods
commencing on or about August 1 of alternating years (or at such other time or
times as may be determined by the Board of Directors). The first Offering Period
shall commence on August 1, 1996 and continue until July 31, 1998. The Plan


                                       2

shall continue until terminated in accordance with Section 19 hereof. The Board
of Directors of the Company shall have the power to change the duration and/or
the frequency of Offering Periods with respect to future offerings without
shareholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.

            (b)   Purchase Periods. Each Offering Period shall consist of eight
(8) consecutive purchase periods of three (3) months duration. The last day of
each Purchase Period shall be the "Purchase Date" for such Purchase Period. A
Purchase Period commencing on August 1 shall end on the next October 31. A
Purchase Period commencing on November 1 shall end on the next January 31. A
Purchase Period commencing on February 1 shall end on the next April 30. A
Purchase Period commencing on May 1 shall end on the next July 31. The first
Purchase Period shall commence on August 1, 1996 and shall end on October 31,
1996. The Board of Directors of the Company shall have the power to change the
duration and/or frequency of Purchase Periods with respect to future purchases
without shareholder approval if such change is announced at least fifteen (15)
days prior to the scheduled beginning of the first Purchase Period to be
affected.

      5.    Participation.

            (a)   An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given offering. The
subscription agreement shall set forth the percentage of the participant's
Compensation (which shall be not less than 1% and not more than 15%) to be paid
as Contributions pursuant to the Plan.

            (b)   Payroll deductions shall commence on the first payroll
following the Offering Date and shall end on the last payroll paid on or prior
to the last Purchase Period of the Offering Period to which the subscription
agreement is applicable, unless sooner terminated by the participant as provided
in Section 10.

      6.    Method of Payment of Contributions.

            (a)   The participant shall elect to have payroll deductions made on
each payday during the Offering Period in an amount not less than one percent
(1%) and not more than fifteen percent (15%) of such participant's Compensation
on each such payday. All payroll deductions made by a participant shall be
credited to his or her account under the Plan. A participant may not make any
additional payments into such account.

            (b)   A participant may discontinue his or her participation in the
Plan as provided in Section 10, or, on one occasion only during each six (6)
month period during an Offering Period, may increase or decrease the rate of his
or her Contributions during the Offering Period by completing and filing with
the Company a new subscription agreement. The change in rate shall be effective
as of the beginning of the next calendar month following the date of filing of
the new subscription agreement, if the agreement is filed at least ten (10)
business days prior to such date and, if not, as of the beginning of the next
succeeding calendar month.

            (c)   Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) herein, a
participant's payroll deductions may be decreased to 0% at such time during any
Offering Period which is scheduled to end during the current calendar year


                                       3

that the aggregate of all payroll deductions accumulated with respect to such
Offering Period and any other Offering Period ending within the same calendar
year equal $21,250. Payroll deductions shall re-commence at the rate provided in
such participant's subscription Agreement at the be inning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10.

      7.    Grant of Option.

            (a)   On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase Date a number of shares of the Company's Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Purchase Date and retained in the participant's account as of the Purchase Date
by the lower of (i) eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date, or (ii) eighty-five
percent (85%) of the fair market value of a share of the Company's Common Stock
on the Purchase Date; provided however, that (x) no participant shall be
permitted to purchase more than 8,000 shares on any Purchase Date, (y) the
maximum number of shares an Employee may purchase during each calendar year for
which an option is outstanding shall be determined at the Offering Date by
dividing $25,000 by the fair market value of a share of the Company's Common
Stock on the Offering Date, and (z) such purchase shall be subject to the
limitations set forth in Sections 3(b) and 13. The fair market value of a share
of the Company's Common Stock shall be determined as provided in Section 7(b).

            (b)   The option price per share of the shares offered in a given
Offering Period shall be the lower of (i) 85% of the fair market value of a
share of the Common Stock of the Company on the Offering Date; or (ii) 85% of
the fair market value of a share of the Common Stock of the Company on the
Purchase Date. The fair market value of the Company's Common Stock on a given
date shall be determined by the Board in its discretion based on the closing
price of the Common Stock for such date (or, in the event that the Common Stock
is not traded on such date, on the immediately preceding trading date), as
reported by the National Association of Securities Dealers Automated Quotation
(Nasdaq) National Market or, if such price is not reported, the mean of the bid
and asked prices per share of the Common Stock as reported by Nasdaq or, in the
event the Common Stock is listed on a stock exchange, the fair market value per
share shall be the closing price on such exchange on such date (or, in the event
that the Common Stock is not traded on such date, on the immediately preceding
trading date), as reported in The Wall Street Journal.

      8.    Exercise of Option. Unless a participant withdraws from the Plan as
provided in paragraph 10, his or her option for the purchase of shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full shares subject to the option will be purchased at the
applicable option price with the accumulated Contributions in his or her
account. The shares purchased upon exercise of an option hereunder shall be
deemed to be transferred to the participant on the Purchase Date. During his or
her lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.

      9.    Delivery. As promptly as practicable after each Purchase Date of
each Offering Period, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option or the deposit of such number of shares with
the broker selected by the Company for administration of Plan stock purchases,
as determined by the Company. Any cash remaining to the credit of a
participant's account under the Plan after a purchase


                                       4

by him or her of shares at the termination of each Purchase Period, shall be
carried over to the next Purchase Period if the Employee continues to
participate in the Plan, or if the Employee does not continue to participate,
shall be returned to said participant.

      10.   Voluntary Withdrawal, Termination of Employment.

            (a)   A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current period will be automatically terminated, and no further
Contributions for the purchase of shares will be made during the Offering
Period.

            (b)   Upon termination of the participant's Continuous Status as an
Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto under Section 14, and his or her option will
be automatically terminated.

            (c)   In the event an Employee fails to remain in Continuous Status
as an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.

            (d)   A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.

      11.   Automatic Withdrawal. If the fair market value of the shares on any
Purchase Date of an Offering Period, other than the final Purchase Date of an
Offering Period, is less than the fair market value of the shares on the initial
Offering Date for such Offering Period, then every participant shall
automatically (i) be withdrawn from such Offering Period at the close of such
Purchase Date and after the acquisition of shares for such Purchase Period, and
(ii) be enrolled in a new twenty-four (24) month Offering Period commencing on
the first business day subsequent to such Purchase Period, with subsequent
Offering Periods commencing in twenty-four (24) month periods thereafter.

      12.   Interest. No interest shall accrue on the Contributions of a
participant in the Plan.

      13.   Stock.

            (a)   The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be 1,000,000 shares,
subject to adjustment upon changes in capitalization of the Company as provided
in Section 18. If the total number of shares which would otherwise be subject to
options granted pursuant to Section 7(a) on the Offering Date of an Offering
Period exceeds the number of shares then available under the Plan (after
deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable. In such event, the
Company shall give written


                                       5

notice of such reduction of the number of shares subject to the option to each
Employee affected thereby and shall similarly reduce the rate of Contributions,
if necessary.

            (b)   The participant will have no interest or voting right in
shares covered by his or her option until such option has been exercised.

            (c)   Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.

      14.   Administration. The Board, or a committee named by the Board, shall
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan. The composition of the committee shall be in accordance with the
requirements to obtain or retain any available exemption from the operation of
Section 16(b) of the Exchange Act pursuant to Rule 16b-3 promulgated thereunder.

      15.   Designation of Beneficiary.

            (a)   A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to the end of
a Purchase Period but prior to delivery to him or her of such shares and cash.
In addition, a participant may file a written designation of a beneficiary who
is to receive any cash from the participant's account under the Plan in the
event of such participant's death prior to the Purchase Date of an Offering
Period. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.

            (b)   Such designation of beneficiary may be changed by the
participant (and his or her spouse, if any) at any time by written notice. In
the event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such shares and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.

      16.   Transferability. Neither Contributions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15) by the participant. Any such attempt
at assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 10.

      17.   Use of Funds. All Contributions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such Contributions.

      18.   Reports. Individual accounts will be maintained for each participant
in the Plan. Statements of account will be given to participating Employees
promptly following the Purchase Date,


                                       6

which statements will set forth the amounts of Contributions, the per share
purchase price, the number of shares purchased and the remaining cash balance,
if any.

      19.   Adjustments Upon Changes in Capitalization; Corporate Transactions.

            (a)   Adjustment. Subject to any required action by the shareholders
of the Company, the number of shares of Common Stock covered by each option
under the Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under the Plan but have not
yet been placed under option (collectively, the "Reserves"), as well as the
price per share of Common Stock covered by each option under the Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no issue
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to an option.

            (b)   Corporate Transactions. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board. In the event of a proposed sale of all or substantially
all of the assets of the Company, or the merger of the Company with or into
another corporation, each option under the Plan shall be assumed or an
equivalent option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Board determines, in the
exercise of its sole discretion and in lieu of such assumption or substitution,
to shorten the Offering Period then in progress by setting a new Purchase Date
(the "New Purchase Date"). If the Board shortens the Offering Period then in
progress in lieu of assumption or substitution in the event of a merger or sale
of assets, the Board shall notify each participant in writing, at least ten (10)
days prior to the New Purchase Date, that the Purchase Date for his or her
option has been changed to the New Purchase Date and that his or her option will
be exercised automatically on the New Purchase Date, unless prior to such date
he or she has withdrawn from the Offering Period as provided in Section 10. For
purposes of this paragraph, an option granted under the Plan shall be deemed to
be assumed if, following the sale of assets or merger, the option confers the
right to purchase, for each share of option stock subject to the option
immediately prior to the sale of assets or merger, the consideration (whether
stock, cash or other securities or property) received in the sale of assets or
merger by holders of Common Stock for each share of Common Stock held on the
effective date of the transaction (and if such holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); provided, however, that if such
consideration received in the sale of assets or merger was not solely common
stock of the successor corporation or its parent (as defined in Section 424(e)
of the Code), the Board may, with the consent of the successor corporation and
the participant, provide for the consideration to be received upon exercise of
the option to be solely common stock of the successor corporation or its parent
equal in fair market value to the per share consideration received by holders of
Common Stock and the sale of assets or merger.


                                       7

                  The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, and in the event of the Company being consolidated with or merged into
any other corporation.

      20.   Amendment or Termination.

            (a)   The Board of Directors of the Company may at any time
terminate or amend the Plan. Except as provided in Section 19, no such
termination may affect options previously granted, nor may an amendment make any
change in any option theretofore granted which adversely affects the rights of
any participant. In addition, to the extent necessary to comply with Rule 16b-3
under the Exchange Act, or under Section 423 of the Code (or any successor rule
or provision or any applicable law or regulation), the Company shall obtain
shareholder approval in such a manner and to such a degree as so required.

            (b)   Without shareholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods and Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.

      21.   Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.

      22.   Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

            As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.

      23.   Term of Plan, Effective Date. The Plan shall become effective upon
the earlier to occur of its adoption by the Board of Directors or its approval
by the shareholders of the Company. It shall continue in effect for a term of
twenty (20) years unless sooner terminated under Section 20.


                                       8

24.   Additional Restrictions of Rule 16b-3. The terms and conditions of options
granted hereunder to, and the purchase of shares by, persons subject to Section
16 of the Exchange Act shall comply with the applicable provisions of Rule
16b-3. This Plan shall be deemed to contain, and such options shall contain, and
the shares issued upon exercise thereof shall be subject to, such additional
conditions and restrictions as may be required by Rule 16b-3 to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.


                                       9

EX-31.1

                                                                    EXHIBIT 31.1


                                  CERTIFICATION

I, Donald R. Sellers, certify that:

      1.    I have reviewed this Form 10-Q of SciClone Pharmaceuticals, Inc.
            (the registrant);

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this report, fairly present in all material
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this report;

      4.    The registrant's other certifying officer(s) and I are responsible
            for establishing and maintaining disclosure controls and procedures
            (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
            registrant and have:

                  (a) Designed such disclosure controls and procedures, or
                  caused such disclosure controls and procedures to be designed
                  under our supervision, to ensure that material information
                  relating to the registrant, including its consolidated
                  subsidiaries, is made known to us by others within those
                  entities, particularly during the period in which this report
                  is being prepared;

                  (b) Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

                  (c) Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

      5.    The registrant's other certifying officer(s) and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of the registrant's board of directors (or persons
            performing the equivalent functions):

                  (a) All significant deficiencies and material weaknesses in
                  the design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

                  (b) Any fraud, whether or not material, that involves
                  management or other employees who have a significant role in
                  the registrant's internal control over financial reporting.

Date: July 30, 2003                                   /s/ Donald R. Sellers
                                                 -------------------------------
                                                        Donald R. Sellers
                                                     Chief Executive Officer

EX-31.2

                                                                    EXHIBIT 31.2


                                 CERTIFICATION

I, Richard A. Waldron, certify that:

      1.    I have reviewed this Form 10-Q of SciClone Pharmaceuticals, Inc.
            (the registrant);

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this report, fairly present in all material
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this report;

      4.    The registrant's other certifying officer(s) and I are responsible
            for establishing and maintaining disclosure controls and procedures
            (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
            registrant and have:

                  (a) Designed such disclosure controls and procedures, or
                  caused such disclosure controls and procedures to be designed
                  under our supervision, to ensure that material information
                  relating to the registrant, including its consolidated
                  subsidiaries, is made known to us by others within those
                  entities, particularly during the period in which this report
                  is being prepared;

                  (b) Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

                  (c) Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

      5.    The registrant's other certifying officer(s) and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of the registrant's board of directors (or persons
            performing the equivalent functions):

                  (a) All significant deficiencies and material weaknesses in
                  the design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

                  (b) Any fraud, whether or not material, that involves
                  management or other employees who have a significant role in
                  the registrant's internal control over financial reporting.

Date: July 30, 2003                         /s/ Richard A. Waldron
                              --------------------------------------------------
                                              Richard A. Waldron
                                            Chief Financial Officer
                                  (Principal Financial & Accounting Officer)

EX-32.1

                                                                    EXHIBIT 32.1


                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Donald R. Sellers, Chief Executive Officer of SciClone Pharmaceuticals, Inc.
(the "Registrant"), do hereby certify in accordance with 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based
on my knowledge:

      (1) the Quarterly Report on Form 10-Q of the Registrant, to which this
      certification is attached as an exhibit (the "Report"), fully complies
      with the requirements of section 13(a) of the Securities Exchange Act of
      1934 (15 U.S.C. 78m); and

      (2) the information contained in the Report fairly presents, in all
      material respects, the financial condition and results of operations of
      the Registrant.

Date: July 30, 2003                                   /s/ Donald R. Sellers
                                                 -------------------------------
                                                        Donald R. Sellers
                                                     Chief Executive Officer


A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to SciClone Pharmaceuticals, Inc. and
will be retained by SciClone Pharmaceuticals, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.

EX-32.2

                                                                    EXHIBIT 32.2


                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Richard A. Waldron, Chief Financial Officer of SciClone Pharmaceuticals, Inc.
(the "Registrant"), do hereby certify in accordance with 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based
on my knowledge:

      (1) the Quarterly Report on Form 10-Q of the Registrant, to which this
      certification is attached as an exhibit (the "Report"), fully complies
      with the requirements of Section 13(a) of the Securities Exchange Act of
      1934 (15 U.S.C. 78m); and

      (2) the information contained in the Report fairly presents, in all
      material respects, the financial condition and results of operations of
      the Registrant.

Date: July 30, 2003                                 /s/ Richard A. Waldron
                                              ----------------------------------
                                                      Richard A. Waldron
                                                    Chief Financial Officer

A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to SciClone Pharmaceuticals, Inc. and
will be retained by SciClone Pharmaceuticals, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.